Like it or not, the nukes are coming – the big question is how fast

The Houston Chronicle serves a reader base that includes a high percentage of people in the energy business. The city’s prosperity has risen and fallen and risen again as the energy markets have fluctuated during the past 100 years. The primary focus of Houston’s energy business has been oil and natural gas, but there are a number of important reasons why its leading businessmen might become major figures in the coming nuclear renaissance.

On February 16, 2008, the Chronicle ran a story originally written by Robert S. Boyd of the McClatchy Washington Bureau on February 9, 2008 titled Energy crisis making way for ‘nuclear renaissance’. The lead for the article can be read as a warning to Houston’s established energy giants, or it can be read as an announcement of a growing opportunity – “Like it or not, the nukes are coming”. Not surprisingly, I am enthused by the announcement and hope that some of the enormous piles of cash currently accumulating in Houston bank accounts gets deployed into new nuclear power plant investments.

As far as I can tell, the Chronicle was one of the only newspapers to pick up this story from McClatchy. It seems likely that the editors chose the article as a follow up to an internally written article by Tom Fowler that the paper published Friday, February 15, 2008 titled Snags seen for nuclear power. That article included some opposing views about the difficulties that the nuclear industry will face as it is spooling up its capability to build dozens of new nuclear plants. Some of the expected difficulties include a slower than expected review process for new projects, difficulty in retaining skilled regulators in the face of utility competition, rising costs of raw materials, and political challenges. Here is an important quote from the article:

Others at the conference were more skeptical about the pace of new reactors.

Michael Morris, chairman and CEO of power plant operator American Electric Power, said the likelihood of legal challenges is keeping his company from being part of the “first wave” of new reactor applications.

And John Deutch, the former CIA director who is now chairman of the chemistry department at the Massachusetts Institute of Technology, said he sees political trouble ahead for nuclear power.

If a Democrat wins the White House this year, Deutch said, it likely will embolden nuclear opponents, while the ongoing struggle to develop a long-term radioactive storage facility in the United States “increases the intensity of nuclear skeptics.”

I know that there are a couple of partisan readers who get a bit irate when I say this, but the nuclear industry simply has to make peace with both parties. The industry is not a fad and it requires steady, long term investments in order to thrive. No matter what your party affiliation is, you must be aware of the fact that there are presidential elections every 4 years and there is always the chance that the party of the person in office is going to change. There is no way that investors are going to put up tens of billions of dollars if it seems that the value of the investment is going to dramatically change with the political winds.

I like the way that the UK has gone about deciding to implement its encouragement of new nuclear plants. Not only has the government stated up front that there will be no subsidies, but the opposition party has also come out and said that they are not going to seek changes to the rules that are being established now. The economics of the business are such that subsidies are not really needed if there is some assurance that the rules of the game are going to be reasonably predictable. Here is a quote from a good overview article of the nuclear decision in the UK titled Nuclear power is ‘vital’ to Britain:

The Conservative opposition party responded by saying that its position appeared similar to that just announced by Hutton and that potential nuclear power plant owners could be confident of a stable investment climate under a Conservative government.

Since the decision was made public, there have been numerous announcements of interest – the speed of the announcements has been just as rapid as the shift in the US after the passing of the Energy Policy Act of 2005. That act included a number of supports for the nuclear renaissance that have caused utility leadership and the investment community to become “interested” in nuclear power, but the succeeding two and a half years have also shown that the interest is cautious since there is still a large amount of uncertainty about the reliability of the government involvement. On the grand scale of the energy industry, the dollar amount of new investment in nuclear power is pretty minor so far.

Of course, there is one major difference in the market position of nuclear fission in the UK compared to its relative economic position in the US – the free use of the atmosphere as a fossil fuel waste dump has already been halted. When fossil fuel burning utilities must pay for the waste handling service provided by all of the rest of us – by sacrificing some of our right to clean air – emission free nuclear power is suddenly far more competitive and requires no assistance.

Disclosure: I think it is worth mentioning again – for any reader that does not know – that I have a vested interest in wanting a steady regulatory environment in which to develop new nuclear power plants. As the founder of Adams Atomic Engines, Inc. I have been involved in a number of discussions with major potential investors, and the uncertainty factor is a huge topic of discussion. Contrary to what some people who read investment oriented books might think, successful long term investors do all they can to avoid the risk of losing money.