In 2008, the “nuclear renaissance” hype was in full swing. South Carolina was one of the first states to hop on the bandwagon. Public and investor-owned utilities rushed to sign a contract for two new reactors at the V. C. Summer nuclear station before the design for the Westinghouse AP1000 reactors was finalized, to avoid the price run-up that was expected to occur when orders for dozens of reactors were signed. There was no rush of orders, but there were 17 formal revisions before the design was finalized, and perhaps many hundreds more made in a more informal manner.
A decade later, the nuclear industry is in shambles. Billions of dollars were spent on the two now-abandoned reactors at V. C. Summer, and only two other reactors remain under construction, at a plant in Georgia. The South Carolina reactors were so far behind schedule and over budget that they triggered the bankruptcy of the reactor vendor (Westinghouse), the near-bankruptcy of its corporate parent (Toshiba), and the resignation of the CEO of the utility (Santee Cooper) that owns 45 percent of the V. C. Summer project.
Santee Cooper and majority owner South Carolina Electric & Gas spent about $9 billion on the project before abandoning it in late July after an analysis showed that it would cost at least $21 billion—about twice the original estimate. Federal prosecutors are now seeking information about an audit conducted in 2015 by the engineering firm Bechtel, which concluded that the project was failing more than a year before the utilities scrapped it. The Scana Corporation, which owns South Carolina Electric & Gas, had written to Westinghouse expressing concerns, which may have prompted the review by Bechtel, and there are indications that concerns existed as early as 2011, just three years after the contract was signed. While the reactors at the Vogtle nuclear plant in Georgia are still under construction, they face many of the same problems as the South Carolina reactors—and there is growing opposition to their completion, with a final price that has risen to nearly $28 billion.
The nuclear industry’s collapse is stunning, but it should come as no surprise. This is exactly what happened during the first round of nuclear construction in the United States, in the decade between 1975 and 1985. History is repeating itself because of a dozen factors and trends that render nuclear power, new and old, inevitably uneconomic.
Boom and bust. In 2008, utility executives in South Carolina saw a bright future for nuclear. Their optimism was similar to that of an earlier era. An April 1975 Public Utilities Fortnightly article gushed about nuclear reactors:
The enormous benefits of nuclear power were reflected in an early 1975 Public Utilities Fortnightly survey of all American utilities that operated nuclear power plants as part of their electrical generating systems. The 24 companies concluded that “the peaceful atom” had saved their customers more than $750 million in their 1974 bills that they would have owed had their electricity come from fossil fuels. They also reported that in the same year “power from the atom” had saved “the equivalent of more than 247 million barrels of oil.”
A decade later, in February 1985, a dramatic cover story in Forbes magazine painted a completely different picture of nuclear power in America:
The failure of the U.S. nuclear power program ranks as the largest managerial disaster in business history, a disaster on a monumental scale. The utility industry has already invested $125 billion in nuclear power, with an additional $140 billion to come before the decade is out, and only the blind, or the biased, can now think that most of the money has been well spent. It is a defeat for the U.S. consumer and for the competitiveness of U.S. industry, for the utilities that undertook the program and for the private enterprise system that made it possible.
My most recent book, The Political Economy of Electricity: Progressive Capitalism and the Struggle to Build a Sustainable Power Sector (Praeger, 2017), is about the future of the electricity sector, in which the failure of nuclear power plays a significant role. It is essential to approach nuclear power in a political economy framework—the original discipline practiced by Adam Smith and Karl Marx, which entails the interrelationship between the practical aspects of political actions and the pure theory of economics—because nuclear power has never been economically competitive and, consequently, has always relied on the exercise of political power to secure a role in the electricity sector.
What does political economy tell us about why nuclear power projects keep failing? Here are a dozen factors and trends that are currently making nuclear power uneconomic:
1. Nuclear construction costs are escalating, driven by the complexity and demanding nature of the technology. This is especially true for a reactor design that is not yet operational; the first AP1000 will not go online until late this year or early next year, in China.
2. Low prices make natural gas more economically competitive than other forms of baseload power, namely nuclear and coal.
3. Alternatives such as wind and solar power are declining in cost, thanks to technological improvements that have cut costs by 50 to 75 percent in a decade or two.
4. Because of increasing efficiency, US demand for electricity is not growing as quickly as in the past.
5. Individuals and communities are increasingly able to supply their own energy with solar panels and batteries.
System integration factors.
6. Utilities have an increasing ability to manage and integrate demand and supply, due to advances in communications and advanced control technologies, which allows them to reliably generate an adequate amount of electricity even with a reduced reliance on baseload power.
7. Integrating, coordinating, and managing supply and demand transforms the nature of the grid and allows a reduction in total system size of 15 to 20 percent. For example, a 2016 paper published by Jim Lazar, a senior adviser at the Regulatory Assistance Project, found that adding renewable energy resources—while also implementing strategies to reduce peak electricity demand, and to deliver more output during afternoon high-load hours—could increase the load factor for a typical southern California utility from 73.6 percent to 86.5 percent, an improvement equivalent to 17.5 percent of the original load factor.
