Energy Investing: The Growth of Nuclear Power

Energy investors should know that the future of nuclear power in the world is one of growth, even if that growth is delayed due to the slowdown in the aftermath of the Fukushima disaster. Thirty countries worldwide are operating 437 nuclear reactors for electricity generation. This number is only 7 fewer than the record of 444 running reactors reached in 2002.

Since 2002, 26 units have been added, and 33 have been deactivated. The total number of gigawatts has increased, however, because more powerful plants replaced older, smaller units. Currently, 167 nuclear reactors have been planned, and another 317 have been proposed.

In 2011, before the Fukushima nuclear accident, the World Energy Outlook estimated that nuclear energy would increase by 90 percent by 2035. After Fukushima, this estimated growth number has dropped to a 60 percent increase. That said, as time passes and the newest generation of plants promise more safety, the fears caused by the Japanese disaster have diminished.

Despite new net nuclear capacity being added over the past few years, total electricity usage in the United States and Europe slowed down while emerging markets continued to outperform.

The cost of building a nuclear power plant has a much longer cycle than coal or natural gas because permits must be met, hearings are held, and funding must be made available. The tremendous upfront cost is amortized over the life of the power plant. These upfront costs have traditionally been guaranteed by governments.

Funding is the central factor when deciding whether a nuclear plant can be economically competitive. Because costs are fixed upfront, the price the utility can charge for electricity is of critical importance. In the now more common liberalized electricity markets, nuclear power becomes less attractive because price fluctuations in hydrocarbons can make power plants unprofitable over the short to medium term.

Costs vary by geography. In China, the cost of building a nuclear power plant is much less because of mass production and lower labor costs. For example, in April 2008, the U.S. company Georgia Power contracted two AP1000 reactors to be built at an estimated cost of $7,000 per kilowatt of electrical output. In 2010, the Chinese nuclear commission started 20 similar plants that will cost $1,000 per KWe.

This table shows the relative cost of electricity production from non-carbon resources based on location and hypothetical interest rates for capital funding. As you can see, nuclear is more economic in most cases, which is bullish for future nuclear investments.

Cost of Non-Carbon Electricity
Technology Region or Country At 10% Discount Rate (Cents/kWh) At 5% Discount Rate (Cents/kWh)
Nuclear OECD Europe 8.3–13.7 5.0–8.2
Nuclear China 4.4–5.5 3.0–3.6
Large hydroelectric OECD Europe 14.0–45.9 7.4–23.1
Large hydroelectric China: 3 Gorges 5.2 2.9
Onshore wind OECD Europe 12.2–23.0 9.0–14.6
Onshore wind China 7.2–12.6 5.1–8.9
Solar photovoltaic OECD Europe 38.8–61.6 28.7–41.0
Solar Photovoltaic China 18.7–28.3 12.3–18.6

Obviously, nuclear energy is cost competitive, but the future of nuclear power is still complicated and to be determined. As Yogi Berra once said, “It’s tough to make predictions, especially about the future.” Some countries are stepping back from nuclear while others are pushing forward.

In May 2011, Germany publicly stated that it will end nuclear power within 11 years. This statement was a big deal because Germany got 17 percent of its power from nuclear at that time. Japan has also announced plans to end its reliance on nuclear power within 20 years, despite still having planned and proposed reactors on the books.

The Swiss also joined in, saying they would phase out their power plants as they reach the end of their life cycles in 2019 and 2034. As time passes and new leaders are elected, these projections may change.

China, on the other hand, has a different set of problems. Instead of fearing the possibility of an environmental disaster from nuclear energy, the country is currently undergoing an environmental disaster stemming from coal-burning power plants. China currently has 13 nuke plants in operation and another 20 under construction.

Its last five-year plan called for 11.4 percent of its energy to come from nuclear by 2015. That said, China isn’t immune to nuclear fear and it halted the issue of new building permits for almost two years. In December 2012, China ended this ban and started building again.

Other countries are also forging ahead. In March 2013, the UK approved a next generation plant to be built in Somerset. France recently invested more than a billion euros in R&D for its fourth generation nuclear power plants. India plans to build seven in the near future.

To stay up to date on nuclear basics, including prices, safety, and reactor plans, check in frequently with the World Nuclear Association.

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