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Booming electricity demand and more stringent environmental regulations are powering growth for nuclear power and alternative energy. Here’s how to profit.

Whether you believe that climate change is the greatest threat facing the world today or little more than a giant hoax, one point is certain: Governments the world over are passing laws aimed at limiting emissions of carbon dioxide (CO2).

New regulations are already having a profound impact on the world’s energy supply choices and your investments.

And environmental considerations are only one part of the energy supply equation. US demand for electricity is projected to grow almost 50 percent between now and 2050, a period during which global demand could triple. Meeting all this growth in a cost-effective manner is an epic challenge.

Nuclear power and alternative energy will play pivotal roles. Below are a handful of our favorite plays on clean energy.

The Nuclear Option

Three power sources account for 80 percent of global electricity supply: coal, natural gas and nuclear power. Of those three, nuclear is the only carbon-free source of power; it accounts for 50 percent of global emissions-free generation and more than 70 percent in the US.

Nuclear is a proven technology that offers cheap and reliable baseload power supply. Most of the cost of nuclear is the up-front capital required to build new plants, not the cost of uranium fuel. Unlike natural gas- and coal-fired plants, the cost of generating nuclear power doesn’t vary wildly with commodity prices.

It’s no surprise then that global nuclear capacity is set to expand rapidly in coming years, led by strong growth in reactor construction across emerging markets such as China, India and Russia.

In 2007, the world’s reactors used more than 180 million pounds of uranium, while global mines produced only 115 million pounds. Secondary supplies such as government and utility stockpiles filled this massive gap.

But secondary supplies are running down; US utilities alone will need 260 million additional pounds of uranium between now and 2017 to keep their reactors running.

Most of that will come from mines. And to build new mines, uranium prices will need to rise back above $70 per pound. Assuming, however, a steep rise in demand, the price of uranium won’t be the primary challenge.

Cameco (TSX: CCO, NYSE: CCJ), the world’s largest uranium producer, accounts for roughly a fifth of total global production.

Cameco’s McArthur River mine has an average ore grade of 20.6 percent uranium oxide; some commercial mines have ore grades less than 0.5 percent. As a result, Cameco’s cash costs for uranium are among the lowest in the world at under $20 per pound.

The McArthur River mine accounts for half of Cameco’s production and will be able to continue at its current rate of production for at least another 19 years.

Meanwhile, Cameco’s 50 percent-owned Cigar Lake mine, also in Saskatchewan, has an even higher grade of uranium ore. This mine was originally expected to be in production by now, but current estimates suggest Cameco will begin production no earlier than 2011. At full production, the mine could generate more than 18 million pounds per year.

Cameco’s 60 percent-owned Inkai mine in Kazahkstan is already under production and should ramp up to full capacity of 5 million pounds annually by early 2010. US operations generate nearly 3 million pounds of uranium annually, and management plans to boost that production to 4.8 million pounds by 2011. Cameco is a buy under 30.

Paladin Resources’ (Australia: PDN, TSX: PDN) Langer Heinrich mine in Namibia was the first new uranium mine to come into production in decades. Current production is 2.6 million pounds annually and should rise to 6 million pounds a year by the end of 2010 as Paladin completes two more expansion phases.

Paladin’s Kayelekeera mine in Malawi began producing in April 2009 and is scheduled to ramp up to its full annual capacity of 3.3 million pounds a year by early 2010.

Paladin also has a handful of uranium mining projects underway in Australia, a nation that’s well-placed to become a key exporter of uranium to Asia.

And there’s a kicker: Paladin’s mines in Africa and reserves in Australia are a tantalizing acquisition target for any company looking to secure long-term access to uranium supplies. Paladin Resources is a buy for aggressive investors under CAD5.

Running on Renewables

The American Clean Energy and Security Act requires that 20 percent of US electricity be generated from “renewable energy” by 2020. That definition includes energy efficiency initiatives as well as generating sources such as wind, solar and geothermal. Some two dozen states have already passed similar mandates.

