Photograph by Jeff Haynes, AFP/Getty Images

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Exelon's reactors at 10 sites in three states, including this facility in Byron, Illinois, make it the largest nuclear power operator in the United States, but company officials think the market's not right for new plants.

Photograph by Jeff Haynes, AFP/Getty Images

New Nuclear Energy Grapples With Costs

Exelon Sees Weak Market, Others Think Climate Concerns Will Propel Industry

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

President Obama may be pressing for the nation to increase its supply of nuclear power, but the market is pushing in the opposite direction—at least in the view of one of the leading figures in the U.S. nuclear business.

John Rowe, chief executive of Chicago-based Exelon, operator of the nation’s largest fleet of nuclear power stations, says the economics of the electricity business have changed sharply in just the past two years, dimming the prospects for a significant number of new nuclear reactors in the United States.

Though Obama has touted nuclear as “our largest source of fuel that produces no carbon emissions,” cleanliness is not a benefit that currently shows up on the bottom line. Without congressional action to make competing fuels that emit greenhouse gases more expensive, Rowe says, fossil fuel plants are still cheaper to build. “I just don’t think nuclear has a chance in a pure marketplace without a carbon price,” Rowe said last week in Washington, D.C., in a speech hosted by Resources for the Future, a think tank focused on cost-benefit analysis in environmental policy.

While Rowe noted that some companies are still working on nuclear projects, he pointed out that they tend to be in “rate-based jurisdictions.” In other words, they are in traditionally regulated states where monopoly power companies can sometimes recoup the costs of building nuclear plants during construction through the rates they charge their customers.

Exelon, in contrast, operates only in states where deregulation has created competitive markets. In effect, it sells the power it produces into the electricity marketplace. And because electricity prices have dropped—particularly due to new, abundant supplies of natural gas—Rowe thinks that building new nuclear plants does not make economic sense now.

Renaissance Delayed

Rowe’s pessimism is a change from his view in 2007, when Exelon announced plans to build two new nuclear units in Victoria, Texas. At the time, the plan was one of a flurry of proposals that industry advocates said signaled a “nuclear renaissance” in a country that hasn’t seen construction of a new reactor in 30 years. Some of the past environmental resistance to nuclear power due to safety concerns has eased because the big reactors are capable of delivering a large amount of “baseload” power—a steady supply of electricity that doesn’t fluctuate like that produced by solar or wind—without carbon dioxide emissions. And although new nuclear plants are costly, Congress in 2008 approved $18.5 billion in federal loan guarantees for new nuclear plants. Those guarantees are seen as essential for the industry to obtain financing, especially given the risk that projects may not make their way through the lengthy approval process.

In February, the White House signaled more support for nuclear projects, with a budget request for the next fiscal year that seeks to triple the amount of federal loan guarantees, to $54 billion. And President Obama named the first nuclear industry recipient of a loan guarantee—$8.33 billion in backing for a $14 billion project to build two new nuclear units at Southern Company’s Vogtle Electric Generating Plant in Burke, Georgia.

The two new 1,100-megawatt units would provide enough power for 1.4 million people in a state where electricity demand is projected to grow 30 percent in the next 15 years. Obama, making the announcement before members of an electrical workers union, portrayed nuclear power as a jobs creator and part of the solution to climate change. “To meet our growing energy needs and prevent the worst consequences of climate change, we'll need to increase our supply of nuclear power,” he said. Compared to a similar-sized coal plant, Obama said, the Southern project would be the emissions equivalent of taking 3.5 million cars off the road.

Southern and its partners still must obtain final approval and licensing from the U.S. Nuclear Regulatory Commission. Carrie Phillips, manager of public affairs for Southern Company’s nuclear operations, said the project is on track. “We’ve completed excavation. We put in a new transmission line, and we’re building a concrete batch plant on site,” she said. “There’s a lot going on.”

No Nuclear Bet

It’s a different story for Exelon, which last year signaled plans to delay its Texas plant and formally withdrew its application for an operating license in March. Although the company will continue to seek a federal site permit at the location, Rowe said in his remarks last week that the abundance of relatively cheap natural gas—the result of new technologies that allow for production from hard geological formations called shale—had fundamentally changed the economics. “As long as we have $4 gas and no carbon price, we’re not going to bet on a new nuclear plant,” he said.

But Rowe said Exelon still plans upgrades of its 10 existing nuclear plants in Illinois, New Jersey, and Pennsylvania, facilities that provide enough electricity for 17 million homes. In recent years, the company has increased the capacity of those plants with new turbines, generators, digital controls, and other efficiency improvements that have added the equivalent of another full nuclear plant. He said that Exelon plans to continue such upgrades. “Exelon doesn’t plan to build a new nuclear plant, but does plan to add the equivalent of [another] new nuclear plant to its existing capacity,” he said.

Rowe’s views on the prospects for new nuclear power are far from universally shared. The leading industry group, the Nuclear Energy Institute, holding its annual convention in San Francisco this week, said the industry was “well-positioned for expansion” despite what it called the short-term challenges of financial pressure and lower-than-expected electricity demand—problems that it noted affect the entire electricity industry, not just nuclear.

License applications for 22 new reactors, to be built over the next 10 to 20 years, are still pending before the NRC. And the NEI points to an Environmental Protection Agency analysis that concluded that nuclear power generation in the United States would have to increase 150 percent by 2050 to meet the carbon-reduction goals of the climate change legislation passed last year by the House of Representatives. (The Senate version, with similar reduction goals, was introduced just last week.) That would mean 187 new nuclear plants by 2050.

And at least one company that operates in deregulated states, like Exelon, is moving forward with its nuclear construction plans: NRG Energy, whose shareholders rebuffed a hostile takeover bid by Exelon last year. In September 2007, NRG filed what was the first full application for a new nuclear operating license submitted to the NRC since 1979—a plan to build two units at the South Texas Project power station near Bay City. That $10 billion project is proceeding, and just last week, NRG announced that Tokyo Electric Power will acquire an 18 percent stake. The company expects to add other partners later this year.

Speaking at a power industry conference sponsored by Deutsche Bank Securities on the same day that Rowe was making his remarks, NRG Chief Executive David Crane acknowledged that some doubt nuclear power will be able to compete with low natural gas prices. But he said gas prices are projected to rise by 2016 and 2017, when the new nuclear plant would be operational. And he said he still believes that nuclear power ultimately will be helped by U.S. policy on climate change. “It is hard for me to find someone who doesn't think that there is going to be a price on carbon somewhere in the next several years,” Crane said, “and nuclear is the ultimate carbon hedge.”