Nuclear Power Under Pressure From Renewable Energy

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

Alternative Energy

I recently wrote an article on the collapse of coal-fired power generation. Its demise has had devastating effects on America’s coal mines.

But coal isn’t the only sector being hurt by the cheap renewable and natural gas-fired generation. It’s also weighing heavily on America’s remaining nuclear power plants.

Although nuclear power was once considered the world’s “cleanest” source of energy, the U.S. is now going through a reverse nuclear renaissance. And it’s being fueled by renewables and natural gas.

It’s another no-brainer. Once again, it’s pure economics.

Back in nuclear power’s heyday, it was hailed as “too cheap to meter.”

Fast-forward to 2018 and nuclear is anything but that. In an electricity market dominated by cheap energy from solar, wind and natural gas, nuclear power is rapidly failing.

Let’s look at the newest nuclear power generators under construction in the U.S.: Vogtle units 3 and 4.

According to Reuters, the original construction estimate for Vogtle was $14 billion. The two units were scheduled to be online in April 2016… but don’t expect these units to be producing power anytime soon.

After enormous cost overruns, the new price tag has soared to $29 billion. Southern Company (NYSE: SO) estimates Vogtle will cost an additional $3.9 billion to complete by 2022. But current and future debt service is straining Southern Company’s balance sheet.

Not too surprisingly, Moody’s has a negative outlook on the company’s stock, rating it Baa2.

That’s only a level or two above junk status. At the end of last year, Southern Company had long-term debt of $44.46 billion.

This massive boondoggle is being sold to Southern Company’s Georgia Power customers. They will be paying for this project for generations to come.

Just imagine if Southern Company had bet on solar and natural gas instead of Vogtle. It would already be producing plenty of clean energy.

What’s more, its customers wouldn’t be on the hook for tens of billions of dollars. It’s an expensive lesson for Southern Company.

It’s too soon to tell whether the remaining Vogtle units will be completed. Let’s look at why other nuclear plants are closing here in the U.S.

Nuclear Plants Are Dropping Like Dominos

The oldest operating nuclear plant in the country belongs to Exelon Corporation (NYSE: EXC). It’s the Oyster Creek plant located in Lacey Township, New Jersey.

The plant originally went online on December 1, 1969. Its biggest problem now is lack of storage for cooling water.

The company is closing the plant this fall, more than a year ahead of schedule. Exelon cites excessive maintenance costs and cheap power from natural gas and renewables as the reason.

At last count, there were only 100 nuclear power plants licensed to operate here in the U.S. Sixteen have scheduled closing dates of 2025 or sooner.

Back in January, California officials voted to close the last operating nuclear plant in the state, the Diablo Canyon Power Plant, by 2025.

The latest announcement happened less than a week ago. FirstEnergy Corp (NYSE: FE) said it would be closing three nuclear power plants in Ohio and Pennsylvania.

Utility executives at FirstEnergy and other utilities are appealing to lawmakers for money. Their nuclear plants just can’t operate profitably.

That means over the next seven years, 25% of America’s nuclear power fleet will be gone. The reason? It’s just too expensive to keep these giant maintenance nightmares running. So much for “too cheap to meter.”

Many existing plants are even eligible for 20-year extensions from the Nuclear Regulatory Commission. However, economics trump license extensions.

State public utility commissions aren’t willing to let customers shoulder the costs. But nearly all state and federal lawmakers are turning a blind eye to the utilities’ nuclear woes.

Back in January, the Federal Energy Regulatory Commission (FERC) sidelined a Trump plan to prop up coal and nuclear power plants. Secretary of Energy Rick Perry suggested coal and nuclear plants should have a 90-day fuel supply on hand.

He also suggested U.S. taxpayers should pay for it. FERC disagreed and voted the measure down.

The disruption of nuclear power is one that utility companies didn’t see coming. In this case, similar to what’s happening with coal, it’s a matter of economics.

I wouldn’t be surprised if most of our nuclear power plants closed over the next several decades. Expensive nuclear has no place in today’s world of cheap, renewable energy.

Good investing,

Dave