Morgan Stanley
  • Wealth Management
  • July 1, 2024

Nuclear Innovation - Powering Generative AI

We unpack the complementary role of nuclear power and renewables in the transition towards a carbon-neutral future and the current dynamics playing out in global uranium markets.

As the world gears up to tackle global warming, is nuclear energy making a comeback as a way to fight climate change? At the Morgan Stanley Australia Summit on Thursday 13 June, Rahul Anand, Head of Materials Research at Morgan Stanley, joined Karina Bader from Acorn Capital, Mihali Stamatis from L1 Capital and John Borshoff from Deep Yellow to discuss the complementary role of nuclear power towards a carbon-neutral future.

Exploding energy consumption

Rahul Anand kicked off the session by highlighting the incredibly rapid rise in energy demand. Estimates show that by 2027, the base case forecast of GenAI power demand is 224 (TWh). For context, that is >75% of the total global data centre power use in 2022 and is close to Spain's overall total 2022 power consumption.

Morgan Stanley’s base case points to nuclear capacity doubling by 2050, with 384 Gigawatt (GW) of new capacity being added, a global value of US$1.5 trillion in capital investment. Growth is anticipated to be driven mainly by China (+168GW) and the US (+50 GW). 

For COP28 to be achieved, nuclear capacity would need to be tripled by 2050 with an additional nuclear capacity of 640GW equating to US$2.5 trillion investment.

John Borshoff from Deep Yellow stated that the world will need significantly increased energy supply in the future, this has very little to do with population growth, we are just simply using much more data. He confirmed that the total global energy equation sits at 175,000 terawatt hours (TWh) which is 85% fossil fueled. 

In terms of meeting this growing demand, Borshoff stated that zero emission targets cannot be met without abundant nuclear power.

Data centres and artificial intelligence – the need for more power

Data centres—giant warehouses where computing machines and hardware are stored—have seen tremendous uptick in demand and investment corresponding with the rise of generative artificial intelligence (GenAI). 

As a result, the industry is on track for significant growth. The data centre build required to meet this growing demand is substantial and there is an accelerated urgency around delivering the infrastructure for the growing global data needs.

Borshoff pointed to recent research1 which shows rapid annualised growth required to power projected data centre and AI demand from 2023 to 2030. This could mean six to nine percent of global power (with some tipping up to 11%) will be devoted to data centre and AI.

Data centre growth is heavily dependent on the expansion of the power grid. With the growing energy demand from data centres, nuclear power generators offer a unique opportunity to locate data centres on site and provide consistent, uninterrupted power without external connections. This would lower data centre power costs by eliminating transmission and distribution charges.

The impact of the Russian uranium ban

On Monday 13 May, President Biden signed a bipartisan bill prohibiting Russian imports of enriched uranium, the main fuel used by nuclear power plants. The move cuts off one of the last significant flows of money from the US to Russia amid the war in Ukraine. The bipartisan bill will ban uranium imports from Moscow beginning 90 days after its enactment. It will provide waivers until 2028 for utilities that would be forced to shut down nuclear reactors once Russian supplies are cut off.  

Morgan Stanley believes the US ban is positive for uranium prices. However, the US-only ban is more manageable for the global nuclear industry than if the EU/UK joined in as well. Also, the risk of a retaliatory ban on Russian exports would nullify the waivers, tightening the market earlier than expected. 

Building the case for nuclear

Nuclear is well-placed for significant growth in the global energy transition with most major economies in alignment in terms of the demand for nuclear, which hadn’t occurred on such a broad scale since the oil shock days in the 1970s.

Nuclear is the only viable option to provide essential continuous baseload electrical and thermal power while achieving zero emission. Borshoff highlighted the benefits of nuclear, which include that it has the lowest carbon footprint 2, the lowest material requirement, the lowest land usage component, the lowest levelised cost per unit energy 3, the best safety record of all technologies and finally, it complies with ESG demands.

Investing in uranium

With many countries seeing nuclear power as the answer to clean energy, the demand outlook for the chemical element has become incredibly positive. Karina Bader from Acorn Capital discussed the Lassonde Curve for uranium mines, which is a geographical representation of the typical lifecycle of junior mine’s value cycle moving from exploration to production. She confirmed it can take on average, between 16 and 18 years for a mine to move from discovery into production. 

Investors wanting to gain exposure to uranium focused stocks on the Australian Stock Exchange (ASX) would need to move outside the top 100 companies and look to smaller companies. Bader confirmed there’s currently 31 uranium focused stocks in total on the ASX with only one of these sitting inside the top 100 on the ASX. 

Get Your Career Started At Morgan Stanley