Face-Off: The Renaissance of Nuclear Power

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


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 their allowed 40 years, and by 2020, nuclear power would be no more than a failed industrial artifact.

Now, not only are nuclear plants operating lives being extended, their capacity ratings are being increased. Sophisticated analyses by plant owners and the NRC have demonstrated that large safety margins were incorporated into plant designs. Combined with improved instrumentation, new fuel designs, and other plant improvements, the NRC is allowing some nuclear plants to operate at higher power levels than those at which they were originally licensed.

Currently there are nearly 98,000 MW of nuclear generating capacity operating in the United States. Former NRC Chairman Richard A. Meserve, in recent remarks to the American Nuclear Society, said that during the last 30 years the NRC has approved 80 up-rates that added nearly 4,000 MW of generating capacity. Prospective power up-rates, when combined, may result in the effective addition of seven new nuclear power plants, amounting to nearly 7,000 MW. A recently completed analysis done for the Energy Information Administration (EIA) documented 1,060 MW of power up-rate applications before the NRC and 5,730 MW of additional up-rates likely to be submitted within the next seven years.2 The National Energy Policy prepared under the direction of Vice President Dick Cheney estimates the nuclear up-rate potential at 12,000 MW.3

In addition, nuclear reactors with operations or construction that were terminated are now being investigated to determine whether they should be repaired, completed, and restarted. The Tennessee Valley Authority, for example, is analyzing the benefits and costs of repairing and restarting Browns Ferry 1. Other partially constructed power plants that may be evaluated to determine whether it is technically practical and cost-effective to complete them include Watts Bar 2 in Tennessee, Atlantic Energy (Seabrook) 2 in New Hampshire, and Washington Public Power System 1.

Preliminary steps have been taken that may result in the construction of new nuclear reactors. The NRC has certified several new nuclear reactor designs, obviating the need for review of any technical issues about those designs that were resolved during the certification process. The NRC has certified three designs: General Electric's Advanced Boiling Water Reactor, Combustion Engineering's System 80+, and the Westinghouse AP600. A fourth design, Westinghouse's AP100, is currently being reviewed, and the NRC is engaged in pre-certification discussions with vendors representing five other designs, including gas reactor designs.

The NRC also is proceeding with early site permitting, or advanced approval of a potential site for a nuclear power plant, which may then be banked for future use. Issues resolved in the early site permit review are not reviewed again in the combined license process. The combined license process folds into one proceeding two separate reviews-construction permit and operating license-required of currently operating plants. Once the license is issued the plant may be constructed and proceed to operation after the NRC determines the as-built plant conforms to the approved license. These changes have reduced uncertainty and will result in regulatory decisions as early in the process as practical.

The Longer-Term Outlook-Environmental Benefits

One of nuclear energy's primary environmental (and economic) advantages is its energy density. The heat value of uranium used in a light water reactor is 500,000 megajoules per kilogram. For high-Btu content coal, the value is 30 megajoules per kilogram. Residual oil is about 50 megajoules per kilogram; natural gas comes in at 40 megajoules. For wood (biomass), the heat content is on average 16 megajoules per kilogram.4

The extraordinary heat content of uranium translates into significant environmental and economic benefits. For example, a 1,000-MW power station will consume more than 3 million tons of coal each year. If it is a nuclear power plant, the physical resource requirements are 24 tons of UO2 enriched to about 4 percent U235. This in turn requires 200 tons of natural uranium processed from 25,000 to 100,000 tons of uranium ore.5 Even at the high end of 100,000 tons, this translates into a resource extraction ratio of 30 to 1 in favor of uranium. Similar statistical ratios can be generated comparing uranium with oil, natural gas, and biomass.

In truth, the ratio is much higher in uranium's favor. Much uranium and nuclear fuel comes from secondary sources, including other mineral mining operations and material from dismantled Russian nuclear warheads. Also, most of the uranium ore mined today comes from rich mines in Canada and Australia. Uranium is a relatively abundant element, with only one commercially practical application: generating electric power. Fossil fuels, possibly excepting coal, can have multiple applications that in part explain their higher price on a Btu basis, i.e., they have a larger potential market.

Fuel density also results in a smaller footprint for nuclear power plants and supporting facilities. Nuclear power plant sites can be more compact than similar-sized fossil stations. Also the transportation and supporting facilities to supply fuel are much smaller for nuclear power plants; large connecting rail, barge, and pipeline facilities are not necessary, and neither are fuel storage yards or tanks. The reduced need for supporting facilities also increases the flexibility to site nuclear power plants, including at more isolated and secure locations. By contrast, renewable energy facilities such as windmills and solar power plants require enormous chunks of real estate-an inevitable result of their being extremely energy diffuse.

