Nuclear reigns as hot commodity

Kathleen Davis, Associate Editor

Nuclear energy is back in fashion.

What was once the industry equivalent of bell-bottoms has circled back onto the runway, and absolutely everyone is checking her out.

The numbers are hot. Where just a few years ago, a buyer might pay a paltry $100 per MW to add a nuclear power plant to his portfolio, today’s prices have soared to nearly $800 per MW. (Dominion bought the Millstone Nuclear Power Plant in March for $1.3 billion with the tag on one unit reaching $791 per MW.)

Noting that economies of scale seem to be a major force in this flurry of recent plant sales, Gary Becker, an associate specializing in nuclear energy for the New

England law firm Day, Berry & Howard, commented “An executive once confided that accumulating nuclear energy is rather like being ‘a little bit pregnant.’ You can be a little; you can be a lot. The risk is pretty much the same.”

Everything old is new again

This nuclear rebirth (on both public and industry levels) is the result of a number converging factors:

  • climbing output-capacity has risen from 65 percent in the late ’80s to 90 percent or above for 2000, according to an Entergy spokesman;
  • safety improvements-the American Nuclear Society states that the nuclear industry has a safety record “nearly 10 times better than that of the total U.S. industrial sector;”
  • public fear of an “energy crisis;”
  • lower costs-in congressional testimony, Corbin McNeill, chairman and co-CEO of Exelon, which owns 17 nuclear reactors, gave a cost of less than 2.5 cents per kWh for nuclear, compared with 3.5 to 4.5 cents per kWh for gas, assuming a gas price of $3 to $4 per million BTUs; and
  • environmental concerns about emissions from fossil fuel combustion.

Even the reigning administration has climbed onto the nuclear bandwagon. Vice President Dick Cheney has made the rounds touting the benefits on CNN, MSNBC’s “Hardball,” NBC’s “Meet the Press” and the annual meeting of the Associated Press in late April, where he suggested questioning “the wisdom of backing away from what is, as a matter of record, a safe, clean, very plentiful energy source.”

A number of energy companies, including AmerGen and Entergy, wouldn’t think of backing away from nuclear power. In fact, they’re doing the opposite.

Buy. Buy. Buy.

When the Vermont Yankee nuclear plant was put on the auction block by a group of New England utilities, the deal proposed by AmerGen (a joint effort between PECO and Scotland-based British Energy to buy nuclear plants in the U.S.), seemed shiny and new. But now-with offers and counter offers between AmerGen and Entergy passing the $50 million mark-it looks likes the Vermont Yankee sale may not be so simple after all, proving one adage about the current nuclear arena: It’s a sellers’ market.

In fact, within the last year, Entergy’s nuclear business made deals with the New York Power Authority and Consolidated Edison to purchase four nuclear plants: Indian Point 1, Indian Point 2, Indian Point 3 and the James A. FitzPatrick plant, sending Entergy into the lead among market players in the nuclear arena.

But the number of players is limited: Exelon (within its AmerGen/PECO connection), Entergy, Dominion Resources and Constellation have been the major movers in nuclear sales recently, leading to the conclusion that nuclear energy is condensing.

“There are forces driving consolidation in the industry,” Becker stated. Becker sees a movement of utilities with individual plants to divest (either due to cost or deregulation), leaving those who can afford to work in mass-like Exelon and Entergy-to accumulate extensive nuclear portfolios.

Becker’s current forecast for the nuclear industry sounds a bit like a Ben Franklin saying: Ten in five and five in 10. In other words, most experts predict all of American nuclear power to be under the control of a mere 10 companies within the next five years, and within the next 10, that number dwindles to five.

“You would expect that the four that are buying right now will be in that eventual top five,” Becker speculated. “But you could also see one player being a joint company made up of individual utilities.”

“No matter who is buying or selling these plants, every company is starting in the same place: assessment of risk,” Becker added.

With nuclear snuggling closer and closer to the hearts of politicians and public alike these days, many companies believe that’s a risk worth taking.

Becker can be reached via e-mail: gmbecker@dbh.com. More information on nuclear power can be found at the Web site of the American Nuclear Society (www.ans.org) or the Nuclear Energy Institute (www.nei.org).

Previous articleELP Volume 79 Issue 6
Next articleMirant commits to invest $3 million in Cheng Power
The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

No posts to display