The Economics of Nuclear Power

This past week, the Nuclear Regulatory Committee granted a license to Southern Company to build and operate two new nuclear units at the Vogtle Nuclear facility in Georgia [1]. The original two units at the site have a gross capacity of 2,430 MW [2]. The two new units would add approximately 2,200 MW, making Vogtle the largest nuclear site in the United States. Currently, that title is held by Palo Verde, which is rated at almost 4,000 MW [3].

While the argument over whether nuclear power is safe will continue in this country, this development in Georgia could signal that we are in fact on the path to the so-called “nuclear renaissance”. There are other applications pending at the NRC, and the owners of the proposed two reactor expansion to V.C. Summer plant in South Carolina are hoping their license approval will come within the next few months [1]. Other utilities, however, while considering new nuclear reactors, are planning on waiting to watch how Vogtle and V.C. Summer turn out, specifically watching for cost escalation [4].

The rise of nuclear power in the 1970s was marked by extreme cost increases. Vogtle 1 came online in 1987, and Vogtle 2 followed in 1989.The project took 15 years to come to fruition, and cost over $8 billion, which was a cost overrun of more than an order of magnitude [5]. Besides public perception , cost issues have been one of the big drawbacks to nuclear power. The projections currently for the two new Vogtle units are around $14 billion, $8 billion of which is under federal loan guarantees, and $6 billion that is covered by Georgia Power ratepayers [1].

This new nuclear project, as well as other proposed sites in the US, is only made possible by laws in those states allowing the utilities to charge the customers in advance. With such high capital costs, this is the only way the utilities can raise the money, but this places a high burden on ratepayers. The customers pay riders on their bills before the plants are built, and often they are paying despite the fact that the plant may never exist. Georgia Power customers are already paying, and their monthly bills will go up by $8.75/month in the few years before the new Vogtle units enter operation [6]. Progress Energy customers in Florida are already paying for the proposal to build Levy Nuclear units near the site of the Crystal River Nuclear Plant. They recently underwent a contested rate case to fund the nuclear permitting process. The NRC is not expected to review the permit application for Levy until 2013 or 2014 [7].

While nuclear does have extremely high upfront capital costs, once these costs are paid off, nuclear reactors have lower operational costs and make large amounts of money for the utilities. Additionally, should the US get serious about carbon legislation, the large cost bet of building nuclear could pay off. However, it will remain to be seen if the Vogtle units can be built by 2016 and 2017, respectively, and within the $14 billion budget. All US utilities are watching this project, and it is this project that could determine how the country moves on nuclear power.

 

[1] http://www.nytimes.com/2012/02/10/business/energy-environment/2-new-reactors-approved-in-georgia.html

[2] http://www.southerncompany.com/nuclearenergy/vogtle.aspx

[3] http://www.aps.com/general_info/aboutAPS_18.html

[4] http://www.nrc.gov/reactors/new-reactors/new-licensing-files/expected-new-rx-applications.pdf

[5] http://www.nytimes.com/2006/07/16/magazine/16nuclear.html?pagewanted=1

[6] http://www.truth-out.org/nuclear-regulatory-commissions-vogtle-reactor-approval-should-blow-lid-nuclear-finance-scam/13289841

[7] http://www.marketwatch.com/story/progress-energy-florida-reaches-multi-year-agreement-with-consumer-advocates-regarding-crystal-river-nuclear-outage-levy-county-nuclear-project-and-related-rate-issues-2012-01-20

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