While much is made of nuclear waste, it is small and manageable compared to other fuel forms. The 24 tons of UO2 after it is irradiated is extracted and stored, and ultimately will be encased in a repository. If processed, the amount of material that would go to the repository would be less than 700 kilograms, a small fraction. A coal-fired power plant would produce about 7 million tons of CO2 each year, as much as 200,000 tons of SO2 and other emissions such as NOX, and mercury.6 While oil- and natural gas-fired power plants produce less emissions than coal plants, they are nevertheless significant.

Air emissions bring up the subject of global warming. Nuclear power plants are emission free. In 2001 nuclear power plants were the source of more than 76 percent of all emission-free generation in the United States. 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 SO2, 2.4 million tons of NOX, and 164 million tons of carbon to the atmosphere. From 1973 to 2000, emissions avoided by nuclear energy totaled 66 million tons of SO2, 34 million tons of NOX, 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 SO2 and NOX 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, on Feb. 20, 2003, six Northeast states and the state of Washington announced plans to sue the federal government to force the regulation of CO2 from power plants. The states claim that the EPA hasn't updated an analysis of air pollutants from power plants in at least 20 years. What is clear is that the consequences of legislative or regulatory actions will be to further increase coal power plant operating costs.10

Also, oil and natural gas prices have increased significantly in each of the past two years. Average natural gas prices to utilities increased from under $2/Mcf in 1995 to more than $4 in 2000. Prices rose to nearly $4.50 in 2001. At the end of 2002 natural gas prices to utilities were at $4.60/Mcf and in January of this year rose to more than $5/Mcf. The EIA in its short-term projections shows continued high prices for natural gas. There are also predictions by industry that high natural gas prices are here to stay. Reasons for this include refilling storage sites from their abnormally low levels and low domestic production. Large industrial consumers have found it difficult to switch to less expensive alternatives, due in part to the worker strike in Venezuela and the unstable conditions in the Middle East.

The Longer Term Outlook-Need for Power

Electricity demand has and will continue to increase as the national economy expands. The strong relation between economic and electricity demand has moderated in recent years but has nevertheless continued. Also, while modernization will no doubt bring about increases in energy usage efficiency, it will also continue the longer-term trend toward electrification, particularly of stationary applications.

The National Energy Policy, published in May 2001, and prepared by the National Energy Policy Development Group stated at the outset in its section on electricity:

"Electricity demand is projected to grow sharply over the next twenty years. Based on current estimates, the United States will need about 393,000 MW of new generating capacity by 2020 to meet the growing demand. If the U.S. electricity demand continues to grow at the high rate it has recently, we will need even more generating capacity. To meet that future demand, the United States will have to build between 1,300 and 1,900 new power plants; that averages to more than 60 to 90 plants a year, or more than one a week."

Furthermore, the EIA projects in its that by 2020 electricity consumption will increase by over 40 percent, increasing at a rate of 1.8 percent per year. This growth will result in the need for 355,000 MW of new generating capacity.

The electric industry also is projecting significant electric demand growth and need for new capacity. In its , the North American Electric Reliability Council (NERC) projects significant new generating capacity requirements. NERC electricity demand projection over the next 10 years is an annual average increase of 2 percent.

NERC and the EIA in their most recent project that upward of 75 percent of all new electric generating capacity will be natural gas-fired. With natural gas futures hovering at $6/Mcf, with the possibility of climbing further, the veracity of projections of large numbers of natural gas power plants must be questioned. These projections of natural gas capacity additions simply reflect today's conventional wisdom. And today's conventional wisdom is of no value when natural gas prices per million Btu have nearly tripled in the last five years, and have at least briefly approached double-digit levels.

The Path Forward

Relicensing of the existing plants and the up-rating of additional plants will continue commercial nuclear power's renaissance. The Nuclear Energy Institute (NEI), in its publication, expects the industry to add 10,000 MW of capacity through increased efficiency and improved performance of the existing 103 reactors. But NEI also states that a cornerstone of the nuclear industry's vision is to add 50,000 MW of new generating capacity by 2020.11

Complementing the industry vision is the DOE's Nuclear Power 2010 initiative to bring a new U.S. nuclear power plant online by the end of the decade.

