High Operating Costs Spell the End for Nuclear

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Energy

America’s nuclear power era began in the 1940s. Lewis Strauss, a chairman of the Atomic Energy Commission, made a famous prediction about nuclear power in a 1954 speech.

He said it would someday make electricity “too cheap to meter.”

Fast-forward 60 years and we’ve learned the truth about nuclear power.

Strauss was very wrong…

Long-term energy investors should be wary of nuclear energy. Why?

Truth is, nuclear power is just one big money pit.

It can take as much as $9 billion to build a nuclear power plant. At least, that’s what it was back in 2009.

The Union of Concerned Scientists did a cost study of the first 75 commercial nuclear power plants built in the U.S. On average, each exceeded its initial cost estimate by more than 200%.

Finding more recent cost data is difficult. That’s because so few utilities are seeking approval to build these plants. And that’s because natural gas plants are much more cost-effective.

Consider this: The capital costs for a nuclear plant are roughly $5,530 per kilowatt.

Building a new natural gas-fired power plant can cost anywhere from $676 to $2,095 per kilowatt. A new coal-fired plant will set you back $2,934 to $6,599 per kilowatt.

While nuclear plants have a similar capital cost to coal, they take far longer to build and usually have cost overruns (I’ll talk more about this in a bit).

Now let’s look at the operating and maintenance costs. According to the U.S. Energy Information Administration, the O&M costs for nuclear plants are $11.80 per megawatt-hour. Coal plants have O&M costs of $4.20 to $9.80 per megawatt-hour.

The real winner is natural gas-fired plants, which are the cheapest of all. Their O&M expenses are $1.70 to $4.20 per megawatt-hour.

Because nuclear power is so expensive, utilities are opting to build natural gas plants over nuclear plants.

But that’s not the only factor the nuclear industry has working against it. Nuclear power relies on government subsidies to get by… But those are running out.

In June 2016, the Illinois legislature adjourned for the summer as usual. Before it did, its members voted not to extend state subsidies for nuclear power.

Subsidies are the nuclear industry’s “Next-Generation Energy Plan.” There’s just one thing wrong with them… they increase nuclear’s cost – and taxpayers are tired of ponying up billions of dollars to pay for them.

As a result, Exelon Corp. (NYSE: EXC) announced it would be closing two of its nuclear power plants in Illinois. The Clinton Power Station will close in June 2017. The Quad Cities Generating Station will end operations in June 2018.

Both plants have had excellent operating records. But their high O&M costs have still cost them $800 million over the last seven years. That’s come right out of customers’ and shareholders’ pockets.

The nuclear reactor at the heart of the nuclear power plant is a carefully controlled nuclear bomb. As a result, the plants must all have hundreds of fail-safe systems and backup systems that other plants don’t need.

This increases their costs, lessens their desirability and increases permitting and construction time. They take an average of 10 years to permit and another 10 to build.

Case in point: Construction on Finland’s Olkiluoto 3 nuclear plant began in 2005. It’s now scheduled to finish in 2018.

That’s nine years late. And $5 billion over budget.

 And that’s not the only example of nuclear energy’s inefficiencies. Southern Company’s (NYSE: SO) Plant Vogtle nuclear power plant is probably the worst.

The original cost estimate for all four of its units was $660 million. The first two began operating in 1987 and 1989.

Final cost for just two of the units? More than $8 billion.

That’s a far cry from half of $660 million.

Now the third and fourth units are under construction along the Savannah River near Waynesboro, Georgia. Like a bad joke, the first one was supposed to start up on April 1, 2016.

April fools…

The project is 39 months behind schedule. Even though it’s been under construction for the past six years, it’s only 26% complete.

Because of delays, the current cost estimate for units three and four is a staggering $21 billion.

That’s a staggering 4,294% (and counting) cost overrun. And every day of delay costs $2 million.

And you can forget about this white elephant producing energy “too cheap to meter.” Any perceived benefits from this plant are long gone.

To pay for the cost overruns, Georgia Power socked its customers with the largest rate increase in its history. But that alone won’t pay for the overruns. The rest will be paid out of company earnings that might have otherwise gone to shareholders.

The bottom line is nuclear power plants are bad investments. It doesn’t matter whether you are a utility, taxpayer, customer or investor.

In general, as technology advances, costs come down. This is certainly true of wind and solar power.

Nuclear power doesn’t just buck the trend. It does so in spectacular fashion.

Along with delays and cost overruns lies the possibility of a major accident. While few in number, they can affect huge segments of the population.

Even the most horrific accident associated with any other form of power generation pales in comparison to a Fukushima or Chernobyl.

From an investment standpoint, I’m of the opinion there are far better energy and infrastructure investments. And every one of them has better potential outcomes than nuclear power.

Good investing,

Dave