The changing economics of nuclear power

October 9, 2014

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The economics of the nuclear power industry really are changing and what I hear industry and government analysts asking is: Are the plants even profitable enough to stay open?

In the past the answer would have been a resounding yes. The cost of operating these plants is so much lower than operating coal or natural gas-fired plants that they could earn tremendous profits. At least that was true in the past.

What’s changed since the mid 2000s is the natural gas boom. Natural gas prices are much lower than they were in the past and this is driving wholesale electricity prices down. So nuclear plants are not earning the profits that they used to earn. In recent research, my co-author Lucas Davis and I look at the closure of just one plant, the San Onofre Nuclear Generating Station in southern California.

And what we find is that the closure of this plant had significant implications for the entire state because it had been so integral to the California market. The plant closed in 2012 because of safety concerns and we find that the cost of generating electricity in 2012 increased by $350 million because the costs of operating a natural gas-fired plant are so much higher.

In addition to those $350 million there was an important environmental implication. The nuclear plant had not emitted carbon, the natural gas-fired plants that substituted do, and carbon emissions were 9 million tons higher than they otherwise would have been.

That’s the equivalent of 2 million additional cars on the road. It’s going to be really important to think going forward about whether nuclear plants might close and if they close we just don’t know what the implications will be for electricity prices and also for carbon emissions. We also don’t know what the safety implications are of plants not being as financially viable as they have been historically.