Duke Energy Sees a Bright Future for Nuclear Power

I figured I’d put the uranium rods near the basketball hoop. Water from the nearby garden hose would serve as both the coolant and the moderator, slowing the neutrons enough to keep my chain reaction going—you know, standard light-water reactor stuff.

But it turns out that the tax breaks for nuclear power in the new Inflation Reduction Act are for existing plants only, which is just as well. Apart from a quick skim of the Department of Energy’s Nuclear 101 webpage, I don’t know much about fission—or science of any kind, really. Also, my wife uses that hose for her tomatoes.

But if clean-energy tax breaks are usually for stuff the government wants companies or individuals to build or buy, why would this one incentivize something that’s already up and running? That, I might be able to answer.

I live nearly 40 miles north of midtown Manhattan in an area filled with trees, trails, and 172 emergency sirens. The sirens still get tested quarterly, even though the nuclear-power plant in a nearby village, which once provided a quarter of the electricity for New York City, was shut down for good last year.

The plant had plenty of opposition, including from environmental groups. When it closed, the power had to be made up with natural-gas-fired plants, which increased the area’s carbon output. And when gas prices went vertical earlier this year, so did our electricity bills.

In the future, the main threat to America’s 90-plus nuclear plants, by far its biggest source of clean energy, is competition, not local opposition. Nuclear power is squeezed between the revolution in natural-gas drilling and the falling cost of wind and solar power. There is little appetite to build new plants with private money, so America has almost no current nuclear projects, compared with 17 in China and six in India. A U.S. nuclear retirement rush could set emissions goals back and destabilize the power supply.

The average U.S. nuclear plant age is now close to the typical license period of 40 years. Plants can run for much longer with extensions. The one near me went for 59 years, and was licensed for another four.

Duke Energy

(ticker: DUK), which operates the country’s largest regulated nuclear-power business, wants to run its reactors until they’re 80. CEO Lynn Good tells me she has plenty of support in the Carolinas, where Duke customers get half of their electricity from nuclear power.

“What the tax credits are intended to do in the commercial market is really to underpin those plants for the next nine years to say they’re an important part of our journey to a low-carbon future,” says Good. “Let’s make sure we’re not closing them prematurely.”

Don’t count a nuclear revival out just yet. The industry is developing small, modular reactors that could one day be built largely in factories to keep costs down, as well as advanced designs that can quickly raise or lower output to make up for gaps in solar and wind generation. Duke’s Good says this decade is for development, and the next one, deployment, and she has ideas on where.

“The location of a retired coal facility could be a terrific way to make use of existing transmission infrastructure,” says Good. “Also, potentially within the footprint that I own for a large-scale nuclear plant. The security footprint, etc., is already there.”

In its recent second-quarter earnings report, Duke announced a “strategic review” of its wind- and solar-generation business—dealspeak for selling, if it gets a good price. It’s one of the 10 largest U.S. wind and solar businesses, but it provides less than 5% of Duke’s earnings. “This is just a choice, you know, capital allocation, where do I spend the money?” says Good. Duke isn’t alone.

Consolidated Edison


American Electric Power

are selling renewables businesses, too.

A sale could help Duke pay down debt or avoid taking on more debt as it invests in its regulated power business. UBS says it could subtract a smidgen from earnings next year, and add a smidgen the following year as the sale proceeds are put to work. Duke shares pay a 3.7% dividend yield, and the company aims to increase earnings per share by 5% to 7% long term. People are moving into Duke’s service areas, and there are new tax perks in the works for other electricity demand drivers, like battery-powered vehicles.

Wood went wild in recent years. A benchmark futures contract for two-by-fours jumped from under $400 before the pandemic to more than $1,600 early last year, then slumped to $500, and shot back to $1,400, and was recently sighted around $600. Lumber yards and home-improvement chains have struggled to predict demand.

A company called


(TREX) makes boards from wood scraps and repurposed plastic, and sells them for twice as much as pressure-treated lumber. Its pitch is that customers will end up with decks and railings that last for 25 years or more with little maintenance. This past week, Trex reported an upside earnings surprise, but shares tumbled 15% on a cautious second-half outlook.

“Our channel has built inventory basically to support 15% to 20% type growth, which is what we’ve seen over the past couple of years,” CEO Bryan Fairbanks tells me. He expects customer demand to remain elevated, but not quite that elevated, so stores appear likely to sell down inventory. That will reduce Trex’s revenue, at least temporarily.

Fairbanks expects inventories to return to normal levels by the end of the year. “I wouldn’t be surprised if you hear other organizations report the same sort of things,” he says. Two of Trex’s retail partners report quarterly results in the week ahead:

Home Depot

(HD) on Tuesday and


(LOW) on Wednesday.

Long term, Fairbanks says composite decking like his can grow to make up half of the market, versus a quarter now, and he’s building a third factory to that end.

Write to Jack Hough at [email protected]. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.

Source: https://www.barrons.com/articles/duke-energy-sees-a-bright-future-for-nuclear-power-51660340340?siteid=yhoof2&yptr=yahoo