The DOE is providing modest financial support to Exelon Nuclear, Entergy Nuclear, and Dominion Resources in the preparation and submittal of early site permit applications to the NRC. These applications will focus on sites that host operating nuclear power plants, but which were originally licensed or designed to host additional reactors. The department also has funded "scoping" studies analyzing both private and federal sites as potential locations of new nuclear plants. Identifying and obtaining NRC permits for acceptable sites will answer the question of where to build the first new nuclear plants and remove a major hurdle to building new nuclear plants.

DOE also will offer to share the cost of demonstrating the new regulatory process that enables utilities to obtain combined construction-operating licenses. DOE states that providing a one-step licensing process will remove a major risk in investing in new nuclear plants. Other initiatives undertaken by the department and Congress to support the renaissance of nuclear power are:

  • The affirmation of Yucca Mountain as the site of a permanent spent nuclear fuel repository. This will allow nuclear plant owners to move spent nuclear fuel from the more than 70 nuclear plant sites with temporary storage facilities to a single site that is a permanent storage facility.
  • Reauthorization of the Price-Anderson Act, which limits the liability of nuclear plant owners in a catastrophic nuclear event. While the conditions of such an event occurring has not been formulated and presented, its existence is a precondition for investment in new nuclear power plants.

In addition to federal government support for nuclear energy, there appears to be at least lukewarm public support for the construction of new nuclear power plants. According to NEI's , two-thirds of those surveyed support the continued and increased use of nuclear energy, with 27 percent of those surveyed opposed. Also, the president, vice president, secretary of energy and other members of the administration have issued strong statements in support of nuclear energy, most prominently in the president's national energy policy.

What is holding up new plant construction? Except for timing new investments to coincide with the ups and downs of the business cycle, there is nothing stopping a decision to build new nuclear plants but the reticence of nuclear plant owner-management, their boards of directors, and Wall Street. This reticence is difficult to comprehend given the large financial returns being earned on existing nuclear assets, and the billions of dollars that have been lost on other ill-considered energy ventures.

Energy company managers and their Wall Street advisors have been pursuing investment strategies that couldn't have had a higher risk profile, while they have all but ignored new nuclear plants.


  1. U.S. Department of Energy, Energy Information Administration Web site, www.eia.doe.gov.
  2. U.S. Commercial Nuclear Power Industry Assessment for Department of Energy, Energy Information Administration, October 2001, Edward M. Quinn, MDM Services Corp.
  3. Reliable, Affordable, and Environmentally Sound Energy for America's Future; Report of the National Energy Policy Development Group; May 17, 2001.
  4. World Nuclear Association, www.world-nuclear.org.
  5. Ibid.
  6. Ibid.
  7. Nuclear Energy Institute, www.nei.org.
  8. Ibid.
  9. Ibid.
  10. The Wall Street Journal; May 16, 2003.
  11. Vision 2020, Nuclear Energy and the Nation's Future Prosperity; Nuclear Energy Institute.


A Reference: Recent Nuclear Consolidations

  • AmerGen Energy Co., a joint venture between PECO Energy and British Energy, became the first generating company to acquire an operating nuclear power plant in the United States when it purchased Three Mile Island 1 from General Public Utilities. Other acquisitions since include the Clinton Plant in Illinois and the Oyster Creek plant in New Jersey.
  • PECO and Commonwealth Edison merged to form Exelon and operate their combined fleet of 15 reactors under one organization, Exelon Nuclear.
  • Entergy expanded its original fleet of four reactors to 10 by acquiring River Bend through its purchase of Gulf States Utilities, Indian Point 2 from Con Edison, Indian Point 3 and Fitzpatrick from the New York Power Authority, Vermont Yankee from a consortium of New England utilities, and Pilgrim from Boston Edison. All of these plants are managed and operated by Entergy Nuclear.
  • Dominion Energy has expanded its operating reactor fleet from four to six by acquiring Millstone 2 and 3 from Northeast Utilities.
  • Constellation Energy has expanded its reactor fleet from two to four by acquiring Nine Mile Point 1 and 2 from Niagara Mohawk.
  • Florida Power and Light just expanded its reactor fleet from four to five by acquiring Seabrook 1.
  • Progress Corp. has a fleet of five reactors after Carolina Power and Light and Florida Progress Corp. merged.
  • Centerior, Ohio Edison, Penn Power, and General Public Utilities, after merging to form FirstEnergy, have a fleet of four reactors (Beaver Valley 1 & 2, Perry, and Davis-Besse). -J.S.

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