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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Is This The Beginning Of The End For U.S. Nuclear Power?

Nuclear power plant

Energy companies are shutting down their nuclear power plants and resorting to other forms of production. This is primarily due to the lack of funding and cheaper alternatives such as oil. With shale production continuing to ramp up production and incidentally lowering oil prices, nuclear facilities are no longer considered cost effective. It’s upsetting to contemplate the idea of nuclear power failing in the United States, especially when other countries’ governments, including those of Russia and China, are still fully financially backing the energy source.

The costs pertinent to nuclear power plants are astounding. Plants cost billions of dollars to construct and then millions more based on required resources, overhead, and proper waste disposal. Bloomberg reports that the cost to build a nuclear reactor could be more than five times the cost to build a gas-fired reactor. With fossil fuels appearing so attractive, it’s hard to argue with the current shift. This raises the question of what could happen if oil supply recedes again or if OPEC successfully cuts production. By shutting our doors on these decade old reactors, we could be restricting our options in the future all the more so.

The first nuclear power plant was created in 1954, back when it made sense to invest in an exciting new field. Today, however, nuclear power is considered too old of an idea to receive such heavy investments. Investors believe that by now, reactors should be able to stand by themselves without funding. As of 2013, nuclear energy only received 7 percent of subsidies from the government, the lowest of all energy subsidies. New York State is continuing to spend $500 million a year on subsidies, something other states are no longer offering. Governor Cuomo’s goal is to maintain a level of 50 percent reliance on renewables in New York. He believes power plants are the key to the success because it preserves the jobs of plant workers. Related: Confident Saudis To Lift Oil Prices To Asia For December

Carlyle Group predicts that if power plants don’t receive more funding then they could be permanently closed. The group is heavily invested in renewable energy, explaining their concern for the shrinking industry. Holders of nuclear energy will likely begin to experience a downward trend in their share value. Carlyle is thoroughly diversified however and will surely remain flat.

Exelon Corp and Entergy Corp are in the process of shutting down several of their reactors. Exelon noted their third quarter earnings dropped 22 percent, likely from the two Illinois plants that cost them $800 million in the past seven years. Speculators should be on the watch for when the company begins closing the plants sometime in the middle of next year. Entergy is in just as much trouble having finalized plans to close the James A. FitzPatrick Nuclear Power Plant last year. The plans will be implemented in 2017.

When a country relies on multiple sources of power like wind, nuclear or gas, prices tend to remain steady. With the retirement of nuclear reactors, volatility in the power sector will likely increase. Investors should consider buying options on power futures for the mid to long term.

By Michael McDonald of Oilprice.com

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  • R. L. Hails Sr. P. E. (ret.) on November 03 2016 said:
    This article misses the long term delima of US civilian nuclear power. This industry stems from the policy of President Eisenhower, a warrior who conquered western Europe by killing millions of its inhabitants. He said that man will either learn to use this technology for peaceful purposes or it will annihilate us.

    America failed his test. Every few months, we spend more on our military than the sum cost of our civilian nuclear infrastructure. Our defacto energy policy is megadeaths, not megawatts.

    Perhaps, if elected, Trump will address the ignored problem in nuclear power, cost, and schedule. There is zero cost discipline, or schedule discipline in the US government. Yet he bragged when opening the new Trump facility in Washington D. C. that his project came in on time and under budget.

    He will learn (or may know) that America now has little bench strength in this most complex technology. Our experts are in old folks homes or cemeteries. Our engineering colleges dropped the course work a generation ago. Their grads could not find jobs. He will focus on a regulatory commission which has regulated almost nothing for generations. They, an elephantine organization, have produced paper and litigation but few power plants and have driven the costs and schedules to unsustainable levels. They killed the nukes.

    He may review what needs to be changed.
  • Richard Sittel on November 03 2016 said:
    The article barely mentions solar. Solar is on track to be half of grid electricity's price in just 4 more years. That's with no breakthroughs, just economy of scale. Tell an investor in nuclear that before the first shovel of dirt is turned, his investment will be worth half of what it is now. Then, by the time his new nuke plant is completed, huge cost over runs and all, the average price of solar will be about 1 cent p/KWH, so he won't be able to sell his power without some kind of collusion or government interference. Roof top solar is going to be so cheap in 6 years that a centralized power station of any kind won't be able to maintain the wires and cover the losses to resistane and compete, even if the powerplant produces power for free. Google "God Parity" and read what is coming.

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