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Jerry Taylor, a senior fellow at the CATO Institute, however, disagrees. He points out that the high upfront cost of building safe and reliable plants have raised both the opportunity and risk costs of nuclear, making it unattractive for potential investors. Only in countries where government has stepped in has nuclear flourished. "Those who favor nuclear power should adopt a policy of tough love," he counsels. "Getting this industry off the government dole would finally force it to innovate or die—at least in the United States."
Shikha Dalmia is a senior analyst at Reason Foundation. An archive of her work is available here.
William Tucker: Politics—Not Economics—Is Hampering Nuclear Energy
"Nuclear has gone from too cheap to meter to too expensive to matter," exults anti-nuclear guru Amory Lovins. "It is so hopelessly uneconomic that one doesn't need to debate whether it's clean or safe." Given that there hasn't been a new reactor built from the ground up in the United States for 30 years, who would disagree?
In the Energy Policy Act of 2005, Congress offered a 1.8-cent per kilowatt-hour production tax credit to the first 6,000 megawatts of new nuclear construction. Also added was "regulatory insurance" designed to protect new projects if they become ensnared in the licensing morass that stretched construction times out to 15 years in the 1980s. Yet, despite all this government prompting, investors do not seem very confident about undertaking the risks.
The day after presidential candidate John McCain announced his determination to build 45 new reactors by 2030, Admiral Frank "Skip" Bowman, director of the Atomic Energy Institute, wrote an op-ed in the New York Post begging for money:
Our nation will need something similar to the Clean Energy Bank concept being considered by some in Congress. This would be a government corporation providing loan guarantees and other forms of financial support to ensure capital for deploying clean-electricity technology.
All this would suggest that nuclear power is a failed enterprise, surviving off government subsides. There is only one trend that runs counter to this. In 2006, when the Northeast was experiencing a winter run-up in natural gas prices, Connecticut Attorney General Richard Blumenthal wrote the following manifesto for the Hartford Courant:
[W]e need a windfall profits tax aimed at generators who have reaped outlandish and undeserved profits through irrational market rules. In 2006, the nuclear Millstone II and III generators in Waterford will have profits of $274 million and $419 million respectively, while the coal-fired Bridgeport Harbor plant will enjoy profits of $113 million . . . The generators using low-cost coal and nuclear fuel reap these same high prices and enjoy ever-ballooning profit margins.
So how is it that nuclear can be too expensive to matter and at the same time making so such money that it merits a windfall profits tax? To understand this mystery, you have to recognize the hurdles nuclear power faces.
The idea that nuclear is inherently uneconomical is incorrect. Most of the nation's 104 nuclear reactors are now making profits in the range of $1 million a day. One reason is that nuclear plants are immune to the price increases that bedevil fossil fuels. Even when uranium underwent a speculative boom in 2008, with prices rising from $16 to $135 a pound before dropping back to $60, reactors were only marginally affected. "Uranium costs represent only about 10 percent of the costs of nuclear electricity as opposed to 77 percent with coal and 95 percent for natural gas," Jim Slider, director of planning and analysis at the Nuclear Energy Institute, notes.
What's more, operating and safety snags that long dogged the industry have been overcome so that the nation's entire nuclear fleet now operates at a capacity factor of 90 percent—a figure undreamed of a decade ago. Fossil fuel plants, by contrast, operate at a capacity factor of 60 percent and windmills and solar collectors are lucky to produce at 30 percent. The superior efficiencies of nuclear compared to both conventional and alternative fuels are the result of a re-organization within the industry in 1997 when "merchant" companies started buying up reactors from utilities. Entergy, Exelon, Progress Energy, Florida Power and Light, and several others became specialists in operating reactors, raising their performance to unprecedented heights. In the old days, for instance, refueling could take two months and employees often regarded it as a vacation. Now, special teams tour the country performing refueling in three weeks, choreographing them years in advance. These merchant companies are now making so much money that they want to build new nuclear plants—which is why there are nine applications before the Nuclear Regulatory Commission (NRC) with two dozen more waiting in the wings.
Indeed, no one disputes that nuclear offers big cost advantages and returns over conventional fuels in the long run due to their low operation and maintenance costs. The problem is getting over the initial investment hump, given Wall Street's reluctance to invest in nuclear. A new reactor costs between $5 and $7 billion, probably the biggest private undertaking in the world. As Thomas Friedman puts it in his new book, Hot, Flat and Crowded:
To build a new nuclear plant costs a minimum of $7 billion today, and would take probably eight years from conception to completion. Most CEOs have about eight years in office, and there are not a lot of utility CEOs who would bet $7 billion—which might be more than half the company's market cap—on one nuclear project.
Nevertheless, a 2003 MIT study, "The Future of Nuclear Power," found that while nuclear electricity sold for 6.7 cents per kilowatt-hour (kWe-hr) compared to 4.2 cents for coal and 3.8 cents for natural gas, a $50-per-ton tax on carbon emissions would push coal and gas prices to 5.4 cents and 6.1 cents respectively while leaving nuclear unaffected. Both coal and gas prices have since increased by 25 percent. A 2006 study by the French government found that nuclear and gas now cost exactly the same—4.6 cents (Euro) per kWe-hr—without a carbon tax.