[BETA] Fortnightly

Nuclear Power:

Taking The Long View

In today's market, with competition imminent and natural gas still cheap, nuclear generation appears dicey. The popular view tags nuclear with high costs and suspect availability, even without reaching the more fundamental issues of safety and waste disposal. One wonders: What advantages lie open to nuclear power?

Many observers see excess capacity running rampant and commodity prices falling across the board as deregulation accelerates and power flows more freely across markets and service territories. Marginal generating assets (em with most nuclear plants included in that group (em become unneeded and expendable.

Nevertheless, the debate may well hide another side. Excess capacity in electricity generation exists even today. Market prices already seem destined to fall in the short term in many high-cost regions, once retail access arrives. But for how long will prices remain low? For how long will a capacity surplus endure?

And once economic growth begins to shrink the capacity gap, and prices again start to rise, can the market find a role for nuclear assets (em expensive overall but relatively cheap to operate once investments are paid off or written off? The answer depends directly on several key factors: electric prices, cost and availability for nuclear plants, and how owners and regulators deal with nuclear investment.

That nuclear assets are valueless and better off abandoned does not stand as a foregone conclusion. Even in the midst of excess capacity, a glimpse of a very different future was revealed in April of 1996, in the Northeast. An unseasonal heat wave descended on the mid-Atlantic and New England states, just as certain key units backed out of service for maintenance, and just when Connecticut's Millstone nuclear units and New Jersey's Salem nuclear units remained down on long-term outages. The result? Rolling brownouts. Clearly, these units were needed. That need could well grow.

Today, on the brink of a very uncertain market evolution, keeping open the nuclear "option" would seem the wise course, at least until the future unfolds a bit.

Today's Bad News

Average commodity prices for electricity today run anywhere from $15 to $25 per megawatt-hour (MWh) (em a price range sufficient to cover operating (variable) costs, but not invested capital, at least for a large segment of generating assets, including most nuclear plants.

Nevertheless, some observers of recently deregulated markets (air travel and telecommunications come to mind) have noted that prices fall in the early going, but tend to inch back up again (em not to levels that prevailed before deregulation, but higher nonetheless. The same thing may well occur with electricity.

Granted, many producers appear willing and anxious to sell electricity at less than full cost. Flush with a revenue cushion from sales to captive customers, they search for incremental sales in the wholesale market, to cover operating costs and make further (em albeit partial (em contributions to embedded capital. In fact, many producers compete fiercely to land such incremental sales (em battling one another and a growing cadre of marketers and other middlemen, Not only can producers afford to sell at reduced