Two economists make a bet on how much it costs to build a nuclear power plant.
Back in November 2011, I made a bet with economist Geoff Rothwell about the future of nuclear power. By making a bet we weren’t trying to trivialize the issue. To the contrary. We had different predictions, and we saw this as a way of standing behind our beliefs, albeit in a modest way.
Our bet is about how much it costs to build a nuclear power plant. This might not seem very important, but I have grown to believe that this is the single most important number when it comes to determining the prospects for nuclear power, the only large-scale source of baseload electricity generation that does not emit carbon dioxide.
Geoff and I were at a conference, and I referred to an MIT study that estimated a cost of construction of $4,200 per kilowatt of capacity. Geoff thought this was too high. So he challenged me to a $20 bet. We agreed that we would use the two new reactors currently under construction at the Vogtle Plant in Waynesboro, Georgia as our measure. The new reactors will have a combined capacity of 2200 megawatts. So at $4,200 per kilowatt this is $9.2 billion in total construction cost. I went easy on Geoff and agreed to exclude financing costs and focus only on the “overnight” cost of construction.
The Vogtle project is extremely interesting because it is the first new nuclear construction in the United States in three decades. The Southern Company received a construction license from the U.S. Nuclear Regulatory Commission (NRC) in February 2012 and began construction officially in March 2013, though “pre-construction” has already been going on for several years.
It is not clear yet who will win the bet. There have been some delays, but construction is moving forward. Photos from January 2014 from the Southern Company’s website (below) document continued progress on the containment vessels and cooling towers. Click here for the complete set of photos.
According to a recent article by Reuters, the projected cost of the reactors is now $14 billion. This includes financing costs, however, so it is not clear how this compares to $4,200 per kilowatt. The new reactors are scheduled to come online in 2017 or 2018 so more-detailed budget information will become available soon.
Geoff is the Principal Economist at OECD Nuclear Energy Agency and has worked on nuclear energy his entire career so this bet would seem to be a risky move. I am not a nuclear engineer nor am I an expert on construction budgets. But I have looked closely at the history of nuclear construction projects in the United States, and the empirical evidence is not encouraging.
Source: Lucas Davis, “Prospects for Nuclear Power”, JEP, 2012.
The figure above plots overnight construction costs for U.S. nuclear reactors by year of completion. While one might have hoped to see evidence of “learning-by-doing” the data actually show a pronounced increase in construction costs over time. Reactors that were ordered during the 1950s were built quickly and at relatively low cost, while reactors ordered during the 1970s ended up taking much longer and costing more.
Part of the story is a rapidly evolving regulatory process. A joke in the industry was that a reactor vessel could not be shipped until the total weight of all required paperwork had equaled the weight of the reactor vessel itself. The NRC has new procedures intended to streamline the regulatory process, but it remains to be seen how well these reforms will work in practice.
But even ignoring potential regulatory delays, nuclear power plants are still enormously challenging projects. The sheer scale of these facilities means that most components must be specially designed and constructed, often with few potential suppliers worldwide. These components are then assembled on site, and structures are built to house the assembled components. All stages of design, construction, assembly, and testing require highly-skilled, highly-specialized engineers and managers.
So it will be very interesting to continue to follow the experience at Vogtle. From the point-of-view of the planet, I hope I am wrong, and that the reactors end up costing much less than expected. To address climate change we need as many technological alternatives as possible, and if nuclear power could be done cheaply it would transform energy markets. But we also need to be honest about the costs and these large construction costs make it difficult to make an economic argument for nuclear power.
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Suggested citation: Davis, Lucas. “A Small Bet with Big Stakes” Energy Institute Blog, UC Berkeley, February 18, 2014,
Lucas Davis is the Jeffrey A. Jacobs Distinguished Professor in Business and Technology at the Haas School of Business at the University of California, Berkeley. He is a Faculty Affiliate at the Energy Institute at Haas, a coeditor at the American Economic Journal: Economic Policy, and a Faculty Research Fellow at the National Bureau of Economic Research. He received a BA from Amherst College and a PhD in Economics from the University of Wisconsin. Prior to joining Haas in 2009, he was an assistant professor of Economics at the University of Michigan. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.