Nuclear as a solution

The rise of generative AI with applications such as ChatGPT, Gemini, Copilot and others has caused a surge in electricity demand, as training these complex models and maintaining data centres requires huge amounts of power. In its annual electricity report in January this year, the International Energy Agency predicted that electricity consumption in such operations will more than double to 1 000 TWh between 2022 and 2026. Major technology firms have therefore come up with the idea of using nuclear power to solve the problem. Unlike solar or wind power, which are dependent on the weather, nuclear energy offers continuous power, a huge amount of electricity and, above all, no emissions.

Data centres with their own reactors

Google (GOOGL), for example, saw its electricity consumption increase by 17 percent last year, so it has taken steps to integrate nuclear power into its strategy. A collaboration with US firm Kairos Power, which it entered into in mid-October, will ensure their centres are powered by small modular reactors (SMRs). Further details have not been disclosed, but it is known that the first reactor is expected to begin operations in 2030, with more to follow five years later, with a total of 500MW of electricity to be supplied. The advantage of SMRs is that they are several times smaller than conventional reactors and can therefore be located close to the plants being fed, while those from Kairos are additionally cooled not by water but by dissolved salt. Google's senior director of energy and climate, Michael Terrell, told CNBC that AI technologies require clean energy sources, with nuclear being key in meeting demand. Such a focus can also help Google meet its emissions targets.

Electricity from nuclear

Microsoft (MSFT) has adopted a similar strategy, and back in September it signed a 20-year deal to buy electricity from the Three Mile Island nuclear power plant, which is scheduled to restart in 2028. The Pennsylvania facility, which is known for the worst nuclear disaster in the US, will refurbish the reactor of the first unit, which was operating until 2019. Constellation Energy, which owns the plant, stresses that the reactor will operate separately from the unit where the accident occurred and will spend nearly $2 billion in an effort to improve the safety and efficiency of the plant. In addition, according to the BBC, the restoration of the plant will help Microsoft in their goal of lower emissions, will add an additional 800 MW of electricity, but most importantly will bring more than 3 thousand new jobs.

Start-up will be a tough nut to crack

The Three Mile Island disaster, as well as economic instability in later years, caused the US to turn away from nuclear power generation, leading to the closure of many plants, but the AI boom may reopen their doors. As the Three Mile Island operation was scheduled for a complete shutdown, all permits will need to be reobtained from the authorities. Then Constellation will have to completely replace the entire infrastructure, from cables to generators, and most importantly, obtain the necessary fuel, which will not be so easy, due to the sanctions imposed on Russia or the problems in Kazakhstan. Another possible challenge will be the reluctance of the surrounding population because of the fears that the accident has caused, even though it has not had any fatal consequences.

Uranium prices may rise

Increasing demand for nuclear power is likely to be reflected in uranium prices for some time to come, as supply contracts are signed for longer periods in advance. A positive outlook for the commodity is also predicted by Bank of America, which says prices could rise along with higher deficits for the next three years. [1] As of 16 October 2024, the spot price of uranium was $82 and its long-term price was $81.50, according to global uranium fuel provider Cameco. The price of futures contracts traded on the New York Mercantile Exchange on the same day was $83.150 per pound. *

Evolution of spot and long-term uranium prices over the last 5 years (source: Cameco.com)*

Uranium futures price development over the last 5 years (source: Trading Economics)*

Risks associated with nuclear power plants

Despite its potential, nuclear power remains a controversial option, mainly due to the environmental and safety issues mentioned above. Uranium mining alone can contaminate the surrounding environment with radioactive substances, not to mention that even if there is enough uranium to last for hundreds of years, it is considered an exhaustible resource. Power stations, for their part, contribute to thermal pollution by discharging heated water into lakes and oceans, thereby disrupting local ecosystems. The fact also remains that their construction is costly and time-consuming, and permits are required. Another challenge is the proper handling and disposal of radioactive waste, the contents of which may be toxic for a long time to come. Finally, nuclear power plants need huge amounts of water for cooling, which is an increasing problem as climate change leads to drying up water sources.[1] People are also deterred by potential disasters, which, although few in history, have had enormous consequences, compounded by the potential misuse for nuclear weapons.

A move away from renewables?

Although electricity generated in this way is a promising solution to the challenges facing AI and cloud computing, its adoption by technology companies is not without drawbacks. The environmental and security risks certainly cannot be ignored, but it seems that just as we saw a move away from nuclear power a few years ago and a trend towards renewables, we are now seeing the opposite. It is therefore important to find a combination of the 'right' solutions, which will probably only become apparent over time.

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance.They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.themomentum.com/roundups/the-5-biggest-disadvantages-of-nuclear-power