Nuclear projects that work financially can overcome opposition

I know that some people avoid long comment threads, so occasionally I elevate a good discussion from the comments section up to the main part of the blog.

A reader who identifies himself as K made a comment on my 25 August post titled Looking at nuclear power as a heat source for Alberta oil sands production that I interpreted to mean that he felt that opposition to nuclear power was a big hurdle to progress. I responded by stating that any project with financial viability could manage to overcome opposition. K asked for clarification and wondered why there have been no new plants in decades if that statement was true. Here is my response.

K:

You ask a good question. My comment about the economic viability of a nuclear project, taken in isolation, was a bit cryptic.

Part of the answer is the one provided by bestonnet – the opposition to nuclear power has been pretty effective in taking actions that resulted in raising the ultimate costs of nuclear power projects.

During the period from about 1985-2000, the other half of the competitive equation was that adequate alternatives to nuclear power, namely oil, coal and natural gas (especially) were cheap enough to make the economics seem to work in their favor.

As long as financial people believed that very recent trends would hold true for decades into the future, they could be comfortable with providing long term financing for projects that were dependent on fossil fuel. Those same finanical people demonstrated that they believed that the most recent historical data points for nuclear power would also hold true long into the future.

At the time those financing decisions were being made, the most recent nuclear plants built in the US had experienced dramatic cost overruns and run into effective delaying opposition.

Possibly the most damaging single data point of all was the Shoreham facility on Long Island, which was never allowed to begin commercial operation even after it was completed and granted an operating license from the Nuclear Regulatory Commission. Take those pieces of information – cheap fossil fuel and expensive nuclear power – draw future conclusions from them, and reasonable people would determine that fossil fueled plants would always be cheaper to own and operate.

More careful and longer term analysis shows a different situation. Many investors in fossil plants in the mid 1990s made a HUGE mistake. They ignored the historical fact that fossil fuel prices, especially natural gas prices, have always been volatile and unpredictable over long periods of time. There have been numerous times, dating back to the start of the Industrial Age in the 1800s when fossil fuel prices have jumped by factors of 2-100 in a short period of time. That kind of price behavior is very risky if you are talking about the raw material needed for an electrical power plant that you intend to operate for decades.

Unless the developers somehow managed to obtain very long term gas contracts, or unless they were a regulated monopoly utility that retained full fuel cost pass through, the plants that they built then are completely upside down and worth far less than what they cost. Many owners cannot afford to run the plants except in the most demanding (and high cost) electrical power service markets.

On the other hand, those investors that took a closer (or luckier) look into the future are making excellent profits by selling electricity from nuclear power plants purchased when others did not want them. The average cost of nuclear generated electricity in the United States is about 1.65 cents per kilowatt hour while the average wholesale price (CINERGY Ohio 2006 from Energy Information Agency tables) for 2006 has been around 5.4 cents per kilowatt hour. That kind of spread between cost and price provides great returns and a good reason why well run nuclear plants are considered to be cash cows.

One more comment about my feelings about regulations. I think that the regulations themselves are not unreasonable, but the time that it takes to review applications is unreasonably long. (I expect that will be refined somewhat as the NRC gets more experience in reviewing current designs.)

I also believe that the fee structure imposed by the Reagan Adminstration needs to be revised. It is discouraging to have a situation where multi-billion dollar companies regularly obtain matching government grants from the United States Department of Energy specifically to pay the United States Nuclear Regulatory Commission fees.

In contrast, at least one innovative company with great ideas (speaking modestly, of course, about Adams Atomic Engines, Inc.) that does not want to ask for government funds, is faced with a projected bill of about $60 million to obtain the government’s permission to build a machine that just might help solve a few minor problems like oil addiction, global climate change, fresh water supply issues, and electrification of developing areas.

Oh well, we are working our way to a solution, but it has been quite a struggle.