Nuclear Energy Industry Powers Back Up

Nuclear power is making a comeback in the US as the high cost of fossil fuels and concern about global warming make uranium-based generation a more attractive option, but the industry still faces regulatory and financial hurdles as well as lingering doubts about safety.

In particular, the jump in natural gas prices in recent years and expected increases for coal-based generation have opened the door for nuclear power as a viable alternative for electricity generation, says David Crane, president and chief executive of NRG Energy.

Much of the generating capacity built in the U.S. in the last decade was natural-gas based, and “that’s a problem because the cost of natural gas has gone from $2 to $3 per million BTU to $8 per million BTU, making it three to four times as expensive to run as nuclear,” Crane says

Nuclear Power Plant

Princeton, N.J.-based NRG made headlines in September when it became the first company in the U.S. since 1978 to submit a request a build new nuclear power.

Coal-based generation is currently the power source of choice, accounting for 50% of total U.S. electricity production, but it’s also a major contributor of carbon dioxide emission. State and federal initiatives to curb greenhouse gases associated with climate change are likely to make coal-based electricity more expensive in the future.

“The higher the price of carbon dioxide, the more economic the nuclear option becomes,” says Jim Rogers, chairman and chief executive of Duke Energy.

Charlotte-based Duke may build a nuclear power plant in South Carolina in the next decade, but that decision hinges largely on the “cost of carbon,” says Rogers.

A Federal Case

As compelling as price trends might be, federal incentives are helping to pave the way for an industry that still has vivid memories of huge losses and a spate of cancelled projects decades ago.

The Energy Policy Act of 2005 provides incentives for new electricity generation, including renewable energy and nuclear power.

The three biggest draws, say companies considering nuclear plants, are production tax credits of up to $6 billion, which will likely to be divided among the first nine newly-built units; regulatory risk insurance to cover licensing delays, worth up to $2 billion; and loan guarantees, which would cover most of the financing in case any of these multi-billion dollar projects wind up in default.

For an unregulated energy provider like NRG Energy, federal incentives were a primary driver in plans to move forward with two new nuclear units in Texas, says Crane.

The incentives were also important to UniStar, a joint venture between Baltimore-based Constellation Energy and French electricity group EDF.

UniStar plans to submit the second half of its application for a new reactor in Maryland by March of 2008. CEO George Vanderheyden says the company is also considering an application for a new reactor in New York.

Nuclear Power Plant

In all, 21 new reactor license applications for a total of 32 units are expected between now and 2009, according to the U.S. Nuclear Regulatory Commission.

More than half the proposals are for the southern part of the country. The Tennessee Valley Authority submitted a request in October to build two units in Alabama; Virginia-based Dominion received early site plan approval for a unit northwest of Richmond, Va. and South Carolina Electric and Gas, a unit ofSCANA, is expected to submit a request for two units in December.

“Whether we go ahead with one or two units is still up in the air,” says spokesman Robert Yanity.

Decisions on the first set of applications are expected by the middle of 2011, according to NRC spokesman Scott Burnell.

Construction – which takes three to four years – can begin after that, putting the first new nuclear unit in operation by mid 2014 at the earliest.

There are currently 104 licensed nuclear power reactors, generating 20% of the all US electricity.

Nuclear generating capacity in the US is projected to increase to 112.6 gigawatts in 2030, from 100 gigawatts in 2005, according to the Energy Information Administration’s 2007 annual energy outlook. The increase includes 12.5 gigawatts of newly-built capacity, or roughly 12 units, the EIA said.

As the nuclear power industry eyes a new generation of plants, other technologies are hardly standing still.

Nati Harnik

Coal Plant

Coal-based generation is projected to dip from today’s 50% to 49% in 2020, but the decline will be short-lived. By 2030, coal is expected to account for 57% of total production in 2030, according to the federal government’s energy outlook, as new technologies, like carbon capture and sequestration are incorporated to prevent carbon dioxide from escaping into the atmosphere.

Generation from renewable technologies is projected to rise to more than 10% in 2030, from less than 5% in 2005.

Lessons Learned

Though the industry has reason to be hopeful about the future, costly failures of the past have not been forgotten.

The Three Mile Island nuclear accident in near Harrisburg, Pa. in 1979 sparked safety worries and bad publicity. An industry credit crunch and falling demand forecasts contributed to the cancellation of about two dozen nuclear reactor projects with construction permits in the 1980s.

Long Island Lighting Shoreham Nuclear Power Station was actually built and tested, but never put into operation.

Duke’s Rogers became CEO of Public Service of Indiana, (now a unit of Duke) in 1988 when the utility was on the verge of bankruptcy because of a $2.7 billion failed nuclear project.

“I remember well the lessons learned, and don’t want to repeat mistakes,” says Rogers, who reminds that his company’s South Carolina project carries a $6 billion price tag.

Legacy issues aside, supply-and-demand fundamental in a carbon constrained world has made producers and consumers more receptive to the nuclear option, leaving some, like NRG’s Crane, to proclaim that “all roads lead to nuclear.”