Five years ago the nuclear energy industry looked set for its first run of serious growth since the late 1970s, when the Three Mile Island disaster put the brakes on reactor expansion in the U.S. In 2008, Congress authorized $18 billion in federal loan guarantees for plant construction. Utilities submitted 24 applications by the end of that year, anticipating that lawmakers would eventually put a price on carbon with a cap-and-trade bill that would make coal-fired plants less profitable. In 2007 and 2008, the price of the nuclear industry’s two biggest competing sources of power, coal and natural gas, skyrocketed as part of a global rally in commodity prices.
That optimism has given way to despair. Four reactors have closed so far in 2013—a record for the industry. Because of the shale energy boom, natural gas prices crashed, followed by coal. Electricity demand fell during the recession and has yet to regain its 2007 peak. Bolstered by billions of dollars in green energy subsidies in the 2009 stimulus package, renewables, especially wind, have come on faster than many anticipated. Cap and trade never happened. And Japan’s Fukushima disaster in 2011 reminded the world just how dangerous nuclear power can be.
The industry hasn’t done itself any favors. A radioactive steam leak and a botched repair job have led to the permanent closure of three reactors in the last several months, two in California operated by Southern California Edison (EIX), and another in Florida run by Duke Energy (DUK). Faced with growing political opposition, billions of dollars of estimated repair costs, and cheaper alternatives, utility executives in both cases decided to pull the plug rather than fix the plants.
More troubling for the industry is the decision that Dominion Generation (D) made in May to close its Kewaunee reactor in Wisconsin. Squeezed by cheap coal and natural gas and unable to find a buyer after looking for more than a year, Dominion shut down the facility rather than keep operating it at a loss.
A year ago, Exelon (EXC), the largest operator of commercial nuclear plants in the U.S., killed plans to build a 3,000-megawatt plant in Victoria County, Tex. After shuttering its Crystal River reactor in Florida, Duke Energy announced in May that it would not build two plants in North Carolina. In June, MidAmerican Energy, majority-owned by Warren Buffett’s Berkshire Hathaway (BRK/A), decided not to go ahead with new nuclear plants in Iowa. Of those 24 applications for reactors filed in 2008, only four have resulted in new construction. “In a competitive market, you can’t even come close to making the math work on building new nuclear plants,” says Daniel Eggers, a utilities analyst with Credit Suisse (CS). “Natural gas is too cheap, demand is too flat, and the upfront costs are way too high.”
John Rowe, Exelon’s ex-chief executive officer, says the era of building large-scale nuclear plants in the U.S. may be over. “You don’t build a new plant for the sake of monument building. You only do it if it makes economic sense. Right now, it doesn’t. If it did, the capital would be readily available.”
Although the numbers vary depending on the plant and the market it serves, analysts agree that nuclear plants generally need to sell their power at about 12¢ per kilowatt hour to stay profitable; gas-fired plants can get by selling power for 5¢ to 9¢ per kilowatt hour. Nuclear reactors can take the better part of a decade to get built and often cost tens of billions of dollars. Gas-fired plants can be built within two years, usually for less than a billion dollars.
The four reactors that are under construction are within about 120 miles of each other in Georgia and South Carolina. That’s hardly a coincidence. In 2006 state legislators in South Carolina, Georgia, Florida, and Tennessee made financing new nuclear plants easier by allowing utilities to raise electricity rates before the reactors were operational. Southern Co. (SO) had already collected $481 million through 2012 from customers in Georgia to help finance two new reactors as part of a $14 billion expansion of its Vogtle facility. Meanwhile, two new reactors at the Summer station in South Carolina are costing $10.5 billion. Scana, which owns 55 percent of the project, has raised electricity rates six times since April 2009 by a total of 11.5 percent, including a 2.9 percent hike slated to take effect this November.
With fewer new plants, the average age of America’s fleet of reactors will steadily rise. A report by Credit Suisse projects that the total annual operating costs of running a nuclear power station could rise by 5 percent a year. Unless they get license extensions, 43 reactors will have to close within 20 years. The pressures on nuclear will only increase as more renewables come online. Thanks to production tax credits from the federal government, plus no fuel costs to worry about, wind producers get paid to push power into the market no matter what the price. According to Credit Suisse’s Eggers, this has led to power being sold at negative prices recently during off-peak hours at night and on the weekend in parts of Texas and in the Chicago area.
There is hope for scaled-down nuclear energy projects: Companies are developing smaller, modular (built in pieces rather than on-site) reactors, which are cheaper and quicker to assemble. The Tennessee Valley Authority plans to apply for a license in 2015 to build four small reactors in Clinch River, Tenn. Says Rowe, the former Exelon chief: “I think there’s still a chance you could see a nuclear recovery a couple decades out, but I wouldn’t bet on it.”