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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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What Is Holding U.S. Nuclear Energy Back?

  • While Europe appears to be turning to nuclear energy, high costs are stopping the U.S. from following suit.
  • Only the US government has the borrowing capacity for the large-scale nuclear projects that would be necessary.
  • Chinese officials announced a plan to construct 150 new nuclear plants within the next fifteen years, the U.S. government should be taking note.

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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  • Lee James on March 24 2022 said:
    Nuclear power is surely up for debate. I appreciate the update in the article on China's plan for 150 nuclear plants; also for how plant costs are running.

    One question I have, in the area of cost, is whether newer designs involving a smaller, more modular plant is any more cost-competitive than a traditional jumbo sized one.

    Another question is about fuel for an atomic plant. My impression is that uranium supply is currently a challenge. What will fuel cost look like when China switches over to a whole new level of nuclear power?
  • George Kamburoff on March 25 2022 said:
    "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."

    Not just that, but solar can be put up very quickly at under 2 cents/kWh. With AGW ramping up we have neither the time nor the money to spend on these costly technologies.
  • Bill Tilles on March 30 2022 said:
    To Lee James,
    Thanks for the thoughful questions. As to whether newer SMR designs are cheaper the answer is yes, but. They are only cheaper because they are smaller. On a per/kwh basis they appear to be comparably priced vs gigawatt scale reactors. Like buying an eight seater car for $80,000 or a four seater for $40,000. They are identical on a per passenger basis.

    As for uranium supply challenges of China’s large projected nuclear new build: We would point out that in terms of security of uranium supply to the US, the largest producers are in northern Saskatchewan (Canada) and Kazakstan with significant production in Wyoming and tribal lands in the US west. However at least 10 states in the US have commercially identified deposits.
  • bill tilles on March 30 2022 said:
    To Mr. Kamburoff:
    We agree. Solar (and wind) are existing proven technologies unlike next generation nuclear reactors that are barely entering the prototype stage of development. And yes they can be put up cheaply and relatively quickly certainly when compared to the ten year construction times for new nuclear in the US. In addition any excess energy could be devoted to produce other green fuels like hydrogen.

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