April 12, 2010
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
Nuclear energy development in this country is getting a big boost now that the nuclear loan guarantees are being processed. Southern Co., which snagged the first $8 billion of what will be $54 billion pie, still has to wait about a year for the Nuclear Regulatory Commission to okay its license application.
As part of his green agenda whereby the country rescues itself from economic despair and the hazards of climate change, President Obama has started to come on strong for nuclear energy that has relatively few greenhouse gases associated with it. It's a simple but realistic equation: Besides coal, nuclear energy is the only other source of base-load power that can run continuously and serve large populations. By guaranteeing the loans, the government has agreed to pay them off if any private builder should default.
"This loan guarantee will reduce costs," says David Ratcliffe, chief executive of Southern Co., at the EnergyBiz Leadership Forum. "It is not a gift. It is a loan. We were already under construction."
Southern's subsidiary Georgia Power currently operates two nuclear reactors that generate 1,100 megawatts each on a site that is fit for four. So, it is adding two more units, which will each churn out another 1,200 megawatts that are scheduled to be finished in 2016 and 2017. The total cost is expected to be about $14 billion of which $6 billion will be the utility's sole responsibility. Georgia Power, in turn, can pass along its cost to ratepayers who will see those charges begin in 2011 and last for seven years.
The Southeast is relatively receptive to nuclear construction and that is where most future units are expected to be placed. The Nuclear Energy Institute is predicting 4 to 8 reactors to be built by 2020 -- and about 45 of them by 2030. At present, there are 13 applications for 22 reactors now pending with federal regulators. That is compared to the one or two applications that were pending five years ago.
Critics of the trend argue that the nuclear industry has a long history of cost overruns that are ultimately covered by taxpayers. Southern Co., however, says that its cash flow and asset-rich balance sheet will allow it to make the investment and to absorb the potential risks. It also says that the process will be closely monitored and totally transparent.
And while Georgia Power has started digging holes where the reactors will be placed, it has not actually put any steel in the ground. That's because the regiment for all applicants has evolved over the years. Companies must now get fully licensed before they would begin any construction thereby avoiding much of the pricey infighting with opponents.
"If the goal is to get carbon out, then you have to include nuclear and clean coal," says David Crane, chief executive of NRG Energy, at the EnergyBiz Leadership Forum, which has also applied for loan guarantees. "Clean coal, however, is a poor cousin to nuclear."
Enhanced Role
President Obama has appointed a commission to examine the future role of nuclear power in American society. Some of the questions that must get answered are where to store the spent nuclear fuel and how to pay for any expansion.
Right now, the used fuel is being kept on site in above-ground steel-encased concrete caskets. It will have to stay there for the foreseeable future given that the current administration has stopped the funding for a permanent storage site at Yucca Mountain. Other technologies are also possible and ones that would reprocess the spent fuel.
The more immediate challenge, though, is paying for construction. At about $9 billion a nuclear plant, most utilities are not in a position to risk their entire capital expenditure budget, especially in the current environment where the investment could be tied up for years by the resistance through the use of litigation.
DTE Energy, for instance, says that nuclear power will be necessary to meet the requirements of a low-carbon economy. But that it would be reckless of it to allocate its whole $8 billion in market capitalization to build such a plant. At the point in time that it would know the exact price to emit a ton of carbon, it could then calculate whether to go forward and to apply for any loan guarantee.
PSEG of New Jersey, which already owns five nuclear reactors, says that it too needs a lot more certainty before it would proceed or apply for loan guarantees. If and when such an environment develops, Chief Executive Ralph Izzo says, "We'll be a fast follower rather than a leader in nuclear."
If predictions are correct and electricity demand rises by 30 percent over 25 years then nuclear energy's share of the generation mix will likely expand. If the country, furthermore, enacts carbon legislation that would eventually conform to what international treaties are now suggesting then that enhanced role becomes unavoidable.
According to the U.S. Energy Information Administration, to achieve carbon emissions reductions of 80 percent by 2050, electricity prices would rise 80 percent during that time. If no nuclear or clean coal is used, those prices would climb by 200 percent.
"The more people see it, the easier it becomes," says Marvin Fertel, chief executive of the Nuclear Energy Institute.
China, Japan and India are already going full force while France now generates nearly 80 percent of its electricity from nuclear. But in this country the permitting process is far more rigorous. With the loan guarantee process now underway, one of the most formidable hurdles has been crossed. If Georgia Power's pursuit is a success, then private lenders would be enticed to finance a new phase of nuclear development.
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