Wall Street viewing nuclear power more favorably

Despite its high capital costs and the regulatory unease from the 2011 Fukushima meltdown in Japan, Wall Street seems to view nuclear power more favorably than it did a few years ago, consultant Bruce Lacy told a Nuclear Infrastructure Council conference June 19 in Washington, D.C.

Lacy, who heads his own consulting firm, is a former Alliant Energy manager with a 29-year nuclear career. For the past few years his firm has been doing a Nuclear Financial Survey, which attempts to gauge the U.S. financial sector’s attitude toward nuclear power in the United States.

Despite increasing concern on nuclear risks, Fukushima does not appear to have had a major impact on overall expectations of new nuclear power in the United States. Lacy noted that the full report is available for sale from his firm.

An interview-based survey of 40 banking, investing, analyst and rating agency officials taken during the first quarter indicates that Wall Street expects four new reactors to start construction in the United States by 2015.

Given that groups led by Southern (NYSE: SO) and SCANA (NYSE: SCG) have won approval for four new reactors in Georgia and South Carolina this prediction appears to be on target. Longer term, the financial community expects to see construction start on more than eight new U.S. reactors by 2025.

While not exactly eye-popping as compared to the burgeoning natural gas boom, it means money handlers are feeling better about nuclear than they have in several years. Wall Street’s anticipation of new reactors marks “a halt in the steady decline projected in prior year surveys,” Lacy said.

At the conclusion of a speech by Nuclear Regulatory Commission member William Ostendorff, Lacy said that Wall Street has been reassured by NRC’s “measured” response to the Fukushima Dai-ichi disaster in Japan.

While Wall Street is most bullish on natural gas, believing that more than half the new generation built in the next several years will use this fuel, nuclear power is a distant second – thanks in large part to 20-life extensions and power uprates at existing plants, Lacy said. The consultant said financiers expect less than 12% of the new generation will be nuclear, which barely edged out renewable energy.

Nuclear power is on the financial radar screen now more than it was in the past, Lacy said, adding that optimism seems to have increased somewhat.

One problem is that U.S. utilities are still small when it comes to building nuclear projects that cost billions of dollars, Lacy said. Financiers would like to see companies have a value of anywhere from 2.5 to 5 times more than the nuclear plant they seek to build. Joint ventures or consortiums are one way of addressing the “size” issue, Lacy said.

In responding to questions, Lacy said that the recent upheaval at the NRC, which has resulted in the resignation of Chairman Gregory Jaczko, is not a big concern for investors. Likewise, spent fuel storage concerns and even operational problems at reactors operated by Edison International (NYSE: EIX) are seen as mostly isolated incidents.

At the same time, investors don’t see nuclear power as key to addressing global warming from power generation because overall concern over greenhouse gases has dimmed on Wall Street, Lacy said.

Negative experiences that do hurt nuclear’s image include U.S. industry cost over-runs in the 1980s and some nuclear project cost over-runs overseas, Lacy said.

Despite Japan and various other nations dialing back their reactor plans post-Fukushima, the international news is very bright, said Christopher McGee-Osborne, a partner with SNR Denton in London.

China is on a full-scale nuclear power building boom. It has plans to grow its nuclear industry from 14 to 77 reactors. Construction is already underway on a number of them, the attorney said. McGee-Osborne also noted that both fossil fuel-rich nations and countries with large uranium reserves are increasingly interested in nuclear power.

The U.S. nuclear industry should probably be more concerned about the economic threat it is facing from natural gas, said former Constellation Energy executive Michael Wallace, who is now a senior advisor to a project called the U.S. Nuclear Energy Project.

In the United States, cheap gas from shale appears to be a “game changer,” Wallace said.

But nuclear does have big long-term advantages, said Glenn George, a partner with Bates White. Nuclear is basically free once capital is paid off, George said. “We know it will be the cheapest generation in the stack,” but its high capital costs scare many investors off. Maintaining a viable nuclear fleet will keep energy markets from becoming too reliant on natural gas, George said.

Whether it’s fair or not, nuclear power is the energy source everyone loves to hate – perhaps because of its military roots, suggested Chris Gadomski, a nuclear analyst with Bloomberg New Energy Finance. The falling price of solar power panels and distributed generation could also complicate nuclear economics in coming years, Gadomski said.

NRC Commission member Ostendorff said the U.S. regulatory agency made the right decision by taking a deliberative approach toward post-Fukushima policy for American reactors.

At the same time, Ostendorff said it is important to remember that NRC has not rejected any recommendations drafted by the special NRC staff task force on Fukushima. It’s important that NRC take a long look at “station blackout” issues and other implications of “beyond design basis” accidents, added the NRC official.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.