The nuclear renaissance some people hoped for took another big step backward this week when the Vogtle Nuclear Power Plant said it would be delayed another 18 months and cost at least $720 more than the $14.5 billion previously expected.
Nearly every nuclear plant that's been proposed in the U.S. in the last decade has run into major cost overruns and delays, and without government support, the nuclear renaissance may already be dead. But the latest delay casts a shadow over an energy source that's becoming increasing uncompetitive in today's energy landscape.
What happened at Vogtle
The latest news from Southern Co.'s (NYSE:SO) subsidiary Georgia Power is that the Vogtle Plant will now be delayed until mid-2019 for the first reactor, and mid-2020 for the second. Costs could pile up to $720 million and could be as much as $1 billion.
Contractors Westinghouse Electric Co. and Chicago Bridge & Iron Co. alerted Southern Co. of the delays, adding to a long list of delays for Westinghouse plants that were supposed to help revitalize nuclear power in the U.S. Worse yet, it's ratepayers, not Southern Co.'s shareholders, who will be footing most of the bill for this project, even if it's never completed.
The kick in the gut to ratepayers
If you live in Georgia, the delay and additional cost will affect you more than you think. Under a plan called construction work in progress, or CWIP, Georgia Power gets to charge customers for the Vogtle plant before it's even finished. Yes, today customers are paying an average of $6.60 per month for a plant that isn't likely to produce any power until at least 2019. It's a sweet deal for utilities, but one that's becoming increasingly problematic for consumers.
What CWIP does is transfer the risk from the company building the nuclear plant to ratepayers. If the project is delayed or costs more than expected, Georgia Power still makes its money unless regulators intervene. In fact, without CWIP, we may not even be talking about nuclear plants being built in the U.S. If utilities had to take on the risk of nuclear themselves, they wouldn't do it, something we're already seeing across the country.
Nuclear energy's problem in the U.S.
This isn't the only nuclear plant running into these kind of issues. NRG Energy (NYSE:NRG) abandoned a potential expansion of South Texas Nuclear Generating Station because of rising costs for nuclear plants and low cost natural gas. The project is still moving forward with regulatory approval, which partner Toshiba is funding, but it's doubtful the plant will ever be built.
Duke Energy (NYSE:DUK) canceled the Levy Nuclear Plant because of rising costs, but under CWIP, it still gets to keep a profit of about $150 million. Even Entergy closed the Vermont Yankee nuclear plant late last year because it wasn't cost effective. Whether it's new plants or upgrades to old plants, it's costs that are sinking nuclear in the U.S. today.
In an analysis of the unsubsidized levelized cost of energy for various energy sources, investment bank Lazard found that nuclear energy would cost between 9.2 cents and 13.2 cents per kW-hr. Compare that to 6.1-8.7 cents/kW-hr for natural gas, 7.2-8.6 cents/kW-hr for utility scale solar, and 3.7-8.1 cents/kW-hr for wind energy.
Nuclear energy is also losing based on recent trends. The cost of solar and wind energy are falling rapidly, which is why over half of all energy generation installed in each of the last two years was solar or wind energy.
The nuclear renaissance is all but dead
Setbacks like the Vogtle Nuclear Plant faced this week have become all too predictable in the nuclear industry, and they're the reason a nuclear renaissance is unlikely in the U.S. Costs have simply gotten too high, and low costs from competing energy sources like natural gas, solar, and wind will keep the industry from ever taking off.
For investors, the lesson comes down to where the energy industry and its costs are trending. Nuclear energy may seem like a great idea on the surface, but if costs are continually rising, it's an energy source that's doomed in this country. Solar energy, on the other hand, is cutting costs by double-digit percentage points per year and is now less costly than nuclear on a per kW-hr basis. Maybe it's time to look at alternative energy more seriously, something utilities are already doing.