The Nuclear Renaissance

As the energy debate enters a new chapter, the utility sector is revisiting an old favorite: nuclear power plants. In this article we will consider the pros and cons of nuclear power and the potential implications for utility bond holders. Coal is still the dominant fuel source in the U.S. producing almost half of all electricity in this country (see Figure 1). However, the Obama Administration has made it very clear that new regulation for carbon dioxide emissions is forthcoming, stacking the odds heavily against more coal fired generation. As our power needs increase, nuclear and natural gas fired plants will be increasingly called upon to keep the lights on in a carbon constrained world. In a recent study, the Electric Power Research Institute calls for 64 gigawatts of new nuclear capacity by 2030, or well over 40 new reactors. Nuclear plants provide large quantities of base load power at very low variable costs and do not emit CO2. Plus, the world’s existing fleet maintains a solid safety record. New nuclear plants would also provide badly needed fuel diversity for utilities with high dependency on one fuel type or limited access to alternatives. However – there are still significant concerns surrounding a nuclear renaissance. Although surveys have found that Americans are more receptive to the concept of nuclear energy than at any point since the 1970s, many people still associate nuclear power with the safety disasters at Three Mile Island (1979) and Chernobyl (1986), as well as nuclear proliferation. And despite operating nuclear plants for over 50 years, we still have not managed to find a satisfactory solution for nuclear waste. Bondholders should also be aware there are huge costs and long lead times involved in building a nuclear plant that could ultimately threaten the creditworthiness of the company.