ENVIRONMENT | Protecting our natural resources
09 May 2008
Conditions Shift In Favor Of Nuclear Power
Rising expectations for new nuclear power projects
By Andrew Paterson
The dramatic recovery of interest in nuclear energy is likely to lead, in 10 years or so, to construction of the first nuclear power units in the United States in 25 years. Expectations for the economic viability of new nuclear power projects are rising due to several factors.
Competitive production costs and reliability: In the United States, nuclear power production costs at existing plants are a bit below those of coal-fired plants and roughly one-third of gas-fired plants, according to the Utility Data Institute private directories and data bases. However, this is because the capital equipment costs for the 103 U.S. reactors are now fully recovered by their owners. Uranium fuel prices—below half a cent a kilowatt-hour (kWh)—though rising recently, have been more stable and much lower than gas prices. Moreover, uranium fuel comes from stable allies Canada and Australia, not volatile supply sources in the Middle East. And recycling Russian warhead material from the Cold War actually provides half our fuel. Lastly, nuclear plants run continuously, regardless of weather, making them the most reliable source of large-scale electricity.
Potential for lowering construction costs: Nuclear power plants have the highest construction costs in the large-scale power generation sector. In recent years, however, an international market for nuclear reactors has emerged. U.S. plant owners are developing alliances to provide a string of orders on standardized designs certified by the U.S. Nuclear Regulatory Commission (NRC) that should bring down single-unit prices. By teaming up, utilities provide reactor vendors and engineering firms with a 20-year sales curve, allowing them to efficiently staff up and order large components. With multiple orders, the capital costs of new units can be brought down to around $1,200 to $1,500 per kilowatt-electric (kWe) from roughly $2,000 to $2,300 per kWe for first units. By comparison, capital costs for coal-fired plants are around $1,300 to $1,500 per kWe (depending on whether they combust or gasify the coal), and those of gas-fired plants are around $600 per kWe.
Predictable licensing: The NRC has redefined the licensing process for nuclear power plants—perceived by the industry as a "showstopper"—making it more predictable without compromising on safety. The NRC reforms will be tested in the near future with government help, under the Energy Department's Nuclear Power 2010 program. Unlike the "greenfield" plants of the 1970s, however, the first new reactors will be added to current nuclear sites where infrastructure is already in place and communities support them, primarily in the Southeast.
Advanced plant design and experience: Instead of varying designs, the NRC is now certifying only a few reactor designs. And, more important, plant design and production are now much more advanced than they were 25 to 30 years ago, when the last U.S. reactors were ordered—before automated computer-aided design/computer-aided manufacturing (CAD/CAM) was available. Thousands more hours of experience worldwide since 1980 have strengthened the design and engineering process.
Government financing: Government support for the first few new reactors—in the form of loan guarantees, production tax credits, and federal risk insurance for commissioning delays—monetizes the emissions savings of nuclear power and will help the industry address regulatory uncertainties beyond their control. Interest rates are also significantly lower than in the late 1970s (a prime rate at 5 to 6 percent now versus 15 percent then). More reactors were cancelled because of high interest rates than as a result of the accident at Three Mile Island in March 1979.
Nuclear vs. natural gas: In the 1990s, after passage of the Clean Air Act, relatively cheap natural gas emerged as the most popular clean alternative. The capital costs of nuclear power—which can be three times higher than those of gas plants—and other factors, such as the four- to six-year construction cycle, made nuclear power unattractive to investors and utilities. But gas prices have risen dramatically since then and remain volatile. A 2001 study by the Electric Power Research Institute projected that new nuclear capacity could be economically viable if natural gas prices stayed above $5 per million British thermal units (BTU). In fact, prices are trading between $8 and $12 per million BTU for December 2006 delivery.
Andrew Paterson is a partner with Environmental Business International, a firm specializing in market data and strategic intelligence for energy and environmental industries (www.ebiusa.com). He also serves as a consultant for Technology Management Services, a firm specializing in technical support to federal agencies, principally the Department of Energy.
The opinions expressed in this article do not necessarily reflect the views or policies of the U.S. government.
From the July 2006 edition of eJournal USA.
