I’ve recently taken a position in Rolls-Royce (LSE:RR.) shares. The stock has been on my watch list for a while. But it’s the company’s investment in small modular reactors (SMRs) — mini nuclear power stations — that has spiked my interest.
The concept
SMRs are intended to be manufactured in a factory and assembled on site.
The expectation is that they’ll be cheaper and quicker to build than conventional nuclear power plants. Large-scale nuclear projects are notorious for running significantly over budget. And they often take years (sometimes decades) longer to build than planned.
The technology has already been proven in Russia.
In 2020, a floating power station was commissioned, and the Akademik Lomonosov barge now powers 200k homes in the town of Vilyuchinsk. The vessel was built using reactors normally found in nuclear icebreakers.
The SMRs that Rolls-Royce is designing are likely to have a 470MW capacity. And each one will be capable of supply electricity to 1m households.
Worldwide interest
There are currently 32 countries with a nuclear industry.
But due to their relative simplicity, and 60-year lifespan, SMRs will open up new markets in countries that have previously not used nuclear technology. They are expected to be located on existing sites of redundant coal or gas-fired power plants.
That’s why the market for SMRs is expected to be worth $300bn a year by 2040.
The UK, US, and Canada are leading the way in the development of these small nuclear reactors. The UK government is so keen that it has given Rolls-Royce £210m to fund its programme. Four sites have been identified where it’s hoped 15GW of capacity will be installed.
Also, Rolls-Royce has signed memoranda of understanding with Estonia, Turkey, and the Czech Republic.
Alternative views
But nuclear energy divides opinion.
Greenpeace doesn’t support it due to the long-lasting problems of dealing with the waste.
And high-profile disasters at Chernobyl and Fukushima are chilling reminders of how badly things can go wrong when the technology fails.
Last month, Germany closed its last atomic plant. The government intends to invest in renewable energy instead.
But, around the same time, Finland opened Europe’s largest nuclear plant. It’s anticipated that 40% of the country’s power will soon come from atomic energy.
Closer to home, the most recent YouGov survey suggested that nuclear energy is becoming more popular. In September 2022, 48% of those polled said they supported its use in the UK (August 2019: 40%).
And from an investment perspective, SMRs are receiving the backing of two American billionaires.
TerraPower is funded by Bill Gates and, in conjunction with GE Hitachi Nuclear Energy, has created the Natrium reactor. These are intended to provide constant power, compensating for when weather conditions for wind and solar farms are unfavourable.
And Warren Buffett, via Berkshire Hathaway, owns PacifiCorp which is partnering with TerraPower in a SMR feasibility study in Wyoming.
Patience is a virtue
Rolls-Royce isn’t expected to have its first SMR operational until 2030.
I’m therefore going to have to wait a while for the explosion in the share price that I’m hoping for.
But there are enough governments around the world supporting the sector to make me think that I’ve made a sensible long-term investment.
