A number of factors have contributed to the Rolls-Royce (LSE: RR.) share price rising 1,164% over the last five years. But one of the most exciting is the possibility of a once-in-a-generation opportunity to build a fleet of small nuclear power stations (called SMRs or small modular reactors) that could be the energy of the future.
These clean energy power stations are still in their early stages, but good news like signing deals with Great British Energy, and the country of Czechia, has made Rolls-Royce shares look more and more attractive. And there was another brilliant bit of news in this regard just this week.
The details are that government approval has been reached on the building of the first three of these ‘Made in Britain’ SMRs in the UK. The sites on the island of Anglesey in north Wales had already been pencilled in. But now the official go-ahead has been confirmed.
Why is this so important?
More energy
The simple answer is the country needs more energy – who knew!? Joking aside, while developments in renewables have been impressive, we’re still beholden to dirtier but more reliable sources of energy. Big problem.
Nuclear is one possibility to plug this hole. The French, for instance, pay around half of our electricity prices because they have more nuclear. However, the trials and tribulations of building giant power plants like Hinckley C show that we can’t really rely on these massive projects that run over time and over budget.
This is where SMRs come in. They’re easy to build, relatively cheap, and with no fossil fuels needed. The SMRs on Anglesey should provide energy for 3m homes for 60 years. Several dozen more of them and we might have an answer to our ongoing energy crisis. The Rolls-Royce share price would likely have a good old time of it too.
Sounds pretty good, no? But are there any downsides?
A leg-up
The biggest risk here is that this unproven technology may simply be unviable. This type of power station across the world totals just two at present. There are no guarantees that they will be the world’s future energy.
And even if SMRs do go on to be a raving success, Rolls-Royce might not be the prime beneficiary. There are dozens of companies aiming to pull off the same trick, many with quite different types of technology to the FTSE 100 firm. One American firm is Bill Gates-backed and might have the deeper pockets to be the real winner.
I’ll say here that Rolls-Royce does have the advantage of institutional expertise here. The firm has been making these types of reactors for Royal Navy submarines going back to the 1950s. That’s a leg-up over the competition to some degree.
To sum up? It will be years before we know the true impact of SMRs on the Rolls-Royce share price and the energy supply of the UK or world at large. Personally though, I’m optimistic and think the stock is worth considering.
