New Observer, Tuesday, February 1, 2000
Nuclear's new lease on life
Times change -- so does technology
By KARIN SCHILL
Two decades after the Three Mile Island accident eroded America's confidence in nuclear power, the atom-splitting technology appears to be making a comeback.
Staff WriterFueled by stricter environmental laws and new legislation that helps utilities that own debt-ridden reactors compete for customers, power companies are taking another look at nuclear power.
They are even toying with the idea of building new plants, something no utility executive would have dreamed of a few years ago.
Westinghouse Electric Co., which produced the world's first nuclear power plant in the late 1950s, recently received federal permission to market a groundbreaking new reactor design that can be built twice as fast and for about 30 percent less than the cost of earlier reactors. Several power companies in the United States helped develop the new design, known as AP600, in hopes of reviving nuclear technology.
"There's a tremendous opportunity to make money here," said Ed Tirello, a utility analyst for Deutsche Banc Alex. Brown in New York. "The world has changed."
The single most important factor is the movement to open retail electricity markets to competition and customer choice.
Many states are introducing programs to help utilities recover billions of dollars in plant investments, and those measures are suddenly making reactors economically viable. In Pennsylvania, for instance, power customers will pay a "competitive transition charge" on their bills for the next seven to 12 years to help utilities pay off more than $11 billion in plant debt that could otherwise not be recovered in the state's competitive market.
Once such debt has been removed, electricity from nuclear power is expected to be no more expensive than electricity from other types of plants. In North Carolina, utility markets have not yet been deregulated, but in the future, consumers could expect a similar charge aimed at leveling the playing field for power companies that would be forced to compete.
A decade ago, the average cost of producing nuclear power, not counting construction costs, was 2.95 cents a kilowatt-hour, according to the Nuclear Energy Institute, an industry group in Washington. Today, that average has dropped to 1.91 cents a kilowatt-hour. By comparison, coal-plant costs average 1.9 cents a kilowatt-hour, and gas-plant costs 2.8 cents a kilowatt-hour.
Nuclear plants also will become more attractive to companies that are consolidating to reduce costs. A few years from now, the production of power is expected to be in the hands of a few utility giants that own a large number of plants all over the country. That has created a sudden market for nuclear plant purchases that nobody had predicted a few years ago.
Carolina Power & Light and Duke Power are among a number of companies that have shopped in recent months for reactors that were on the auction block in New England and the Midwest.
The reactors are being sold by utilities that are exiting the generation business to focus on distribution and sales of power.
Nuclear plants sell for a fraction of their book value because of potential liabilities associated with nuclear power. But groups of utilities have teamed up to buy them, making such investments less risky.
Three plants -- Three Mile Island's Unit One in Pennsylvania, the Pilgrim plant in Massachusetts and the Clinton plant in Illinois -- have been sold so far
"As the industry continues to go through its transition to competition, a large number of transactions like this are likely to crop up," Moody's Investors Service wrote in a June 1999 report. "Considering the bargain-basement prices being paid for such assets, it's not unreasonable to expect others to venture into the fray."
Along with deregulation, stricter air-pollution laws could prove an unexpected boon to nuclear technology.
Nuclear plants, of course, have their own environmental problems. They produce tons of highly radioactive waste that's awaiting storage deep inside a mountain until it's no longer dangerous thousands of years from now. But they don't pollute the air, and that is a big plus these days.
As state and federal environmental officials crack down on coal plants to reduce greenhouse gases, utilities might choose to invest in new nuclear plants and to prolong the life of existing ones rather than spending billions of dollars retrofitting coal plants.
"If we expect to meet electric demands that are constantly increasing without complicating our greenhouse gas emission situation, nuclear will have to be part of the solution," said Tom Shiel, a spokesman for Duke Power.
Like CP&L, Duke Power already relies on nuclear technology for about 50 percent of the power it produces.
