Nuclear is the instant coffee of energy. It's fast, accessible, and (as long as you've got a water boiler around) relatively cheap. But what's here today may be gone tomorrow, according to a new report outlining the long-term outlook for nuclear generation. Let's take a closer look to see if nuclear's got what it takes to keep pouring profits into your portfolio.
Nuclear energy currently accounts for 101,000 MW of our nation's electricity, about 19% of total generation. But nuclear's heydays of new construction are well behind it. Plants are incredibly capital intensive, and new regulation keeps costs prohibitively high for most expansion opportunities.
Nuclear's worst nightmare was, until recently, natural gas. But nat-gas prices are headed higher for 2013 and beyond, and nuclear may be back in business.
Although grandiose new projects are currently out of the question, construction and uprates will add an additional 19,000 MW of nuclear capacity over the next 25 years.
By 2020, TVA's Watts Bar plant, SCANA's (NYSE:SCG) V.C. Summer station, and Southern Company's (NYSE:SO) Vogtle project will contribute 5,500 MW of new nuclear. Just two weeks ago, NextEra Energy (NYSE:NEE) announced that its newly completed five-year-uprate project added 500 MW of capacity, exceeding expectations by 25%.
But natural gas prices dictate the degree to which nuclear demand heats up or cools down. A new EIA report outlines their expectation and three alternative scenarios for investors to swallow:
High gas prices could push up nuclear capacity by 26,000 MW. Alternatively, cheap natural gas would keep nuclear capacity constant over the next 25 years.
Nuclear or natural gas?
Cheap natural gas has put many energy investors up against a wall. But there are two reasons nuclear investors have room to breathe:
- Natural gas prices are on the rise, and are expected to continue to rise for at least the next 25 years.
- Most nuclear plants have already had their 40-year licenses extended for another 20 years, meaning 2030 is the next decision point. That gives utilities more than 15 years to feel out nuclear's cost competitiveness before potentially reorganizing their energy portfolios.
Foolish bottom line
Nuclear's on-demand, relatively clean baseload energy with low operating costs is hard to pass up. And, at least for now, nuclear-centric utilities can enjoy a respite from natural gas nightmares. Nuclear has its place in our nation's electricity generation and, although there's no guarantee it's getting any bigger, it certainly won't be the death of any dividend stock.