Last month, I penned a simple list of 30 facts that I hoped would quell some fears and misconceptions about nuclear energy. Fellow Fool Travis Hoium offered a rebuttal with five facts that he believed doomed nuclear power. The biggest nail in nuclear's coffin is cost, according to Travis and many others.
While I always welcome an intellectual discussion and debate, the article made me wonder whether nuclear really was more expensive than other sources of electricity generation. After digging into the numbers and working my way up the logic tree, I found several surprising answers.
First things first
My interest in the differing costs of flipping a light switch was piqued when Travis offered an example comparing First Solar's (NASDAQ:FSLR) new plant in New Mexico with new nuclear facilities being built throughout the country. I wasn't sold on the simplicity of the argument: Solar energy in the middle of the desert -- an optimal location -- is cheaper than another energy source. Let's see First Solar build one of those puppies in New England and keep electricity rates under $0.06 per kWh.
This doesn't mean renewable energy is an inferior option for the national grid, but it does highlight the regionalization and complexity of electricity costs. For instance, 34 states had average retail electricity prices that were less than the national average of $0.0983 per kWh in 2010. That's because states with larger populations -- and higher prices -- are given more weight in the calculation. And as we will see, prices are also affected by the makeup of the regional grid.
Chicken or the egg?
Next, I turned to the Energy Information Administration, or EIA, for state-by-state data. It took a while to mine meaningful relationships from the raw numbers, but there did seem to be correlations between costly electricity, summer capacity, and total nuclear capacity. Here are selected metrics from the top five nuclear-powered states:
Average Retail Electricity Price ($/kWh)
Price Rank (cheapest=1)
Net Summer Capacity (GW)
Summer Capacity Rank (largest=1)
Source: EIA state electricity profiles, 2010.
Looking at the 19 states with no nuclear capacity adds some color to the other end of the analysis: 12 of these states are in the top 19 for cheapest retail rates. That's it. End of story. It seems that nuclear must be the cause of higher electricity prices. Right?
There's another way to view this relationship. Does nuclear cause higher rates, or is the powerful energy source simply relied upon more heavily in regions with larger populations and more demand?
Consider that the correlation factor between net summer capacity, when electricity demand is at its peak, and the amount of nuclear capacity installed in each state is 0.73 (pretty high). What the heck does that mean? States that have high population density regions (cities) are more likely to employ nuclear power -- and a greater mix in general -- to combat customer demand than states with lower peak demand.
Exelon (NASDAQ:EXC), whose Braidwood, Ill. nuclear facility is pictured, illustrates this trend perfectly. The company has 17 reactors powering the metropolitan areas of Chicago (13), Philadelphia (three), and New Jersey (one), with almost 140 GWh of electricity each year. So it looks as if we have answered several important questions already, but there's no getting around the enormous price tags that come with constructing a new nuclear facility.
Does sticker shock matter?
How expensive are new reactors? Very expensive. Southern (NYSE:SO) is building two new reactors -- the first approved in the United States since 1978 -- at its Vogtle nuclear facility in Georgia for a cost of about $15.1 billion. The company received an $8.3 billion loan from the Department of Energy in 2010, which leaves ratepayers with the remaining $6.8 billion.
There has been some debate over how those funds are collected. Regulators weren't very happy last week when Southern announced that costs would be about $737 million higher than initial estimates (included in the cost I mentioned). That's not nearly as bad as Progress Energy, now owned by Duke Energy(NYSE:DUK), which has poached $819 million from customers in recent years for two nuclear projects. One was cancelled, and the other has yet to receive the green light from the Nuclear Regulatory Commission.
Now, that is certainly a lot of money, and I don't agree with charging customers for facilities that have yet to be approved, but investors and consumers should know that construction costs represent the overwhelming majority of the price of a nuclear facility over its lifetime. Consider the comparison of fuels:
Price Per kg
Uranium Energy Density Factor
Adjusted Fuel Cost Per Energy Factor
Enriched uranium (4%)
$125.36 (per thousand cu. m)
13.2 (per thousand cu. m)
Sources: World Nuclear Association, Department of Energy.
These numbers don't account for transportation costs, which are a much bigger expense for coal than for natural gas or uranium. Nonetheless, they show that the cost of fueling a nuclear reactor is far cheaper, and less volatile, than running a fleet of natural gas turbines or coal-powered thermal reactors. Take this snip from Exelon's 2012 Annual Report:
The fuel costs for nuclear generation are less than for fossil-fuel generation. Consequently, nuclear generation is generally the most cost-effective way for (our generation business) to meet its wholesale and retail load servicing requirements. The cycle of production and utilization of nuclear fuel includes the mining and milling of uranium ore into uranium concentrates, the conversion of uranium concentrates to uranium hexafluoride, the enrichment of the uranium hexafluoride, and the fabrication of fuel assemblies.
The company's estimated capital expenditures for 2013 also highlight the operating disparities. Nuclear plants will require just $7,150 per GWh, while renewable and fossil-fuel generation will require $141,000 per GWh and $36,000 per GWh, respectively.
Foolish bottom line
Is electricity produced from nuclear power really more expensive than other sources? It depends on how you look at it. The Organization for Economic Cooperation and Development, or OECD, released a study in 2010 comparing worldwide electricity rates for the lifetime of various energy sources. It concluded that nuclear power plants provide the cheapest energy across the board, except for specialized cases of large-scale hydroelectric power.
Think about it like this: Would the Nuclear Regulatory Commission have 28 pending applications for new reactors on its desk if nuclear posed such a disadvantage? Over the long term, nuclear is a cheaper, more efficient, and more dependable generation source than any other energy source at our disposal. In fact, a nuclear reactor's ability to provide steady base load power during peak usage times actually helps stabilize the grid for customers. Remember that the next time you turn on a light.
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