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.
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.
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.