Global energy markets are in turmoil over Russia’s invasion of Ukraine and the subsequent energy sanctions imposed by western nations. As we recently wrote, both renewables and nuclear energies are the two immediate beneficiaries of this conflict and the related allied response. For example, on March 19, Belgium announced a ten-year delay in the planned closure of two nuclear plants, Doel 4 and Tihange 3 while doubling its commitment to offshore wind. The most interesting aspect of the Belgian press release, especially for those seeking large amounts of base-load, fossil-free energy quickly, was the government’s emphasis that the life-extended units would not be available for winter heating season until after 2025. We think this underscores a popular misconception about how quickly major capital allocation and operating decisions can be reversed. The ten-year life extension in this case begins sometime in 2026.
The Ukrainian conflict also appears to have ended a deadlock about financing and ownership of nuclear construction in the Czech Republic. The government finally acceded to utility CEZ’s demand for full government financing and what seems like a UK-style sum of the differences tariff for all plant output. However, in the new plant bidding process, both Russian and Chinese companies will be excluded “for security reasons”. Thus far in Europe, only the Germans have stood by their earlier no nuclear pledge.
But what really struck us is the relative timidity of US nuclear power advocates to seize on this obvious moment. Instead, much of our political commentary regarding energy self-sufficiency for the US amounts to “drill, baby, drill.” Contrast this with the announcement last week by Chinese officials that they planned to construct 150 new nuclear plants within the next fifteen years. In the spirit of re-emerging cold war competition, our question amounts to, “what would it take for the US to do the same thing?” We should add that the Chinese government estimated a $440 billion price tag for these 150 new reactors or about $2.9 billion apiece. (Southern Company’s two-unit Plant Vogtle is estimated to cost $34 billion or $17 billion per reactor.)
There are three basic business risks associated with nuclear power for an investor-owned utility: financing, operating, and sales. (Four if you add in new construction risk which is not inconsequential.) The simple reason no US investor-owned utility — apart from Southern Company’s Plant Vogtle—- is building or considering new nuclear investments is the first risk, financing. To paraphrase a former NYC mayoral candidate, the capital costs are “too damn high”. By any metric, nuclear power is economically uncompetitive. According to the recent Lazard study comparing the cost of new power generation, it is about three times more costly than natural gas and five times more costly than new wind and solar.
This begs an obvious question. How can we have more of something if it is wildly, economically uncompetitive? The answer is simple: eliminate the consideration of economics from new power plant development. Take for example a large nuclear construction project at Turkey’s four-unit Akuyu nuclear power station. In the US that is a $40+billion capital project. No US investor-owned utility has the balance sheet to handle multiple unit projects of that size. Only the US government has the borrowing capacity for projects of that magnitude and risk. This, in turn, suggests that new nuclear power plant development will only occur in the US If we compromise on our free enterprise principles and take new nuclear plant development out of the private sector entirely. These enormous financing risks are now impossible to comfortably absorb in a corporate setting where they must be constantly balanced against shareholder interests.
As a final note, for those who say the cost to match China’s new nuclear commitment is inordinately large even for the US government, assuming a cost of $10 billion per new reactor. this enormous sum would barely equal two years of the US Defense Department’s budget before supplementary allocations. And once in service, the plant costs could be spread over 40-60 years. Who would notice?
By Leonard Hyman and William Tilles
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