Economics of nuclear power are rethought

Loan guarantees could transform energy industry

September 04, 2007|By Paul Adams | Paul Adams,Sun reporter

A year ago, the leaders of Baltimore-based Constellation Energy Group and PPL Corp., its utility neighbor in Pennsylvania, represented the energy industry's sharp division over whether the revival of nuclear power was at hand.

Mayo A. Shattuck III, Constellation's chief executive, said the economics were right for a nuclear comeback after 30 years of dormancy.

PPL Chairman William F. Hecht countered that nuclear power was too expensive and risky, and that shareholders' money would be better spent adding pollution controls to his company's coal-fired power plants.

FOR THE RECORD - A Page 1A article in The Sun yesterday about the economics of nuclear power incorrectly identified the employer of energy expert Revis James. He works for the Electric Power Research Institute.
The Sun regrets the error.

Today, Hecht is retired, the cost of cleaning up coal is soaring and PPL is among the utilities talking with Constellation's UniStar Nuclear subsidiary about the potential purchase of a new reactor identical to one that Shattuck wants to build in Maryland.

PPL's transformation from nuclear skeptic to potential customer shows how rising fuel costs, global warming and government incentives are transforming the economics of nuclear power.

A wave of studies and analyses suggests that as the energy industry looks to meet a projected need for 250 to 500 new power plants by 2030, nuclear generation might well be cost-competitive with traditional types of plants even though new reactors could cost as much as $4 billion apiece.

Constellation boasts that it can cut plant construction costs and prevent the overruns that crippled the industry in the 1970s by spreading regulatory and design expenses over a fleet of identical reactors built with assembly line efficiency. Government-backed loans and other financial incentives will help drive down borrowing costs. And expected climate-change legislation will soon make the power look as cheap as or cheaper than greenhouse gas-emitting fossil fuels, some energy analysts contend.

"If we get the kinds of carbon changes some are talking about, it will make coal less attractive and nuclear will look a lot better," said Paul L. Joskow, a Massachusetts Institute of Technology economist who did one of those studies.

Many of the pieces needed are still not in place and could be years off, industry officials concede. But Constellation officials say the improving economics are helping it win converts as they push to make Calvert Cliffs the site of the nation's first new nuclear reactor since before Pennsylvania's Three Mile Island experienced a near-meltdown in 1979.

The plant would be developed by UniStar, a partnership between Constellation and France's Electricite de France SA, the world's largest operator of nuclear plants. EDF, which has committed to invest up to $625 million in UniStar, said Friday that it will work with Constellation to develop four reactors in the United States.

The company recently submitted the first 6,000 pages of its application for an operating license to the Nuclear Regulatory Commission. It plans to submit the rest this fall.

Though few expect it to act this year, Congress is inching closer to legislation that would place a price tag on carbon emissions, which would make generating power with fossil fuels - particularly coal - more expensive. Nuclear plants produce no such emissions.

The 2005 energy bill provided loan guarantees, tax breaks, insurance against regulatory delays and other incentives to help lower borrowing costs for nuclear developers. However, the Bush administration is still working on rules for the loan program. Constellation spent $100,000 in the first half of this year to lobby the federal government on the issue, disclosure forms show.

Loan guarantees alone would reduce nuclear construction costs by a quarter, the Energy Information Administration said in its annual energy outlook. With the guarantee in place, it estimates that a new nuclear plant could generate electricity at 4.78 cents per kilowatt hour. Only a coal gasification plant - which turns coal into a gas before burning - came in cheaper, at 4.66 cents.

Environmentalists counter that much of the energy shortfall could be met through a combination of conservation and increased investments in such alternatives as solar and wind power. But some agree that clean coal technology and nuclear will inevitably be part of the equation and that economics will drive the choices.

"For us, good environmental policy comes from capping carbon dioxide and allowing the market to set the price for avoiding emissions," said Mark Brownstein, managing director of business partnerships for Environmental Defense. "Let the technologies compete on price."

To be competitive, the nuclear industry will have to overcome its history of making overly optimistic projections that didn't come true. Wall Street lost faith in nuclear construction after huge cost overruns in the 1970s and '80s forced the industry to write off more than $17 billion in losses.

"The first 75 reactors built in this country had $100 billion in cost overruns, and the public got taken for a ride," said Jim Riccio, a policy analyst for the environmental group Greenpeace.

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