The nuclear industry is trying to crawl out of the depths after being damaged by the Fukushima Daiichi disaster last year. Soon after the disaster, Germany decided to shut down its nuclear plants in a phased manner and projects in the U.S. came under increased pressure.
That state of affairs looked to have taken a slight turn when the Nuclear Regulatory Commission approved two new 1,100-megawatt reactors in an expansion of one of Southern's
Somewhere in Middle America
The nuclear industry is attempting to expand the use of something called Construction Work in Progress, or CWIP, legal in only a few states, for financing of nuclear plants. Essentially what this means is that while a plant is being constructed, a utility can charge its customers for financing costs.
Warren Buffett's Berkshire Hathaway
On the surface, the financing isn't a terrible idea. Instead of financing a plant itself, the utility charges customers over a longer period of time, and instead of a jump in utility bills when the plant is complete, customers see a slow rise in rates. The original CWIP plan in 2009 for Southern Company's Vogtle expansion said it would save $1.5 billion.
The reality is, the risk of nuclear projects is transferred to rate payers in this scenario, including the risk of increased costs. And costs have more than quadrupled for recent plants between the planning phase and actual construction.
Where is the outrage?
According to Georgia Power, residential customers are already paying $44 per year for nuclear plants that haven't been built and may never be built. That figure will rise to $120 per year by 2018, and let's not forget about the $3.4 billion in loan guarantees the company is seeking from the Department of Energy (the total project loan guarantee is $8.3 billion), without which the plants are dead in the water.
In Florida, Progress Energy
Buffett's subsidiary wants the same kind of charges to be applied in Iowa. Mark Cooper, senior fellow for economic analysis at the Vermont Law School's Institute for Energy and the Environment, says the CWIP costs could increase the average utility bill by $70 per month, before a single kilowatt hour is generated.
Why is this a big deal?
Normally, the risk of plant construction falls on the plant builder. So when NRG Energy
Once CWIP financing has begun, all sorts of problems arise. Southern is using the "sunk cost" argument in an effort to continue its nuclear project, arguing that if it quit now, as much as $4 billion would go down the drain -- $4 billion that Georgia electricity users have already paid for in their utility bills. So why not continue, even though the project is behind schedule and way behind its original budget?
Foolish bottom line
If nuclear power can't be built with traditional financing and without government backing, I'm wondering why we're still pursuing it. It isn't as if this is a new technology that's safer, cheaper, or cleaner than anything else we have. Quite the contrary. Nuclear power is more expensive than most other power sources, it's obviously dangerous, and it produces waste that stays around for centuries.
If I were an Iowa ratepayer I wouldn't want to give this kind of subsidy to Warren Buffett. He can finance the project himself.
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Nuclear power may be having a hard time in the U.S., but there is one energy stock our analysts think will benefit no matter what energy source we use. Find out what it is in our free report.