POWER POINTS: Cost Concerns Loom Over US Nuclear Revival
July 01 2009 - 1:52PM
Dow Jones News
For U.S. utilities gearing up to build new nuclear-power plants,
the rewards could be great, but the risks of cost overruns, delays
and regulatory battles persist.
Expanding the nation's use of nuclear power is seen by many as a
key component of any strategy to fight climate change, and
utilities are lining up to provide it. The U.S. Nuclear Regulatory
Commission has received applications from 14 companies to build and
operate new nuclear power plants. Energy Secretary Steven Chu last
week told utility executives that nuclear power, along with
renewable energy and conservation, will be an important way to meet
growing U.S. energy demand while cutting emissions of greenhouse
gases.
The companies behind these projects, including Southern Co. (SO)
and Duke Energy (DUK), are upbeat on their prospects, noting
guaranteed long-term returns on investment and increasing
acceptance of a need to replace coal-fired power plants and their
emissions.
History sounds a cautionary note, however. Nuclear-power plants
under development in Europe have come under fire for exceeding
previously estimated costs, a fate that led developers to abandon
several nuclear-power projects during the last U.S. nuclear
build-out that ended in the early 1990s.
Estimates of new nuclear plant costs from 2003 and earlier are
already outdated, said Mark Cooper, a senior fellow for economic
analysis at the Institute for Energy and the Environment at Vermont
Law School. Early reports predicted that the plants would cost
about 7 cents a kilowatt-hour, but 12 to 20 cents a kilowatt-hour
now seems more likely, Cooper said.
"Because of the complexity of these projects, there's always a
risk of delays," said Jim Hempstead, an analyst with Moody's
Investors Service in New York. "There could be delays related to
regulatory issues, construction or access to the capital
markets."
Regulatory Wild Card
The last surge in U.S. nuclear-power development was marred by
the partial reactor meltdown at Pennsylvania's Three Mile Island
nuclear power plant in 1979, followed by the Soviet Union's
Chernobyl disaster in 1986, which created a hostile political and
regulatory environment for nuclear energy in the U.S. Projects
already underway went billions of dollars over budget and some were
delayed by years. In most cases, the financial burden was
shouldered by ratepayers, some of whom saw their electric bills
skyrocket.
Although steps have been taken at the federal and state levels
to encourage nuclear power development - including combining the
operating and construction licenses and allowing companies to start
recovering costs before the plants are built - regulatory
requirements could still change partway through the projects.
"The biggest concern in the U.S. is regulatory risk," said Roger
Kranenburg, the director of power capital costs for Cambridge
Energy Research Associates, an energy consulting firm. "At the
federal level, changes in specifications for the plants after Three
Mile Island caused a lot of delays and cost overruns. We don't have
a lot of experience with the current regulatory environment, and
everyone agrees it hasn't been fully tested."
Besides regulatory delays, construction costs and limited access
to credit markets can cause costs to balloon.
Costs at a nuclear-power plant under construction by France's
Areva S.A. (CEI.FR) in Finland have soared almost 50% because of
construction issues, putting the budget overrun so far at about
$2.16 billion. The plant has been delayed by three years from its
initial completion estimate. An identical plant being built in
France is also behind schedule and over budget.
The expense of building a new power plant exceeds most
companies' balance sheets, so if utilities can't find a way to
offload some of the project risks to other parties through
partnerships - as some nuclear developers are doing - credit-rating
agencies could cut their ratings, adding even further to their
costs.
In a report last week, Moody's Investor Service said it would
likely cut credit ratings of one or more nuclear power plant
developers if project costs grew too far beyond the company's
balance sheet.
"It has become increasingly likely that the pursuit of new
nuclear power projects will lead to some near-term rating actions
or outlook changes," Moody's said.
Nevertheless, climate-change legislation, potential federal
requirements to use renewable energy and other factors most likely
would drive up the price of electricity from all sources, making
nuclear power seem economical.
"Regulators will look differently at nuclear power as all
electricity prices go up," Duke Energy Chief Executive Jim Rogers
said.
(Christine Buurma covers the U.S. power and natural gas
industries for Dow Jones Newswires and can be reached at
212-416-2143, or christine.buurma@dowjones.com.)
(Cassandra Sweet covers power, natural gas, renewable energy and
carbon markets for Dow Jones Newswires and can be reached at
415-439-6468 or cassandra.sweet@dowjones.com.)
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