Pricey Alternative: Nuclear Energy

Many Argue Federal Subsidies Are Needed to Prop Up the Industry

The nuclear industry is getting slapped with some serious sticker shock.

A wary acceptance of nuclear has only recently entered the public conversation. As America grapples with its dependence on ever more expensive foreign oil and the perils of climate change, many cite nuclear power as an attractive energy alternative. Yet critics and even some supporters argue that the only thing keeping the nuclear dream alive is support from federal subsidies. This could give taxpayers something to worry about over the next few years.

The Wall Street Journal reports that cost estimates for new plants are up to four times higher than originally anticipated, soaring to $12 billion and beyond for an individual unit.EnergyBiz says (pdf here) that rising costs could "put an end to the nuclear renaissance before it ever gets started."

High construction costs threaten the future of the nuclear industry, before it really takes off, but plans for new projects remain on the table.

Every energy sector is struggling right now with rising costs of materials and labor for new and expanding power plants. But nuclear is getting hit the hardest. The industry is particularly vulnerable because of its high electricity costs relative to coal or natural gas.

A 2003 report by the Massachusetts Institute of Technology entitled "The Future of Nuclear Power" raised significant economic concerns. "Today, nuclear power is not an economically competitive choice," the report said. This is partly because the federal government would have to foot the bill for many costs. New nuclear plants would require major government involvement to deal with issues of safety, waste and proliferation, MIT researchers found.

In order to make nuclear energy competitive with coal and natural gas, the university recommended that the federal government should share costs for construction and operating licenses, certification and site banking. It also recommended a "modest" federal subsidy in the form of a production tax credit for the first round of nuclear plants to demonstrate feasibility.

Cost estimates have only gone up -- and by a whole lot -- since the MIT report was released, so federal subsidies could play an even bigger role in keeping new nuclear plants afloat in the coming years. The 2005 energy bill offers $13 billion in subsidies and tax breaks, in addition to loan guarantees and other incentives, something which might concern taxpayers. That actually might not be enough, though, to support fledgling plants.

Take the example of the Florida Public Service Commission, which plans on building two nuclear units at Turkey Point in south Florida. According to reports fromEnergyBiz and Plenty Magazine, the utility, Florida Power & Light, estimated that the cost would be between $18 billion and $24 billion for both units -- (up to $8,000 per kilowatt-hour). A second estimate, this time from the company Progress Energy, said that the costs would be much lower -- $14 billion for both units plus $3 billion for transmission and distribution. Even this more moderate estimate is twice as much as industry contractors originally promised.

However, MIT says that a carbon tax or an equivalent cap-and-trade system could push costs down. If Congress votes on new climate change legislation next year, CO2-emitting industries are likely to be hit with such a measure. Since nuclear energy does not release CO2, it would benefit greatly from such government action.

If a carbon tax is enforced, some environmental groups say, investment should target solar and wind technologies and fuel efficiency efforts, not nuclear power. "It's a costly technology and a dirty and dangerous distraction from what we really need to focus on," said Sierra Club spokesman JoshDorner, "which is a dramatic improvement in energy efficiency and an increase in renewables."

Dorner says the nuclear industry's future depends "entirely" on federal subsidies. "The real reason that we haven't had a new nuclear plant built in really 20 years or longer is not because people were too afraid or because the industry has not found a way to solve its waste problem," he said. "They haven't been built because they're super-expensive andnobody's been willing to put up the money to build them." Applications for new plants are only starting to appear, he says, because of subsidies offered by the 2005 energy bill.

But the former chair of the Nuclear Regulatory Commission, Richard Meserve, tells a different story. Meserve is now the president of the Carnegie Institution for Science. He says it remains to be seen whether subsidies will be needed for the construction of nuclear plants. But feasibility also remains to be seen, he says. "They haven't built plants in the U.S. for a long time," saidMeserve . "So you have to sort of rebuild the industry, so there are risks associated with that. We haven't show that we can build these plants on budget and on schedule."

Even so, he says there's reason to believe that subsidies will only appear when nuclear is first reintroduced into the energy market. After that happens, he says, nuclear power has the potential to stand on its own two feet. "Ultimately, you don't want to be subsidizing energy forever," he said.

Meserve points out that the U.S. is at least seven years away from any new plants getting built. "We might have some eight plants in place by 2020," he said, "but there aren't going to be any by 2015, just because of the delay in getting plants up and running."

If costs don't come down, that waiting period could stretch out much longer. So far, these obstacles haven't stopped energy companies from submitting applications to the government for new plants, according to the Energy Information Administration. "Even with the rising cost of materials," said JohnMoens, nuclear industry specialist at the EIA , "it sounds like more companies are getting interested in building the reactors and the list of companies that [the government] anticipates will apply has been growing rather than shrinking."

But, Moens says, just because companies are applying to build new plants, doesn't mean those plants will definitely get built. "There are so many things that can change in a hurry," he said.

The rising cost is one of those things. And it's something that can only add to an already poor public perception of nuclear energy. The "Not In My Backyard" factor associated with nuclear waste makes nuclear energy unpopular in some communities. The economic factor could prove to be the tipping point.

print Share

Register or log in to rate