March 01, 2012

The outlook for nuclear power across the United States and globally

Nuclear power has long been a key component of the United States’ energy supply; the first commercial nuclear power plant came online in 1958. Nuclear power now provides (and has provided for some time) approximately 20 percent of U.S. electricity generation. The current U.S. fleet of 104 reactors produces more than 800 billion kilowatt-hours of electricity annually. Despite no new plant orders since the late 1970s and only a few new plants coming online in the past few decades, the contribution of nuclear power to the U.S. energy mix has remained relatively stable due to improved reliability and incremental increases in the power output of existing plants (known as “power uprates”). More than 6,000 megawatts of power uprates have been authorized by the U.S. Nuclear Regulatory Commission (NRC) since 1977—the equivalent of adding another five to six nuclear reactors to the grid. Nuclear power also is far and away the largest clean-air energy source, producing nearly 70 percent of America’s clean-air electricity.

Rising electricity demand, concerns with carbon dioxide emissions, and the U.S. nuclear industry’s record of safe performance and reliability have revived interest in nuclear power in recent years. Indeed, in early 2012 the NRC, the independent federal agency charged with regulating the commercial use of nuclear power, issued the first new licenses for nuclear power plants in more than twenty-five years. But, recent international events have highlighted the risks of nuclear power and the need to remain vigilant. In March 2011, the Great East Japan earthquake and tsunami caused severe damage to several reactors at the Fukushima Dai-ichi complex on Japan’s northeastern coast. That accident, the most serious since the Chernobyl accident in 1986, triggered responses by the industry, government, and the public that will undoubtedly impact the outlook for existing and planned new nuclear projects in the United States and internationally for years to come.

Outlook for the U.S. nuclear industry

For existing U.S. nuclear plants, the response to the events at the Fukushima Dai-ichi facility was swift. Within two weeks of the accident, the NRC established a senior-level task force, whose members would work independently of their usual responsibilities, to conduct a review of NRC’s processes and regulations to determine whether improvements to the NRC’s regulatory system should be made, or whether any other actions should be taken by the commission to address safety concerns. The U.S. nuclear industry—as a whole and on a plant-by-plant basis—also took immediate actions to review existing plant-specific capabilities to maintain safety even in the face of severe adverse events. In July 2011, the NRC task force produced a report that identified near-term actions that might be required at U.S. power plants to reduce the risk of an accident. While the task force found no imminent threat requiring immediate shut-down of operating reactors, it recommended several immediate actions, including reevaluation of seismic and flooding protection of operating plants and additional protection from external events of equipment used to mitigate fires and explosions. The task force also recommended a rulemaking to enhance the capability to deal with a prolonged station blackout (loss of offsite power). Further reviews to indentify longer term actions to address the lessons learned from the Fukushima accident are underway.

Despite some uncertainty surrounding possible regulatory changes in response to the Fukushima accident, financial uncertainty about future fossil fuel prices and carbon regulation make existing nuclear plants attractive assets. As a result, commercial interest in extending the operating life of existing plants remains strong. The Atomic Energy Act of 1954 allows the NRC to issue licenses for commercial power reactors to operate for up to forty years. These licenses may be renewed for up to an additional twenty years depending on the outcome of an assessment of, among other things, age-related degradation and operating experience. License renewals may be accompanied by significant upgrades or replacement of major plant equipment, effectively modernizing plant systems without having to build a new plant from scratch. At present, licensees for seventy-one reactors have received renewed licenses since the first renewal was issued in 2000, and another fifteen license renewal applications are pending. In light of the success of the current license renewal program, research efforts are underway to assess the scientific and technical basis for evaluating plant aging mechanisms beyond sixty years of operation.

New nuclear power in the United States

The outlook for new nuclear power at present is heavily influenced by natural gas prices. For new plants that are located in rate-regulated jurisdictions, utilities can take the long view, ensuring diversity of fuel supply and mitigating fuel pricing and carbon legislation risks. Rate recovery mechanisms can greatly reduce the overall cost of a nuclear power plant by reducing interest charges during construction. In contrast, the economics of new plant construction in unregulated states are adversely affected by low natural gas prices. At current natural gas prices, new nuclear plants in unregulated markets face challenges in obtaining suitable financing for new plants.

