Nuclear energy’s unpopularity on Wall Street should be ringing endorsement
People lined up to oppose nuclear energy development often resort to an interesting argument to use against it. According to the frequently repeated line, nuclear energy investments are so risky even Wall Street is not interested. Here is an example quote from an article titled Senators warn nuke plan poses severe risk
Sens. Rob Hogg of Cedar Rapids and Joe Bolkcom of Iowa City are telling Iowans that nuclear power is too risky to attract Wall Street investors.
I have been following financial news for many years, with a particularly strong focus in the past five years. Wall Street loves risky investments with rapid payoffs; those are the kind that make quarterly and annual reports look good and result in enormous bonus checks for the traders.
The investments that Wall Street avoids are those that require patient capital, vision, and a desire to disrupt the status quo. Wall Street loves collateralized debt obligations, leveraged buyouts, and pooled, sub-prime mortgages.
I like the fact that Wall Street is not terribly interested in nuclear energy. It is an investment that benefits Main Street and the rest of us for whom steady earnings and growth are more important that amassing vast wealth for little effort.
It is also amusing to hear hard core left wingers like Harvey Wasserman using the “Wall Street does not like nuclear energy” argument. I always thought that people on the left did not like or trust Wall Street investors.
Equivalents of the wall street do not develop nuclear power in other countries either. Maximum nuclear construction is going on in China, where all the developers are state owned. EdF and Areva are mainly French govt owned. So are the Russian or Indian nuclear power establishments. however, established plants can be run by corporate world in some cases.
In the US also, the new designs will have to be sponsored by the departments of defense and energy. Development of AP-1000 has been sponsored by China. It can now be built in the US. You can pray for the development of Prism to be sponsored by the UK.
All failing, the Chinese or Korean developed designs will be more cost effective than the domestic US products.
The favorite type of deal on Wall Street seems to be where money keeps changing hands until it finally all disappears into the pockets of those who handled the money on its way by. Actually making something, be it electricity, nuclear reactors, automobiles or cast iron fry pans is just some messy detail.
I previously worked for a company that was once well regarded on Wall Street. The company’s priority statement said that profit is priority #1, as it enabled everything else. While the company is still around, it is a shell of what it once was.
Important and necessary as it may be, profit is a byproduct of doing priority #1 – delighting customers with products and services of superior value.
Indeed – why would financial speculators be interested in boring long-term infrastructure projects?
On the other hand, disinterest/aversion from Wall Street can’t be taken on its own as a ringing endorsement. There are other projects that Wall Street would also avoid, for reasons other than timescale of returns.
Rod, I agree fully with this observation. Energy issues are just too important to be left to the markets alone, because energy plays such a pivotal role in every society. And yes, gas turbines may be relatively cheap with seemingly fast payback periods, which investors and Wall Street analysts obviously like, but natural gas prices can also be very volatile. Just remember what happened in 2000/2001. Enron and the State of California come back to mind !
I admire the French approach, which is to acknowledge that nuclear power, thanks to its energy density, has the lowest costs for all of society in the long run, even if you include “nuclear waste” costs. French electricity prices are among the lowest in Europe. It may be very socialist, but the collectively owned (=state owned) enterprise EDF provides electricity for its businesses and citizens at the lowest possible costs. Price-gauging middlemen are effectively eliminated. This is very much in contrast to Britain, a paradigm of liberalised energy markets, where people and businesses pay a lot more for electricity.
@Camiel, where as I agree with the facts about the French program, they didn’t do it for ‘costs’. They did it to get off of oil. It was a security question after the Arab/OPEN boycott of the West after the Yom Kippur war in 1973.
I have been arguing against the Libertarian view that “The Market” is somehow the final arbiter of all things good and bad. This view is completely a-historical and is more faith-based than serious political economy. But it entails another discussion altogether.
I’ve also hit my nice Uncle Harvey on multiple occasions about his ‘faith’ that is, his faith in Wall Street. Rod’s excellent title for this is spot on. For quite a long time capital generally flows to that which is most profitable in the shortest amount of time, for the greatest gain. That is, toward speculative, not physical economic investments. This has been in trend since the 1920s in the U.S. but it picked up after the repeal of Glass-Stegal and the revision of the Banking laws under George Bush, Sr (but supported totally in a bi-partisan fit of insanity).
All great civil engineering projects involving energy, bar none, were herded through society by The State, in one form or other. Exactly because private initiative, thought great at times, cannot provide the regulations, security and financial “big guns” in order to see the projects through to completion.
I expect memories of the privation that the French people suffered under German occupation (when the Anglo-American blockade cut off their access to imported fossil fuels) may also have played a role in France’s embrace of nuclear power.
In the netherlands, the TU Delft has recently completed its final report on the design of a (trademarked) low-cost, low-power prism-type fuel blocks helium cooled reactor concept called “ubattery”. They considered various versions of the reactor ranging from 1MWth to 20 MWth. The research was in part funded by a small investment company which has as its market philosophy: investment into long-term stable-return projects that are a benefit to society.
Are there no parties on Wall Street who have a similar philosophy? No-matter. Apparently, there are parties outside of wall street who are willing to invest.
The report is here. It includes the names of the different sponsors of the project.
