Pandora's Promise: Nuclear Power

 | Nov 04, 2013 | 6:30 PM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

so

,

BWC

,

ge

,

flr

Within the next 20 years, Americans will likely approve the construction of a new fleet of nuclear power plants. They will make the decision because it will be the least objectionable alternative. Most other alternatives will fall short three critical needs. They will not offer enough environmental safety, they will fall short economically or they will fail to deliver essential levels of reliability.

Americans will dismiss oil as a practical option. It is unlikely fuel oil could ever be delivered at less than $20 per million British thermal units. Production costs associated with those prices are prohibitive. Consequently, they would not consider building significant amount of new oil-fired capacity. In addition, they will likely retire most of the 3,730 oil-fired power plants.   

The downward trend in oil is occurring today. Very little oil is in America's electricity. Huge amount of oil-fired power plant capacity remains idle. Two more decades and oil will be in utilities rearview mirror.

Twenty years from now, Americans will find their coal options contained. With more and more environmental controls added on, coal-fired power plants are becoming less and less efficient. In addition, new plants are almost impossible to build unless they use "carbon capture and sequestration."

Coal as a fuel will not be expensive, per se. The growing cost of managing coal's waste streams is the incremental cost. Those incremental costs are creeping into the plants' production costs, causing them to lose any competitive advantage.

For coal plants, the energy returned on energy invested is becoming too low to attract new capital investments. When pushed, executives will cite Southern Company's (SO) Kemper integrated gasification combined cycle (IGCC) costs as evidence why clean coal is unfeasible. They will cite cheaper alternatives. If everything remains the same, investment in new coal-fuelled capacity will approach zero. This includes upgrades.

Ten years from now, Americans will find they are hitting limits with natural gas turbines. Some of the environmental rules boxing in coal also affect natural gas. Utilities will not be able to buy gas turbines and plug them into the grid anywhere they want. They also will find they are limited to the number of hour their turbines may operate.

There is an exception. Today, it is possible to build, own and operate sophisticated combined cycle gas turbines without limitation. These turbines have higher capital costs and they need to run for longer periods. Combined cycle gas turbines will be built in the future, if utilities can find bank financing.

The future of natural gas is tied to price. It turns out that production costs of gas turbines are directly related to the price of natural gas. High prices will choke natural gas.

The alternative is not wind or solar. Of course, they will have a role to play. However, wind and solar power will never meet reliability standards to serve base load. And no, batteries will not be able to make wind or solar economic.

For America, the trifecta is an energy source that is safe, economic and reliable. With oil, coal and natural gas, the trifecta is not achievable.

Future Americans will see nuclear power as relatively safe, economic and reliable. They will understand it generates no carbon dioxides, volatile organic compounds, no greenhouse gases and no particulate matter. In addition, they will conclude that the management of spent fuel is an issue with practical solutions.

If fact, disposal of spent nuclear fuel is one of the most overhyped issues of our generation. As a nation, we have no difficulty moving nuclear warheads from state to state and country to country. Yet the idea of moving depleted fuel across the parking lot causes a media event.

The real issue for nuclear is cost. Nuclear power's real production costs are low. Their production costs beat oil, natural gas and coal by a mile.

The capital cost of new nuclear plants has been the industry's challenge. It is no longer. Based on Southern's IGCC experience, nuclear's capital costs are now cheaper than any clean-coal alternative.

Nuclear may even beat natural gas. Nuclear's capital costs are more costly than a new, state-of-the-art combined cycle gas turbine. The gas turbine can cost one-third the price of a new nuclear plant.

However, the key is levelized costs, or the combination of capex and opex. If natural gas prices spike, nuclear's levelized costs could be lower than natural gas.

The beneficiary of a delayed nuclear renaissance is Babcock & Wilcox (BWC), General Electric (GE) and Fluor (FLR). Profits are far into the future, but these companies are in a strong position to offer American technologies to American utilities.

If you are interested in learning more about nuclear power, the Nuclear Energy Institute (NEI) recommends watching "Pandora's Promise" on CNN Thursday at 9 p.m., EST. 

Columnist Conversations

Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
Lang:
Last year saw the MC NYSE oscillator hit -300 on about five occasions, and each time a massive bounce ensued. ...
If you are in the NYC area, Bob Lang and I will be in town this Monday and Tuesday night. We'd love to grab a ...
There are no signals in IWM....Still watching zone 2 in WYNN for a potential entry. The updated chart is below...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.