Low Natural Gas Prices Make Nuclear Power a Losing Investment

Low natural gas prices have thwarted investment in nuclear generators in the US and federal loan guarantees will not help nuclear power reach parity, experts said.

Even before the accident at the Fukushima nuclear plant in Japan, nuclear power was seen as a losing investment, with cost estimates continuing to rise while the price of other energy sources fell, said Peter Bradford, former member of the US Nuclear Regulatory Commission and adjunct professor at Vermont Law School.

"Wall Street rating agencies were uniformly sceptical," he said.

Last year, utility Constellation Energy abandoned plans to add another nuclear generator to its Calvert Cliffs facility in Maryland. Exelon, which plans to merge with Constellation, withdrew plans for a nuclear expansion in Texas after reviewing its low-carbon options and finding nuclear to be more expensive than its other choices.

"Industry spokespeople will use Fukushima to obscure the fact that new nuclear has been priced out of the market in the US for many years," Bradford said. "Under these circumstances, adding additional exposure to American taxpayers in the form of nuclear loan guarantees now being proposed in Congress can't be justified."

Likely influenced by the nuclear accident, a March survey by the Civil Society Institute found that 73% of US residents do not want loan guarantees for nuclear plants.

"While I know the Senate is very much pro-nuclear, I'm not certain the kind of subsidies that nuclear power needs are going to last very long," said S. David Freeman, former head of the Tennessee Valley Authority and the Sacramento Municipal Utility District.

Nuclear more expensive than coal, gas - Jeffries

The cost of building a nuclear plant varies from $4,500 per kW, as estimated by NRG for its cancelled project in Texas, to $6,350/kW estimated by Southern Company for its Vogtle project in Georgia, said Paul Fremont, managing director of equity research at investment banking group Jefferies. Nuclear represents the highest cost option to construct compared to traditional technologies such as coal, at an estimated cost of $2,000-$3,000/kW, and gas combined cycle units at $950/kW.

The best economic alternative is to build gas-fired generators based on forward prices ranging from $4.40 per thousand cubic feet (Mcf) in 2011 to $6.00/Mcf in 2015, according to a Jefferies analysis. Absent US government subsidies, gas prices would need to be $8.50/Mcf or higher to earn reasonable (10%) returns on a new nuclear plant. But even with government support such as loan guarantees and production tax credits, gas prices would need to be $6.66/Mcf to earn a 10% return.

"Based on where gas prices are today, it's unlikely that you will see new investment in nuclear beyond projects that are currently on the drawing board," Fremont said.

The Vogtle project is the only one out of the few nuclear projects in the US pipeline that seems to be moving forward and it is being built with agreements with state regulators that will allow Southern Company the opportunity to recover the cost of its investment, plus a return on investment, in the price of electricity, he noted.

"It takes close to a monopoly police state and subsidy for a nuclear plant to even be considered," Freeman said.

More wind and solar facilities have been built in the US in the last three years than coal, while no nuclear plants have been built for 30 years, and state-level renewable portfolio standards will require 73GW of extra renewable capacity between now and 2020, he noted.

"The renewable resources are getting cheaper every year and the revolution is underway in 29 states that have enacted mandates," Freeman said. "Anyone counting on a renaissance in nuclear power is betting on yesterday rather than tomorrow."

By. Gloria Gonzalez

Source: Environmental-Finance