GE (NYSE:GE) Slams Economics of Nuclear
Is GE Turning Cold on Nuclear?
As the whole world is fixated on the debate about on using and not using nuclear power for energy generation, the anti-nuclear protesters have got a new powerful argument about nuclear energy being not economically feasible. General Electric which is among the world’s top 3 suppliers of nuclear energy equipment along with Toshiba and Areva, has said that it no longer makes economic sense to build nuclear reactors. To readers of GWI, this is nothing new as we wrote more than a year ago about how nuclear energy has hit a virtual wall in the developed world. Expensive safety regulations, massive time overruns, increasing equipment prices had already made nuclear energy an expensive proposition in the West. On top of that came the Fukushima disaster which has made many countries like Germany, Japan ,Switzerland and Belgium to shut down their entire nuclear energy capacities.
The Finland Disaster highlights the problem facing the Industry. Despite using top of the line EPC contractors and equipment providers, Finland has found itself stranded on new nuclear reactor development. The safety policies have become more strident and waste disposal concerns have increased. Despite older nuclear plants having very low LCOE, newer plants don’t have such low costs. Concerns over radiation, waste disposal, safety from attacks etc. make Nuclear Energy particularly cumbersome in countries with high per capita incomes. This is because of higher individual freedom and value of human life. In developing countries, safety regulations are regularly bypassed. The other problems facing the industry are:
1) Low Natural Gas Costs - The price of Natural Gas has crashed by more than half from the peak 2008 prices making many plants nonviable. Since Energy Prices in many places are dependent on Gas Prices, this has become a big negative factor.
2) General Economic and Energy Decline – US has suffered from a contraction in Electricity Demand for the first time as Economy Declined in the aftermath of the Lehman Crisis. With prospects of future growth also lowered, the incentive for constructing new nuclear energy has fallen
3) High Project Gestation Time and Capex Costs – Nuclear Energy requires a huge amount of capital and a long time to be built. There are huge project construction risks with frequent time and cost overruns. Government involvement is necessary due to these massive risks private capital is reluctant to invest in such high risk projects. Despite DOE guarantees, Constellation found the loan costs at 11.6%, too high to make the project worthwhile.
4) No Climate Change Legislation Globally - USA has been a laggard in the Climate Change with partisan politics dooming any remote chance of Climate Mitigation efforts at the Federal Level. Despite efforts by US States and some support from US Government led by Obama, there has been no Carbon Tax or some form of Carbon Emission Caps. This has made long term investor support for Green Energy untenable. Even Globally there has been no progress on Climate Change, just lots of meetings and hot air. The top UN climate official sees no chance of an agreement in her lifetime.
GE has said that the falling prices of natural gas (in the US) and falling solar energy prices has made nuclear energy much less competitive. If you look at the cost curves of different energy sources, renewable energy sources like solar, wind have been showing declining curves while nuclear, coal have been showing flat to increasing curves. With all the other associated risks and global warming effects of fossil fuels, the cost has become higher.
Already two of the top Nuclear Energy Countries Japan and Germany have decided to shut down their nuclear plants. While India and China have been making noises that they will go ahead with their nuclear plans, strong local opposition particularly in India has stalled those plans.
Nuclear power is so expensive compared with other forms of energy that it has become “really hard” to justify, according to the chief executive of General Electric, one of the world’s largest suppliers of atomic equipment.
“It’s really a gas and wind world today,” said Jeff Immelt, referring to two sources of electricity he said most countries are shifting towards as natural gas becomes “permanently cheap”.
The shale boom has sent US natural gas prices down to 10-year lows, a trend some analysts believe will spread elsewhere, while the nuclear industry faces added costs and uncertainty after Fukushima.
At the same time, a 75 per cent fall in solar panel market prices in the past three years has made solar power competitive with daytime retail electricity prices in some countries, according to a recent report by Bloomberg New Energy Finance, while offshore wind turbine prices have steadily declined.
Such factors pose dilemmas for countries such as the UK, which is trying to build new nuclear plants without public subsidy. Mr Immelt played down the impact of changing energy trends on a company as large as GE, which reported annual profits of $13bn for 2011 (on revenues of $142bn) and sells products for every leading source of energy, from gas and wind turbines nuclear reactors and oil drilling gear, to gas and wind turbines.