Are U.S. Nuclear Power Plants Going the Way of Coal Plants?
by David Fessler, Investment U Senior Analyst
Tuesday, January 29, 2013: Issue #1958
Last October, Dominion Resources, Inc. (NYSE: D) announced it would be closing its Kewaunee nuclear power plant. Located in Wisconsin, this small, 566-megawatt (MW) unit is the first nuclear plant to succumb to cheap natural gas.
The boom in U.S. shale gas production has natural gas prices at 10-year lows. It’s thrown an interesting curve at the domestic power market. Many utilities are retiring old coal plants in favor of natural gas. Are nuclear plants right behind?
We’ll analyze where the industry is today and where it’s going. First, let’s take a look at coal plants versus natural gas-fired ones.
Going… Going… Gone?
Many coal-fired power plants in the United States are being retired, in some cases long before the end of their useful lives. How many of the 1,169 currently operating in the United States are on the hit list?
A report from the Union of Concerned Scientists entitled “Ripe for Retirement” identifies 353 of them. Check out the map below.
These plants total 59 gigawatts (GW) of generating capacity. That’s about 18% of the total coal-fired plants in the United States, and 6% of the nation’s total power generation capacity. Most of the plants on the list are older, less efficient and no longer economically viable.
The real problem is that these plants are big polluters. They’d be too expensive to upgrade to meet the latest Environmental Protection Agency’s (EPA) emissions guidelines.
The low price of natural gas in the United States is also playing a role. Utility operators have been replacing these outdated plants with newer, less-expensive natural gas-fired units. They’re also running existing natural gas-fired peaking plants more often, or even full time.
Most of the coal-fired generators that are on the retirement list average 45 years in age. That’s far beyond the typical 30-year design life for these types of plants.
Are Nuclear Power Plants Right Behind?
It’s clear from the map that coal use for power generation is on the wane here in the United States. Cheap natural gas and ever-tightening EPA emissions regulations are clearly the culprits. But are nuclear plants next? Let’s take a look.
About 20% of the power generation in the United States comes from nuclear power plants. Back in the 1960s, the Atomic Energy Commission predicted that over 1,000 nuclear power plants would be operating in the states by the year 2000.
The incident at Three Mile Island (TMI) took the wind out of the sails of the nuclear power industry. Because of TMI, plans for more than 120 nuclear plants were ultimately cancelled.
Ten years ago, there was talk in the utility industry of a “nuclear renaissance.” This was primarily due to the steep rise in fossil fuel prices and their impact on greenhouse gas emissions.
The renaissance didn’t occur here in the United States for two reasons. First, the Department of Energy has been dragging its feet with pricing carbon emissions. Second, the price of natural gas has fallen dramatically.
Construction can take four to 10 years to complete for a typical nuclear plant, and delays are the norm rather than the exception. Another factor is the price of the plants themselves. The price tag for a typical 1.1 GW nuclear plant is $6 to $9 billion. Cost overruns are always a factor, and can add significantly to the overall cost of a plant.
Compare that to a similarly sized natural gas-fired plant. It can be constructed in as little as 18 months, and on far less real estate. With regard to plant construction costs, natural gas is to nuclear as Walmart is to Saks Fifth Avenue.
The typical natural gas-fired plant can be constructed for about $1 million per MW. That puts the price for a 1.1 GW plant at just over $1 billion. This is easily within the financing range of most utilities.
It’s no wonder utilities are choosing natural gas over nuclear. It’s simply about economics.
Older, smaller plants will be the first to go. Built in 1974, the 566-MW Kewaunee plant falls into that category. Even though its operating license doesn’t expire until 2033, Dominion’s been trying to sell this plant since April 2011.
There haven’t been any takers. Consequently, the company will close the plant by the end of June 2013. It’ll cost Dominion about $281 million in decommissioning costs.
But what about the fate of the 103 other nuclear plants operating in the United States? According to data from the International Atomic Energy Agency (IAEA), 40 are smaller than one GW in size. They all could ultimately suffer the same fate as Dominion’s Kewaunee reactor.
Is There a Way to Play the Slow Demise of U.S. Nuclear Power?
The answer is yes, but not in the way you might think. You see, once up and running, large nuclear power plants still produce electricity cheaper than natural gas.
However, higher operating costs and spent-fuel storage costs are expenses natural gas plant owners don’t have. This may prompt utilities that own small nuclear plants to consider closing them.
Still, shorting uranium miners, like world-leader Cameco Corporation (NYSE: CCJ), probably won’t pan out for most investors. The long-term global demand for uranium is projected to increase. Outside of the United States, there are 331 nuclear plants currently operating, with an additional 60 under construction.
So can investors profit as utility operators close small nuclear plants? Yes. But the way to do it is by investing in natural gas pipeline operators. Regardless of how many plants are closed, or how quickly it happens, the pipeline companies will be the beneficiaries.