It costs several billion dollars to build an oil rig. Large oil rigs are comparable to a nuclear plant in investment costs. There is no reason private investment can not do this, given that we stop subidizing anybody. No more subsidies for coal, oil, wind, solar, biomass. Then let’s see what the market decides to do about rising electricity consumption.
If investors are afraid of the costs and risks, this is no coincidence. Antinuclear groups have campaigned with that precise objective: to make nuclear plants too expensive to build, to harrass them with regulations, to block essential permits, and to create an atmosphere of fear and uncertainty about them – they have largely succeeded in the west.
The hesitance of wall street into nuclear projects is due mainly to the over regulation of the nuclear industry (see SOARCA) along with the regulatory uncertainty and you have why nuclear projects are an anethema.
The “faith” in the market system is that the market should be allowed to identify the most efficient solution with the minimum expenditure of capital. The problem that we have in the US is that even as free as the market is it is sufficiently skewed with subsidies (coal and oil subsidies are actually fairly trivial per unit produced) for renewables that they look good. There are other market failures with the fossil fuel industry not being fully accountable for their externalities that are non trivial. Then add in the market failure with the over regulation of the nuclear industry and there you have it.
It is fundamentally a policy issue just not the sort that needs increased distortion and pushing a collective good. We need to address the market failures. The private sector should be entrusted with determining what it deems best vice being told what is best.
People in higher management and executive positions I talk to about considering new nuclear tend to dismiss nuclear precisely because of what you write here.
Even if they themselves understand the technology and the massive potential of nuclear, the expected effort needed for public relations, marketing, consultation, legal costs, political risk, etc. etc. are enough to put them off almost completely.
However, I have noticed that the ‘inherently safe’ class of nuclear reactors seem to be found quite attractive still. I think in my part of the world, the inherently safe reactors still have a good chance of meeting all the needed public relations and political challenges. Then, when the noise about Fukushima blows over (and if the Japanese don’t throw too much money away at unnecessary so-called ‘nuclear clean-up’ costs!!!) then we could have nuclear back in the positive light within acceptable time, I think, ready to be invested in. No?
Washington just announced yesterday that fresh drinking water will be a trigger in wars in South Asia, the Middle East and North Africa starting in 2022.
These conflicts will create fog over the key issues that the US must solve with these countries.
Now, Washington and Wall Street should smell the opportunity today to build nuclear plants to desalinate water and provide electricity all over these parts of the world.
But hey, we know what’s going to happen with fresh water in 10 years, why should we act now? Let’s have everybody go ballistic and see what happens when the basic human needs are not met.
March 30th it is !
The U.S. Nuclear Regulatory Commission is poised to award Scana Corp. (SCG) a license to build two reactors in South Carolina, the second such action after a three-decade drought.
The NRC will vote March 30 on the Cayce, South Carolina- based company’s proposal to build two units at its existing Virgil C. Summer plant, about 26 miles (42 kilometers) northwest of Columbia, the agency said today on its website.
I have 5 bucks saying that Dr J will vote against Scana. What a bad image this sends to the outside world. That’s not leadership.
Yesterday, I heard of a joke that Commissioner Magwood allegedly told at the recent Regulatory Information Conference at NRC headquarters.
He said that they had decided to move the conference to a bit later in the year for this year after having bad weather at last year’s conference. Then they decided to vote on the weather.
The vote ended up 4-1 in favor of good weather.
Jaczko, quite the contrarian on the Commission.
Looks like you won if anyone took you up on the offer.
I’m forced to point out that ‘Wall Street’ doesn’t seem to be any more enamored by coal burning power plants ether these days and again because of fears that these projects would run afoul of regulators or environmental protests.
Electric power has become almost pure infrastructure and should be treated as such. It is not practical (or indeed beneficial) to fund infrastructure by selling equity but it is quite practical to do so by issuing debt instruments. Currently however the rule that govern debt issuance by entities like utilities are locked in the distant past and are made at too many levels of government creating a patchwork effect that is difficult to navigate both by the potential issuer as well as the potential holder. Overhauling this aspect would go a long way to improving the investment climate for these projects.
That is not to say that changes in other policies, like safety and environmental are not needed, but they shouldn’t be the only areas that are looked at.
Right you are DV82XL,
Utilities run boring businesses. Not unlike a Telco where operating risk is very low. In order to increase the overall risk (and hence returns) of their boring business, financing sources such as debt must be chosen to increase leverage.
Oldest trick in the book.
Actually Westinghouse is a stock traded company. Ticker TOSBF.
I think it trades on NASDAQ.
It looks like NEI will be stepping up its funding of pronuclear advertising.
“The NEI, which represents companies including Exelon Corp. and Southern Co., is also doubling its advertising spending to roll out a campaign from this month to promote atomic power. The campaign is due to feature in media including The Daily Show with Jon Stewart, the Emmy-award winning Comedy Central show, the Economist and Facebook.”
In case anyone hadn’t seen yet, the V.C. Sumner project was voted on today and the vote was 4-1 (as expected by me).
Dr J thinks that after 2 approvals in more than 30 years, things are going too fast. He is now warning of severe delays in future approvals.
Tuesday, November 6, 2012 could be a very important day for nuclear power in this country.
You are man of few words. But please be more generous in this case…
OK I get it … The US presidential election. Being from Canada, it did not click. I hope Obama loses on the energy policy issue alone like Carter a while ago.
5$ gas this summer? I sort of hope so.
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