The first new nuclear plants to be licensed in the US since 1978 will be under a financial and operational microscope as investors, regulators and customers watch for any delay that could add to costs or impact the planned start date.
The nuclear energy industry’s leadership gathered in New York City today for a briefing of financial analysts, but their timing had extra weight as the Nuclear Regulatory Commission met in the afternoon and approved Southern Company’s Vogtle plant project in Georgia in a four to one vote as the first new build nuclear facility in the US in more than 30 years.
Close behind Vogtle in the approval queue is SCANA’s Summer plant reactors, and both will be under enhanced scrutiny, the Nuclear Energy Institute’s senior director of business policy and fuel supply, Leslie Kass, told Breaking Energy.
“All eyes are on these first two bellwether projects,” Kass said, and although multiple layers of additional transparency have been built into the financing and the project oversight for the proposed units in recent years, the industry’s concern remains that any small disruptions could be blown out of proportion in the public perception of the high-profile units.
The combination of multiple owners and investors for each of the projects, all with their own transparency processes, a more aggressive approach by state regulators than during the last round of nuclear energy additions, and rolling reviews for each project, the process has become “very” transparent, Kass said.
The ability of state public commissions to comprehend the advantages of nuclear’s long operating life as well as the potential for diversification from looming reliance on natural gas as a generating fuel in the wake of coal plant closures has been central to moving the two new nuclear projects along, NEI president Marv Fertel said at the analyst briefing.
The long-term outlook of nuclear operators and the history of reliance returns and improving electricity output from the US nuclear power fleet has also underpinned continued interest from lenders and investors in the sector, even as they remain wary of long-term generation investments in actively traded “merchant” energy markets in the US, Kass said.
“Building new nuclear in merchant markets will be very challenging until the operators of those markets find a way to monetize grid stability,” which constantly-operating nuclear baseload generation can contribute to, Kass said.
For now, financing for nuclear units in areas where public utility commissioners are open to including the cost of new plants in the rate base remains favorable, Kass said, pointing out that at least one bond offering in 2011 had been oversubscribed.
Beyond the two projects preparing for approval and the start of construction, the US nuclear industry faces headwinds for new construction, and NEI’s Fertel pointed out that most of the significant capital expenditure by the nuclear business in 2011 had been in existing units. A weak national economy that has weighed on electricity prices and demand combined with extremely low natural gas prices have limited the appeal of new nuclear units even in areas where regulators and investors are enthusiastic about additions.
The economy could turn in the next 2-3 years to the point that power prices show strong enough recovery to justify widespread new additions, Kass said, with an anticipated rush in building a couple of years beyond that, though she cautioned that economic forecasting is “anybody’s guess” amid continued volatility across markets. The natural gas price impact was also site and situation-specific, but some energy companies have said they could make new nuclear attractive even at the historically low price of $4.00 per thousand Btu – a price still roughly twice that garnered in recent trading. At a $7-8 natural gas price, new nuclear is a “no-brainer,” said Kass.
Watch Kass discuss the economics of the nuclear business in a video interview with Breaking Energy here.
Overall, the US nuclear industry turned in a strong year in 2011, down only slightly in terms of total power produced after a record 2010 despite multiple challenges that included an East Coast earthquake and widespread flooding, as well as public perception problems and increased regulatory oversight following the accident at the Fukushima nuclear plant in Japan after a March earthquake there.
Photo: International Atomic Energy Agency (IAEA) Director-General Yukiya Amano speaks during the 55th International Atomic Energy Agency (IAEA) General conference at the IAEA headquarters in Vienna on September 19, 2011.