Something very exciting is in the works for Rolls-Royce (LSE: RR). It’s a new project the firm is calling a “once in a lifetime opportunity for the UK”. This project might mean now is a great time to buy Rolls-Royce shares for explosive growth in the future.
Mini reactors
The project I’m talking about refers to SMRs – small modular reactors. Basically, they’re mini nuclear power stations. Rolls-Royce has received a £200m commitment from the UK government to build its first one.
Small might be a misnomer here. These things are the size of two football pitches and generate enough energy for 1m homes. But they’re a tenth of the size of a full nuclear power station.
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This means these projects avoid the problems with building new full nuclear stations – like Hinckley Point C whose budget has doubled and was supposed to start producing energy in 2017.
The first SMR is due to open in 2029. That’s a way off, but it means I have the chance to buy in before the hype builds up. And the signs are that this could be a huge boost to the Rolls-Royce share price in the coming years.
Why nuclear?
When it comes to future energy needs, I’m bullish on nuclear. Fossil fuels can be a nightmare when they rely on supplies from other countries – the recent war in Ukraine taught me that. Not to mention the net zero carbon emissions target for 2050.
Meanwhile France, which gets around 70% of its energy from nuclear, was not nearly as affected by the energy crisis. Electricity across the channel is still around half the price of the UK or Germany.
And safety concerns are overblown, I think. The biggest accident since 1986 – Fukushima in Japan – was tragic but caused no direct deaths and the reactor shut down safely as it was designed to. In fact, coal, oil, hydro and even wind power all cause more direct deaths than nuclear.
A fleet of SMRs
If this shift to nuclear energy does come, I think Rolls-Royce is well-placed to be a big winner.
The £200m commitment is only the start here. The government is hoping to build 16 of these reactors in coming years and CEO Tom Samson is talking of a “fleet of SMRs”.
Other countries like Finland, Sweden and Ukraine have signed a Memorandum of Understanding to explore building SMRs with the firm too. The potential is here for a huge global operation.
And Rolls-Royce’s expertise is the reason I think it’s in pole position here. It already produces nuclear reactors for Royal Naval submarines and has done since the 1950s.
Are there risks? Well, there are many competitors in the space, including the Bill Gates-founded Terrapower. And funding may be an issue too – that £200m is expected to run out in 2024. Plus there are still many opposed to nuclear power.
On balance though, I think this is a great opportunity to buy in here. I already own a few shares and I may even pick up more soon.
