Is Nuclear Energy's Lightbulb Dimming?

Fission power has its critics. Fukushima and the falling prices of renewable sources of power generation haven't made it any easier to operate the large nuclear fleets at Exelon (NYSE: EXC  ) and Duke Energy (NYSE: DUK  ) . Can't we just switch these atomic power plants off and let the wind keep the lights on? Or what about all of the natural gas beneath our feet?

If only it were that easy. Not only is dropping nuclear power a complicated issue, but it also challenges very recent data that show just how painful that endeavor could be. Advocates of a nuclear-free future should consider what would happen to the electricity bills of consumers in such a scenario. Meanwhile, the data may support the idea that exposing your portfolio to nuclear fuel won't be as radioactive to your portfolio as once thought.

No love for SONGS
In January 2012 the San Onofre Nuclear Generating Station, or SONGS, in Southern California was shut down after a small (contained) radiation leak was discovered. Tubes carrying radioactive water were damaged, which lead to the release of small amounts of radioactive steam. While the leak posed no threat to the surrounding public, it sure didn't help nuclear's image.

Southern California Edison, the largest subsidiary of Edison International (NYSE: EIX  ) , owns the facility and, now, its problems. Atomic energy critics argued that the facility should be closed permanently, asserting that renewable energy and natural gas in Southern California could easily replace the lost generation.

Wish granted. Just be careful what you wish for.

The abrupt departure of SONGS jolted the grid in more ways than one. First, the suddenness of the outage forced energy providers to scramble to fill the void -- an ongoing struggle. Second, although nuclear power plants are very expensive to build, they are relatively cheap to operate and provide a constant (and massive) stream of power.

The closure of SONGS is acting as an unfolding case study for energy strategists planning or modeling the future of the grid. Power prices from Northern and Southern California, which have historically tracked one another, have strayed thanks to the outage.

Source: EIA

The lost nuclear capacity at SONGS resulted in a price spread between north and south of 12% in April, which could worsen as electricity demand peaks this summer and natural gas prices continue their rise. More worrisome is the fact that cheap natural gas did not come to the rescue as many predicted. Just to be clear: SoCal has no shortage of natural gas capacity.  

Source: EIA

Luckily for consumers, an end may be in sight. Edison has submitted its plans for a safe restart of one of the reactors at 70% of normal operating capacity. That would immediately boost the region's power generation by 770 MW and provide a backstop against any heat waves that may engulf the region this summer.

The fuel investors need?
A potential restart would also give atomic energy advocates -- and investors -- more data to prove nuclear's importance to American energy. Should the spread between prices in the north and south of the state shrink once SONGS is restarted, it will show without a doubt what is already starkly evident: dropping nuclear energy will not be painless. Will energy policy take notice?    

Whether or not the Production Tax Credit for wind energy production is adjusted due to the SONGS data remains to be seen. Subsidizing wind power has led to negative electricity prices in the country's heartland -- smack-dab in the middle of Exelon's nuclear stable of 19,100 MW. CEO Christopher Crane has warned that policies that continue to subsidize wind power beyond what the market can bear could lead to plant closures. Duke Energy, which owns 8,450 MW of nuclear capacity, could face similar decisions.  

Foolish bottom line
I don't believe the United States is anywhere close to dropping nuclear power, but if it ever does happen, it will be a gradual decline that will take decades to play out. Hopefully for investors relying on the steady dividends of energy companies, SONGS serves as a wake-up call to atomic energy critics. The truth is that every energy source has its advantages and disadvantages. Wind and solar facilities capture disproportionate amounts of energy throughout the day; nuclear power plants are ridiculously expensive to build; and natural gas extraction has no shortage of environmental question marks. The best thing for investors and consumers is a healthy mix of each, including nuclear.

As the nation moves increasingly toward clean energy, Exelon is perfectly positioned to capitalize on having the largest nuclear fleet in North America. This strength, combined with an increased focus on balance sheet health and its recent merger with Constellation, places Exelon and its resized dividend on a short list of the top utilities. To determine if Exelon is a good long-term fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for instant access.

 


Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 25, 2013, at 1:47 PM, spiritpen wrote:

    Expensive Nukes

    Nukes are extremely expensive if they have only one little teensy - weensy accident. And it happens! Also, are you factoring in the 500 lbs daily of plutonium created by nuke plants? And how about the costs associated with keeping a government agency intact to watch the stuff for about 275 thousand years? Hmm. Nukes = verrrry expensive indeed.

    joey racano

  • Report this Comment On May 25, 2013, at 3:51 PM, tibbetts5 wrote:

    Just stack up the total killed by coal vs nuclear. Coal means greenhouse gas, mercury poisoning near the stack, mining deaths including black lung. Nuclear accident means global coverage, we gasp in horror, but the deaths are one or two. Not even close--coal is much more dangerous.

  • Report this Comment On May 25, 2013, at 4:14 PM, TMFBlacknGold wrote:
  • Report this Comment On May 25, 2013, at 4:28 PM, concerned9 wrote:

    How can anyone claim to be responsible when they only look at one aspect of the problem (electric rates). Chernobyl ended the USSR and will end up causing cancer to millions. Fukushima has already cost hundreds of billions. A similar meltdown at San Onofre would cost taxpayers over a trillion. If you don't think radiation kills, look at the Radiation Victims Compensation Act. Radiation has killed tens of thousands in the US, Over 2000 Japanese continue to die every year, not from old age, but from the radiation they received as kids in Hiroshima. San Onofre is accident prone, unreliable, dangerous, very expensive and very dirty. A meltdown would contaminate the entire sourth west and large parts of southern CA would be uninhabitable. Who can guarantee there will never be a large earthquake or that Edison will not screw up (again)? What an inviting target, by the way. The radiation equivalent of 1000 Hiroshima bombs out in the open 500 ft from a public beach and an interstate highway.

  • Report this Comment On May 25, 2013, at 6:11 PM, cwinner76 wrote:

    You can't compare Chernobyl to any other nuclear reactor. Chernobyl was doomed to fail before it ever even began operations because of a massive design flaw. People who have never worked around a nuclear reactor have no idea how many fail safes and safety features are built into them.

  • Report this Comment On May 25, 2013, at 10:33 PM, sciencedave wrote:

    Nuclear power is un-insurable...except by the government. That should tell you where you should stand. Not a good long- term investment opportunity. A 12 % price differential because of nuclear downtime?.....not significant enough to be concerned about. Even if energy prices doubled....not a bad option for America. Innovation sprouts from opportunities and prices will fall as technology develops more quickly.

  • Report this Comment On May 25, 2013, at 11:57 PM, NOTvuffett wrote:

    Nuclear power is not expensive because it is inefficient, it is expensive because morons block it at every pass.

    Chernobyl was a small research reactor with no shielding. It also ran a much higher fissile content than your typical reactor. This is the cherry on the cake- it was a liquid metal cooled reactor.

    Witness the idiocy just in this thread.

    Let me just take one point. concerned9: "Over 2000 Japanese continue to die every year, not from old age, but from the radiation they received as kids in Hiroshima. " Dude, seriously? They were kids in 1945. Do you think Japan was populated by immortals?

    The first atomic bomb was detonated in New Mexico. Why aren't thousands dying from radiation each year? I can't even guess how many a-bombs and h-bombs were detonated in Nevada.

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