Even if President Obama stands by his commitment to expand U.S. nuclear power in the wake of the disaster in Japan, the industry is likely to be frozen for years by factors outside the federal government: soaring capital, liability, and regulatory costs and plunging confidence among the public and on Wall Street.
Washington supports development of nuclear power through subsidies, tax credits, and loan guarantees, but none of that may get Wall Street to fork up the financing for plants if pricey and extensive safety regulations send construction costs up, and public uncertainty about the danger puts state permit approvals in doubt, a number of energy finance analysts say.
“There’s nobody on Wall Street who’s going to offer money,” said John Deutch, an expert on energy technologies and financing at the Massachusetts Institute of Technology.
Building a nuclear power plant is an expensive endeavor. It costs $5 billion to $20 billion and can take a decade to complete, compared with the $1 billion to $3 billion and one to three years it takes to build coal or natural-gas power plants.
That’s just one reason there hasn’t been a nuclear reactor built in the U.S. since the 1979 meltdown at Pennsylvania’s Three Mile Island.
In recent years, backers hoped for a “nuclear renaissance,” spurred by the prospects of a new law to counter climate change by pricing the carbon emissions of fossil fuels, including coal and natural gas. Under such a system and despite the high cost of construction, nuclear power, which does not emit any carbon pollution, would ultimately be cheaper than fossil fuels. The federal government added more help in the form of an assist in financing: Obama’s current budget request includes $36 billion in nuclear loan guarantees, up from $18 billion. The efforts spurred some movement: Southern Co., backed by an $8 billion federal loan guarantee, broke ground on the first U.S. reactor in 30 years near Waynesboro, Ga. In South Texas, NRG Energy and the South Texas Nuclear Operating Co. have filed a permit application with the Nuclear Regulatory Commission to build two reactors.
Beyond those projects, there has been little other movement—in part because the failure of climate-change legislation last year meant that the new economics to aid a nuclear rebirth never appeared.
The almost certain prospect of new safety reviews and regulations will send construction, insurance, and liability costs higher, further stalling the industry.
On Wednesday, the Union of Concerned Scientists released a report criticizing the NRC for what it said were lapses in safety procedures at some of the country’s 104 operating nuclear plants. On Thursday, Obama called for a comprehensive safety review of all those plants.
“It is already the case that utilities would see higher cost of capital for a nuclear plant than a coal plant because of perceived … risk,” Deutch said. “Surely, that premium is going to go up for a time. There is no good news for nuclear power.”
But nuclear power still has many strong advocates in Congress, including such leaders as House Energy and Commerce Committee Chairman Fred Upton, R-Mich., and Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M.
The nuclear energy industry has been cautious about projecting the impact of the disaster, focusing instead on aiding Japan in quelling the fires and meltdown at the Fukushima Daiichi nuclear plant and briefing government officials. On Thursday, the Nuclear Energy Institute, the industry’s advocacy group, held a phone briefing for the financial community. Alex Flint, the institute’s senior government-relations official, told National Journal Daily, “NEI’s forecast has been for four to eight new nuclear plants between now and 2020.… As of the current time, we see the new construction proceeding.”
David Knox, a spokesman for NRG Energy, said that as of now there are no plans to halt progress on the South Texas reactors.
But NRG did decide to delay a power-purchase deal with CPS Energy for electricity generated by the reactors.
Meanwhile, key Wall Street analysts predict that the Texas project will fall apart and that the Georgia project will be delayed for years.
On Wednesday, Standard & Poor’s released a report predicting that the likelihood of greater costs, new regulations, and delays in approvals for extending nuclear operating licenses will lead to “deteriorating economics for new plant construction.”
“Southern Co.… has expressed their ongoing commitment to the plants they are building, but any delays (i.e., for design changes, additional reviews, hearings, etc.) could obstruct the construction schedule and make it harder to continue justifying the ongoing expenses necessary to complete construction.”
In a note to clients this week, Barclays Capital Investment said: “For NRG Energy, we think the potential added pressure could be the end of its nuclear loan guarantee award from the Department of Energy … in Texas, which could cause a write-off in the short term but would be likely positive in the long term.” Securing financing and meeting new safety regulations won’t be the only problems nuclear developers will face. They’ll be subject to approval by individual state utility commissioners, who issue permits for power generation based on criteria that will yield the lowest electric bills for their residents. Part of the cost of construction of power plants is passed on to ratepayers—so problems follow if state commissioners fear that the cost of a plant is too high.
“Already, it’s very tough to get a nuclear power plant built. Costs being what they were before this event, if they go up any further, it’s hard to see how they’d be attractive to states,” Robert Thormeyer, a spokesman for the National Association of Regulatory Utility Commissioners, told National Journal Daily.
“When investors get nervous, risks go up and costs go up. Then the state commissioners’ job is to determine if it’s really worth it,” Thormeyer said.
The Fukushima Daiichi meltdown will likely provide an object lesson for other state agencies approached by potential nuclear power developers.
“There’s concern that what’s happened in Japan could slow down construction of the plants,” said Bill Edge, a spokesman for the Georgia Public Service Commission. “If you delay construction and have new rules and regulation, and have to go back and redesign—the commissioners are concerned that the delays will raise the cost for Georgia ratepayers.”
This article appears in the March 18, 2011, edition of National Journal Daily.
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