US utilities are sceptical over nuclear energy revival

Wednesday, November 21, 2007

By Ed Crooks and Sheila McNulty
After three decades without any applications for a licence to build a nuclear reactor in the US, almost 20 companies are considering applying to build over 30 new plants. In September, NRG Energy of Texas became the first to make an application in 29 years.
With US electricity demand set to rise sharply, government incentives for early movers and some environmental campaigners seeing high-emitting coal-fired power generation as a greater evil, conditions seem propitious for a renaissance of nuclear power.

"Nuclear power is an essential component of any comprehensive national energy plan," says Mary Landrieu, a senator representing Louisiana. "It has been 20 years since we have built a nuclear power plant, and it is long past time that we build a new one."

That view is shared by the administration of President George W. Bush. Yet, for all the political enthusiasm, many in the industry believe the nuclear revival will be limited and slow.

Jeffrey Immelt, chairman and chief executive of General Electric, one of the world's biggest nuclear engineering companies, believes at most a third of those planned nuclear power plants will go ahead.

Nuclear is important in the US energy mix. There are 103 nuclear power plants, which supply about 20 per cent of the country's electricity. Yet many of them are so old that they are operating on 20-year extensions on their 40-year operating licences. At the same time as these plants are going out of service, US electricity demand is rising. It could grow by 45 per cent by 2030, according to projections from the US Energy Information Administration.

That widening gap should create a powerful case for building reactors. However, it has been hard convincing utilities to take the risk.

"If you were a utility CEO and looked at your world today, you would just do gas and wind," Mr Immelt says. "You would say [they are] easier to site, digestible today [and] I don't have to bet my company on any of this stuff. You would never do nuclear. The economics are overwhelming."

The US government has tried to win over nervous utilities by combining what were two separate licensing processes for building and operating nuclear plants.

NRG Energy is seeking a single licence to build and operate, which may take four years. Under the old system, the process could take 11 years. It was possible for a power company to get a licence to build a plant but then fail to obtain approval to operate it, after pouring billions of dollars into construction. Many in the industry recall a $5.3bn New York plant that, once completed in 1984, could not overcome public resistance and be brought on stream.

However, while the new system is supposed to be an improvement, its effects are uncertain. Richard Goffi, a principal at Booz Allen Hamilton, who leads the firm's public sector energy business, says that because the process has not been tested there is no proof it will work as smoothly as planned. "No one knows how this is going to play out," he says.

The US government has offered incentives to the first companies to build reactors under the Energy Policy Act, including tax incentives, federal loan guarantees and insurance should their projects get shut down.

David Crane, chief executive of NRG Energy, says the government "put together precisely the amount of incentives," to make his planned investment viable.

But Mr Immelt believes it will take a much clearer set of incentives, preferably based on an international emissions trading scheme, to give nuclear power the impetus it needs to grow rapidly.

GE is a member of the US Climate Action Partnership, a lobby group of businesses and environmental campaigners that advocates emissions trading to tackle the global warming threat.

"If ever there is a cap and trade system, then nuclear power is going to get accelerated, because it's very much favoured in a reducingcarbon world," he says.

Such a system is fiercely controversial in American politics, although Hillary Clinton, the Democratic presidential frontrunner, has proposed a domestic cap and trade scheme.

Mr Immelt argues it is time to start taking action. "We can spend three years fighting it, duking it out, to reach an inevitable conclusion in the fifth year, or we can spend these five years actually about the job of setting up a market and driving change," he says.

Published: November 19 2007 02:00 | Last updated: November 19 2007 02:00

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