Donald Trump is considered to be one of the greatest salesmen of all time.
But not even Trump would be able unload this steaming pile.
Last week, after Toshiba (OTCBB: TOSYY) projected a $6.3 billion write-down for its nuclear unit, management announced it was looking to sell its majority stake in Westinghouse, for which it paid $5.4 billion in 2006.
More than 10 years ago, the suits at Toshiba were overly optimistic about their ability to roll out a new generation of nuclear power plants that would be smaller, cheaper, and safer.
Today, they have four under construction in the United States and all have run into technical hiccups and cost overruns.
All in all, it was a big bet on a nuclear renaissance that, as I’ve warned dozens of times before, will never materialize in the U.S. The economics didn’t make sense 60 years ago, and they don’t make sense today.
Understand, this is not a criticism of nuclear’s ability to provide a steady and consistent supply of baseload power generation. We know what the technology is capable of. But at a prohibitive cost — particularly today while the U.S. is awash in cheap natural gas — any hope of a nuclear power renaissance is based on nothing more than false hope and the illusion that’s often paraded around by lawmakers who have skin in the game.
A Very Risky Bet
In all fairness to Toshiba, the company did the Westinghouse deal right after the U.S. government ponied up a bunch of loan guarantees, tax credit packages, and cost-overrun backstops for nuclear power development.
With Washington bullish on nuclear, management likely figured it could rely on the government to help hedge some of the risk that comes along with building massive industrial projects such as nuclear power plants.
But it wasn’t enough.
Truth is, I don’t know why anyone would want to try to build a nuclear power plant in the U.S.
The regulatory issues, the NIMBY issues (not-in-my-backyard), the political issues. Certainly there’s an easier way to make a buck.
With the rapid decrease in production costs associated with renewable energy and new energy storage technologies, coupled with natural gas that’s so cheap it’s practically free, it just seems like a very risky bet.
Of course, some folks have a higher tolerance for risk than others. Certainly I’ve taken on enormous risks over the years by investing in solar and wind back in the early 2000s, and then again a few years ago when I got into the legal cannabis space.
Fortunately, those risks paid off handsomely. And there’s a reason for that…
Those risks were well-calculated.
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Invest in the Future
I’m by no means the sharpest tool in the shed, but I know a crap deal when I see one.
Back in 2006, Toshiba basically took a flamethrower to $5.4 billion by buying its majority stake in Westinghouse. I actually feel a bit sorry for the folks who closed that deal. They definitely got scammed a little.
I have no idea how they’re going to unload their stake in this dog, but it’s not going to be pretty.
Of course, just because Toshiba got burned on its plans for nuclear power development in the U.S. doesn’t mean other countries around the world won’t be able to build out their nuclear power networks.
Don’t forget, not every nation is blessed with the natural gas bounty that we enjoy in the U.S. And many of those nations are building nuclear power plants. China, South Korea, and UAE in particular.
Today, there are about 60 nuclear reactors under construction across the globe. And I suspect many will be completed over the next few years.
But in terms of energy investing in the U.S., nothing good can come from investing in nuclear power.
Just like coal, its days are numbered.
The future of the U.S. energy economy will be heavily weighted in natural gas, renewable energy, and energy storage — not coal and not nuclear. These sources are simply too cost prohibitive to operate competitively beyond 2020.
And that, my friend, is less than three years away.
The future waits for no man. And investors who understand this truism would be wise to invest in the future of our energy economy — not the past.
To a new way of life and a new generation of wealth…
Jeff Siegel
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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.
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