Kinder Morgan Energy Partners LP (NYSE: KMP) is the largest U.S. natural gas pipeline operator. Shares currently trade just shy of $90 each. The company has a very respectable 5.8% dividend yield.
The Williams Companies, Inc. (NYSE: WMB) is another large natural gas pipeline company. Its shares trade for $35, and it pays a 3.85% dividend yield.
The majority of their business is the collection, cleaning and processing, storage and transportation of natural gas throughout the United States. They act like toll road operators, and thus get paid by the amount of product they transport. They are therefore relatively immune to price swings in the gas itself.
There’s no direct way to play the demise of either coal or nuclear-fired power plants. The two top natural gas pipeline operators mentioned above are a great way to play their replacements.
Good Investing,
David Fessler
Are U.S. Nuclear Power Plants Going the Way of Coal Plants?,Any investment contains risk. Please see our disclaimer.
12 Responses to “Are U.S. Nuclear Power Plants Going the Way of Coal Plants?”
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David Fessler is the energy and infrastructure expert for Investment U.
I appreciate your insight as to the plays on natural gas. I do however, have a question. Is there a company that will be transporting Natural gas in a Liquified state to other countries around the globe? I understand that this might be a good market to be in and that there are few depots in the country set up to make this happen in the near future. Are these depots owned by Kinder Morgan?
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Mark,
Here’s a write-up by Matthew Carr from last April:
http://www.investmentu.com/2012/April/how-to-profit-from-lng.html
Royal Dutch Shell is also doing a lot with LNG Transportation:
http://www.investmentu.com/2011/May/a-natural-gas-company-floating-in-profits.html
thanks,
Justin
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(1) Nuclear power plants are hugely expensive. You forgot to add in the cost of storing radioactive waste for 240,000 years, which means about 20,000 generations of taxpayers will have to pay for the storage.
That sounds expensive to me!
And what’s the cost of cancer for generations of people exposed to nuclear “effluent” released daily from nuclear power plants into the air and water?
Plus, think of all the government agencies, labs, superfund cleanup sites, etc. dedicated just to nuclear energy. They’re hugely expensive.
(2) Nuclear energy doesn’t supply 20% of the energy in the U.S. According to Lawrence Livermore, the amount nuclear energy consumed was 8.26% for 2011. Here is a link to their chart:
https://www.llnl.gov/news/newsreleases/2012/Oct/NR-12-10-08.html
(3) It costs $40-$50 billions of dollars for a nuclear power plant to re-fuel, which they do approx. every 18 months. That’s expensive.
(4) Renewable Energy such as solar, wind, geothermal, tidal, etc. create many jobs; create an energy SURPLUS; and are the only energy sources that allow a country to be completely INDEPENDENT.
With Renewable Energy, a country doesn’t have to go to war for oil or uranium, as, for example, France is sending troops now to protect their uranium mines which France is so reliant upon for their nuclear energy.
(5) Here’s an investigate report on what really happens to nuclear waste around the world:
youtube /watchv=rk5ai0gOQHU&feature=player_embedded#!
(6) And 2 highly recommended sites covering nuclear and other energy issues:
http://www.enenews.com
http://www.enformable.com
Thank you.
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Correction on (3) due to typo:
It costs $40-$50 Million dollars to refuel
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While Janna may have some information on nuclear power, she doesn’t have it all. I don’t either, but I’ve been working at a nuclear plant for the last 30 years. Glowing at night does save on my electric bill, but the so-called contamination from nuclear effluent is ludicrous. The nuclear power industry is one of the most highly regulated in the world. I challenge Janna’s statement. If she wants to talk about people becoming ill, just take a look at the statistics for people who live in close proximity to coal fired power plants. There are some scary numbers in that arena.
The “renewable” word, also drives me crazy. Photovoltaic panels used for power generation are large semiconductors. The manufacture of semiconductors uses some of the most harmful chemicals known to man. Solar power is fine, but it is highly variable in its output. Clouds, low temperatures, high wind and other natural phenomena affect the value of electricity output by any PV installation. The other dirty little secret on “renewable” energy is, power companies must make up for the constant changes in output from the “green” facilities so they are often forced to buy power on the spot market to keep up with their demand throughout each day. This contingency is very expensive in comparison to electricity coming from a known source e.g a 1.3 MW nuclear power plant. Remember, solar’s all right, but nukes run all night.
JAW
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Interesting but missing some very important points. The price of natural gas will have to stay this low for the entire 40 year lifespan of the generators it supplies. If anyone can predict a commodity price with that stability over 40 years – good luck.
As has been noted before the LNG market is going to increase the price of natural gas in the domestic North American market. Sure the reserves are large but so is world demand and likely to get much larger with the advent of large LNG fleets shipping the stuff into Japan and elsewhere.
If the world price of LNG drops then you may be right but increased demand means increased price. Nuclear fuel on the other hand is a tiny component of the cost of operating a nuclear plant and operators pretty much know how much it is going to cost to run it for 40 years. With gas they are taking one almighty gamble. Utilities like stability. They will therefore continue to operate nuclear plants and use the gas plants to replace coal for peaking.
