Why Does Nuclear Energy Account For Less Than a Fifth of Our National Energy Mix?

Even though the United States has more nuclear-electricity generating units than any country in the world, nuclear power makes up less than 20 percent of our nation’s energy fuel.

It’s the only baseload power source with zero air pollution and the ability to run around the clock. We’re also on the verge of making nuclear fuel completely renewable by pulling uranium from seawater.

So why isn’t a power source that’s incredibly clean, with low ongoing fuel costs, cornering our domestic energy market?

According to a 2015 International Energy Agency study, nuclear energy offered the lowest level cost of electricity (LCOE) across 22 surveyed countries. But there’s a catch. That’s only the case using a 3 percent discount rate for capital. As the cost of financing nuclear power projects increases, they understandably become less competitive energy options.  At a 7 percent discount rate, the median LCOE of nuclear is competitive with coal, and at 10 percent, it is higher than both coal and natural gas.

In short, capital costs will make or break nuclear power.

Our energy markets around the country are a mixed bag; there’s no set structure for public electric utilities. They run the gamut from Nebraska, where electricity is provided entirely through consumer-owned power entities, to states like Alabama, with powerful investor-owned utilities. States that have the ability to support lower-cost capital for nuclear construction may have a serious competitive advantage in the future.

One public policy option to encourage nuclear is to reduce the cost of capital for nuclear construction through public financing, loan guarantees or other incentives. In many markets, consumers already bear the cost of private financing through their rate structures. The downside to such programs is that taxpayers would be liable for delays or other potential mishaps, and state resources could potentially be locked up over a rather lengthy recovery period.

We also could improve our federal and state regulatory paradigms that add to the cost of nuclear investment. For example, improving the Nuclear Regulatory Commission’s cost-benefit-analysis process for additional safety regulations could reduce nuclear-energy costs substantially. A December 2014 report by the U.S. Government Accountability Office determined NRC’s cost-benefit analysis does “not support the creation of reliable cost estimates.”

Nuclear energy proponents also could create design and process improvements that offer market incentives for more competitive financing. Thankfully, that is well underway.

According to the World Nuclear Association, nuclear proponents are simplifying and streamlining nuclear designs. Doing so expedites licensing, removes the uncertainty that leads to higher capital costs and reduces construction time. Designers for next generation reactors also are developing facilities with a useful lifecycle that exceeds 60 years. Extended lifecycles for nuclear plants significantly decrease their LCOE. Equally important are advances in “passive” safety measures that reduce the need for immediate human intervention following a shutdown.

In a positive future for nuclear power, we’ll likely also see advances in small and medium-sized reactors (SMRs). By reducing the size of reactors (less than 300 MWe for small and up to about 700 MWe for medium), utilities reduce capital requirements. While they per/kWe cost of SMRs will initially exceed those of their larger cousins, they show great promise to reduce risks of nuclear accidents, decrease the cost of construction and leave smaller carbon footprints in brownfield sites left by abandoned coal operations.

Nuclear energy has tremendous potential and we know that capital challenges are the hurdle we must address. With a little creativity, an era of new design and technology and commonsense regulation, we might just see a nuclear renaissance that cleans up our environment and powers our nation.

Cameron Smith is senior fellow at the R Street Institute. 

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