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A big new purchase by the nation's largest nuclear generator from General Electric Company allows for some interesting cost comparisons to building new, large-scale nuclear power plants.
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Eighty-one percent.
That's the percentage of power generated by Exelon Corporation (EXC 0.01%) that originates in a nuclear power plant. That should come as no surprise, considering the company owns over 19,000 MW of nuclear capacity, which has among the highest utilization rates of any energy source. Of course, Exelon is not immune to market forces challenging the economics of traditional nuclear power, even if individual states that are heavily reliant on the company's atomic footprint pitch in to provide artificial buoyancy.
The fast-falling costs of renewable energy and sudden global abundance of natural gas have turned the tables on nuclear power generators, which suffer from relatively high maintenance costs and, for newer plants, absurdly high upfront construction costs.
Therefore, it should also not come as a surprise that Exelon has been carefully hedging against its existing nuclear power plants by investing in lower-cost generation. For instance, the company recently handed General Electric Company (GE +0.01%) over $500 million for four next-generation natural gas turbines, which will combine to generate over 2,000 MW of electricity for the Texas grid. Is this a quiet admission that traditional nuclear power is dead?
Natural gas to the rescue for investors?
General Electric spent over $1 billion developing two next-generation natural gas turbines: the 600-MW 9HA for Europe and the 500-MW 7HA for the United States. They're the world's largest and most efficient natural gas turbines; capable of achieving the Holy Grail of power efficiency while consuming less natural gas and emitting one-third less carbon dioxide than older and more commonly used turbines.
The turbines will be an important product for General Electric as it refocuses on manufacturing and winds down financial services, although there likely won't be any difficulties selling them. The company disclosed close to $2 billion in 9HA/7HA sales at the end of September from customers in France, Japan, Germany, Russia, and the United States.
Image source: GE Power and Water / GE Reports.
The turbines will also be an important addition for Exelon as it insulates its power generation portfolio against losses from its nuclear fleet and duly invests in the future of energy. The four 7HA turbines, which will ship in 2016 and come online in 2017, will be be put into service at two new power plants currently under construction near Houston and Dallas. The ultra-efficient units will save millions of gallons of water in cooling applications every day -- nothing to take lightly in drought-stricken Texas -- as they're cooled with forced air instead. Additionally, each unit is expected to save $8 million in annual fuel costs.
Although the details surrounding the natural-gas-fired turbines look favorable for investors, some simple number-crunching certainly favors the thesis that traditional nuclear power is dead, even if Exelon hasn't explicitly mentioned the possibility (or considered it internally). While the company won't be ditching its existing nuclear facilities anytime soon, investors surely shouldn't expect it to build any new nuclear capacity, either. Consider how the next-generation natural gas turbines from General Electric stack up when compared to a new nuclear power plant, using Southern Co.'s new Vogtle Unit 3 and 4 nuclear reactors for comparison.
| Metric |
Exelon 7HA Units |
Southern Co. Vogtle Expansion |
|
Investment |
$0.5 billion |
~$15.0 billion |
|
Capacity (Gross) |
2,000 MW |
2,500 MW |
|
Construction Time |
2 years |
~5 years |
Or think about it another way: Exelon's investment will increase its 2013 natural gas capacity by 25% and represent more capacity than the company's total wind and solar assets. Even if the company paid twice as much for future next-generation natural gas turbines, or $1 billion for 1,000 MW of capacity, it could replace its entire 19,000 MW nuclear fleet for just $19 billion. That's 126% of the price tag Southern Co is shelling out for just 2,500 MW of new nuclear capacity!
If that doesn't communicate the fact that new construction of traditional nuclear power is a thing of the past, then perhaps nothing will.
What does it mean for investors?
The numbers overwhelmingly stack up against traditional nuclear power. Simply put, spending just $500 million for a combined capacity of 2,000 MW of clean, affordable, and efficiently produced electricity is something only next-generation natural gas turbines can achieve. The fact that Exelon is going all-in on cheaper and more profitable power generation is terrific news for investors, and the wider trend sweeping the power industry will be great news for General Electric investors, too.