From Ark-invest By: Sam Korus

Informed by Wright’s Law,1 ARK’s research indicates that, apart from WWII, US electricity prices fell consistently from the late 1800s until 1974, as shown below.

Source: ARK Investment Management LLC, 2024, based on data from U.S. Energy Information Administration 2024a, 2024b; Smil 2000; and Potter 2023.2 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

What happened in 1974? The 1974 Energy Reorganization Act split the Atomic Energy Commission into the Nuclear Regulatory Commission and the Energy Research and Development Administration. More than a coincidence in our view, nuclear energy cost declines reversed, as shown below. After the 1974 Energy Reorganization Act, nuclear costs turned up, preventing a further decline in electricity prices.

Note: “MW” denotes megawatts. Source: ARK Investment Management LLC, 2024, based on data from Lovering et al. 2016; IAEA 2023; EIA 2022; and World Nuclear News 2022 as of October 2023.3 The data for Japan culminate in 2009, as that is the end-year specified in our data source, Lovering et al. 2016. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

Now that small modular reactors are limiting the risks associated with large-scale nuclear energy projects, if regulators were to shift from hindering nuclear development to supporting it, then overnight construction costs could drop from ~$10,000 per kW hour today back to and below the ~$1,000 achieved during the early 1970s. 

While reversing ballooning costs might seem like a lofty goal, SpaceX has set the precedent. After years of rising rocket launching costs caused by little to no competition to the government defense contractors, SpaceX disrupted the industry by reimagining its cost structure with reusable rockets and launched the Falcon 9 in 2015. Since then, SpaceX has continued to lower costs, changing the trajectory of the space industry—a useful model for the nuclear industry.

If the trajectory had remained in force, the capital costs associated with nuclear would have been comparable to those associated with utility solar and wind today, as shown below. That said, the higher utilization rate of nuclear compared to intermittent energy sources like solar and wind could lead to much lower baseload power costs—an exciting opportunity.

Note: Capacity factor refers to the ratio of the electrical energy produced by a generating unit for the period of time considered, to the electrical energy that could have been produced at continuous full power operation during the same period. Source: ARK Investment Management LLC, 2024, based on data from Lazard 2024.4 For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.

Now that nuclear energy is regaining support from regulators and environmentalists, execution risk—particularly cost overruns—is likely to be the primary concern for capital allocators during the years ahead.