New Nuclear Construction: Still on Hold
to have slowed in the wake of the California crisis, but thus far there does not appear to be a significant trend to return to re-regulation.) There is too much at stake for the continued competitiveness of U.S. industry to expect otherwise, particularly among energy-intensive segments such as chemicals and primary metals, where electricity is a significant cost of production. Companies in these industries are a major source of revenue for power producers, and can opt to invest in cogeneration facilities if necessary to avoid high regulated power rates. They can also forgo expansion plans or move operations to another state, or offshore. Partly for this reason, state policy-makers, at least those in the more densely populated Northeastern and Midwestern states, are heavily invested in establishing competitive power markets and are unlikely to reverse course.
Impact on Nuclear
What do recent trends in reserve margins and future deregulation policy mean for nuclear? A key point is the declining share of traditional baseload power sources in the generating mix. It is important to emphasize that the recent overbuild of generating capacity in this country has come almost entirely in the form of nonutility generators building gas turbines. Rising gas prices already challenge the wisdom of having built a large number of these gas-fired units to meet electricity demand in deregulated markets. The current circumstances should lead energy companies and investors in coming years to look again to traditional baseload technologies as the best means of ensuring adequate capacity, recognizing that their higher capital costs are offset by their lower and more predictable fuel costs.
Investment in additional baseload capacity will become increasingly important as the economy grows in the coming years, and it is difficult to imagine power producers adding baseload capacity without a significant contribution from nuclear. Consider the other options:
- Coal Plants. Investment in new coal plants-already the largest source of baseload electricity-would run the risk of worsening economics due to carbon constraints that seem inevitable in the next few years and are already proceeding at the state level. (It must be noted, however, that the Bush administration's recent New Source Review decision, which allows the oldest coal plants to upgrade without installing pollution control equipment, effectively holds down the average cost of baseload power, a negative for nuclear's prospects as well as public health.)
- Gas Turbines. Meanwhile, gas prices of late clearly show that fuel to be a choice ill-suited to baseload generation. We could come to regret future reliance on gas for baseload generation, which could be a high-cost option, or worse still, could reduce electric reliability in the event of a significant gas supply interruption.
- Renewables. Renewables will continue to gain market share, but it may take decades before they provide a significant portion of the country's baseload generation capacity. Wind energy costs, for example, are down about 90 percent since the 1980s, from 80 cents/kWh to about 4 cents/kWh today, and the industry is poised to reach 6,000 MW of installed generating capacity nationwide by the end of this year. 9 But as a recent report for