Why has Nuclear Energy hit a Wall in the Developed World

Constellation Energy has become the latest USA Utility to cancel its proposed new nuclear energy plant to be built in Maryland.Despite a Loan Guarantee from Department of Energy (DOE) as part of the US Green Stimulus,Constellation has found the economics of the Nuclear Reactors as unworkable.In fact this is keeping with the trend of other utilities in the Developed World who have found New Nuclear to be too expensive.While a number of cyclical factors are at play (Wind Energy has also been affected) in hindering the development of these plants,it seems a secular shift has occurred.Finland has become the poster boy of a Nuclear Project Disaster with the main developer Areva bleeding from losses as time and cost overruns have almost doubled.The increasing costs of environment and safety regulations has increase manifold since the last spurt of nuclear energy construction in the 1980s.The Nuclear Renaissance has proven to be a complete failure in the Western Countries.While China continues with its aggressive Nuclear Expansion plans,construction in the US has come to a virtual halt.Exelon which is the largest Nuclear Energy Operator in the USA has also halted developed of 2 new reactors in Texas.These Utilities have said that they need much higher energy prices and a carbon tax before going ahead with reaction construction.Note Exelon recently bought a Wind Energy Operator as Solar/Wind become the favored Green Energy choices.

Why has Nuclear Energy hit a Virtual Wall in the Developed World

The Finland Disaster highlights the problem facing the Industry.Despite using top of the line EPC contractors and equipment providers,Finland has found itself stranded on new nuclear reactor development.The safety policies have become more strident and waste disposal concerns have increased.Despite older nuclear plants having very low LCOE,newer plants don’t have such low costs.Concerns over radiation,waste disposal,safety from attacks etc. make Nuclear Energy particulary cumbersome in countries with high per capita incomes.This is because of higher individual freedom and value of human life.In contract developing countries,safety regulations are regularly bypassed.The other problems facing the industry are

1) Low Natural Gas Costs – The price of Natural Gas has crashed by more than half from the peak 2008 prices making many plants unviable.Since Energy Prices in many places are dependent on Gas Prices,this has become a big negative factor.

2) General Economic and Energy Decline – US has suffered from a contraction in Electricity Demand for the first time as Economy Declined in the aftermath of the Lehman Crisis.With prospects of future growth also lowered,the incentive for constructing new nuclear energy has  fallen

3) High Project Gestation Time and Capex Costs – Nuclear Energy requires a huge amount of capital and a long time to be built.There are huge project construction risks with frequent time and cost overruns.Government involvement is necessary due to these massive risks private capital is reluctant to invest in such high risk projects.Despite DOE guaranttes,Constellation found the loan costs at 11.6% too high to make the project worthwhile.

4) No  Climate Change Legislation Globally– USA has been a laggard in the Climate Change with partisan politics dooming any remote chance of Climate Mitigation efforts at the Federal Level.Despite efforts by US States and some support from US Government led by Obama,there has been no Carbon Tax or some form of Carbon Emission Caps.This has made long term investor support fore Green Energy untenable.Even Globally there has been no progress on Climate Change,just lots of meetings and hot air.The top UN climate official sees no chance of an agreement in her lifetime.

Summary

New Nuclear Energy in the Developed Countries faces an uncertain future due to above reasons.General Economic Malaise and Energy Slowdown has combined with a Secular Decline to further queer the pitch for Nuclear Energy.However China and India are running full steam ahead with their Nuclear Growth Plans despite occasional hiccups.Its  not a surprise that the Global Heavyweights like Areva,GE-Hitach and Toshiba-Westinghouse are going the whole hog in winning orders in these countries.

Economy Sandbags Plans for Nuclear Reactors – NY Times

Constellation Energy’s announcement on Saturday that it had reached an impasse with the federal government over the fee for a loan guarantee on a new reactor in Maryland is a sign of how much the landscape has been transformed.

Essentially, the Energy Department argued that Constellation’s project is so risky that the company must pay a high fee or provide other assurances of repayment if it wants the taxpayers to guarantee its construction loans. Constellation said the government’s demand was “unreasonably burdensome.”Under a program created by Congress, Constellation was seeking a guarantee for 80 percent of the cost of the project. The government settled on a fee of $880 million, or 11.6 percent of the $7.6 billion loan, according to Constellation. In a letter to the Energy Department, the company called the figure “shockingly high” and said it would doom the project.