Gulf Spill Opens Door for Nuclear Energy
07/22/2010 11:32 am EST
Michael Brush, contributor to MSN Money, says BP’s disaster should prompt regulators to approve the building of more nuclear power plants—a boon to one construction company.
Nuclear plants could become much more attractive for utilities in the US soon because of BP’s (NYSE: BP) [Gulf of Mexico oil spill]. Here’s why.
In the US, a big part of the cost of building a plant (plants cost at least $4 billion to build, and the investments don’t pay off for 17 years—Editor) is the interest on construction loans. Lenders demand high rates for US projects because of bad experiences with nuclear energy in the 1970s and 1980s, says Charles Forsberg, the director of the Massachusetts Institute of Technology's Nuclear Fuel Cycle Study.
Now, though, the Obama administration has proposed tripling the amount available in government guarantees for loans to build nuclear plants. It wants to add $36 billion to the $18.5 billion in government guarantees of loans already approved. "The idea is, if you get a couple of plants successfully built in the US, then the risk premium vanishes," Forsberg says.
Although loan guarantees help, the big boost for nuclear energy would come from a proposed tax on carbon production, which would make competing fuels such as coal more expensive. "Before some utilities are willing to make a large investment in new generating units, they want to have some certainty about carbon legislation," says Jeff Merrifield, a vice president of Shaw Group's (NYSE: SHAW) Power Group.
Nuclear energy experts cite three other factors that will push nuclear energy along because they make it look more attractive:
- Concerns about being too dependent on foreign oil and a single energy source.
- Greater use of electric cars, which would expand demand for electricity to charge them.
- Large increases in the demand for electricity as the population and economy grow. Electricity usage will rise 15% by 2035, according to the Energy Information Administration.
- As the number of nuclear plants goes up around the world, the companies that build them stand to benefit. Shaw, which has built a quarter of the nuclear plants in the US and has more nuclear projects than any of its competitors, is a key player in this market.
The company has contracts with three utilities in the US to build six plants. It's also active in China and South Korea. Shaw has a 20% stake in Westinghouse Electric, which sells nuclear power plant designs, technology, and services.
Engineering and construction companies such as Shaw also see solid growth in the US from nuclear plant upgrades. For years, the Nuclear Regulatory Commission made nuclear plants operate well below capacity, as a safety measure. Now the NRC is allowing capacity expansions.
The benefits for a utility can be huge. Upgrades can add as much as 20% more power, says Merrifield of Shaw, which carries out lots of upgrades. This additional capacity is "some of the cheapest power a utility can produce," he says. The NRC expects 39 upgrades between 2010 and 2014.
(Shaw’s stock closed above $32 Wednesday—Editor.)