Want the World to Have Fewer Nukes? We Need More Nuclear Energy

By Maxx Chatsko Markets Fool.com

The year is 1986. The New York Mets have won the World Series. A gallon of gasoline costs just $0.89. And planet Earth is home to over 64,000 nuclear warheads, nearly all of which belong to the United States and the Soviet Union. It's the 17th consecutive year in which global stockpiles of nuclear weapons has increased -- and will also be the last.

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The end of the Cold War and fall of the Soviet Union brought about sweeping changes to nuclear armament worldwide. The results have been nothing short of amazing: There are "only" an estimated 15,000 nuclear warheads remaining today. Then again, it would be nice to live in a world free from such destructive power, and there is precedent for banning weapons of mass destruction. Since 1972, global powers have come together to ban biological weapons, chemical weapons, landmines, and cluster munitions. But how do you begin to enact a ban on nuclear warheads?

Luckily, there's a precedent for that, too. The most successful nuclear treaty in history relied on an extensive government-industry partnership that turned weapons-grade material into fuel for nuclear reactors. In fact, the Megatons to Megawatts program between the United States and Russia eliminated 20,000 nuclear warheads and was responsible for up to 10% of total electricity production in America from 1994 to 2013, when the program reached a successful conclusion.

Image source: Getty Images.

Could it happen again? Admittedly, the world doesn't seem to view nuclear power very favorably at the moment, but any global treaty that responsibly disarms the planet's nuclear arsenals will likely require a strong commitment to nuclear energy (all of that enriched uranium and plutonium has to be diluted and end up somewhere safe). Here are the obstacles and opportunities to restarting a similar program today.

Addressing the glut of uranium

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The nuclear industry is still reeling from the Fukushima disaster in 2011, as investors in Cameco Corporation (NYSE: CCJ), the world's largest uranium miner, are well aware. The event has dampened enthusiasm for new construction and forced several governments to retire reactors much earlier than expected, resulting in a record mismatch between uranium supply and demand and reducing the amount of nuclear power production worldwide. Unfortunately, things only appear to be getting worse for the company. Earlier this month TEPCO terminated a supply contract with Cameco Corp because Japan's phase-out of nuclear power has kept it from operating any of its 17 reactors for the last 18 months. The decision will cost the uranium supplier $990 million in revenue through 2028.

World Nuclear Energy Consumption data by YCharts.

The world's oversupply of uranium doesn't bode well for restarting a program similar to Megatons to Megawatts. The original agreement diluted highly enriched uranium and plutonium with lower-grade materials to displace 8,850 metric tons of annual uranium production. To put that in perspective, the terminated supply agreement between TEPCO and Cameco totaled 4,220 metric tons spread out over 11 years. Worse yet, the World Nuclear Association estimates existing nuclear warheads contain the equivalent of roughly eight years of global uranium mine production.

It's important to reiterate that the materials absolutely need to be consumed in nuclear reactors 1. to keep them out of the wrong hands, and 2. to provide enough value to pay for the program -- a powerful incentive indeed. Therefore, any global treaty aimed at ridding the world of nuclear weapons will need to be accompanied by a major investment in new nuclear reactors to smooth out supply.General Electric(NYSE: GE)may just own the best solution for convincing the world to act.

Expediting the approval and licensing of next-generation reactors

General Electric Hitachi owns the leading design for a Generation IV reactor, called PRISM, which is based on a real-world reactor that operated at Argonne National Laboratory for years. Consider the benefits:

  • PRISM is a small modular reactor. It boasts a smaller footprint and generation capacity, which will lead to dramatically lower costs and greater deployment opportunities compared to traditional nuclear reactors in existence today. The main components can even be built in a factory and shipped to site -- shaving years off of construction time.
  • PRISM is sodium-cooled. That means it's equipped with a passive safety system that relies on thermodynamics to shutdown the reactor if the temperature exceeds a certain limit -- making a meltdown virtually impossible.
  • PRISM is a fast reactor. That means it can generate substantially more power from nuclear fuels compared to existing reactors -- and can even run on nuclear wastes. In fact, when General Electric and Southern Company recently teamed up to advance the development of the reactor, they included an interesting statistic: A fleet of PRISM reactors could power the entire world for 200 years using only existing nuclear waste stockpiles.

While incredibly impressive, PRISM still requires years of development. And there's another problem: The world isn't quite sure how to grant operating approval for Generation IV reactors (General Electric isn't the only one investing in novel designs), which represent a step-change in capabilities from older designs. That alone likely cost the company a bid to turn the United Kingdom's plutonium stockpiles into 100 years of electricity.

To expedite the arrival of the technology while ensuring a competent permitting process, governments will need to increase investment in regulatory bodies overseeing the development and commercialization of next-generation reactors. But even in the best-case scenario, there will be a gap between now and the time next-generation reactors come online, which makes it paramount to keep existing nuclear reactors operating in the meantime for any nuclear weapons ban to work in the current market.

Committing to existing nuclear reactors

Existing reactors that haven't been forced to close from social pressure are facing increased economic pressure. Despite a rising awareness of the threats posed by climate change, Exelon Corporation (NYSE: EXC), America's largest producer of nuclear energy, couldn't convince Illinois to include carbon-free nuclear power in its Clean Energy Standard that aims to reward, well, carbon-free power sources. And that's in a state that gets 48% of its electricity from atomic energy.

Exelon's nuclear fleet has struggled to compete with cheap natural gas and highly subsidized wind and solar. The losses played a significant role in the 2013 decision to cut the dividend by 40%. Consider that while the company's Quad Cities and Clinton nuclear power plants in the state provide 12.2% of the state's total electricity -- more than double the total from all wind and solar -- they also lost a combined $800 million from 2009 to 2015.

After the company threatened to close the power plants and cozied up to the state of New York, the Illinois State Legislature approved a minor subsidy amounting to $0.01 per kWh of electricity produced from nuclear energy. It's not much, but the reactors will continue operating. More importantly, it could set a precedent for other states to follow.

Could we ban nuclear weapons?

While I'll bet that most people are in favor of banning nuclear weapons, I'd also bet most have never heard of the Megawatts to Megatons program. That's astonishing not only considering its success and 20 years of providing carbon-free power generation -- avoiding more carbon dioxide emissions than all wind and solar output in the country's history -- but also because of the blueprint it provided future generations. It set a precedent demonstrating that humanity has a real chance to rid planet Earth of nuclear weapons while simultaneously addressing the threats posed by climate change -- an added bonus for today's world. As the examples of Cameco, General Electric, and Exelon show, the supply chains, technologies, and incentives exist to make it happen. The biggest obstacle to overcome may just be a lack of global leadership.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. The Motley Fool has a disclosure policy.