MAlcolm
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Nuclear energy does not provide 20% of the energy in the U.S.
It provides 8.26% according to this Lawrence Livermore chart of 2011:
http://www.greatenergychallengeblog.com/2012/10/25/wind-hydroelectricity-see-bumps-in-new-chart-of-americans-2011-energy-use/
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David, You are missing a lot in your analysis regarding nuclear power. First, the treaty between Russian and the U.S. to decommission nuclear warheads is ending this year. The enriched uranium from those decommissioned warheads acount for about 16% per year of the entire world consumption of uranium.
Next, and this is a game changer, E=MC^2(AeR) and E\=MC^2(AeV). These are the new equations that show how radio-activity can be neutralized. These equations will make spent fuel rods into lead. That is what happens to uranium when it loses its radio-activity. It becomes lead. I suggest that you go to http://www.keelynet.com/news/010513s.html
Just scroll down to the bottom of the article and click on the link to the entire paper. If you have any kind of a scientific mind, you will see the potential of this development.
To spell it out, it means that any radio-active contamination can be contained and even eliminated, as in the case of the Fukushima disaster or Chernobyl. The magnetosphere of the Earth has been accomplishing this for eons and now we are starting to pay attention to the implications.
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When we talk about nuclear, why aren’t we talking about thorium? It’s more abundant, cleaner, cheaper, and burns hotter than uranium (which makes it more efficient). Also, since it burns so much hotter, it can be used to burn up all the spent uranium fuel rods we have lying around (cleaning the nuclear waste dumps). The biggest advantage, as if the aforementioned aren’t enough, is that thorium doesn’t react on its own. In other words, it needs a constant catalyst to trigger its reaction (supplied by the power it creates). That means that, if the power is cut, the fuel rods stop reacting. AKA, NO MELTDOWNS!! I know the reason we don’t use thorium is because uranium breaks down into weapons-grade plutonium and thorium does not, and the gov’t decided in the 50s and 60s that we had no use for the clean, efficient, abundant (some of the biggest supplies of thorium monazite sands are in the US and Australia) inexpensive, SAFE fuel that can provide power to billions with almost none of the downsides of uranium-nuclear plants. Good going, butter-battle boys. Good going.
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Nate:
You don’t need a constant catalyst. The “seeding” fissile fuel, either Uranium-235 or Plutonium-239, transmutes the Thorium via Protactinium into Uranium 233, which is fissile. The reaction continues on its own once the U-233 reaches about 3%. It will actually “breed” more U-233 than what you started with. In other words once you get the reactor running it is self sustaining (with reprocessing of the liquid core) for much longer than a Uranium cycle Nuclear Reactor that must be mothballed after 40 to 60 years on average.
India has the largest reserves of Thorium monazite, followed by Brazil and Australia.
Currently China, India are doing researchand planning to build some form of Thorium Reator, and Norway, France, Czech Republic, Brazil and AECL in Canada are doing research.
Unfortunately the United States is sitting on the sidelines, when it comes to Thorium. It was the leader in all Nuclear Physics and Engineering in the past and has proven the technology of a Liquid Salt Thorium reactor is possible, safer, cheaper and produces more fuel (a “breeder”) and less long term toxic waste.
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Nate is correct; mostly, on the Thorium Issue. Think of a peanut butter sandwich. The Thorium is the Peanut Butter and the bread is Plutonium/Uranium spent fuel rods that need to be reprocessed. Why? Because the pellets are “poisoned by Xenon-135, a fission product, which absorbs neutrons and slows and eventually stops the reaction. It must be removed. This is the reason why uranium fuel rods must be replaced every 18 to 24 months, whether in a PLWR or a PHWR. (Pressurized Light or Heavy Water Reactors)
Now if you use the Thorium in a LFTR (Liquid Flouride Thorium Reactor), you have a method, boiling the Liquid, during the Heat Exchange phase, to remove the Xenon-135.
This reactor has been built in the 1960′s by Director Alvin Weinberg and his staff at Clinton Laboratory (now Oak Ridges National Laboratory). With a liquid core you don’t need complex plumbing to keep the Heat Exchange section under Pressure. A meltdown is impossible because any increse in core temperature will expand the liquid (physics) and decrease the chance of neutron absorption. Should a catastrophic situation occur, a specially built “drain plug” melts and the liquid core drains into a larger containment vault, thereby spreading the liquid further and stopping the reaction with the core solidifying.
The Fission products are burned up in the reactor, and what is waste; 83% is safe within a decade because of the short half life. The waste is more radioactive than spent uranium fuel rods, a measure of short half lives. And you don’t produce Plutonium; but you can get rid of Plutonium nuclear pits, as the “seeding” agent to help transmute Thorium into Uranium-233. The waste is a mix of U-233 and U-232. Almost impossibe to separate, which is necessary to try and make a nuclear device.
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Wow, I dream of renewables combined with nuclear and/or natgas…
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