8. Energy storage, an area that had been largely neglected, is experiencing rapid growth. Batteries powered by renewable energy sources now offer an affordable way to provide electricity during hours of peak demand.
Reactors do not age gracefully.
9. Aging reactors can no longer cover their costs in the new environment, because they need increasing maintenance, repair, and replacement of parts as they age. This is particularly challenging because of the complexity of the technology, and the availability of newer, lower-cost alternatives that are driving down prices in states with deregulated electricity markets.
10. Bad management causes the abandonment of aging reactors. In fact, several recent early retirements of reactors—at the San Onofre and Crystal River nuclear plants—were caused by botched efforts to repair reactors. This problem has plagued the industry throughout its existence.
11. Demands for subsidies throughout the nuclear lifecycle are a reminder of nuclear energy’s inability to compete in a free market, and a focal point of current political struggles at the federal and state levels. Current subsidies are insufficient to make nuclear power, old or new, economically competitive in deregulated electricity markets. Energy Secretary Rick Perry recently asked the Federal Energy Regulatory Commission to change electricity pricing to boost compensation for nuclear and coal plants. Perry also recently announced that the Energy Department would provide $3.7 billion in loan guarantees (in addition to $8.3 billion granted earlier) to support ongoing construction of the two AP1000 reactors at the Vogtle nuclear plant in Georgia.
12. Difficult, expensive, and lengthy cleanups after accidents—such as the meltdowns at the Fukushima nuclear plant in Japan—continue to remind people that nuclear technology can be very dangerous.
If nuclear power is such a poor economic performer, why has it been able to repeatedly consume hundreds of billions of dollars? This is the politics part that is splashed across the headlines of the nation’s newspapers on a near-daily basis. The current frantic efforts to bail out new reactor construction and prevent the early retirement of old reactors are an integral part of the political economy of nuclear power.
Overriding the market. In six decades, the nuclear industry has never delivered on the promise of low-cost power, but the industry is large, concentrated, and politically well connected. Federal taxpayers fund basic research and development of new nuclear power technologies, underwrite the cost of liability insurance, and socialize the cost of waste management and decommissioning. Local ratepayers subsidize above-market prices for nuclear-generated electricity. And the nuclear industry is clamoring for more subsidies, arguing that markets do not know how to value its product.
Wind, solar, and hydropower sources—which now exceed nuclear power in generating capacity in the United States, and during one recent month even produced more total electricity—have also been the recipient of subsidies. The difference is, their aggregate subsidies are an order of magnitude smaller, and renewables (particularly on-shore wind and utility-scale photovoltaics) have delivered on their promise to lower costs, with costs that are one-third of nuclear power on a levelized basis and still falling, as I reported in my recent book (see Figure 5.1 for current costs and Figure 5.3 for future costs). They succeed, where nuclear fails, not simply because of the complexity of nuclear technology, but also because of their inherent economic characteristics. Smaller in scale and more decentralized, they encourage entry by multiple suppliers, allow demonstration before massive deployment, and foster continuous competition to lower costs and improve quality.
Three strikes against nuclear. The failure of nuclear economics is not just bad luck. Nuclear power is inherently uneconomic, because it relies on a catastrophically dangerous resource that is vulnerable to human frailties and the vicissitudes of Mother Nature. Second, the severe threats to public safety posed by nuclear power, and the evolving demands for safety improvements as plants age, result in an extremely complex technology that requires long lead times and large sunk costs. Finally, the technology suffers constant cost escalation and does not benefit from cost-reducing processes that are observed in other industries. These three problems make it impossible for nuclear power to compete with alternatives (today, renewable energy and demand-side management) on a level playing field.
Any nation that claims to have the technical expertise and economic resources to build a “safe” nuclear reactor should also have the wherewithal to meet its needs for electricity with alternatives that are less costly and less risky. Now and for the foreseeable future, it is a virtual certainty that nuclear power is not going to be the lowest-cost option or close to it, even within a low-carbon utility sector. Nuclear power is the most expensive way to lower carbon emissions and is not needed to reach carbon-reduction goals.
Providing powerful incentives to pursue uneconomical projects will inevitably saddle ratepayers and the economy with tens of billions of dollars of unnecessary spending in any state that guarantees recovery of costs in advance for new nuclear reactors, or subsidizes aging reactors to keep them online when they no longer can compete. Taxpayers are the victims of nuclear subsidies at the federal level. Ratepayers and taxpayers have always been the victims of nuclear cost escalation and there is nothing on the horizon to change that. On the contrary, given the current cost trends, the nuclear power’s prospects as an electricity source grow dimmer by the minute.
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