ATLANTA — If Georgia was starting from scratch, it could not financially justify the nuclear power plant now under construction.
That conclusion from state utility regulators bluntly illustrates how an anticipated boom in nuclear power went bust as natural gas prices plummeted, the economy fell into a severe recession and construction proved pricier than expected. The latest calculations show that finishing the two new reactors at Plant Vogtle in eastern Georgia is the cheapest financial option, but the numbers are a warning for other utilities.
The development is not surprising given recent trends, and many did not foresee the massive growth in the country’s natural gas supply. Utilities across the country have cancelled or indefinitely delayed new nuclear plants and even shuttered existing ones.
Duke Energy Corp. earlier this month halted plans to build a nuclear plant in Florida, though it’s still seeking a license. Southern California Edison announced in June it would shutter its San Onofre nuclear plant rather than risking expensive repairs when it was unclear whether the facility would be allowed to restart.
“The likelihood of someone else going ahead with a new nuclear plant today is very low indeed,” said Jonathan Arnold, a Deutsche Bank analyst who tracks Southern Co. “They’re no longer the least-cost alternative in most circumstances.”
So far, Plant Vogtle has not hurt Southern Co. financially. As a regulated monopoly, it can bill its customers for its project costs, unless elected regulators decide the spending was egregious and forbid it. While Southern Co. stock has trailed its peers, Arnold attributed that more to concerns over nearly $1 billion in pre-tax write-offs the utility absorbed on a Mississippi coal plant now under construction.
The latest figures came in a report filed Friday by Philip Hayet, a consultant who monitors the economics of the nuclear plant for Georgia’s Public Service Commission. His analysis underscores what long worried state regulators: Allowing Southern Co. subsidiary Georgia Power to build an expensive nuclear plant was always a close call.
Hayet said the nuclear plant is no longer economic compared when factoring in total project costs, estimated fuel prices and the potential that the U.S. government may tax carbon emissions.
His exact calculations were not publicly released since they involve proprietary financial information from the utility. Still, his conclusion was clear.
“... If a decision had to be made today to build a new nuclear project, it would not be justified on the basis of these results,” said Hayet, who is expected to testify before regulators Tuesday.
That calculation is important for a company considering whether to start a nuclear plant from scratch, not for a company like Georgia Power that is already building. When deciding whether to continue the nuclear plant, analysts typically ignore so-called sunk costs, or money that has already been spent and cannot be returned. Under Georgia law, Georgia Power’s nearly 2.4 million customers could be responsible for any costs spent so far even if the project was scrubbed.
Instead, regulators make decisions based on whether finishing the nuclear plant is cheaper than building natural gas plants. Hayet concluded that finishing the plant was on average $2.5 billion cheaper, assuming the company can meet its current construction schedule – a major question. Southern Co. officials put the figure at closer to $4 billion.
Those benefits can increase or decrease depending on a number of factors such as natural gas prices, whether Congress taxes carbon emissions, construction delays and cost increases.
Industry supporters say that nuclear energy offers long-term advantages that are tougher to price. Relying so heavily on natural gas would leave states like Georgia exposed to swings in fuel prices, whereas the cost of nuclear fuel is relatively stable. Nuclear plants do not emit greenhouse gases or other forms of airborne pollution, unlike the coal plants that Southern Co. is shuttering in response to tougher environmental rules.
The “bottom line is much as in a financial portfolio, a nation’s energy portfolio needs diversity of generation,” said Mitch Singer, a spokesman for the Nuclear Energy Institute, an industry lobbying group.
Georgia’s elected utility regulators were warned in 2009 that the project could be uneconomical before they approved it. PSC staffers said there was a “strong likelihood” the project could go over budget. They said building the plant was a “close call” under the fuel and carbon tax assumptions used at the time. The price that utilities pay for natural gas nationally has fallen by 47 percent since the Georgia reactors were proposed, according to federal statistics.
“Given the history of significant nuclear power plant cost overruns and all the risks discussed above concerning construction of the Units, there is very little, if any, capacity for the project to absorb cost overruns and still provide benefit to the Company’s ratepayers,” PSC attorney Jeffrey Stair and Daniel Walsh of the Attorney General’s office wrote at the time.