Renaissance Short Lived: Sluggish US Economy Curtails Prospects for Building Nuclear Reactors  

The New York Times reports that the oft-touted nuclear renaissance is manifesting itself in the real world - Sluggish Economy Curtails Prospects for Building Nuclear Reactors.

Just a few years ago, the economic prognosis for new nuclear reactors looked bright. The prospect of growing electricity demand, probable caps on carbon-dioxide emissions and government loan guarantees prompted companies to tell the Nuclear Regulatory Commission that they wanted to build 28 new reactors.

The economic slump, which has driven down demand and the price of competing energy sources, and the failure of Congress to pass climate legislation has changed all that, at least for now.

Constellation Energy’s announcement on Saturday that it had reached an impasse with the federal government over the fee for a loan guarantee on a new reactor in Maryland is a sign of how much the landscape has been transformed.

Essentially, the Energy Department argued that Constellation’s project is so risky that the company must pay a high fee or provide other assurances of repayment if it wants the taxpayers to guarantee its construction loans. Constellation said the government’s demand was “unreasonably burdensome.”

The government is hardly the only one to question the economics of nuclear power right now. The would-be builders of seven reactors around the country have deferred their projects in the last few months.

One major factor driving the cautious stance of both the industry and the government is the fall in electricity demand, which peaked in 2007. In 2009, demand dropped by more than 4 percent from 2007. So far, it seems that demand in 2010 will be higher than last year, but not as high as 2007. These are big changes for an industry that is accustomed to growth on the order of 1 to 3 percent a year. With slack demand, there is less urgency to build new plants.

The plunge in the price of natural gas has also made nuclear power far less competitive. The year the recession began, 2008, the standard unit of natural gas, one million British thermal units, sold for an average of $7.96 at the well head. Last year the same amount of gas cost just $3.71, according to preliminary Energy Department figures, and for the first six months of this year, it cost $4.43.

A return to strong economic growth would push up the demand for electricity and for natural gas, but even then, natural gas prices may remain low because a technology called hydraulic fracturing has vastly increased the estimate of recoverable reserves.