( By DGM ) [Approx. Read Time: 1.5 minutes]
The current horizon for most business investments to payoff is 3 to 5 years. This stands in contrast to what is required for investment in a nuclear power plant. Is it short attention span or the pressure to make profit on every quarterly earnings report, hard to say?
The competing CO2 emitting sources of electricity can be built much quicker and turn a profit much faster. The good news is that nuclear power is very profitable; it just takes longer to get the ball rolling. The risks that used to be associated with nuclear plant startup have been somewhat mitigated with the new one step licensing process and loan guarantees, so my question is what is everyone waiting for? I think the answer is the culture clash. If it won’t turn a buck next quarter the likelihood of getting investment dollars is low, especially when the credit markets are just barely thawing out.
To provide some encouragement to any big time investors out there, see my spreadsheet on what the timeline and returns would be if you were to invest in a nuclear power plant. The calculations are very conservative and likely would be more profitable than what would actually be realized. The net present value (NPV) of the investment is positive which really all that matters is. The rest of the info is just nice to have.
If Wall Street had more patience in their big time earnings and used their lobbying power to help the nuclear energy industry we probably would have built Yucca Mountain 10 years ago and our grid would be supplied with more than 50% nuclear power right now. Too bad we feel we need to turn a buck every quarter so CNBC has something good to say about us every 90 days.
In other news, T. Boone Pickens abandons plans for wind farms in West Texas because it is not profitable even with government aid. Well T. Boone, if profit and clean energy is your objective you should have gone with nuclear, see this spreadsheet for a nickel of free advice.
If Wall Street does not want to invest in one of the most capital intensive industries, then they are fairly right.It is no secret that the costs associated with nuclear power plant startups are not only humongous, but varied and unpredictable. (I need not tell you what is happening with the Areva Finnish EPR.).
Using a mere metric as NPV to judge the feasibility of the investment is not the right way to go. NPV calculations has many drawbacks(inability to accurately select a discount rate, inaability to use real options etc.) and at the most can be used only as a entry point to judge investments.
And Pickens did not abandon the project because it was ‘unprofitable’. He abandoned it because of lack of credit and a sudden fall in natural gas prices. (If we go by your theory then nuclear power is also not profitable, because several new plant activities that Areva was pursuing in the US, have been temporarily abandoned, inspite of the huge govt. subsidies)
By the way,Pickens has also mentioned that he may replace his huge wind farm project with a series of smaller wind farms.
Thank you for your response. I will address your comments.
The costs of building a nuclear plant are no doubt very large. This was the whole point of the article, to show that a large investment will provide a large payoff, yet over a long period of time. The Areva plant in Finland is however being held up based on licensing issues as the Finnish law does not allow a one step licensing process like the US now has. The US used to have the two step process but changed the law in 2003. That plant is also having struggles with it being a first of a kind design. By the time that company builds a plant in the US they will have already built at least two of the same design. Their second plant in Flamanville France is ahead of schedule.
Addressing your NPV comment. To the contrary, NPV is the best way to determine if your investment will be beneficial in the long run. A potential investor would have many decisions to make besides what is in this simple model, like how much debt to take on and how much equity is needed up front to maintain free cash flow. In the end the point was to show that no matter how conservative you analyze it. An investment in a nuclear power plant is positive for the investor and that Wall Street should consider this a good one too despite their short term investment culture.
Also on the great T. Boone, yes he did abandon it because it was not profitable. If it was profitable and credit was unavailable he would have postponed it until credit was available. The plain facts with wind are that it is not a long term profitable venture which shows how bad an investment in wind power is when you can get free money from the government to start it up and still not be able to make it profitable. Wind is certainly clean energy and if someone can make it work out financially I support it, but the point of this article is to show why nuclear is a far better option for the investor.
And the best for last. The government does not subsidise nuclear, period. Maybe I should write this again. The government does not subsidise nuclear. The business of generating electricity with nuclear plants is a profitable venture and does not need government subsidies. Loan guarantees are not a subsidy. It is a mitigation of risk, specifically since government is a stakeholder in the process. The risk that is being mitigated is that if the government changes its laws in the middle of construction and startup, then the government is liable for the debt as the investor can not control the government.
Again, thank you for your comments.
3 utilities had applied for early site permits: Exelon, Dominion and Entergy. Perhaps you do not know that these utilities had asked/were planning to ask the federal govt. to pay one half the cost of developing each of these companies’s early site permit application. Intriguingly, these 3 utilities are one of the highest and the most successful. You must be joking when you say: no subsidies for nuclear! The whole energy world knows about the kind of subsidies nuclear power plants need. Perhaps your definition of subsidy is pretty restricted. About 4 or 5 years back Senator Pete Domenici of NM showed his energy bill which contained about 6b dollars of subsidies to energy companies for 6k MW of capacity.(Fortunately, the bill was filibustered). This is just an example.I can provide many others.
If nuclear was a far better option for the investor, then Europe (which is famous for its nuclear use) would have added much more than merely 1.2GW of nuclear capacity in the last 10 years, as against wind which has added about 45GW during the same time. In the last 7-8 years wind has grown fivefold. $36b dollars worth of investments were made around the world.
And about the Finnish EPR: are you kidding me (and the entire audience here) about the reasons in delay for the EPR? It is not merely the ‘licensing process’! There are a host of reasons,(instrumentation, welding, concrete, incompetent contractors, etc. etc.) but the point here is that those reasons are perfect representation of why nuclear power is failing to be France’s (and Areva’s) poster child.
Moreover, Areva and EDF are making detailed plans to sell of several existing businesses to keep the debt under control. Areva is on the verge of selling its T&D business.
Nuclear energy is a risky proposition now, not for the companies but for the taxpayers.
“Planning to ask” is not a subsidy. It is a proposed future event that has not taken place. Although they do not need the money to make the overall project profitable, I hope they get it. Yes, I would consider that a subsidy if they got it, but they have not and likely will not. Also, do I really have to state that a bill that never became a law is not a subsidy?
From Merriam-Webster
Main Entry:
sub•si•dy
Pronunciation: \ˈsəb-sə-dē, -zə-\
Function: noun
Inflected Form(s):
plural sub•si•dies
Etymology: Middle English subsidie, from Anglo-French, from Latin subsidium reserve troops, support, assistance, from sub- near + sedēre to sit — more at SUB-, SIT
Date: 14th century
: a grant or gift of money: as a: a sum of money formerly granted by the British Parliament to the crown and raised by special taxation b: money granted by one state to another c: a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public
Yes you are correct about my (and apparently Merriam-Webster’s) definition of what a subsidy is, see letter c above. Every time the government pays out money it is not a subsidy. I did do a search of what some people out there claimed were nuclear subsidies. Among the claimed were lawsuits the federal government lost, R&D to develop new technology, and loan guarantees. None of these are a subsidy to building a new plant.
And yes you are helping me support my first response that first of a kind design problems will be experienced in the first construction of a plant in addition to the licensing issues. Did you not read the part about the Flamanville plant being ahead of schedule? The Flamanville plant is the second being build and it has a much friendlier licensing process than Finland.