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What’s Holding Nuclear Energy Back In The U.S.?

In the search for the next generation of large-scale, central station, baseload electric power generating stations, nuclear is the only option that does not emit vast amounts of CO2. For this reason, we believe new nuclear technologies will be revisited as complements to intermittent wind and solar.  Given present concerns about gas and oil availability, uranium is relatively plentiful and (given its energy density) is easier to stockpile than natural gas or oil. Uranium prices, like all commodities, can be volatile. But uranium fuel expense makes up a small percentage of total operating expenses. Over a projected lifetime of operations, a well-run nuclear power plant in theory should resemble wind and solar facilities - high upfront capital costs and relatively low fuel and operating costs.

But this has seldom been the case in practice. Why have nuclear costs outrun expectations and what would be different this time? These questions will linger.

One question in the context of this nuclear renaissance is whether small modular reactors (SMRs) or gigawatt-scale reactors will prevail? Industry advocates will generally say that both serve the market but economies of scale give an advantage to the big plants. Recently,  potential builders of SMRs have claimed that their first plants would cost the same on a per MW basis as gigawatt-scale plants. However, modular plants would be about 40% of the size of the units currently being built and would involve less capital and reduce the risk of so much capital tied up in one project - $4 billion rather than $12billion for example.

From a jobs creation perspective, nuclear revival can be a big deal. Apart from construction, there would be increasing jobs in mining. But we in the US would also have to face our government’s inability to create a safe, underground repository for long-term storage of nuclear waste. And this raises a broader point.

The question in the US, with its variegated regulatory and ownership regime, is whether we can remain comfortable with this technology within a capitalist economic framework. A free-market capitalist system has a tendency to cut corners to advance shareholder/owner interests. While the public might put up with deficiencies in wind turbines or solar panels, it will demand the safest level of nuclear operation, and safety adds to costs and limits operating flexibility. Related: Iraq: Oil Could Hit $100 Next Year

The more we think about it the more we believe that our current investor-owned utility model is increasingly inappropriate for a new nuclear industry. The financial risks are too high and the companies are too small even after all the government insurance subsidies and guarantees. Instead, this suggests the need for an aggressive industrial policy by the federal government which for ideological reasons we believe is less likely to occur. Keep in mind that of the two nations that have had relatively successful nuclear new build programs, France and South Korea, both of these programs were overwhelmingly undertaken with robust government support. We’re not sure this could happen here. 

The Achilles heel of nuclear power is its vulnerability to public opinion. If the public collectively tells politicians that it is afraid of nuclear, regardless of the nation or its political system, the plants will ultimately close prematurely as in the case of Germany. The US Republican party, favoring a pro-corporate deregulatory model, has been aggressively and intentionally undermining the federal regulatory apparatus at the behest mainly of large corporate interests. But it is the federal regulators, and the public's belief in them, that will give a fledgling nuclear industry its legitimacy (via regulatory approvals and authorizations). If the public believes this process is politically corrupted (and we have no reason for optimism here) there is the risk that an accident of any magnitude causes the public to turn against new nuclear development. This could easily halt a promising new industry in its tracks. 

This all assumes that these new plants can be built on time and on budget. If not, it is hard to anticipate a rethinking of nuclear power in the form of the SMR. An industrial consortium in the UK led by Rolls Royce is hoping for an SMR license approval by 2024 with the first unit slated for a five-year build with completion in 2029-2030. The NuScale reactors in the US will also be slated for initial operation in an Idaho test facility in that time period. 

The potential nuclear resurgence is contingent on the public’s faith in government institutions and their ability to assure safe operations of potentially hazardous facilities and materials.  Taking an old nuclear technology, repackaging it into smaller units, and adding on some improvements, may solve some of the financial risk and construction management issues but without public buy-in, we might do better spending the money on something else.

By Leonard Hyman and William Tilles

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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… More