The Economics of Nuclear Power

New York State’s denial of a renewal license for Entergy to continue operating the Indian Point nuclear power plant brings to light the obstacles impeding progress in the American nuclear industry.

According to The Wall Street Journal, the rejection scuttled Entergy’s long-range plan to spin off the five nuclear plants it operates into a separate company that would have allowed the new entity to compete in the unregulated market for electricity.

The non-competiveness of the U.S. market, hampered by layers of regulation, chokes progress and promise. In his fiscal 2011 Budget Overview, Energy Secretary Steven Chu told Congress that his department’s goal is to “provide technical and financial support to restart the American nuclear power industry” and wants to back it with a $36 billion loan guarantee.  (The same budget cancels expansion of the Strategic Petroleum Reserve, which serves as a buffer against emergencies but currently stocks only 34 days of our average daily consumption. This precarious arrest of the increase to an equivalent of a 50-day reserve in the SPR, mandated by the Energy Policy Act of 2005, is estimated to save a de minimus $71 million. As evidence of its inability to set priorities for national security, DOE instead wants to spend $2.3 billion on unproven science projects with talismanic names that only make the global warming set feel good—biomass, hydrogen, and vehicle and building technologies.)

It is time to take the training wheels off the nuclear power industry, which doesn’t need government money but rather a single, streamlined regulatory regime. 

Independent analyses at the University of Paris, Dauphine, and the University of Pittsburgh concluded that total construction time for a new nuclear plant in the U.S. increased from seven years in 1970 to 12 years in 1980, which, at an average annual increase of 15% above inflation, quadrupled total cost in that period.

The cause is widely attributed to “regulatory ratcheting”—the constant raising of the bar power plant operators must clear at the federal and state levels. This explains why nuclear power provides only 20% of America’s power, a portion that has remained constant since the late 1980’s. By contrast, the French nuclear industry supplies nearly 80% of that country’s electricity and has reduced its construction time to six years with standard, pre-certified designs.

The Pittsburgh study attributes 50% of the labor cost in a U.S. new plant to professional services—engineering, quality control, etc., because each is custom designed. Consequently, nuclear plants cost $3,500 per kilowatt capacity in the U.S., but only $800/kW in France.

As France streamlines the regulatory process further, the U.S. still lacks a constant, predictable national system. The Nuclear Regulatory Commission’s new combined construction and operating license (COL) offers hope; there are 17 COL applications pending at the NRC.

Yet a web of state and environmental hurdles must be overcome by operators. Just as the U.S. seems to be turning the corner with COL and new reactor technology, Rep. Edward Markey (D.-Mass.) chairman of the Subcommittee on Energy and the Environment, asked the Government Accountability Office last month to review the NRC’s licensing process in a ten page, no-fear-left-behind letter that lists everything that can possibly go wrong with nuclear power except a meteor strike. Since most of the cost of a power plant is in construction (fuel costs being relatively negligible), and most of the construction cost is in regulation (absent a standard design), complicating regulation further is simply “bending the cost curve” the wrong way.

Nuclear power is cheap: advanced pressurized light-water reactors produce an average kW-hour at a cost 20% less than coal plants, even in the U.S., and costs can be driven down with standard designs and efficient licensing.

Unlike coal, nuclear plants produce zero carbon emissions. But, as in many industries today, free-market calculus is burdened by the risk and uncertainty induced by hyperactive government and fuzzy rhetoric. So when President Obama promised recently to provide loan guarantees to two new plants in Georgia, all he will be doing is funding a broken financial model with taxpayer dollars.

A serious energy policy would instead replicate best practices in nuclear engineering and regulation from countries that have proven success, and would then liberate market economics to balance supply and demand without public funds.