Nuclear's Tangled Economics
To power America's future, Senator John McCain (R-Ariz.) has an energy plan with a distinctly French accent. "The French are able to generate 80% of their electricity with nuclear power," the presumptive Republican Presidential nominee points out. "There's no reason why America shouldn't."
In a mid-June speech, part of a continuing blitz on energy issues, McCain laid out his vision for 100 new nuclear plants—45 of them to be built by 2030. They would help meet America's energy needs, and because nukes don't emit greenhouse gases, they would fight global warming as well. McCain also wants to borrow from the French playbook by reprocessing and reusing spent nuclear fuel and by providing government incentives to get all this done. Nukes now produce 20% of U.S. electricity, says McCain senior policy adviser Douglas J. Holtz-Eakin: "To move north of that, we have to be aggressive."
But McCain may not want to follow the French example too closely. While France's existing 59 atomic plants are relatively trouble-free, its largest nuclear company, Areva, has run into difficulties building next-generation reactors in France and Finland. The Finnish project is two years behind schedule and more than $1.5 billion over budget, while construction of the other plant, in Normandy, was temporarily halted in late May because of quality concerns. And while France has the world's biggest fuel-reprocessing program, it still hasn't found a permanent home for a growing pile of highly radioactive waste that's left over. The waste sits in heavily guarded storage at Areva's La Hague reprocessing plant.
The U.S. nuclear industry believes that delays and cost overruns, which helped kill new plant construction in the late 1970s, are less likely today, thanks to now-standardized reactor designs and a streamlined U.S. government licensing process. That process has yet to be tested, though, and costs for new plants are climbing. Two years ago, the price of a 1,500-megawatt reactor was pegged at $2 billion to $3 billion. Now it's up to $7 billion and rising, as the cost of concrete, steel, and other materials and labor soars. MidAmerican Energy Holdings (BRK), a gas and electric utility owned by Warren Buffett's Berkshire Hathaway (BRK), shelved its own nuke plan earlier this year, saying it no longer made economic sense. "The country badly needs new nuclear plants to deal with the climate issue," says John W. Rowe, chief executive officer of Exelon (EXC), currently the largest nuke operator, and chairman of the Nuclear Energy Institute, the industry's trade group. "But they are very expensive, very high-risk projects."
So risky and expensive, in fact, that building new ones won't happen without hefty government support. NRG Energy (NRG), Dominion (D), Duke Energy (DUK), and six other companies have already leaped to file applications to construct and operate new plants largely because of incentives Congress has put in place. The subsidies include a 1.8 cents tax credit for each kilowatt hour of electricity produced, which could be worth more than $140 million per reactor per year; a $500 million payout for each of the first two plants built (and $250 million each for the next four) if there are delays for reasons outside company control; and a total of $18.5 billion in loan guarantees. The latter is crucial, since it shifts the risk onto the federal government, making it possible to raise capital from skittish banks. "Without the loan guarantees, I think it would be very difficult for the first wave of plants to move forward," says David W. Crane, CEO of NRG.
Even $18.5 billion won't guarantee the debt needed to build dozens of reactors, though. And the current limit on the loan guarantee is just one bottleneck. Only two companies, Japan Steel Works and France's Creusot Forge, a unit of Areva, are capable of forging key reactor parts such as massive pressure vessels. There are also shortages of contractors with nuclear certification and of skilled workers—even a lack of potential sites for new reactors. The proposed plants are all next to existing reactors. Builders of the power plants, utility executives say, are unwilling to commit to fixed prices and fixed schedules. Most companies want to be paid their actual costs, including overruns, plus a reasonable return, says one CEO.
That's why experts say the much-heralded nuclear "renaissance" will be slow to flower. "I'm not quite sure the number McCain put out is obtainable," says Adrian Heymer, senior director for new plant deployment at the Nuclear Energy Institute. "If there are any hiccups in coming in on time or on budget, it will be a struggle to go much beyond the first eight or 10 plants." Exelon's Rowe adds that the industry can't grow until the government solves the waste problem, either by opening a proposed storage site in Nevada, or by setting up surface storage facilities around the country. And in the long run, to cut the amount of waste, he says, "it's very clear that we've got to have a fuel-recycling technology."
The trouble is, separating out plutonium in the spent fuel for reuse is costly and dangerous, argue critics like Princeton University physicist Frank N. von Hippel. And in any case, worries over separated plutonium being diverted to make bombs led the U.S. to ban reprocessing 31 years ago.
The upcoming election will pull many of these issues into the limelight. The nuclear industry's call for still more government support will find a more sympathetic ear in McCain than in Senator Barack Obama (D-Ill.). The presumptive Democratic nominee agrees nuclear energy could help combat global warming, but he says there are better alternatives. Indeed, many Democrats and renewable power advocates are upset that the playing field is tilted so far in favor of nukes. Robert Fishman, a veteran utility executive who is now CEO of solar startup Ausra, says the investment tax credit sought by the solar industry would cost less than 1% of the dollars going to nukes and fossil fuels. "I don't think we've done a good job laying out to Senator McCain what the renewable industry can do for the country," Fishman says. So it looks like a few nuclear plants may come online in the U.S.—some as early as 2016—but not as many as McCain wants.