Rebecca Smith reports today in the WSJ on the biggest hurdle to the nascent nuclear-energy revival in the U.S.—skyrocketing construction costs. Though all power sectors are affected to different degrees by rising capital costs, nuclear power’s vulnerability puts it in a class by itself. Notes the paper:
A new generation of nuclear power plants is on the drawing boards in the U.S., but the projected cost is causing some sticker shock: $5 billion to $12 billion a plant, double to quadruple earlier rough estimates. Part of the cost escalation is bad luck. Plants are being proposed in a period of skyrocketing costs for commodities such as cement, steel and copper; amid a growing shortage of skilled labor; and against the backdrop of a shrunken supplier network for the industry.
Over the last five years, cost estimates for new nuclear power plants have been continually revised upward. Even the bean counters can’t keep pace. The paper notes:
Estimates released in recent weeks by experienced nuclear operators — NRG Energy Inc., Progress Energy Inc., Exelon Corp., Southern Co. and FPL Group Inc. — “have blown by our highest estimate” of costs computed just eight months ago, said Jim Hempstead, a senior credit officer at Moody’s Investors Service credit-rating agency in New York.
Why is that such a big deal? Coal plants have been shelved recently because of rising capital costs, and renewable energy isn’t immune, either—and the nuclear power industry enjoys healthy loan guarantees and other federal subsidies designed precisely to alleviate those kinds of uncertainties.
It matters because nuclear power’s ability to provide electricity at a competitive price compared to regular sources like coal and natural gas depends largely on those construction costs. Fuel costs for nuclear power are miniscule. The only way to handicap the field in nuclear power’s favor is to put a big price tag on emissions of carbon dioxide. Since nuclear plants don’t emit CO2, they win when legislation penalizes carbon-heavy sectors like coal (and even natural gas).
The Congressional Budget Office just finished a rosy-glasses report on nuclear economics. Even while acknowledging that historical costs for nuclear plants always doubled or tripled their initial estimates, the CBO took heart from promises made by manufacturers of next-generation reactors and a single on-time and on-budget project in Japan to project cheaper nuclear construction costs in the future. And if those cost estimates are wrong? From the CBO:
If those factors turned out not to reduce construction costs in the United States, nuclear capacity would probably be an unattractive investment even with EPAct incentives, unless substantial carbon dioxide charges were imposed.
Everybody from John McCain to Newt Gingrich to Patrick Moore is pitching more nuclear power as a zero-emissions answer to America’s energy needs. The question, though, is the same: Who’s going to pay for it?
New Wave of Nuclear Plants Faces High Costs
Rebecca Smith
A new generation of nuclear power plants is on the drawing boards in the U.S., but the projected cost is causing some sticker shock: $5 billion to $12 billion a plant, double to quadruple earlier rough estimates.
Nuclear power is regaining favor as an alternative to other sources of power generation, such as coal-fired plants, which have fallen out of favor because they are major polluters. But the high cost could lead to sharply higher electricity bills for consumers and inevitably reignite debate about the nuclear industry's suitability to meet growing energy needs.
Nuclear plants haven't been built in meaningful numbers in the U.S. since the 1980s. Part of the cost escalation is bad luck. Plants are being proposed in a period of skyrocketing costs for commodities such as cement, steel and copper; amid a growing shortage of skilled labor; and against the backdrop of a shrunken supplier network for the industry.
The price escalation is sobering because the industry and regulators have worked hard to make development more efficient, in hopes of eliminating problems that in the past produced harrowing cost overruns. The Nuclear Regulatory Commission, for example, has created a streamlined licensing process to make timelier, more comprehensive decisions about proposals. Nuclear vendors have developed standardized designs for plants to reduce construction and operating costs. And utility executives, with years of operating experience behind them, are more astute buyers.
• The News: Estimated costs to build the next generation of nuclear power plants have soared to $5 billion to $12 billion a plant.
