Is This The End Of Nuclear?
Mar. 5, 2015 4:00 PM ET
Summary
•Cost overruns are causing problems for utilities committed to nuclear power.
•Solar costs are falling and should go below those of nuclear by 2025.
•Long-term uncertainty is already causing pain among suppliers to the nuclear sector.
Without a lot of fanfare the sunset of the nuclear power era seems to be approaching.
One news peg here comes from France, the most nuclear-dependent country around, where Areva (OTCPK:ARVCF) is buckling after announcing a 4.8 billion Euro ($5.3 billion) loss. Delays in building a Finnish power plant are blamed, and the French government (which holds an 87% stake) wants its biggest company, the utility EDF, to step into the breach.
That's not how we roll in the U.S., but U.S. utilities tied to nuclear power are also dealing with delays and overruns over nuclear reactors.
Southern Co. (NYSE:SO) thinks a three-year delay at its Plant Vogtle could cost $8 billion and Southern wants to claw back $240 million from its suppliers, Westinghouse Electric (OTCPK:TOSYY) and Chicago Bridge & Iron (NYSE:CBI). The plants were supposed to go online in 2016 and 2017. Now 2019 and 2020 look more like it.
Southern CEO Thomas Fanning continues to make happy talk, calling nuclear economics "compelling," but Wall Street is starting to back away slowly. Even China is starting to back away.
This is reflected in Southern's recent price action.
All utility stocks have been falling recently as interest rates rise, making their yields look less attractive. But over the last 12 months XLU (NYSEARCA:XLU), an ETF tracking the sector, is up 10.5%. Southern, meanwhile, is up only 6.5%, and since the sector's fortunes peaked in late January it's down almost 14%. Contrast that with the performance of Pacific Gas & Electric (NYSE
CG), which uses a lot of solar power in California, up 22% over the last year and down less than 8% from its peak. (XLU is down 9% from the peak.)
Southern's nuclear "running mate" is South Carolina's SCANA (NYSE:SCG), which owns 55% of a nuclear facility near Jenkinsville, whose construction is now being inspected by the Nuclear Regulatory Commission, creating delays. Its partner in that project has had to go to the market for another $1.2 billion in bonds and while the Department of Energy has recently opened up $12.5 billion in loans for nuclear projects, congressional critics are getting their knives out. Can a cry of "nuclear Solyndra" be far behind?
While the long-term costs of nuclear power still appear attractive - the industry estimates them at just 2.4 cents per kilowatt-hour -- their advantage over natural gas continues to decline, and the cost of new facilities continues to rise. Nuclear plants suffer from the "bathtub problem" -- risks are great at the start and end of a plant's useful life, and that's where many plants are today.
Meanwhile, costs for renewable energy, like wind and solar, continue to fall like a knife. All-in costs for a solar installation are estimated to fall below those of other power sources by 2025. If you bid out a solar plant against a nuclear plant today, in other words, the nuclear plant will win. But what if you do the same exercise in two years? Or four? Or 10? You can re-allocate capital from solar in 10 years if you're wrong. If you make the wrong decision on nuclear, on the other hand, you're committed.
Because nuclear plants have to be calculated over generational time frames, and financed over those time frames, uncertainty is rising, and uncertainty is the enemy of a positive decision. Deutsche Bank now predicts solar will become the "dominant" form of electricity generation by 2030 -- in nuclear power time frames that's next week.
What happens when Southern Co. wakes up in 10 years and sees that solar or wind is substantially cheaper than the nuclear energy its bondholders are on the hook for over the next 20 years? That's a nightmare no other utility executive wants to visit. That is what's causing the sunset of nuclear power .
http://seekingalpha.com/article/2977626-is-th...p;uprof=45
Looking Forward
Mar. 5, 2015 4:00 PM ET
Summary
•Cost overruns are causing problems for utilities committed to nuclear power.
•Solar costs are falling and should go below those of nuclear by 2025.
•Long-term uncertainty is already causing pain among suppliers to the nuclear sector.
Without a lot of fanfare the sunset of the nuclear power era seems to be approaching.
One news peg here comes from France, the most nuclear-dependent country around, where Areva (OTCPK:ARVCF) is buckling after announcing a 4.8 billion Euro ($5.3 billion) loss. Delays in building a Finnish power plant are blamed, and the French government (which holds an 87% stake) wants its biggest company, the utility EDF, to step into the breach.
That's not how we roll in the U.S., but U.S. utilities tied to nuclear power are also dealing with delays and overruns over nuclear reactors.
Southern Co. (NYSE:SO) thinks a three-year delay at its Plant Vogtle could cost $8 billion and Southern wants to claw back $240 million from its suppliers, Westinghouse Electric (OTCPK:TOSYY) and Chicago Bridge & Iron (NYSE:CBI). The plants were supposed to go online in 2016 and 2017. Now 2019 and 2020 look more like it.
Southern CEO Thomas Fanning continues to make happy talk, calling nuclear economics "compelling," but Wall Street is starting to back away slowly. Even China is starting to back away.
This is reflected in Southern's recent price action.
All utility stocks have been falling recently as interest rates rise, making their yields look less attractive. But over the last 12 months XLU (NYSEARCA:XLU), an ETF tracking the sector, is up 10.5%. Southern, meanwhile, is up only 6.5%, and since the sector's fortunes peaked in late January it's down almost 14%. Contrast that with the performance of Pacific Gas & Electric (NYSE
CG), which uses a lot of solar power in California, up 22% over the last year and down less than 8% from its peak. (XLU is down 9% from the peak.) Southern's nuclear "running mate" is South Carolina's SCANA (NYSE:SCG), which owns 55% of a nuclear facility near Jenkinsville, whose construction is now being inspected by the Nuclear Regulatory Commission, creating delays. Its partner in that project has had to go to the market for another $1.2 billion in bonds and while the Department of Energy has recently opened up $12.5 billion in loans for nuclear projects, congressional critics are getting their knives out. Can a cry of "nuclear Solyndra" be far behind?
While the long-term costs of nuclear power still appear attractive - the industry estimates them at just 2.4 cents per kilowatt-hour -- their advantage over natural gas continues to decline, and the cost of new facilities continues to rise. Nuclear plants suffer from the "bathtub problem" -- risks are great at the start and end of a plant's useful life, and that's where many plants are today.
Meanwhile, costs for renewable energy, like wind and solar, continue to fall like a knife. All-in costs for a solar installation are estimated to fall below those of other power sources by 2025. If you bid out a solar plant against a nuclear plant today, in other words, the nuclear plant will win. But what if you do the same exercise in two years? Or four? Or 10? You can re-allocate capital from solar in 10 years if you're wrong. If you make the wrong decision on nuclear, on the other hand, you're committed.
Because nuclear plants have to be calculated over generational time frames, and financed over those time frames, uncertainty is rising, and uncertainty is the enemy of a positive decision. Deutsche Bank now predicts solar will become the "dominant" form of electricity generation by 2030 -- in nuclear power time frames that's next week.
What happens when Southern Co. wakes up in 10 years and sees that solar or wind is substantially cheaper than the nuclear energy its bondholders are on the hook for over the next 20 years? That's a nightmare no other utility executive wants to visit. That is what's causing the sunset of nuclear power .
http://seekingalpha.com/article/2977626-is-th...p;uprof=45
Looking Forward
