A power-producing company that bets on natural gas can choose the size of its wager: a 100-megawatt plant, or a 500-megawatt or 1,500-megawatt one. Conventional nuclear plants come in only one size: jumbo. Some power companies have proposed smaller plants, but costs for factors like labor and security are mostly insensitive to size, so these costs per kilowatt-hour rise as the plant shrinks. Costs for engineering and materials are also greater per kilowatt-hour the smaller the plant is.
All these economic risks matter for nuclear power now, because the electricity marketplace has changed dramatically since the industry was deregulated in the 1990s. Before that, each plant’s output was paid for by consumers, no matter what the cost. As a result, millions of consumers got stuck paying more than they should have, because their local utilities unwisely chose nuclear instead of coal or natural gas. The financial rules differed from state to state, but generally, once a plant was in service, a company could collect a specified return on its investment, and if a plant projected to cost $1 billion ended up costing $2 billion, the customers paid.
In today’s electricity market, however, producers in many states are paid according to market price. Companies build a plant for whatever price they can manage and sell electricity for whatever price they can get. If a reactor produces power at 10 cents per kilowatt-hour and a natural-gas plant produces it at 12 cents, the reactor builder makes a killing. Reverse the numbers and the reactor builder gets killed.
The electricity industry won’t build much of anything these days without government help, in the form of loan guarantees, production tax credits, guaranteed markets, or, preferably, all three. Wind now gets bigger production subsidies than nuclear on every kilowatt-hour generated, proportionally more loan guarantees, and a guaranteed market: many states insist on a certain quota of renewable energy, sometimes regardless of cost. In contrast, nuclear power receives production subsidies on only the first 6,000 megawatts of capacity (four or five reactors’ output), and its pool of loan guarantees is shrinking relative to the price of construction.
“Right now, the federal incentives are much more conducive to pushing forward renewables,” said Jim Miller, the chief executive of the energy company PPL, in June. His company, based in Allentown, PA, would like to build a reactor but will not do so without federal loan guarantees. It will not get them, at least not under the 2005 Energy Policy Act, in which Congress approved only enough to assist a handful of plants: $18.5 billion. “Nothing is currently in place to move the nuclear industry along at the pace people perceived it would move when the 2005 act was passed,” Miller says.
The idea of the legislation was that Congress would spoon-feed financial aid to the first half-dozen or so new nuclear plants, and others would follow on their own once new designs were demonstrated and a reformed licensing process was in place. Now, it looks as if those half-dozen new reactors will be the limit of the “renaissance,” unless more help is forthcoming. The industry lacks the votes in Congress to expand the loan-guarantee program. Subsidies for wind and solar power are popular, in part because they can be justified as aid to emerging technologies. But many legislators feel that nuclear is less deserving of taxpayer support.
Even now, nuclear power has the potential to be economically attractive if costs and competition are favorable–and if overall demand for power remain strong, with high industrial use and limited improvements in efficiency.
All of that is possible. But the odds are probably not good enough for the nuclear industry to place a bet with its own money. Only the government can agree to back up that bet, and it has yet to do so.
Matthew L. Wald is a reporter at The New York Times. His feature “The Best Nuclear Option” appeared in the July/August 2006 issue of Technology Review.