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Nuclear Power: A Second Coming?

Here’s what’s driving the renaissance.

Fortnightly Magazine - February 2006

the ’92 Energy Policy Act would work as intended, and to identify the tools and techniques necessary to ensure availability of financing.

Licensing New Nuclear Plants. The new licensing process moves all regulatory and licensing approvals to the fore, prior to any significant capital expenditures. Plant designs are approved (or certified) in advance. Sites are approved before major capital investment begins. And companies receive a single license to build and operate the plant. That license includes measurable, quantitative criteria that, if met, will allow the plant to load fuel and start up when construction is complete. The threshold for intervention after the construction and operating license is issued is high, and is intended to preclude frivolous intervention, unwarranted delays, and other costly mischief.

This is a significant change from the licensing process under which all of today’s nuclear plants were licensed. That two-step process required a license to build the plant and another to operate it. In many instances, only 10 percent of the design was complete at the construction permit stage. This “design-construct-inspect as you go” approach often resulted in significant rework, design changes and on-site modifications.

Once the plant was built, it had to receive a license to operate. So a billion-dollar facility remained idle while the second phase of the licensing proceeding proceeded. In some cases, what should have cost $500 million and taken four years to build cost several billion dollars and took 10-plus years to complete.

In summary, the conditions that led to large cost increases for some operating nuclear power plants no longer exist (see Table 2) . Past experience was useful in identifying the weaknesses in the regulatory process and fixing those weaknesses. Past experience does not, however, provide useful guidance as to the cost of nuclear power plants that will be built in the future, or the length of time it will take to build them.

Financing New Nuclear Plants. The next generation of U.S. nuclear plants (see Table 3) are modeled on today’s plants but incorporate features designed to make them safer and less costly to operate. Because of “first-of-a-kind” design and engineering costs—approximately $500 million per reactor design—the first new nuclear plants will cost more than later, follow-on plants. Recognizing this, the Energy Policy Act of 2005 provides investment stimulus in the form of production tax credits and federal loan guarantees to offset the higher cost, thus ensuring that the first new nuclear plants will be competitive and economically viable. Once the first few new nuclear plants are built, and the “first-of-a-kind” design and engineering costs have been recovered, follow-on plants will be built without federal government financial support (see Table 4) .

Under the loan guarantee authority, the federal government will guarantee debt financing for up to 80 percent of total project cost. This will allow companies to structure projects with a more highly leveraged capital structure than is typical of conventional regulated utility financing, obtain debt at preferential rates, and reduce total project cost by several hundred million dollars.

The legislation also includes a production tax credit of $18/MWh for