American Nuclear Power is Back

And there are more ways than ever to lose money investing in it.

At last count, China had 54 operating nuclear reactors. That’s still a far cry from the 94 here in US, following this year’s grand opening of Southern Company’s (NYSE: SO) Vogtle 4.

Nuclear generates about 20 percent of US electricity. That compares to just 5 percent for China. But as is the case in so many things these days, the Middle Kingdom is rapidly catching up to the Beautiful Country.

China will operate 70 gigawatts of nuclear capacity by the end of 2025. That’s a massive leap from 53.2 GW in 2023 and just 19 GW in 2014. And there are plans for much more, including exporting the “Hualong One” design—a third generation pressurized water reactor.

In contrast, the US nuclear fleet is rapidly aging. And while several large facilities have seen their licenses extended, a sizeable portion of the fleet has already been retired, with the Nuclear Regulatory Commission listing 37 shuttered facilities.

That any nuclear plants are still running in this country is somewhat remarkable, given the three body blows to the industry over the past 45 years.

No one was killed or critically injured following the Three Mile Island partial meltdown in March 1979. And the hysteria in the press of an imminent health crisis never came close to materializing.

But operating and under construction nuclear power plants began to face smothering safety regulations. Then came the Chernobyl meltdown in 1986, which convinced many Americans that nuclear power could never be safe. That accelerated the movement to shut down operating reactors, including the Shoreham facility in New York—which was shuttered just as it received federal clearance to operate.

The third body blow to US nuclear was also beyond our borders, the March 2011 Fukushima Daiichi disaster in Japan. That accident put the brakes on plans to build dozens of new reactors using the AP1000 design that ironically would have prevented it, as panic on Wall Street essentially vetoed companies’ building plans.

The two exceptions were in the pro-nuclear Southeast, where Georgia and South Carolina regulators continued to support construction by Southern and the former SCANA. But burdened by new delays, principal contractor Westinghouse was unable to fulfill fixed-price contracts on the original terms. And as a result, it declared bankruptcy in 2016.

Smaller SCANA avoided the same by abandoning the project and agreeing to be acquired by larger and stronger Dominion Energy (NYSE: D). Only Southern and its partners pushed ahead—at a $30 billion plus total price tag that was more than twice initial projections. The project took 16 years from regulatory approval in 2008, also more than twice initial estimates.

The fact Southern was able to complete the Vogtle project at all is a true achievement. And the two reactors have been producing at a superior 98 percent rate since, despite the typical startup challenges of any huge project.

Nonetheless, the company downplayed Vogtle’s performance during its Q2 earnings call last week, throwing cold water on the idea it may build more. Georgia regulators who steadfastly supported its efforts have also taken pains to emphasize that the risk of future projects must be more fully shared beyond ratepayers. And though Southern shares have surged to new all-time highs, Wall Street appears to be treating the project and the two cancelled AP-1000 reactors in South Carolina as a cautionary tale for all big utility projects.

In most endeavors, it’s three strikes and you’re out. American nuclear power is getting another turn at bat for three reasons.

·      Operating US nuclear power plants have proven their economics.

·      Volatile-priced natural gas has replaced steady-priced coal as the dominant fuel for generating electricity.

·      Nuclear’s environmental reputation has taken a 180-degree turn, from clear and present danger to climate change solution.

Massive consolidation of nuclear plant ownership since 1990s deregulation has greatly improved efficiency. Companies that own multiple plants can apply lessons learned at one plant across their fleets during normal refueling outages. That means fewer and shorter outage times, lower costs and higher operating rates and output.

Before consolidation, US nuclear plants typically ran at 60 to 65 percent of capacity. Now they consistently run at rates in the low to mid-1990s.

Nuclear reactors typically need to refuel only every 18 months or so. That allows operators to lock in the cost of supplies well in advance. And it’s a sharp contrast to natural gas-fired facilities that must be constantly in the market for a product with highly variable costs.

Nuclear plants do take much longer to build and cost considerably more than natural gas. But that’s not a problem for the operating fleet, which were funded decades ago. And the steady costs mean nuclear power profits are leveraged to this summer’s spiking wholesale electricity prices, particularly in the Northeast and Middle Atlantic.

It’s pretty clear to anyone who participates in energy discussions on X, as I do @Roger_Conrad, that there’s still a very vocal no-nukes movement. But for the first time in 45 years, they’re on their back feet.

The reason: A powerful consensus has formed that there’s simply no credible path to cut CO2 emissions meaningfully that doesn’t include nuclear power.

President Biden is nuclear power’s greatest champion yet. His Inflation Reduction Act enacted subsidies of $15 to $25 per megawatt hour for currently operating nuclear reactors, halting shutdowns and spurring restarts. His Nuclear Regulatory Commission’s mission and culture has been overhauled to focus on increasing use of the fuel safely. And last month, he signed the Advance Act to spur new nuclear plant designs.

Politics have unfortunately invaded every corner of the energy business. But nuclear is the one issue where support appears fully bipartisan and therefore proof against November elections. The IRA passed with zero Republican votes. But the Advance Act cleared the US Senate by a vote of 88-2, while the House approved it 393 to 13.

So what does this for investors? We can bet on rising profitability of operating reactors, restarts of closed facilities and/or new construction.

I highlight opportunities in all three in the August issue of Conrad’s Utility Investor, which posts tomorrow. I also point out how investors are already losing money following hype, rather than seeking out solid businesses.