Nevertheless, there is substantial interest in new nuclear construction in the United States, owing in part to incentives in the Energy Policy Act of 2005 in the form of production tax credits and loan guarantees. The first applications in nearly twenty-five years for licenses to construct and operate new nuclear power reactors were filed in 2007. To date, the NRC has received applications for twenty-six new nuclear reactor units. Although some applicants have requested that the NRC suspend review of their applications pending a more favorable climate for financing such large projects, many applications remain under active consideration and several more are expected in the next few years. Most of these applications incorporate designs that are (or are soon to be) certified by the NRC.

The first licenses were issued in February 2012 for two new units at the Vogtle site in Georgia. Preliminary construction is already underway at Vogtle, including preparation of forms for the foundations for the new units. Licenses for new reactors at the Virgil C. Summer station in South Carolina could be issued shortly. Site work and excavation are also in progress at Summer. The success of these projects, including the ability to complete construction on time and on budget, will likely have a major influence on whether additional new units are built in coming years. While a few other new plants may begin construction in the new several years, most applicants are expected to “bank” their new licenses until economic conditions are more favorable for new nuclear development.

Supporting U.S. nuclear infrastructure

Expansion of the U.S. nuclear industry is not limited to new nuclear power facilities. In recent years, the NRC has issued licenses for three new gas-centrifuge uranium enrichment facilities, one of which is already producing enriched uranium. These plants “enrich” natural uranium to concentrate the fissile material for use in reactor fuel. The NRC is currently reviewing an application for another enrichment facility that would use lasers as part of the enrichment process. There is also substantial interest in new uranium conversion facilities. The NRC recently licensed three uranium recovery facilities in Wyoming and is conducting licensing reviews for additional new facilities or expansions of existing facilities. Numerous applications for new uranium recovery facilities, or restarts and expansions of existing facilities, are expected in the next several years.

At the other end of the fuel cycle, the licensing process for a high-level waste repository at Yucca Mountain has ground to a halt. In March 2010, the U.S. Department of Energy filed a motion to withdraw its application, with prejudice, for a license from the NRC to authorize construction of the Yucca Mountain geologic repository. Although a panel of administrative judges denied that motion in June 2010 and the commission was evenly divided on appeal, the commission directed the agency staff to effectively cease its review, citing a lack of budgeted resources. The licensing proceeding has been formally suspended. As a result, spent nuclear fuel will continue to be stored at individual reactor sites, either in spent fuel pools or in dry cask storage, for the near future.

Global nuclear power growth

Despite the Fukushima accident, there continues to be substantial interest in new nuclear power globally, particularly in emerging markets. There are sixty-three new nuclear plants under construction in fourteen countries, and 152 new reactors on order or planned. The International Energy Agency’s World Energy Outlook projects a 70 percent increase in nuclear energy generation by 2035, led by China, Korea, and India. After taking a pause in new nuclear construction to revisit safety standards in the aftermath of Fukushima, China has restarted its rapidly expanding nuclear program, and Russia has initiated plans to serially produce new reactors. And, the United Arab Emirates, Poland, and Vietnam are continuing plans to develop nuclear power. More modest new nuclear programs in mature economies, including the United Kingdom and France, are also underway. However, other countries, such as Germany and Italy, have announced plans to phase out existing nuclear power plants or suspend plans for new nuclear development; Germany plans to phase out all nuclear power generation by 2022. Not surprisingly, there is also great uncertainty regarding the future of nuclear power in Japan.

Regardless of the short-term response to the Fukushima accident, nuclear power will continue to provide significant amounts of carbon-free electricity for many years both in the United States and internationally. While continued expansion of nuclear power globally is expected, there likely will be only modest growth in nuclear power in the United States—primarily to offset the closure of existing plants that have reached the end of their operating life. That said, major changes in the economics of natural gas or a sharp turn away from coal could jump-start the U.S. nuclear industry and any reasonable large-scale program for reducing carbon emissions likely would include construction of a significant number of new nuclear power plants. In the meantime, the focus of the nuclear industry and regulators continues to be on ensuring the safe and reliable operation of the existing reactor fleet.