U.S. nuclear renaissance not here yet

Constellation's decision to give up Calvert Cliffs 3 is latest sign that revival might be long way off

October 30, 2010|By Hanah Cho, The Baltimore Sun

Three decades after the Three Mile Island accident seemed to doom the nuclear power industry, the idea of a nuclear renaissance has been gaining public acceptance as a way to generate energy without greenhouse gas emissions and meet the nation's electricity demands.

But not one new plant is even close to being built.

The latest sign came last week that a revival might still be a long way off. Baltimore's Constellation Energy Group — once widely viewed as a leader in developing new nuclear plants — abandoned that business and left its French partner to pursue a new reactor at Calvert Cliffs in Southern Maryland.

While Paris-based EDF Group, the world's largest nuclear power operator, has indicated repeatedly that it is committed to "making new nuclear a reality" in the United States, obstacles remain for the French government-backed entity and other proponents of a nuclear comeback here. David Crane, chief executive of Princeton, N.J.-based NRG Energy, another front-runner in nuclear development, concedes the steep hurdles.

"The nuclear renaissance in the U.S. is by no means a slam-dunk," said Crane, whose two-reactor project in South Texas is pursuing a federal loan guarantee considered crucial to financing new plants. "The ironic thing is, it's a slam-dunk abroad. More and more countries are saying they want to build nuclear plants."

Just three years ago, the economic pieces needed to revive the U.S. nuclear industry seemed to be moving into place. Fuel prices were skyrocketing along with electricity demand. Congress appeared close to taxing carbon emissions. And new government incentives were expected to reduce the high cost of building reactors.

Power companies lined up with proposals to construct plants. More than a dozen license applications for up to 22 new nuclear plants were submitted to the Nuclear Regulatory Commission, according to the Nuclear Energy Institute, the industry's lobbying group.

And most Americans who were polled back the idea. In a Gallup poll conducted in March after President Barack Obama announced the first loan guarantee to build a nuclear plant, 62 percent of Americans surveyed said they support the use of nuclear power to provide electricity for the U.S., eclipsing 60 percent for the first time since the group began asking the question in 1994.

So far, the federal government has awarded only one loan guarantee, for a Southern Co. nuclear reactor in Burke, Ga. Many industry observers had expected Constellation to be next in line to secure a loan guarantee for a third nuclear unit at Calvert Cliffs.

But Constellation pulled out of negotiations this month with the Department of Energy over the loan guarantee, citing unreasonable and expensive terms that would have added $880 million to the cost of building Calvert Cliffs 3. Constellation, along with the Nuclear Energy Institute, contends that the formula used to calculate what companies must pay for the federal loan guarantee is flawed and needs to be fixed. In September, the Nuclear Energy Institute lobbied for changes to the methodology at a hearing before a Senate committee.

Even with a government subsidy, the price is not right to develop new nuclear generation, according to analysts. That's principally because falling natural gas prices make generating nuclear energy relatively more expensive. Moreover, in Maryland and other states with deregulated energy markets, companies face uncertainty in recovering costs.

"From our perspective, we believe it is extremely risky and not terribly a good idea to invest capital based on where the gas forwards are today," said Paul Fremont, an analyst who follows Constellation at Jefferies & Co. "If you were to move forward, you would likely have an expectation on a longer-term basis that gas would be above where it's coming out in the forwards."

NRG Energy's Crane concedes that natural gas prices are so low right now that no fuel sources, including coal and nuclear, can compete. But based on market projections, NRG Energy believes gas prices will rise to a level that would make nuclear energy competitive by 2016, the timeframe for one of its two proposed reactors to become operational, he said.

Moreover, solely focusing on the cheapest power generation is a short-term view, because the United States needs to create a diverse energy mix and reduce carbon emissions, he said.

"If you're comparing to the current price, natural gas will win," he said. "If you put nuclear in the zero air emissions category and among the diverse sources of domestic fuel, nuclear is by far the cheapest."

But Congress never passed a climate change bill. And even if NRG's project moves forward, along with Calvert Cliffs and Southern Co.'s project in Georgia, the industry needs more government support on top of loan guarantees, such as setting a national goal to double nuclear generation in the U.S. by 2040, to spark a true nuclear renaissance, Crane said.

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