Thus far we’ve seen some limited successes. Nevada-based NV Energy (NYSE: NVE), for example, announced in late April that it had met the state’s 9 percent target for the first time.

That still leaves a big gap with Nevada’s 20 percent requirement by 2015. And few others have anything close to the Silver State’s bounty of potential solar, wind and geothermal resources.

In many instances, demand for new renewable resources over the next decade will be very hard, if not impossible, to meet. But it also spells massive growth for the renewable energy players that have survived the recent credit crunch and economic meltdown.

One of the biggest potential winners is global power producer AES Corp (NYSE: AES).

In stark contrast to its early years of unbridled growth, AES since has focused its efforts on profitability, slashing debt expense by another 10.1 percent during the past 12 months and boosting free cash flow by $40 million.
Most of the company’s 38,000 megawatts (MW) of global capacity are from traditional power sources like coal, natural gas, biomass and hydro. But the growth focus is on renewable energy.

AES Wind Generation has 1,200 MW of capacity in three countries and an additional 400 under development in four. Additional projects in solar, biomass, energy storage and other “climate solutions” are underway.

AES Solar has inked a $1 billion development initiative with private capital firm Riverstone, and the company has an innovative deal with AltairNano (NSDQ: ALTI) to develop advanced grid storage applications.

First quarter earnings beat Wall Street estimates thanks to recurring revenue. With locked-in contracts for all current output, as well as 95 percent of the 3,000 MW in new generation slated to come on line, AES is a buy up to 12, AES Preferred C up to 50.

As the leading US producer of both solar and wind power, FPL Group’s (NYSE: FPL) NextEra Energy unit has continued to shine in 2009.

The company led the US in deploying new wind assets for the seventh time in eight years in 2008, and a planned 250 MW solar thermal plant in California will cement its lead in the race for the sun as well.

Last month, FPL arranged an additional $343 million in financing to build another 298.5 MW of wind in North Dakota and Iowa.

Fueled entirely by NextEra’s upbeat results, management raised its 2009 and 2010 forecasts to between $4.20 and $4.40 per share and $4.65 to $5.05 per share, respectively. Prior levels were $4.05 to $4.25 per share for 2009 and $4.50 to $4.90 for 2010.

That’s a powerful statement coming on the heels of a second consecutive quarter of a more than 6 percent contraction in the US economy. Buy FPL Group up to 60.

With the housing industry flat on its back, the ability to construct utility-scale projects is a key element of success at AES and FPL. That’s also the case for geothermal developer Ormat Technologies (NYSE: ORA), which has built and operates nine plants in the US, two in Guatemala and one each in Kenya, Nicaragua and New Zealand. It also builds plants for other operators.

First quarter revenue soared 44 percent, as the company continues to have no problem finding new business, both for its own plants and in construction for others. Generation rose 21.5 percent, and Ormat managed its growth well, shaving overall interest expense by more than a third.

Earnings per share surged 33 percent, topping estimates handily. Good numbers have triggered a share price rebound the past couple months, but they’re still off more than a third from their 52-week high. Ormat Technologies is a buy up to 40.

Elliott H. Gue is editor of Wall Street Winners the premier monthly growth newsletter designed to manage investor’s portfolio risk. Mr. Gue examines the market sector by sector to find the industries with big tailwinds and avoid investing pitfalls. Mr. Gue uses both top-down and bottom-up approaches to search the global stock and currency markets for strong intermediate-term trends, picking investment vehicles accordingly.

Mr. Gue is also editor of Trading Floor Pro and a research analyst for Personal Finance, where he specializes in global equity and debt markets and also has broad interests in technology and sector investing.

He has worked and lived in Europe for five years, where he completed a Master’s degree in Finance from the University of London, the highest-rated program in that field in the U.K. He also received his Bachelor’s of Science in Economics and Management degree from the University of London, graduating among the top 3 percent of his class. Mr. Gue was the first American student to ever complete a full degree at that business school.