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Face-Off: The Renaissance of Nuclear Power

Nuclear power is on the verge of an extraordinary expansion.
Fortnightly Magazine - June 15 2003

Hydro accounted for 21.6 percent. Combined geothermal, solar, and wind accounted for 2 percent of emission-free generation. 7 Currently, U.S. nuclear power plants annually avoid the release of 5.1 million tons of SO 2, 2.4 million tons of NO X, and 164 million tons of carbon to the atmosphere. From 1973 to 2000, emissions avoided by nuclear energy totaled 66 million tons of SO 2, 34 million tons of NO X, and 3 billion tons of carbon. 8

While all of the above is generally well known, only now is it beginning to affect power plant investment decisions. For example, the U.S. Environmental Protection Agency (EPA) has only recently reversed its position on New Source Review. But this decision holds little comfort for investors; if the EPA can reverse itself once on this subject, then at some future date it may reverse itself again.

Another uncertainty is whether older and new coal-fired power plants can stay within the emission caps established in the 1992 Clean Air Act. Absolute limits were placed on SO 2 and NO X emissions, but as electricity demand and production grow, there will come a point where production from fossil power plants can't be increased without exceeding mandated caps. Also, several Northeast states are suing large coal burning utilities in the Southeast and Midwest on the grounds that they are the cause of acid rain, haze, and other degradations in air quality.

Irrespective of whether the cases have merit, these and other events (including the controversy surrounding the United States' refusal to adopt the Kyoto Protocol on global warming) have introduced significant uncertainty into fossil-fueled power plant investments, particularly coal. The result: Very few large coal-fired power plants are either under construction or planned. There is growing concern that new plants will not be allowed to operate at anything close to capacity for their planned operating life.

Relative Economic Profile of Nuclear Energy

Generating plant economics are also trending in nuclear energy's favor. Nuclear power plants at present have significantly lower operating costs than coal, natural gas, or oil plants. Nuclear power plant production costs have declined from a peak of 3.4 cents per kilowatt-hour in 1987 to 1.76 cents in 2000. This compares with 1.79 cents per kilowatt-hour for coal-fired power plants, 5.28 cents per kilowatt-hour for oil-fired capacity, and 5.69 cents for natural gas-fired capacity. 9

Nuclear power plant capacity factors continued to increase in 2001 and 2002-a strong indicator that production cost declined further. Future power up-rates are likely to further reduce nuclear per-unit production costs as increased output is realized from existing facilities. Stable or declining operating costs are assuredly not the case for coal, natural gas, and oil-fired power plants.

For coal power plants, operating costs are subject to increases as complying with current emission limits becomes more expensive. In addition, regulatory ratcheting on air emissions may continue. For example, the EPA just recently released a report warning that emissions of mercury by coal-fired power plants (and other industrial sources) pose an increasing health danger to young children. Also,