Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

A good explanation of why two half-finished nuclear reactors in South Carolina are being canned came in a press release sent out Monday afternoon by the Nuclear Energy Institute lamenting the decision:

We applaud SCE&G [South Carolina Electric & Gas] and Santee Cooper's valiant and visionary efforts to embark upon a new nuclear construction project for the first time in this country in more than 30 years. As a first-of-a-kind nuclear construction project of this size and scope, the project understandably encountered many economic, regulatory and other challenges along the way.

I think we can all agree that building a nuclear power plant is quite an undertaking. And that's doubly so when it's been a generation or more since anyone else started building one in the U.S. and you're attempting a "first-of-its-kind" project, to boot.

Westinghouse Electric Co. was first contracted to build the reactors by Scana Corp.'s SCE&G and state-owned power company Santee Cooper back in 2008, and the first concrete was poured at the site 4 years ago. This year, mired in cost overruns associated with this project and another for Southern Co. in Georgia, Westinghouse declared bankruptcy. The plant was originally supposed to cost about $11 billion, or just over $4,900 per kilowatt of capacity. In a report published in March, as Westinghouse was wobbling, Morgan Stanley estimated the cost had more than doubled to more than $10,000 per kW. By way of comparison, a modern plant running on natural gas costs about $1,100 per kW.

Today, any U.S. energy project scheduled to take a decade to get up and running and which costs billions of dollars faces a fundamental problem: The country's energy market is being turned on its head.

When the reactors were first ordered, demand for electricity in the South Atlantic region -- which includes South Carolina -- was projected by the Department of Energy to rise by almost 40 percent by 2030. Those numbers have since collapsed utterly:

Lost Power
Compared to projections made in 2008, all the expected growth in electricity consumption in the South Atlantic region has been wiped out
Source: Energy Information Administration

Meanwhile, the price of natural gas has slumped as a result of the shale boom, which wasn't widely understood back in 2008. Gas has since gone from being regarded as a volatile market to being accepted as a low-cost source of fuel supply for generators, helping to depress wholesale electricity prices in general:

A Different Era
The reactors were ordered back when natural gas prices were viewed as high and volatile
Source: Bloomberg

Throw in the fact that the cost of renewable energy sources has also fallen dramatically -- and has tended to depress electricity prices where it is deployed at scale -- and it is hard to justify committing vast sums to large-scale projects that won't generate any revenue for years (assuming they get completed).

What compounds this for nuclear power is that the specific needs, regulatory and otherwise, of each project make it hard to achieve scale economies. If each plant requires a different approach, how do you gain efficiency, especially after several decades of inactivity have eroded America's capabilities in the field? Repeatable technologies, with falling costs, tend to do best.

This isn't necessarily the case in other countries such as China, where it may be possible to deploy the same type of plant in multiple locations with the backing of national planning.

But the U.S. is different. This study of construction costs for nuclear plants published in early 2016 found that unit costs for plants under construction at the time of the Three Mile Island accident surged compared to those completed before 1979, most likely because of increased safety requirements and delays. The fact that Westinghouse couldn't keep a lid on costs and delays despite being contracted to build four of the same reactor type in the U.S. merely confirms this challenge.

Given the inherent uncertainties around U.S. electricity demand and the balance between liberalized and regulated power markets, it is nigh on impossible to justify plowing billions into a big, complex nuclear-power plant supposed to run for 50 or 60 years. Widespread carbon pricing or piecemeal support efforts for existing nuclear plants, such as those enacted in Illinois or New York, offer some support.

But to have any chance, new nuclear power would need to be smaller, more modular and faster-to-market -- like the natural gas and renewable-power sources with which it competes in a flat market.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at

To contact the editor responsible for this story:
Mark Gongloff at