When oil prices raced above $140/barrel last year, intense attention was placed on a sea of non-fossil fuel energy sources, including nuclear energy. Even with the stabilization of oil prices, much of the country remains dedicated to reducing its dependence on foreign energy suppliers. Consequently, nuclear energy remains a focal point from both investment and policy perspectives and is poised to be a source of significant nonresidential construction activity going forward.
Nuclear Energy Today and Tomorrow
The United States is home to more than 100 nuclear reactors providing almost 20 percent of the nation’s energy. In 2007, 104 U.S. nuclear power reactors generated a record 806.5 billion kilowatt-hours and attained an average 92 percent capacity factor, according to the World Nuclear Association. Given the age of most of the nation’s nuclear infrastructure, these numbers are remarkable. No nuclear reactors have been built in the United States since the 1979 accident at the Three Mile Island Nuclear Generating Station in Dauphin County, Pa.
The next 30 years are shaping up to be vastly different, as several regulatory initiatives have bolstered the prospects for new plant construction. One of the most important is the Combined Construction-Operating Licenses (COL) initiative. In 2003, the U.S. Department of Energy (DOE) called for COL proposals under its Nuclear Power 2010 program and offered to fund up to half the cost of any accepted proposal. The COL initiative aims to encourage utilities to apply for licenses, as well as encourage reactor vendors to engage in detailed engineering and produce reliable cost estimates.
These initiatives are now bearing fruit. On July 13, 2007, UniStar Nuclear, LLC filed a combined license application with the U.S. Nuclear Regulatory Commission (NRC) for construction of a new reactor at the Calvert Cliffs Nuclear Station in southern Maryland. (This was the first COL application filed.) Moreover, the Tennessee Valley Authority announced plans to complete construction of the Watts Bar 2 reactor in Rhea County, Tenn. The reactor, which received a construction permit 36 years ago, is expected to come online in 2013 at a cost of roughly $2.5 billion.
The U.S. Nuclear Energy Institute estimates companies invested roughly $2 billion by the end of 2007 to file combined COL applications. The money was spent on design and engineering for new reactor types, preparation of license applications, and procurement of long-lead equipment such as reactor vessels and steam generators.
As of March 31, 2008, the NRC received nine COL applications, which will be reviewed during the next three years. In total, the NRC expects more than 27 applications for licenses for new nuclear reactors during the next few years.
The Greatest Challenge According to the World Nuclear Association, financing will be a major challenge. This is a significant shift from earlier periods, when a “not-in-my-backyard” mindset represented the primary obsta-cle to nuclear plant construction. Given the nation’s overarching desire for energy independence, this attitude has diminished.
In response to the challenges presented by the financing environment, the DOE invited applications for loan guarantees in mid-2008 to support the construction of advanced power plants (up to $18.5 billion total) and uranium enrichment plants (up to $2 billion). These loan guarantees are intended to encourage commercialization of new or significantly improved technologies and to help developers bridge financing gaps.
The DOE received 19 initial applications from 17 utilities to support the construction of 14 nuclear power plants involving 21 nuclear reactors with five different designs. According to the World Nuclear Association, the total requested came to $122 billion, substantially in excess of the $18.5 billion offered. The aggregate estimated construction cost to build the 14 projects is $188 billion.
In response to the level of interest revealed by the loan guarantee program, the industry has requested that the amount available for reactors be increased to $100 billion.
State governments also are taking a more active role in spurring nuclear plant construction. Seven states—Florida, Louisiana, Mississippi, North Carolina, Ohio, South Carolina and Virginia—have passed legislation that increases the role of nuclear energy in clean energy initiatives. Six of the 13 states with moratoria on new nuclear plant construction are actively considering removing the bans. And, two states—Kansas and Texas—have passed local tax incentives for nuclear plants.
Though the headwinds facing the nuclear reactor construction industry have increased in recent months as financing dries up and energy prices decline, the long-term outlook for reactor construction remains wildly positive. Many plants are in the engineering and design phase, and if energy prices begin to rise again and the financing environment returns to normal, much of this preliminary work will be followed by tens of billions of dollars of construction.