Is Nuclear Energy Dying Out?

In less than a year, three utilities have made the tough call to close down four nuclear reactors totaling 3,600 MW of combined capacity. Cheap power prices and expensive repairs are pushing some utilities to rethink their power sources, with potential ramifications for revenue down the line. Let's take a closer look to see who's opting out of nuclear – and what it means for your portfolio's profits.

Source: eia.gov 

1. Duke Energy (NYSE: DUK  )
Duke Energy revealed plans in February to retire its Crystal River Unit 3 in Florida. The trouble began more than three years ago when a crack was discovered in the outer layer of the containment building's concrete wall, and Duke had been on the fence about whether to go through with the $900 million-$1.3 billion repair or cut its losses.

In a February statement, the utility noted that "the nature and potential scope of repairs brought increased risks that could raise the cost dramatically and extend the schedule."

In May, Duke also suspended plans for new nuclear units at a North Carolina site.

2. Dominion (NYSE: D  )
In May, Dominion pulled the plug on its 556 MW Kewaunee, Wis., nuclear station. Although Dominion noted at the time that it couldn't achieve the economies of scale it had initially hoped for with its Midwestern nuclear fleet, the nail in the coffin was exceedingly cheap electricity prices. Many of the station's power purchase agreements were about to be up for renewal, and projected wholesale electricity prices weren't looking good for Kewaunee to pull a profit.

But Dominion Nuclear President David Heacock took special care to note that "this closing does not herald the end of our company's commitment to nuclear power. It is a safe, reliable, and carbon-free technology, but as with all forms of generation, it must compete on economics, including the necessity of being price competitive on a regional level."

3. Edison International (NYSE: EIX  )
Most recently, Edison International announced a month ago today that it would permanently retire two nuclear units in San Onofre, Calif. Similar to Duke Energy, Edison's units were shut down in January 2012 after workers discovered a steam generator leak. Unlike Duke Energy, Edison's generators were manufactured by third-party Mitsubishi Heavy Industries, and the utility is planning to seek damages.

In the meantime, Edison International will take a $300 million-$425 million post-tax Q2 hit and fire 1,100 workers as it explores alternative replacement options and transmission investments.

More nuclear, please
But even as these three utilities opt out of some of their nuclear capacity, other corporations are moving ahead with new nuclear construction totaling more than 5,600 MW.

In March 2012, Southern Company (NYSE: SO  ) received the first construction approval in over 30 years for two new units at its Vogtle plan in Georgia totaling 2,200 MW of electric capacity. SCANA (NYSE: SCG  ) wasn't far behind with approval for two units of its own in South Carolina totaling around 2,100 MW. Southern expects its units to come on line by 2017, while both of SCANA's will power up by 2019.

Source: eia.gov 

The nuance of nuclear
Each utility had reasons for retiring nuclear plants. In Duke and Edison International's cases, the decisions were (literally) spurred by cracks in their plans. For Dominion, unfortunate contract timing put it in an economic situation it couldn't avoid.

Likewise, Southern and SCANA have both managed to find new competitive options for nuclear generation, and other utilities like NextEra Energy are hard at work modernizing their current facilities.

Just like smart investors, these utilities have opted out of a one-size-fits-all electricity strategy and are making moves to maximize profit potential – whether that means nuclear or not. Each company's individual decision is most likely a good one, and investors shouldn't expect dividends to expand or diminish on nuclear alone.

For those of you who are still a bit more bullish on nuclear energy, we've picked one incredible utility company that presents a rare "double-play" investment opportunity today. We're calling it "The One Energy Stock You Must Own Before 2014," and you can uncover it today, totally free, in our premium research report. Click here to read more.


Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On July 08, 2013, at 10:55 PM, BobWallace wrote:

    Last year the NYT ran an article about how roughly a quarter of all US nuclear plants were in danger of going bankrupt. They specifically talked about the four reactors we've recently seen closed.

    And they pointed out that Oyster Creek reactor will be going offline in a few years because required repairs to the cooling tower would be too expensive.

    They said that the "stand alone" reactors were in most danger. Sites with more than one reactor are a bit more protected by the ability to share some costs.

    http://www.nytimes.com/2012/10/24/business/energy-environmen...

    That should give investors some idea of companies to avoid.

    And I just ran across an article about how rising water temperatures in Southern Europe are going to make it difficult to operate/cool reactors and could drive up electricity prices by as much as a third.

    http://www.businessweek.com/news/2013-07-08/water-warming-to...

    We've got inland reactors in the US South. If their operating costs rise then they can get pushed out of business.

    We're already seeing US reactors shut down during heat waves because there is not enough cooling water available.

    As far as nuclear being dead, it's only being built now with massive government support. The free market is building zero new nuclear capacity.

  • Report this Comment On July 08, 2013, at 11:15 PM, TMFBlacknGold wrote:

    There is also a lot of interest in next generation reactors and new small, modular reactors. I do not believe any are under construction in the United States, but I think generators will see that they don't always need to blow it out of the water with gigantic reactors.

    --Maxxwell

  • Report this Comment On November 08, 2013, at 12:28 AM, dliles wrote:

    Several companies are designing small modular reactors (SMRs). These reactors are approximately 50 MWe to 250 MWe and these designs have a several advantages over the big reactors.

    http://americansecurityproject.org/ASP%20Reports/Ref%200087%...

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