Cost of capital is often a contentious issue in utility ratemaking. This is due, in part, to the inexact nature of the tools available to financial analysts and the considerable room for divergent...
Nuclear Power: Taking the Long View
hand, if those additional 20 years of service cannot be achieved without significant new investment, the cash flow benefits may disappear altogether. In fact, the entire "life extension" process among nuclear owners has not yet truly caught on, despite the cash-flow opportunities, for just that reason (em the specter of investment required toward the end of the asset's useful life.
Those Darned Intangibles
Notwithstanding these opportunities, the future for nuclear appears problematic at best. Many problems lie outside the scope of technology and economics: Such issues as safety, enforcement, and permanent waste disposal still go without answers, yet remain so fundamental as to override the best-laid plans, no matter how the markets play out.
Each plant is unique. Managers must decide asset by asset how to address the market, as in fact many nuclear plant owners are currently doing, keeping in mind these key fundamentals:
• Excess electric capacity is probably not permanent. As it shrinks over time, market prices will probably tend to rise.
• Many existing nuclear assets can be operated relatively cheaply. Once initial investments are paid off or written off, nuclear costs to deliver electricity may drop significantly.
• The real key to nuclear cost control going forward will lie with additional capital investment, including investments in decommissioning and waste disposal. If control is possible, the nuclear asset may become both a money machine and a social good. If control is not possible, walking away early may be preferable to walking away later. t
Lewis Rubin is a principal at Portal Solutions, a management and strategic consulting firm, Santa Cruz, CA.
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