Why Europe is pivoting back to nuclear — one of its most divisive energy sources

Several European countries are reconsidering nuclear power as a means to bolster energy independence, driven by rising costs associated with renewable energy balancing and transportation. Denmark is analyzing advanced nuclear technologies, Spain may extend the life of its nuclear reactors beyond 2035, and Germany has dropped its opposition to nuclear power in EU legislation. Despite decreasing costs of wind and solar, the potential for fully depreciated nuclear plants and the promise of small modular reactors are capturing the attention of policymakers, though financing new nuclear plants remains challenging and may only pay off in the long term, potentially benefiting natural gas in the interim.

Analysis

A significant policy re-evaluation towards nuclear power is underway across several European nations, primarily driven by aspirations for enhanced energy independence and concerns over the escalating 'hidden costs' associated with balancing and transporting electricity from renewable sources like solar and wind. Denmark, for instance, is now analyzing advanced nuclear technologies, such as small modular reactors, to potentially complement its renewables-focused energy system, marking a departure from its 40-year ban on nuclear power, though it is not planning a return to traditional large-scale plants. Spain has indicated a potential openness to extending the operational life of its nuclear reactors beyond the planned 2035 shutdown, while Germany has notably reversed its long-standing opposition to atomic power, particularly in the context of EU legislation, aligning more closely with France's pro-nuclear stance. This renewed interest emerges despite the fact that costs for new wind and solar plants have decreased by over 80%, whereas nuclear plant costs have reportedly risen. The appeal of nuclear is partly sustained by the operational potential of fully depreciated existing plants and the prospective, albeit uncertain, cost-effectiveness of next-generation small modular reactors. However, financial analysts like Georg Zachmann from Bruegel highlight that new nuclear power plants are likely to remain difficult to finance and will offer returns only over several decades, suggesting that the ongoing discussions prioritizing either nuclear or renewables might inadvertently benefit natural gas in the interim until clean electricity investments are scaled sufficiently. This evolving landscape is set against a backdrop where EU's renewable energy, particularly wind and solar, achieved a record 30% share of electricity generation in the first half of last year, alongside a 3.1% increase in nuclear generation.

Key Decisions for Investors

• Investors should closely monitor evolving national energy policies in key European countries like Denmark, Spain, and Germany, as definitive commitments to nuclear could create opportunities in the nuclear supply chain, including uranium and reactor technologies, but also influence the P&L of utility companies heavily invested in renewables.
• Consider the significant financing challenges and extended timelines inherent in new nuclear projects, including the still-developing small modular reactor technologies; these factors present both long-term opportunities for specialized engineering firms and considerable risk until technological and economic viability is proven.
• Evaluate potential continued reliance on natural gas as a bridging fuel, as delays or protracted debates in scaling up either nuclear or renewable capacity could sustain demand for gas, impacting commodity prices and investments in gas infrastructure.
• Factor in the 'hidden costs' of renewable energy integration, such as grid balancing and transmission upgrades, when assessing the long-term economic competitiveness of various energy sources, as these can affect the profitability of renewable energy projects and the strategic direction of utility investments.