Global warming
The latest driving force behind the purported nuclear renaissance is man-made global warming. As long as this issue drives public policy, the nukes are in the mix. Aside from hydroelectric plants, which are vulnerable to droughts, nuclear power plants are the only form of baseload generation that isn't known to produce greenhouse gases (and some claim, but haven't proven, that organic matter buildup on the upstream side of dams generates plenty of methane). Some environmentalists' idea that wind, solar, and biofueled generation could replace a majority of fossil fuel–fired plants is a pipe dream.
Without some way to factor CO2 control costs into the price of coal plants, noted FPL's Dewhurst and others at the Platts meeting, the economics of new nuclear power don't work. Carbon dioxide limits kick coal out of the market. Without them, coal remains king.
TVA chief Jerry Kilgore, who wants to build new nuclear units and is overseeing preparations for the restart of the ancient Browns Ferry Unit 1 this month, told the audience at the Platts conference that he is keeping an eye on both nukes and coal, to bide time until it is clear that carbon caps will be mandatory. "We will keep coal in our sights," he said. Given TVA's ruinous experience with nukes in the past, the giant federal power agency surely is hedging its nuclear bets with coal.
In mid-February, DTE Energy's Tony Early, speaking at the Economic Club of Detroit, said the company isn't ruling out new coal generation. It's hedging its baseload generation bets. When the NRC granted the early site permit to Exelon, the company made clear that it isn't committed to building a new nuke, only to keeping its options open.
Uranium prices
The economic rationale for new nukes rests entirely on the assumption that the cost of nuclear fuel will remain low and stable compared with fossil fuels. According to EIA data, fuel represents about 25% of the bus-bar cost of a nuclear kilowatt-hour, vs. about 75% for a coal-fired kilowatt-hour.
What if uranium prices go up the way they did during the 1970s, when every utility with more than two customers was looking to build a nuke? They already are, according to Jeff Combs, president of Ux Consulting (www.uxc.com), which tracks supply, demand, and prices of uranium worldwide.
The final speaker at the two-day Platts conference, Combs sent the attendees home on a down, but realistic, note. Over the last several years, he said, the price of U3O8 has "skyrocketed." In 2003, he noted, uranium was trading at $10.90 per pound. Last July, the price was $45/lb. At the end of 2006, the price was $75.
There's plenty of uranium in the world, said Combs, but the market has changed since the 1970s uranium bubble burst and prices plummeted in the 1980s. The 1970s uranium market collapsed on the cancellation of nuke after nuke and the arrival of a secondary market for separative work units (SWUs). Demand dissolved and SWUs swamped the market.
Today, demand is going up worldwide, driven by Russia and China, and supply isn't keeping pace. The Russians and Chinese are both talking seriously about adding two new reactors a year over the next several years. The U.S.-India nuclear cooperation deal late last year will also boost uranium demand. Supply will have a tough time keeping pace.
Since the 1980s, says Combs, there has been considerable consolidation in the uranium business, driven by the low prices of the 1980s. A small number of mega-companies now dominate uranium production, making the market susceptible to disruptions. For example, Canada's Cameco Corp. had a major flood late last year at its Cigar Lake mine in Saskatchewan, taking significant supply off the market temporarily. Prices spiked.
New trading patterns have emerged in the uranium market, said Combs. Russia and China, which used to sell uranium abroad, are now stockpiling their domestic production and looking for more from outside their borders. Russia, which has an agreement with the U.S. to blend down weapons-grade uranium through the U.S. enrichment company USEC, now wants to take back more of the resulting fuel-grade uranium for its new reactors.
New demand is being created faster than new supply, which suggests prices for U3O8 will increase. Russia and China have both said they expect to bring on three new units a year for the next decade. "Recent experience with production expansion is not encouraging," said Combs.
Where's the football?
So where does all this leave the U.S. nuclear renaissance? While conditions are very favorable for a nuclear rebound, it isn't, in the words of former CIA Director George Tenet, describing Iraq's alleged nuclear weapons program, a "slam dunk."
There's demand for new baseload capacity in the U.S.; a favorable regulatory regime exists in Washington for the moment; promising new reactor technology appears to be available. But there are regulatory risks, financial obstacles, human resource problems, technology issues, and political hurdles.
To return to the Peanuts analogy, will Lucy pull the football away as Charlie Brown tries to kick the ball through the uprights? That's a "known unknown." So the industry will have to judge the risks ahead carefully as it lines it to attempt a nuclear field goal.
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