[NukeNet] Business Week: Nuclear Power's Missing Fuel

[Mike Ewall]

http://www.businessweek.com/technology/content/jun2006/tc20060628_463853.htm?chan=technology_technology+index+page_more+of+today's+top+stories

JUNE 29, 2006
Technology

Nuclear Power's Missing Fuel

Why Wall Street is skeptical of backing a new round of proposed nuke
plants

By Adam Aston

Nuclear power is hot. Sixteen utilities have expressed intentions to build
up to 25 new reactors across the U.S. Just last month, NRG Energy (NRG) in
Princeton, N.J., unveiled plans to invest $5.2 billion in two new reactors
at an existing atomic plant near Houston.


It's a nuclear renaissance, right? Not yet. While smart money is placing
multibillion-dollar bets on ethanol, wind power, and solar, it's not
throwing buckets of cash at nukes. "The real obstacle isn't the Sierra
Club but the 28-year-old analysts on Wall Street," says Bob Simon,
Democratic staff director of the Senate Energy and Natural Resources
Committee.

Regulators could balk if proposed designs don't meet construction and
safety standards. But memories of the delays, titanic cost overruns, and
bankruptcies that ended America's love affair with nuclear power in the
mid-20th century are the most daunting obstacle. "Investors remain wary of
construction risks," says Paul Ho, a director at Credit Suisse First
Boston's (CSR) energy group.

LONG MEMORIES.  That's why, five or so years from now, when the first
construction and operating licenses are likely to be granted, only the
most creditworthy diversified players, such as Duke Energy (DUK) and
Southern Co., would be likely to dip a toe in these waters, explains
Denise Furey, senior director of global power with Fitch Ratings. With
their scale, such companies could finance these projects for a decade or
so using some combination of debt and equity. But that's a far cry from a
new nuclear age.

Historically, utilities did an "abysmal" job controlling building
schedules and costs, says David Schlissel, an economist at Synapse Energy
Economics in Cambridge, Mass. Between 1975 and 1989, the average period
required to complete a plant soared from 5 years to 12. The bill for a
group of 75 first-generation plants totaled $224.1 billion (in current
dollars), 219% more than estimated, according to a 1986 Energy Dept.
study. In time, many utilities collapsed under these debts even as
customers' bills soared.

Power companies say they can bring costs down, thanks to new, standardized
plant designs and a streamlined, one-step licensing process. "People
forget that the construction problems happened 30 years ago. There's been
great progress since then," says NRG CEO David Crane. The company plans to
use reactors from General Electric (GE) and Hitachi that have been
installed in Japan. This time around, the industry is aiming to build new
plants for $1,500 to $2,000 per kilowatt of capacity, compared with a
peak, inflation-adjusted cost of about $4,000 in the 1970s.

ENERGY ACT GOODIES.  Trouble is, the cheapest plants built recently, all
outside the U.S., have cost more than $2,000 per kilowatt. And the
advanced designs now on U.S. drawing boards have never been built here. "A
first-of-its-kind facility always costs more," says John Kennedy, a
director at Standard &Poor's. "Nukes ought to be part of the [energy]
mix," says Southern CEO David Ratcliffe, but nobody wants to be first to
build. "Everyone would actually like to be No. 10," he says.

Last year's Energy Act dangled $13 billion worth of extra treats before
the nuclear industry, according to Public Citizen, a consumer-interest
group. These are focused on the first six plants and range from some $2
billion set aside to cover construction overruns due to legal challenges
to a production tax credit worth up to $5.7 billion. Yet all that still
may not "provide a sufficient incentive to pursue new construction," says
Kennedy.

Energy Secretary Samuel Bodman offers couched assurances on nukes. "I'm
convinced we'll get the first six reactors, with construction starting by
2010," he says. "But we don't need six reactors. We need 16, or 26." Until
licenses for those first few plants are granted a few years from now,
financiers and many utilities may just wait to see how the game changes.
"Wall Street is very shortsighted," Furey says. Or maybe it just can't
forget what it has already seen.

With John Carey in Washington and Mark Morrison in Austin, Tex.