Why I’m hoping going nuclear will help power Rolls-Royce shares!

Our writer has recently bought some Rolls-Royce shares. He’s hoping that the company’s investment in nuclear energy will send them soaring.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Beard has positions in Rolls-Royce Plc. The Motley Fool UK has recommended YouGov Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »