New Nuclear Is Not Cost-Competitive

Judging from its recent actions, the nuclear industry has given up on the pretense that the technology is cost competitive with presently or soon-to-be available alternatives, whether or not climate change legislation is enacted.

Recognizing that capital markets will not support the construction of new reactors, nuclear industry lobbyists at the federal and state legislatures have launched a full court press to get loans from taxpayers (in the form of federal loan guarantees) and ratepayers (through construction work in progress, or CWIP) to fund these projects. The same factors that have led Wall Street to refuse to finance reactors and to lower the ratings of utilities that are trying to build them are the very reasons that taxpayers and ratepayers should not be forced to foot the bill for newnuclear reactors. Loan guarantees and CWIP force taxpayers and ratepayers to bear the marketplace, execution, policy, technology and financial risks that capital markets will not.

Marketplace: Demand-side risks flow from the current recession, the worst since the Great Depression, which has not only resulted in the largest drop in electricity demand since the 1970s, but also appears to have caused a fundamental shift in consumption patterns that will lower the long-term growth rate of electricity demand dramatically. For example, between 2008 and 2009, the reduction in projected peak load for Florida Power & Light for 2017, the year before the first of the two reactors it is proposing to build is projected to come on line, was twice as large as the total capacity of both reactors.
On the supply-side, there are a host of alternatives that have lower cost to meet the need for electricity in a carbon-constrained environment. A recent study from theNational Research Council estimates that nuclear reactors without subsidies cost three or four times as much as efficiency. The most recent cost analysis by theCalifornia Energy Commission finds 15 supply-side options to be less costly than nuclear. Recent estimates of the natural gas resources base have increased dramatically and the price has tumbled. The New York Mercantile Exchange pricefor natural gas for the end of 2021 is over $4 below the peak hit in June 2008. Since natural gas produces less than half the carbon dioxide of coal, this makes it an attractive mid-term option to be combined with low load factor renewables and for combined heat and power applications in industrial and commercial applications.

Execution: Historically, the industry was plagued by the inability to build reactors on time and on budget and that problem continues today. Industry projections of overnight costs of reactors have more than doubled since 2001-2002, when the idea of a "nuclear renaissance" first gained currency, from about $2,000/kilowatt (kW) to about $4,000/kW and some Wall Street analysts put the cost as high as $6,000/kW. About half of the projects that have been put forward as the start of the next generation of reactors have been delayed or abandoned. The effort to standardize designs has foundered, as one of the leading candidate reference design, the AP-1000, is in its 17th revision in a few short years.

Policy: Climate change policy that puts a price on carbon can make fossil fuel plants more costly, but renewable and energy efficiency standards can also lower the demand for nonrenewable generation. Recent reports by the National Research Council, McKinsey & Co. and the American Council for an Energy Efficient Economy estimate that aggressive efficiency policies can lower demand by 25 to 30 percent below business as usual in the next couple of decades.

Technology: The lower-cost, low-carbon technologies available today and the cost trajectory of several others indicate that the combination of efficiency and renewable technologies can meet the need for electricity while hitting the aggressive carbon reduction targets contained in the House climate bill for a quarter of a century or more, which provides the opportunity for research to develop new, lower-cost technologies to meet future electricity needs. Pursuing a fleet of 100 nuclear reactors instead of the lower-cost alternatives would add $2-4 trillion to the national electricity bill over the life of the reactors.

Financial: The risks outlined above combine to dramatically increase the financial risks of nuclear reactors. Wall Street has made it clear that it will not fund nuclear reactors and utilities that push ahead with their plans have been downgraded. Even proposed reactors that have public power partners, are on the short list for loan guarantees and have state CWIP laws have pulled down the financial ratings of their investor-owned utilities. Moody's recently called the decision to build anuclear reactor a high-risk, "bet the farm" action. It subsequently gave negative advice on and downgraded several of the utilities with the most aggressive nuclear plans. The Government Accountability Office and the Congressional Budget Office estimate that half the loans will go into default.

Any one of the risks associated with nuclear power would make an investment in nuclear uneconomic; combining all five makes them a disaster for ratepayers and taxpayers. In uncertain times a prudent investor does not want to buy big-ticket, long-lived projects that sink costs and lock in decisions, like nuclear reactors; the prudent investor wants short lead-time projects and a flexible portfolio. Wall Street has correctly turned thumbs down on the nuclear industry. An effort to build the "next generation" of reactors by putting taxpayer and ratepayer money at risk will almost certainly recreate the nuclear fiasco of the 1970s and 1980s, which imposed hundreds of billions of dollars of excess cost on consumers and the economy, except that this time the losses will run into the trillions of dollars.

--Mark Cooper is a senior fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School.