Nuclear power has one last chance to thrive in the United States

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Once again, we are on the cusp of a nuclear renaissance. Actually making one requires something that nuclear power isn’t known for: speed.

Nuclear power plants produce carbon-free energy, are not dependent on fossil fuels subject to bad things like European wars, and operate at high capacity factors. Hence, in these troubled and climate-conscious times, the renewed interest. As it stands, the United States is home to the largest fleet in the world, generating 18% of the country’s overall electricity and almost half of its carbon-free electricity. The vast majority were built in two waves in the 1970s and 1980s, with an average age of 36.

There are two sides to an evoked rebirth. One is a breath of fresh air for existing factories. More than 10 reactors have shut down in the past decade, largely because cheap shale gas has driven down electricity prices and booming renewables have also taken hold.

All that has changed. Gas prices hit a 14-year high this summer and 2023 power futures in the Mid-Atlantic region, for example, have risen more than 50% since January. Several states, such as New Jersey and Illinois, instituted subsidies after a chicken party, with plant operators threatening to shut down. The Inflation Reduction Act took this nationwide with a federal tax credit. There is even an additional tax credit for green hydrogen, which existing nuclear power plants can potentially produce in excess electricity or heat.

All this represents a bargain for a set of assets that are by definition rare. It’s no wonder that Constellation Energy Corp., the merchant nuclear arm of Exelon Corp., has more than doubled in value since its January spin-off.

The flip side of this rare asset premium, however, is the reason for the scarcity. The last reactor was commissioned in 2016. Not only was it the first in 20 years, but construction began more than 40 years ago. This is the second, more difficult aspect of rebirth: reviving the lost art of building new factories in the United States.

The fall from grace of nuclear power is often attributed to the Three Mile Island accident in 1979, which stoked public distrust and overzealous regulators. But nuclear was already in trouble. Many projects had been canceled before 1979, partly because it already took a decade to plan, authorize and build a factory(1). Investment costs soared long before Three Mile Island, more than doubling in real terms between 1971 and 1978, flouting the conventional wisdom of larger scale leading to efficiency gains.(2)

The biggest problem, however, was that the world had changed. Nuclear power was first commercialized during the booming 1960s. Electricity consumption jumped 7.3% a year between 1960 and 1973, so utilities rushed to build giant new reactors, hiding the costs by spreading them on taxpayer bills.

The first oil shock in 1973 initially triggered nuclear euphoria. Former President Richard Nixon’s “Project Independence” called for the construction of 1,000 reactors (we peaked at 112). But the oil shock has dampened economic expansion and revived energy conservation. Annual growth in electricity consumption slowed to 3.2% between 1973 and 1978, 2.5% from there to 2000 and only 0.5% since. Meanwhile, rampant inflation, and then blistering interest rates, were a poison for major capital projects.

The bankruptcy of the Washington Public Power Supply System in the early 1980s exemplified this collision of rosy demand assumptions with new economic realities, burdening taxpayers with billions of dollars in costs for half-built abandoned power plants (see this). The same thing happened as recently as 2017 with the abandonment of two unfinished projects in South Carolina (see this). Two other new reactors have also been built in Georgia and should start up next year. But they are far from good public relations; massively over-budgeted and delayed, they owe their completion to regulators who download much of the cost to taxpayers.

Meanwhile, as much as climate change strengthens the case for nuclear power, it has also strengthened the alternatives. Not just renewable energy and batteries, but conservation now enhanced by distributed energy technologies and sophisticated demand management tools. Unlike nuclear power, the cost of these technologies has fallen rapidly.(3)

In building a new plant today, therefore, any developer faces a contemporary version of the same problem that has existed for half a century: how to ensure that the economics of a new project are as favorable when is posted only when it has been proposed. . A conservation miracle and economic upheaval disrupted the 1970s, just as a financial crisis and a shale boom derailed another renaissance hinted at about 15 years ago. Competing cleantech cost trends and all that the 2020s generates is between now and the likely start of new large-scale projects in the 2030s.

This is why the current renaissance is focusing on the development of small modular reactors, or SMRs. These generate perhaps a hundred megawatts – a tenth the size of conventional reactors – or less and could be built in series, like components in a factory, rather than the usual bespoke projects. “You lose efficiency due to smaller scale, but you might gain on mass production,” says Neal Mann, an energy systems engineer at Argonne National Laboratory. Companies such as NuScale Power and TerraPower LLC, founded by Bill Gates, aim to roll out initial commercial projects in the late 2020s.

Above all, that word “modular” offers the enticing prospect of dealing with the recurring problem of taking big bets on plants that won’t light up for years. Although solar and wind projects do not offer dispatchable power like nuclear power plants, they can be built relatively quickly, cheaply, and in stages, depending on changing market conditions.

Although it has been talked about for years, SMRs have not yet arrived. “There are no good cost estimates [for SMRs] because no one actually built any,” says Jonathan Koomey, a researcher studying the costs of energy technologies and co-author of a forthcoming book “Solving Climate Change.” Given nuclear power’s track record, he adds, “what we need is a construction time and cost that we could accurately predict.” more years. That means full-scale commercialization is probably at least a decade away. So what will be the cost of competing technologies?

The point here is not that SMRs are doomed. On the contrary, although they are an obvious potential solution to nuclear power’s biggest problem – that is, its size – they are still fraught with risk. Compare what happened during the stock price of Constellation, capitalizing on the zeitgeist with existing assets, to that of NuScale, trying to build a new future.

So, as with all nuclear power plants built to date, the government must underwrite this risk to some degree. For existing and new plants in Georgia, this meant guaranteed cost recovery for regulated utilities. Today it is grants and grants and development loans.

There’s nothing inherently wrong with that; virtually every energy source has relied on some subsidy or other at some point. But that means this potential revival, like others before it, remains dependent on the often capricious support of society. Energy markets are often described in cycles, with supply and demand and prices rising and falling. Nuclear power is different: the fleet there has remained largely unchanged for decades; it is our emotional relationship with her that waxes and wanes. Typically, discussions of nuclear energy return in the midst of a perceived crisis, whether it’s an oil shock or conflict. It’s like an insurance policy against energy anxiety; which is logical, because taking into account these (unpriced) risks makes nuclear energy appear more competitive.

We are at a time when all the stars have seemingly aligned: climate emergency, energy security concerns, new technologies, new subsidies and government intervention in broader energy markets. The corollary is that, with our networks undergoing fundamental change and net-zero goals hanging over us, if this so-called renaissance does not develop, there is unlikely to be another.

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(1) Source: “Special Message to the Congress on the Energy Crisis”, delivered by former President Richard Nixon on January 23, 1974.

(2) The investment costs of nuclear power stations increased by 142% in real terms, on average, between 1971 and 1978, or 13.5% per year. Source: “Rising Power Plant Costs: Nuclear and Coal Capital Costs, Regulation and Economics”, Charles Komanoff (Van Nostrand Reinhold, 1981).

(3) Levelized cost of electricity, or LCOE, is a standard way of comparing different sources of generation. It is basically the estimated overall cost of building an energy project per unit of electricity, using long-term assumptions about production, fuel costs, etc. Al. It’s also an imperfect metric, not least because it doesn’t capture things of value like dispatchable capacity – that is, the ability to provide additional power when needed – or, often a carbon price. With all these caveats, however, the underlying cost trend is unmistakable here.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Heard on the Street section of the Wall Street Journal and a reporter for the Lex section of the Financial Times.

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