Bad Economy and Cheap Gas Crimp Nuclear Boom

NY Times: Calvert Cliffs

Last weekend Constellation Energy announced that it would pull out of its proposed project to expand the Calvert Cliffs, Maryland nuclear power plant. The company cited the "unreasonably burdensome" demand by the federal government that it pay a premium for a guarantee of risky construction loans. The announcement comes after industry analysts predicted a step back from a boom in nuclear power plant construction because of wildly escalating construction costs, falling electricity demand, and plunging natural gas prices. Constellation was seeking a guarantee of 80% of the cost of the project. The government wanted a fee of $880 million for the $7.6 billion loan. Constellation said the fee was "shockingly high". Two utilities in Florida have slowed their expansion projects down, and a Missouri utility cancelled its decision to build a Calvert Cliffs clone reactor. However, two projects in Georgia and South Carolina have gone ahead primarily because both southern states guarantee a rate of return on a project unless regulators make the unlikely determination that the costs were not "prudent".

When Constellation first contemplated building an additional reactor at Calvert Cliffs in 2004, the price tag was estimated to be $2-2.5 billion. By 2006 the cost had jumped to $4.5 billion. At a hearing before the Maryland Public Service Commission in 2008 the joint venture CEO testified that the estimate was then between $7.2 to $9.6 billion. Another utility has estimated the cost of an identical reactor to Calvert Cliffs III, including financing and fuel loading cost, at $13-15 billion. A study by the Department of Energy found that the first 75 reactors built in the US overran their cost estimates by average of 207%. 

Because of the size of the investment required, Constellation had to find a partner for the project. It ended up with Électricité de France, a 80% government owned company. Constellation has argued an experienced partner should help reduce the risks associated with building such an expensive nuclear plant. Intervenors before the Nuclear Regulatory Commission have made much of the foreign government participation in a project that has national security significance. Not only the security issue poses problems. The reactor design itself has been found significantly defective by NRC. But in the end it is the economics that have caused the nuclear boom to splutter. As one activist put it, "nuclear reactors make no economic sense."