Both companies are joining a growing number of utilities that are choosing to extend the lives of their existing reactors as they near the end of their 40-year operating licenses. More efficient reactor operations, coupled with the prospect of a state-sanctioned bailout to eliminate much of the lingering construction debt, have made the plants viable in the 21st century as well.
Duke Power has an application pending before the Nuclear Regulatory Commission to operate its Oconee plant in South Carolina for 20 more years after its license expires in 2013. CP&L has notified the NRC of its plans to seek a 20-year license renewal for the Robinson plant, also in South Carolina. The Robinson license runs out in 2010.
Both companies say they expect to extend the operating lives of their other plants as well. Whether they will ever be in the business of building new reactors remains to be seen, but neither company is ruling it out.
Westinghouse, the venerable reactor designer getting ready to market the new AP600 reactor, believes that nuclear construction will one day be revived in the United States, where a majority of the population has long been skeptical about the technology. The company says it's already in preliminary discussions with several U.S. utilities interested in the AP600, and hopes to have deals in the works within the next five years.
Westinghouse President and Chief Executive Officer Charles Pryor Jr. acknowledges that his reactor, which took 10 years and $400 million to develop, could be a tough sell in this country.
A new survey conducted by PHB Hagler Bailly, an energy and management consulting firm, showed that 75 percent of North American utility executives believe that no new reactors will be ordered in the near future. Although that response was down from 80 percent in an earlier 1999 survey, it's an indication that the AP600 won't be an immediate hit.
"As long as the [energy] growth demand continues at 2 to 3 percent, the fuel of choice will be gas," Pryor said. "But a number of things could change that."
One such change could be an increase in natural-gas prices that would make gas plants too expensive to run, or at least less attractive to build.
The Gas Research Institute estimates that the consumption of gas in the United States will skyrocket over the next 15 years from an annual consumption of 22 trillion cubic feet this year to 33 trillion cubic feet in 2015. The growth is expected to be triggered primarily by new construction of gas-fired power plants.
The question is whether technologies needed to tap into new gas reserves beneath the ocean can be developed fast enough. Another concern is the limited capacity of the nation's gas distribution system. Many observers predict that demand will soon outstrip production, resulting in rising gas prices as early as this year.
Pryor also is among those who believe that nuclear plants will become more attractive when the federal government gets more serious about cracking down on air pollution.
In order to encourage utilities to consider emission-free technologies, some members of Congress have discussed extending tax credits to nuclear plants. Such help would make plants that remain burdened by expensive construction costs become more competitive.
"You can see that if nuclear was a dying breed, you wouldn't see this amount of activity," said Shiel of Duke Power. "It's very clear that it's possible for nuclear to flourish also in the future."
Whether Americans will accept new nuclear plants in their backyards is less clear.
An Associated Press poll last spring showed that 45 percent of Americans support the use of nuclear energy, down from 55 percent in 1989. According to a poll by the industry's trade organization, the Nuclear Energy Institute, 60 percent of Americans want nuclear power "to be part of the nation's energy mix."
Either way, a lot of people feel ambivalent or negative about the technology.
"Calling it a nuclear revival would be a real stretch," said James Riccio, a senior analyst for Public Citizen, a group that has often spoken out against atomic energy. "No plant is being constructed in this country, and none has been ordered [and then built] since 1973."
And it wasn't anti-nuclear rallies that ground construction to a halt, he said, but simple economics: Nuclear is just too expensive.
"They're being bailed out now, but they're still going to have to compete," Riccio said. "I have grave doubts as to whether this industry can withstand competition."
But utilities note that with uranium fuel prices now as low as the price of coal, nuclear energy could prove a viable energy source if plant construction costs drop. In fact, the PHB Hagler Bailly survey showed that 54 percent of utility leaders believe that nuclear plants can survive in a competitive market.
"Once it's paid for, it's not that expensive," said Tirello, the Deutsche Banc Alex. Brown analyst. "All of a sudden, nuclear power will be on an even footing."