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Seismic Omen

Fukushima shockwaves hit America’s nuclear renaissance.

Fortnightly Magazine - May 2011

before March 11.

John Rowe, chairman of Exelon, one of the nation’s largest operators of nuclear power plants, recently stated that Fukushima “is going to impose significant costs, perhaps material costs, before we are done.” The question for utilities and investors now is this: Do these capital intensive ventures, having protracted construction cycles, make economic sense for shareholders? How prudent is it to risk capital on an asset that won’t provide cash flow for a decade or more? Old foes are already speaking out and some new ones have surfaced. How will their revitalized opposition affect project schedules and costs? And given the role that spent-fuel cooling ponds played in the Fukushima disaster, uncertainties about nuclear waste have grown substantially. Is the disposal of spent fuel rods an off-balance sheet liability and hidden expense?

These issues shouldn’t be lost on company managements, and they aren’t likely to be lost on investors. Current estimates place the cost of building a new nuclear plant in the $5 billion to $12 billion vicinity, depending on the facility’s size. These projections could prove to be conservative given the roughly 10-year construction period.

So to recap: A postmortem of Fukushima will expose new nuclear plants to many uncertainties, including the possibility of added safety requirements. The anti-nuclear movement will gain strength from this accident, thereby forcing companies to reexamine the prudence of proposed nuclear construction plans. The capital markets are highly sensitive to political trends extending through various cycles—recall the demise of PSNH and LILCO. As projections currently stand, only the first nuclear plants will be shepherded by President Obama, leaving a large political void for the next plants.

In this landscape, it’s hard to conclude anything but that Fukushima represents a disaster for the global nuclear power industry. It might add complexities and costs to relicensing, life-extension and uprating projects, and could spell the end of America’s nuclear renaissance.