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More to the Story on Nuclear Power and Cheap Natural Gas

Posted By Jack Spencer On March 16, 2012 @ 5:00 pm In Energy,Featured | Comments Disabled

Two major financial news publications, the Economist and The Wall Street Journal, published major articles in the past week arguing that the American nuclear renaissance has ended before it ever really began. While the articles differ slightly in their presentation, the basic common thread is that new nuclear power cannot compete with cheap natural gas.

The problem with this basic narrative is twofold. First, it does not fully recognize how quickly markets change. Secondly, it ignores the potential benefits that would result from better policy.

If markets were static, then challenging such notions would be nearly impossible. Certain things are facts. Natural gas is very inexpensive. Building a nuclear plant is expensive and seemingly getting more expensive.

But that is not the end of the story.

Natural gas is cheap. No question. But it has been cheap before. Indeed, it was very cheap at about the same time the nuclear industry was last declared dead. And that’s not the only parallel. The world was responding to a recent nuclear accident at Three Mile Island (TMI), and nuclear plant construction costs were on the rise.

This caused a shift toward natural gas. As demand grew, so did its price [1]. In 1980, natural gas cost $4.39 per 1,000 cubic feet. By 2008, it had risen to $8.43 (inflation adjusted). Producers began to seek alternatives by the early 2000s.

Back to nuclear.

As natural gas use was growing through the mid-2000s, the nuclear industry was refining its product. It continued to bring plants on line that had been permitted prior to the TMI accident and worked to hone its safety procedures and operational efficiency. The numbers show the progress. In 1979, American had 72 plants on line. Today there are 104.

Back then, America’s reactors operated at an average capacity factor of less than 60 percent. That means that the average plant spent 40 percent of that year not producing electricity. Today, reactors routinely exceed 90 percent capacity factors. This has resulted in low-cost, reliable electricity [2]. And because the cost of fuel makes up a small percentage of actual costs, nuclear power prices do not vary over the lifetime of the plant. Best of all, these benefits are buoyed by increasing safety [3].

This progress positioned nuclear power to mount a comeback by the late 2000s. Indeed, 18 utilities submitted applications to the Nuclear Regulatory Commission to build nearly 30 new reactors.

Now, once again, with cost estimates rising for nuclear power, natural gas prices dropping, and renewed public anxiety fueled by a major accident, some like the Economist and The Wall Street Journal are questioning whether nuclear power has a future.

Part of the answer can be found in the Journal’s article. It points to three concerns regarding over-reliance on natural gas:

  • Diversity of fuel source. As one of the executives interviewed clearly states, even if one fuel source is cheap, there is great value in fuel diversity. An over-reliance on a single fuel will likely result in higher costs.
  • Long-term prices are unpredictable. Few expected the precipitous drop in natural gas prices that has occurred since 2008. Likewise, no one is predicting any near-term price spikes. However, if history is any guide, we should expect a rise over time. The lower prices go, the less incentive there will be to find additional reserves. The Wall Street Journal reports that this is already happening. And demand will surely increase as more natural gas is used for home heating and electricity production, and industrial applications and export opportunities emerge.
  • Fuel supply. There is also growing concern that existing pipeline capacity will not be adequate to support growing demand.

The rest of the answer lies with the nuclear industry and the federal government and how they interact. As the industry underwent significant safety and operational reform after TMI, the time is now for another significant reform effort geared toward relating to the federal government. These reforms should include:

  • Regulatory reform. America’s nuclear regulator, the Nuclear Regulatory Commission [4], does an outstanding job at regulating public health and safety for existing plants in a slow/no-growth market that is built around a single technology. It is not built to regulate a technologically diverse, growing nuclear industry.
  • Waste management. While the private sector efficiently manages front-end (fuel-related) activities and plant operations, the government remains in control of America’s dysfunctional regime for waste management. Under the current system, there is little connection between used-fuel management programs, economics, and the needs of the nuclear industry. Any successful plan must grow out of the private sector, be driven by sound economics, and provide access to the funds that have been set aside for nuclear waste management activities [5].

Though there are no guarantees, nuclear power—despite much adversity—has proved to be much more than a survivor. The right policy reforms today will open up markets to more abundant, more affordable, and even safer nuclear energy.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/03/16/more-to-the-story-on-nuclear-power-and-cheap-natural-gas/

URLs in this post:

[1] price: http://www.eia.gov/totalenergy/data/monthly/pdf/sec9_17.pdf

[2] low-cost, reliable electricity: http://www.nei.org/resourcesandstats/documentlibrary/reliableandaffordableenergy/graphicsandcharts/monthlyfuelcosttouselectricutilities/

[3] increasing safety: http://www.nei.org/resourcesandstats/documentlibrary/safetyandsecurity/graphicsandcharts/usnuclearunplannedautomaticsscrams/

[4] Nuclear Regulatory Commission: http://www.heritage.org/research/reports/2011/02/a-big-future-for-small-nuclear-reactors

[5] waste management activities: http://www.heritage.org/research/reports/2011/08/blue-ribbon-commission-on-nuclear-waste-missing-opportunity-for-lasting-reform

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