Challenges with Nuclear Power - Where's the money?

After consulting several nuclear power companies, I am intrigued when so many people sound so enthusiasatic about nuclear power. Am I not seeing something that others are able to see? The skeptic and the cynic in me keeps pricking - how it is possible to make a business case for nuclear power. The industry is heavily regulated, frequently politicized, grossly terrorized, and overly demonized. End result is large sums of money flow into the hands of influential PR firms and lobbyists to do damage control and damage prevention. The once categorized “too cheap to meter”, nuclear energy has not seen a new plant built in 3 decades. This of course does not undermine the fact that operational efficiencies have increased tremendously with existing plants - with fewer outage times and refueling time. Generation capacity has increased even though no new plants have come up. Pretty remarkable! But how real do we see its future? The proponents will tell, “It has never been better than now in the last 30 years.” That’s a true statement. But is this good enough to carry the day to make a case for new nuclear power a reality? Is Wall Street ready? In other words, many are saying inside closed doors - Baby! Show me the money!

Here are the barriers and some of the measures being taken to overcome these barriers:

Issue 1: Delay, high cost, and financial risk.

Step taken: Replace two-step review process that required separate federal permits for construction and operation of plants with pre-approved designs. NRC now reviews a combined construction and operating license (COL) application which, if approved, reduces the risk that a completed plant may face costly delays in getting an operating license after construction is complete.

Challenge: Federal approvals are not enough. State regulatory commissions will also have to sign off on plans to build new plants. Risks still remain.

Issue 2: Building the Financial Case

Step Taken: Providing carbon tax credits. Because nuclear plants emit virtually no carbon into the atmosphere, that would give them a huge economic advantage over plants that burn fossil fuels. That financial edge could be $12 per megawatt less than the cost of electricity generated by plants that burn fossil fuels

Challenge: Washington needs to levy “Carbon tax” of any new plant built in the next few years. .

Issue 3: Long lead times

Step Taken: Nothing major. Usual process improvement practices.

Challenge: At best, the first plants won’t come online before 2013-14 and will cost an estimated $4 billion each. Before ground is broken for the first new plant, the power industry will have to convince state regulators and investors that the numbers add up. To do that, they face several important hurdles.

Issue 4: Getting Financing

Step: Most of these projects are expected to be financed by bonds - just the way roads and railroads are. To help reassure investors that the bonds are a safe investment and has limited credit risk, Congress has provided loan guarantees for 80 percent of the financing for the first several projects to win NRC approval. Typically, these projects would have 80:20 debt equity ratio. But federal officials in charge of loan guarantees have interpreted the law to mean that those guarantees apply only to the debt portion of the financing package.

Challenge:Using that math, the loan guarantee — 80 percent of 80 percent — will only cover about two-thirds of the total cost. Where will the rest come from? If risk costs are factored in, Cost of Equity may be prohibitively high.

I will keep posting views relevant to this topic as we go along.