September 04, 2009
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Duke Energy's deep pockets are giving it the wherewithal to help lead the nuclear revival. With ample liquidity and access to capital markets, it is, indeed, in position to possibly build its own facilities.
Despite the high cost of construction and the otherwise dreary times, the industry is fighting for a nuclear resurgence. Its strategy to push ahead is premised on pending legislation to cap carbon emissions and the need to refurbish the nation's generation infrastructure with clean-burning power plants that can run all the time.
Proponents of nuclear energy furthermore say that future reactors will be safer, more cost effective and highly efficient. That will give the industry a regulatory advantage, giving those developers a better chance of raising capital for their projects.
But Duke and others are not oblivious to the risks. Estimates are that such capital-intensive plants will cost as much as $12 billion to build. And while the public appears to be warming to nuclear energy, any utility would be unwise to underestimate the civic opposition and the potential delays in construction.
"The biggest risks to the nuclear portfolios are the time required to license and construct a nuclear unit, potential for even lower demand than currently estimated, and the ability to secure favorable financing," Duke wrote in a presentation to the North Carolina Public Utility Commission, in its attempt to get permission to build a plant outside Charlotte.
According to the Nuclear Energy Institute, applications for 26 new nuclear units are now pending with federal regulators. While not all will get built, it does say that the industry is hoping that at least four such plants are up and running in the next decade. That would be necessary not only to comply with expected clean air rules but also to meet the predicted increase in electricity demand of 21 percent by 2020.
Congress, too, understands the benefits of nuclear energy. It has previously authorized billions in tax credits as well as millions in insurance to protect against delays in construction that are directly tied to regulatory logjams. And it has promised millions in loan guarantees. Among the utilities that see potential: Southern Co., TVA, Dominion, Entergy, FPL Corp. and Progress Energy.
"Carbon-free nuclear power is a strategic asset in our statewide effort to become energy-independent, to reduce our reliance on more volatile-priced fossil fuels, and to provide a balanced approach to meet the challenges of growth and climate change," says Vincent Dolan, head of Progress Energy Florida.
While key market fundamentals are favorable, even Duke knows to tread lightly. During the 1970s and 1980s, the utility had wanted to build five such plants, notes the Charlotte Observer. While it was able to complete three of them, the paper says that it was forced to discontinue its plans to build another two. And although it was able to pass through some costs, it had to eat the rest.
Deep Skepticism
In fact, no new plants have been started in a couple decades -- something that is a direct result of the accident at Three Mile Island in 1979. The Tennessee Valley Authority was the last one to activate a new nuclear reactor -- Watts Bar Unit 1 in Spring City, Tenn. -- in 1996. That reactor ended up costing $6 billion to build after construction and financing in a process that took 20 years.
That risk is ever-present. Consider the two Florida-based utilities that want to build there: FPL estimates that the two plants it would construct could run as high $8,000 per kilowatt, or $24 billion for both. Progress says that the two units it would like to build could cost $14 billion. In either case, it not only demonstrates the financial hurdles that utilities face but also that the industry's earlier cost predictions of $2,000 per kilowatt are outdated.
"We believe the ultimate costs associated with building new nuclear generation do not exist today and that the current cost estimates represent best estimates, which are subject to change," says a 2007 report issued by Moody's Investor Services that forecasts the cost per kilowatt to be $5,000.
The Nuclear Energy Institute admits that overcoming the financial impediments will be challenging. But once a plant is up and running, it says that the operations and maintenance costs are low, or at least half those of coal and natural gas.
Meantime, a University of Chicago study says that the principal economic barrier to nuclear power will be the ability to address the costs associated with building and operating the first few nuclear plants. Those early plant costs, which can include "first-of-a- kind" engineering costs as well as the construction and financing expenses, disappear by the time a third or fourth plant begins operations.
"The nuclear renaissance has probably already started," says Ferdinand Banks, an energy professor in Sweden. "What I want is for nuclear to be considered a public good like streetlights and parks and police and armies. And if Wall Street can't provide the money then the taxpayers will have to."
The pro-nuclear forces are out in full. And while the opposition is less intense than a few decades ago, a nuclear revival is anything but certain. To win, the industry must not only persuade the still-resilient skeptics but it must also convince the timid financiers. As attention shifts to creating clean generation and to meeting future demand, their odds will become better.
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