• The Debate: Questions are emerging over the affordability of nuclear power, despite its popularity as an alternative to polluting coal-fired plants.
• What to Watch: If Congress taxes greenhouse-gas emissions, nuclear plants, which aren't emitters, will become more attractive. But if coal and natural-gas prices decline, nuclear-plant economics will get worse.
Now, 104 nuclear reactors are operating in the U.S. Most are highly profitable but that was not the case until fairly recently. For the 75 units built between 1966 and 1986, the average cost was $3 billion or triple early estimates, according to the Congressional Budget Office. Many plants operate profitably now because they were sold to current operators for less than their actual cost.
The latest projections follow months of tough negotiations between utility companies and key suppliers, and suggest efforts to control costs are proving elusive. Estimates released in recent weeks by experienced nuclear operators -- NRG Energy Inc., Progress Energy Inc., Exelon Corp., Southern Co. and FPL Group Inc. -- "have blown by our highest estimate" of costs computed just eight months ago, said Jim Hempstead, a senior credit officer at Moody's Investors Service credit-rating agency in New York.
Moody's worries that continued cost increases, even if partially offset by billions of dollars worth of federal subsidies, could weaken companies and expose consumers to high energy costs.
On May 7, Georgia Power Co., a unit of Atlanta-based Southern, said it expects to spend $6.4 billion for a 45.7% interest in two new reactors proposed for the Vogtle nuclear plant site near Augusta, Ga. Utility officials declined to disclose total costs. A typical Georgia Power household could expect to see its power bill go up by $144 annually to pay for the plants after 2018, the utility said.
Bill Edge, spokesman for the Georgia Public Service Commission, said Georgia "will look at what's best for ratepayers" and could pull support if costs balloon to frightening heights. The existing Vogtle plant, put into service in the late 1980s, cost more than 10 times its original estimate, roughly $4.5 billion for each of two reactors.
FPL Group, Juno Beach, Fla., estimates it will cost $6 billion to $9 billion to build each of two reactors at its Turkey Point nuclear site in southeast Florida. It has picked a reactor design by Westinghouse Electric Co., a unit of Toshiba Corp., after concluding it could cost as much as $12 billion to build plants with reactors designed by General Electric Co. The joint venture GE Hitachi Nuclear Energy said it hasn't seen FPL's calculations but is confident its units "are cost-competitive compared with other nuclear designs."
Exelon, the nation's biggest nuclear operator, is considering building two reactors on an undeveloped site in Texas, and said the cost could be $5 billion to $6.5 billion each. The plants would be operated as "merchant" plants and thus would not have utility customers on the hook to pay for them, as is the case in both Florida and Georgia. Instead, they would have to cover expenses through wholesale power sales.
Several things could derail new development plans. Excessive cost is one. A second is the development of rival technologies that could again make nuclear plants look like white elephants. A drop in prices for coal and natural gas, now very expensive, also could make nuclear plants less attractive. On the other hand, if Congress decides to tax greenhouse-gas emissions, that could make electricity from nuclear plants more attractive by raising costs for generators that burn fossil fuels. Nuclear plants wouldn't have to pay the charges because they aren't emitters.
Some states are clearing a path for nuclear-power development, even before costs are fully known. They are inspired by a growing fear of climate change. "The overwhelming feeling in Florida is that nuclear power is popular and that's why it's going to go ahead," said J.R. Kelly, head of the Office of Public Counsel in Tallahassee, which represents consumers. "Our main concern is the tremendous cost."
In Florida, state officials are allowing utilities to collect money from customers to cover development and construction costs. In the past, regulators typically required utilities to bear the costs until plants were finished.
Many utilities said they are watching with interest. Ralph Izzo, chief executive of Public Service Enterprise Group Inc. in New Jersey, said his company may not be big enough to build a nuclear plant, even though it is a nuclear operator. "We're concerned by the rise in construction costs," he said.
Copyright 2008, Wall Street Journal