Trend: The Nuclear Tortoise and the Natural Gas Hare

Once upon a time, nuclear power was clearly leading the race for the generating technology that would supplant King Coal. In the 1960s and 1970s, nuclear was at the head of the pack. Utility executives were ordering new nuclear units with abandon. The nuclear momentum was so strong that the National Coal Association considered disbanding entirely.

And natural gas? It wasn’t a fit fuel for generating power. Using it wasn’t even legal after Congress passed a law in the 1970s prohibiting the use of gas as a generating fuel at the urging of analysts such as Amory Lovins, who argued that gas should be reserved for heating homes, not for the mundane task of making electricity. Gas wasn’t even in the race, and nuclear plants were springing up in the gas fields of Texas and Louisiana. And Uncle Sam set the price for gas in interstate commerce in such a fashion as to assure that no sane utility executive would build new gas-fired capacity.

That was then. Nuclear soon fell out of favor for economic and regulatory reasons too complex to discuss here. The abandon with which so many plants were ordered shifted to those orders simply being abandoned. Coal kept its throne. Gas made a comeback, as removing federal price controls in the 1980s produced a methane glut, and federal law created a new class of non-utility generators that could build gas-fired plants quickly to take advantage of market opportunities.

Then, early in this century, it looked like the nukes might be back in the race as the only hope for large base load generation without greenhouse gas emissions. The term “nuclear renaissance” was on industry lips. Congress blessed the technology with potentially generous capital subsidies. The “gas bubble” burst and prices spiked, scaring many buyers of new generation away from gas, to the potential benefit of nuclear technology.

But the race wasn’t over, and gas came storming back just a few years ago on the strength of directional drilling and hydraulic fracturing. Today, gas is sprinting to the front in the race for new generating business. To wit:

• The Energy Information Administration’s (EIA’s) early release late last year of its upcoming “Annual Energy Outlook 2013” predicts that power generation from gas by 2040 will be 10% greater than its already bullish prediction in the 2012 Outlook. POWERnews reported, “From a 16% share of total generation in 2000, natural gas’s share rose to 24% in 2010 and is expected to continue increasing, to 27% in 2020 and 30% in 2040” in the EIA analysis. 

• Brian X. Tierney, American Electric Power’s chief financial officer, told analysts late last year that his large Ohio-based utility, located in coal country, could add as much as 1,500 MW of new gas-fired generating capacity over the next few years. “Overall, our generation from natural gas has increased approximately 50% year-to-date,” Tierney said.
  
  
• The Federal Energy Regulatory Commission (FERC) last November announced a major initiative to smooth coordination between the electricity and gas industries, both under FERC jurisdiction, in order to help the two industries “work together seamlessly in an environment of increasing reliance on the use of natural gas as a fuel for electric generation.” The commission said it will hold meetings this year, in May and October, with regional electric transmission organizations and independent system operators to share their experiences in coordinating the two industries. The likely outcome is a FERC order this year or next aimed at making it easier for electric generators and gas distributors to work together.
  

On the other hand, the nuclear power industry is facing a sad tale of stagnation and challenge, both in the U.S. and abroad, where it hoped to balance its American doldrums.

• While EIA’s latest look projects 14% growth in nuclear generation by 2040, that’s mostly through uprates of existing plants. Former Nuclear Regulatory Commission chairman Richard Meserve told a Resources for the Future conference in Washington recently that even EIA’s modest outlook may be overstated. Meserve said that low and sustained natural gas prices mean no new nuclear plants are in the cards for at least the rest of the decade and the ability to upgrade existing plants is largely exhausted.
  
  
• In late October, Virginia-based utility Dominion announced it will close and decommission its 556-MW Kewaunee nuclear unit in Wisconsin. The plant bids power into the Midwest Independent System Operator. In a press release, the company said the plant will shut down in the second quarter of this year, after taking a $281 million write down for the 2012 third quarter. Dominion earlier said it tried to find a buyer for the unit, but could not find an interested party. The plant, featuring a Westinghouse pressurized water reactor, went into service in 1974.
  
  
• In Georgia, Southern Co. is asking for a second extension of its so-far stalled negotiations for an $8.3 billion federal loan for its Vogtle nuclear project. Vogtle is the first new nuclear unit under construction in the U.S. in over a generation, but the federal loan, first authorized in 2005, is still not in hand. The Atlanta-based utility holding company says it will go ahead with the project without government money, but the failure of the loan guarantee is likely to increase the cost of capital for the plant. Southern Co. owns 45.7% of the more than $14 billion project, with the remainder owned by a group of public power agencies. The project has suffered a series of delays and cost increases, and is more than a year behind schedule and hundreds of millions of dollars over budget.
  

Can the nukes get back into the running as the next big new thing in electric generation? The industry hopes that its concept for small, modular, factory-built reactors will be a game-changer, and the Department of Energy recently picked Babcock & Wilcox’s mPower small reactor for a five-year research and development grant, the only winner among four competitors in the first round of the $450 million program. The Tennessee Valley Authority, one of B&W’s partners in the project, says it is working on an application for a license from the Nuclear Regulatory Commission to build the project on a site on the Clinch River in Tennessee.

—Kennedy Maize is MANAGING POWER’s executive editor.