The Reporter's Handbook on Nuclear Materials, Energy & Waste Management

The Economics of Nuclear Power

110 | The Economics of Nuclear Power Written by Bernadette M. West, based in part on interviews with Paul L. Joskow and Henry J. Mayer, with comments by Seth Blumsack Background There are currently 104 commercial nuclear power plants in operation in the United States and, as of August 2007, there were 439 worldwide. In the United States, 7 reactors are in the planning stage and 25 new plants have been proposed. No new plants have received construction permits in the United States since 1979. Higher fossil fuel prices, improvements in plant design that are expected to lower construction costs for new plants and make them more predictable, revisions in the federal licensing process that have reduced the time needed for licensing, new federal subsidies as a result of the federal 2005 Energy Act, and the need to reduce carbon emissions—are all contributing to an environment that seems more encouraging to new nuclear power plant construction. For detailed reviews, we recommend Mazuzan and Walker (1985) and Walker (2000). Meanwhile the licenses of existing nuclear power plants are set to expire in the next 30 years. Since nuclear plants have high utilization factors, they represent approximately 20% of both energy (MW-hours) and capacity (MW) in the United States. If they are not extended or renewed, the percentage of electricity generated by nuclear power will drop dramatically over the next 30 years. Many existing plants have applied for and received extensions that would allow them to operate for an additional 20 years beyond their initial 40-year licenses. Capital costs to extend the lifetime of existing nuclear plants is considered to be much less than construction costs for new coal or natural gas combined cycle gas turbine (CCGT) plants. Upgrades to existing plants to produce more electricity —while possible—will likely only yield small additional amounts—3% at best. As industrialized countries wrestle with how to curb carbon dioxide emissions , nuclear energy has one indisputable advantage over coal, oil, natural gas, The Economics of Nuclear Power | 111 and even biological fuels: it emits no carbon dioxide. Global pressure to reduce CO2 emissions and more aggressively address global warming concerns has led to increased interest in the United States in promoting investment in new nuclear power, but there is continued economic uncertainty. In the future, society faces a number of choices in meeting its electricity needs, including moving forward with building new nuclear plants; extending the life of existing nuclear plants and giving them power upgrades to produce more; relying more on coal and gas to generate electricity, processes that produce greenhouse gases and contribute to global warming; or switching to alternative fuels such as wind. Identifying the Issues While natural gas and coal prices were falling in the late 1980s and 1990s, nuclear power plants faced numerous problems that drove up their economic costs. These included lengthy periods for construction and construction cost overruns, long licensing processes, high operational costs, community opposition , and uncertainties regarding how to handle spent fuel and permanent storage facilities. These issues were less problematic in the past when plants were built primarily by regulated investor-owned vertically-integrated utility monopolies, as in the United States, Germany, Spain, and Japan, or by state-owned electric power monopolies, as in France, the United Kingdom, Canada, India, and the former Soviet Union. In the past, consumers—not providers—were made responsible for handling the risks of high construction costs, lengthy licensing processes, shifts in fuel prices, and other uncertainties. Investors were protected and monopolistic providers could guarantee output requirements. Today, in Europe and portions of the United States and Canada, the electricity sectors are being restructured to rely more on competitive power markets . While traditionally regulated utilities, such as Southern and TVA, are considering new nuclear units (or are likely to consider new nukes), many future nuclear power plants will be built by private firms subject to conventional market risks regarding costs, operating performance, and power prices. In such a competitive marketplace, investors will bear the risk of uncertainties associated with getting permits and with construction costs and operating performance, and private generating companies will face lower-cost competition . New generation plants will need to compete on the basis of cost, without large government subsidies. Those with lower capital costs—despite higher fuel prices—will be able to provide quicker returns on investment. In some 112 | The Reporter’s Handbook: Briefs places, new plants will compete with...