March 11th marked the one year anniversary of the Fukushima Daiichi nuclear disaster in Japan, the world’s worst nuclear crisis since Chernobyl in 1986. Fukushima is a poignant reminder of the dangers associated with nuclear power. Some might wonder whether the disaster killed the prospect for the growth of nuclear power in the United States. In reality, nuclear power in the U.S. was in trouble long before a magnitude 9.0 earthquake and tsunami damaged several of Japan’s reactors.
Nuclear power is an attractive way to generate electricity because, unlike electricity generated from coal and natural gas, nuclear power is virtually free of greenhouse gas emissions. Despite this, the nuclear power landscape during the 1980s and 1990s was bleak. As recently as five years ago, however, when natural gas prices were at a historic high, there was considerable renewed enthusiasm for nuclear power in the U.S. In 2008 alone, 16 applications were made for new nuclear power plants.
But this renewed enthusiasm was short-lived. Since 2009, only one additional application has been made and many previously proposed nuclear projects have been cancelled or put on hold. This was the nuclear landscape in the U.S. even before Fukushima and is likely to continue to be the landscape long after Fukushima. Why? Mainly because of the challenging economics of nuclear power.
Even before Fukushima, nuclear power plants were hugely expensive to construct. The sheer scale of a reactor means that most components must be specially designed and built. With design and construction highly tailored to each individual project site, there is little room to spread costs across different projects. In addition, construction costs have increased dramatically over time.
In addition to construction costs, financing costs are a large component of the total cost of a new nuclear power plant. Nuclear power plants take an enormously long time to build, an average of 14 years for nuclear power plants ordered during the 1970s. Such long lead times mean that financing costs become a significant component of the project’s total cost. In addition, the cost of capital is typically well above the risk-free rate due to the big risks that the project won’t be completed and/or will be delayed due to regulatory hurdles at both the federal and state levels.
Researchers at EI @ Haas and elsewhere have developed careful calculations of the long-run average cost to produce a kilowatt of electricity from different technologies. Nuclear power is at least 40% more expensive than electricity generated from fossil fuels. And the gap widens dramatically when price forecasts for relatively low natural gas prices are taken into account. Global availability of natural gas has increased due to new harvesting technologies such as horizontal drilling and hydraulic fracturing, posing a continued challenge for the viability of nuclear power in the U.S.
Another important factor for the economics of nuclear power is federal energy policy. The prospects of a federal cap on carbon emissions stalled in the U.S. Senate in 2009, causing another blow to the economic viability of new nuclear plants. A substantial tax on carbon dioxide of $25 per ton or more would narrow significantly the gap in long-run average cost between nuclear and coal, though the gap between nuclear and natural gas would remain large.
With or without Fukushima, the growth of nuclear power has stalled in the U.S. despite its potential to reduce greenhouse gas emissions. For now, power producers continue to improve operating efficiencies at existing nuclear reactors and new nuclear technologies, such as small-scale modular nuclear reactors, are under development. Fukushima reminded all of us of the devastating effects of a nuclear accident, but for the foreseeable future, economic conditions alone will make it difficult for nuclear power to break new ground in the U.S.