Nuclear Facts

Subsidies Mask True, Uneconomic Costs of New Large-Scale Nuclear Plants

Existing nuclear plants can compete favorably with fossil-fuel plants because they have relatively low operation, maintenance, and fuel costs, and their excessive capital costs have long since been forcibly absorbed by ratepayers and bondholders. But the continuing high construction costs of new nuclear power plants make them uneconomical. In fact, there have been no successful nuclear plant orders in the United States since 1973.

To jumpstart private investment in the first 6,000 megawatts (MW) of new nuclear power capacity, Congress granted roughly $10 billion in new subsidies—in the form of production tax credits, loan guarantees, federal “cost-sharing,” and “regulatory risk insurance”—as part of the 2005 Energy Policy Act. The high capital cost of constructing an individual nuclear power plant has in the past dictated a trend toward ever larger reactor units in order to recoup the multi-billion investments required.

At a price tag of $2.5 billion to $4.0 billion each, reactors typically require a long investment recovery period, on the order of 25-40 years. Moreover, they usually require at least a decade or more to plan, license, and build, creating a persistent problem of economic “visibility” for nuclear reactor projects in what has now become a more competitive and shifting energy marketplace, at least in the United States.

The timescales involved in the current subsidy program illustrate the nuclear economic visibility problem. The Internal Revenue Service will distribute future annual production tax credits—nominally amounting over the first eight years of operation to a maximum of $1 billion for each thousand megawatts of new capacity—among all “qualifying” new nuclear reactor projects that have:

• applied for a construction/operating license from the Nuclear Regulatory by the end of 2008;
• begun construction of the reactor building by January 1, 2014, and;
• received a certification from the Department of Energy that it is “feasible” to place the facility in service prior to January 1, 2021.

It is difficult to forecast today what energy market conditions will be like five years hence, much less in 2021. It is also difficult to predict the size of the subsidy ultimately available to each new reactor’s owner, as this depends on the total number of projects that actually begin construction by 2014. How many ways will this gift from the taxpayers be divided before the commercial viability of each individual project is undermined?

Needless to say, absent favorable shifts in the underlying economic determinants of nuclear power, the addition of 6,000-9,000 heavily subsidized nuclear megawatts to the national grid beginning 10-15 years from now does not really diminish any of the immediate challenges posed by global warming, unless these plants actually replace existing or currently planned coal-fired power plants.