Face-Off: The Renaissance of Nuclear Power

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

Is nuclear power on the verge of a full-fledged renaissance? Thought impossible only a few years ago by most energy industry managers, regulators, and public policymakers, commercial nuclear energy had been written off as hopelessly uneconomic, too technically complex to operate efficiently, and financially risky. But without much publicity, nuclear power has been resurrected from the cemetery of dead and dying industries, and it has helped prevent a complete financial collapse of the electric power industry.

For example, U.S. nuclear power plant energy production reached an all-time high for the fifth year in a row in 2002 (see Figure 1, p. 21). 1 Also, nuclear power plant production rates (capacity factors) reached an all-time high in 2002. This rate now exceeds 90 percent, significantly higher than any other type of power plant in operation. The high capacity factor for nuclear plants is a reflection of nuclear power's low operating costs, and the ability of power plant managers to operate these plants efficiently and safely. Second, nuclear power plants have become economically attractive assets. Significant nuclear consolidation has occurred through the formation of nuclear generating companies and nuclear operating companies (see sidebar on p. 22).

Also, several operating companies have been formed to manage nuclear reactor fleets. They include Southern Nuclear Operating Co. (six reactors at three sites owned by Southern Co. affiliates), and Nuclear Management Co. (nine reactors at six sites owned by five different utilities).

As nuclear ownership consolidation and asset transfers have occurred, the value of the transactions has increased. The earliest nuclear power plant asset transfers occurred at a price of as little as $20 to $30 per kilowatt. The latest transfers (for which information is available) indicate acquisition prices of as much as $660 per kilowatt. Also, the earliest asset transfers involved a single buyer. The most recent nuclear power plant sales involved competitive bids. The obvious trend is that nuclear assets are appreciating in value, and the financial, technical, and regulatory risks associated with ownership are declining-the opposite of almost all other generation forms.

The Near-Term Outlook

The outlook for nuclear power is upbeat, showing every sign of improvement. First, the nuclear industry is gaining regulatory approval for extending the operating licenses of existing reactors. Originally these reactors were licensed to operate for 40 years, but after extensive safety analysis, testing, and structural analysis, the Nuclear Regulatory Commission (NRC) is, on a case-by-case basis, allowing the plants to operate for another 20 years. To date, 10 reactors have received 20-year operating license extensions. Also, 20 reactors have filed for the same operating license extensions, and another 20 reactors are expected to file for operating license extensions during the next six years. A growing consensus is that the entire fleet of existing reactors will be relicensed.

Contrast this with the situation 10 years ago, when the first plant to proceed with relicensing, Yankee Rowe, was closed along with several other plants in the United States. The consensus was that the existing fleet of nuclear reactors would not operate