Nuclear Industry Eyes a Smaller Renaissance

With costs rising and federal loan guarantees in the air, the industry makes its pitch to Wall Street.


Corrected on 02/25/08: An earlier version of this article incorrectly reported that $18 billion in loan guarantees were in the energy bill passed last December. The $18.5 billion in loan guarantees were part of the omnibus federal budget bill.

Although 17 companies are preparing license applications for as many as 31 new nuclear power plants, don't expect the "nuclear renaissance," if it happens—at least the first phase of it—to be nearly this big.

The Nuclear Energy Institute, the industry's policy organization, today told a gathering of more than 100 Wall Street analysts that it expects the big group of contenders to winnow itself down for the first wave of new construction. NEI projects that four to eight new power plants will move ahead and be operational by about 2016.

NEI officials estimate the plants to cost $3,200 to $3,500 per kilowatt of capacity—more than double the $1,400 to $1,500 per kilowatt the industry was talking about in 2003, according to some old Nuclear Energy Institute testimony I found. That means each new plant is likely to cost about $5 billion in today's money and $6 billion to $7 billion by the time of completion.

At the top of the nuclear industry's agenda, and that of the Wall Street banks that would finance the plants, is for the federal government to provide loan guarantees for these megaprojects. In the report accompanying the huge federal budget bill Congress passed in December, lawmakers specified that the industry should receive $18.5 billion in loan guarantees. But the industry says that to finance eight plants and put them into service by 2016, it would need double that amount.

After the session, I had a chance to talk with John Rowe, chief executive of Exelon, the nation's largest nuclear utility, which is weighing two potential new plants in Texas. Here are some of his thoughts on the electricity business and on the federal government's role in spurring a new wave of nuclear power plants.

What's the greatest challenge you're facing?

The electricity business is a great business because everybody wants your product. It's a tough and hard business because no one wants the things that make or deliver it. And that's the fundamental challenge. There aren't any easy solutions out there. And it's human nature to want to believe there is a free lunch, even though we know there isn't. So the greatest risk in nuclear is that people won't address the very hard problems associated with it, because they want to believe there's a free lunch somewhere else. They want to believe that [natural] gas will always be cheap. They want to believe that solar will go from 40 cents to 4 cents a kilowatt-hour. They want to believe that wind is cheap when it isn't, and they don't like having the windmills near them either.

Now, when you go down from 50,000 feet to 10,000 feet, I think the single biggest challenge is whether the federal loan program will be fully funded in the next administration.

Why should the federal government take on this risk?

It's very simple. We need this low-carbon energy source, and there are no companies in the industry big enough to take on all this risk themselves. We can't do it as a pure business venture for the first group without the ice being broken. The federal government subsidizes solar. It subsidizes wind. This is a place where the nuclear industry needs this help, if it's going to meet what I believe to be a public imperative. But it isn't that we're entitled to it as businesses. This is not a claim of economic right. This is a claim of what's good public policy.

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Wall Street

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