Is This the Start of a Nuclear Renaissance?
Feb 10th 2012 12:06PM
Updated Feb 10th 2012 12:08PM
The Nuclear Regulatory Commission approved the first new U.S. nuclear reactor in more than 30 years yesterday. It was a step nuclear backers have been hoping for since something of a nuclear renaissance began a decade ago. But is this renaissance going to last? And should it?
Cost will be the key
The benefit of nuclear power is that it is an alternative to fossil fuels, which are dirty and rely on imports to supply power. The U.S. gets most of its electrical power from coal, which is abundant, but natural gas and oil were imported to fill the gaps a decade ago.
But expansion of shale gas drilling has led to much lower costs for natural gas plants, changing the dynamic for energy producers. Natural gas is now favored by power plant builders over much more complex and dangerous nuclear plants. The abundance of natural gas, in the U.S. at least, isn't going to abate anytime soon, so I doubt that nuclear plants will suddenly pop up across the country simply because we have a more abundant energy source.
There's also the cost of nuclear plants to consider, which exceed natural gas plants and some other renewable alternatives. A natural gas plant costs about $1 billion to build a 1 GW plant. The plant approved for Southern Co. (NYS: SO) will cost $14 billion for just 2.2 GW of power, more than six times the cost of building a natural gas plant. The $6.36 per watt also exceeds the cost per watt of utility-scale wind and solar power. When considering overall costs, each kWhr of energy from wind and solar sources now compare favorably to this new nuclear plant, especially by the time it is completed in 2016.
That makes me wonder why this plant is even being built, especially with an $8.3 billion in loan guarantees from the Department of Energy, the same type of guarantee people have been critical of for the renewable energy industry.
Don't bet on a trend
NRG Energy (NYS: NRG) threw in the towel on nuclear power last year, leading to a $481 million writedown. Escalating costs and uncertainty following the Fukushima Daiichi disaster will make this more of a one-off build than a trend in electricity generation.
In short, I wouldn't count on a jump in approved nuclear plants increasing demand for Cameco (NYS: CCJ) , Uranium Energy (NYS: UEC) , and Uranerz Energy (NYS: URZ) . The cost structure of the industry as well as abundant natural gas just don't play into nuclear power's hands long term.
At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Motley Fool newsletter services have recommended buying shares of Cameco and Southern. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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