U.S. Needs Real-World Proof of Nuclear Economics

Issue 9 and Volume 107.

By John C. Zink, Ph.D., P.E.,
Contributing Editor

Nuclear energy proponents are optimistic that new power plant orders are just around the corner. Current operating plants’ good performance, a favorable national energy policy, and several utilities’ expressions of interest in licensing new plants feed this optimism. But when it comes to companies making the large capital expenditures required for new plants, will it really happen?

Ultimately, economics determines the commercial success of any energy source. But it is not always clear how to determine the true cost of a given generation technology. The acid test, of course, is whether or not companies risk their own funds to invest in a particular plant. When making an investment decision, a company performs economics calculations which take into account such things as government regulations, cost and price projections, interest rates and market conditions. Public policy plays a major role in establishing the business conditions facing company decision-makers and, hence, has a major effect on the decision. Thus, politics and economics are intimately intertwined.

The latest Senate energy bill proposes to stimulate nuclear power plant construction through loan guarantees or through long-term power purchase agreements. With these provisions, legislators seek to reduce companies’ uncertainty in pursuing construction of new-design plants under the new, untested government licensing process. Nuclear power supporters consider this provision only fair, since the government has created the hurdles it now seeks to diminish. They point out that the proposed loan guarantees may never require any government funds; nuclear energy opponents, in contrast, assume the government will have to cover massive future loan defaults. Thus, both arguments rest on speculation about the future.

Nuclear opponents consider the reauthorization of the Price-Anderson nuclear insurance guarantee a subsidy, even though it has been a net money-maker for the government over the past 45 years. They assume there will someday be a catastrophic accident larger than industry experts can reasonably postulate. Again, the arguments are based on speculation about the future rather than on verifiable information. However, it does seem that 45 years of experience should trump 45 years of speculation which, so far, has proven groundless.

Nuclear supporters point out that the government provides wind energy developers with a direct subsidy in the form of a 1.9¢ per kWh tax credit, which could amount to $15 billion this year, alone. This is a real — not a theoretical — subsidy for a supposedly commercial technology. The tax provision has fueled massive new investment in wind energy recently, as developers rush to install windmills before the tax credits expire at the end of 2003. In contrast to the subsidies it gives the would-be commercial windmills, the government does not directly subsidize commercial nuclear power plants. Instead, the government’s nuclear dollars focus on developing advanced technologies which may solidify the country’s energy future.

Ignoring all of the subsidy arguments, which will never be settled, how much does a new nuclear power plant really cost? Until some company actually builds a new nuclear power plant, we are condemned to play an endless numbers game. Recently, the Congressional Budget Office estimated it will cost $2,300 per kW to build a plant of the new Westinghouse AP 1000 design. The U.S. Energy Information Agency estimates such a plant will cost $2,035 per kW. Westinghouse and Bechtel combined forces to do a detailed analysis, and they project that, for the first two plants, the average cost will be about $1,400 per kW, declining to as little as $1,000 per kW by the time six or seven of these standardized reactors are built. Naturally, the only way to determine for sure which is the most accurate forecast is to actually build an AP 1000. Then we will see how the interactions of engineering costs, licensing costs, construction costs, raw materials prices, interest rates, inflation, etc., play out in the real world. If it takes a loan guarantee or a long-term power purchase contract, then let’s do it. The guarantees will probably be a lot cheaper than still more inconclusive studies by government agencies, each with its own agenda.

These competing economics arguments remind me of my experience as an engineering professor 30 years ago. The engineering faculty hosted frequent seminars by experts whose studies demonstrated that their favorite energy source was more plentiful, more environmentally sound and more economical than any of the sources then in commercial use. Whether it was photovoltaics, wind, tides, geothermal or whatever, the bottom line was always that the decision-makers in the business world, who had put their jobs and their companies on the line, had blown it: the seminar speaker had the only good solution to U.S. energy needs.

That was nonsense then, and it is still nonsense.

It’s time to get past the never-never land of endless studies and into the real world of building and operating the new generation of advanced reactor plants. Only then will we truly know how they stack up economically.