Roadblocks to Nuclear: Understanding the Electricity Market

By Douglas E. Hardtmayer

In my last article, I discussed the importance of the economics of nuclear power. I’m personally of the belief that if we cannot find ways to make nuclear energy the most cost competitive form of electricity universally, then the industry will eventually fizzle out. Since writing that last article, Toshiba, who owns Westinghouse and is responsible for AP1000 construction, declared billions of dollars in losses, and is looking to sell their nuclear assets. This to me represents the need to look more closely at the reasons behind nuclear energy’s economic barriers, and the best ways to address them, especially here in the U.S. If the U.S. wants to be a global leader for nuclear energy, we have to take an honest look at what’s holding us back. Before getting too much into that though, I think it is important to understand the electricity market here in the U.S., since it sets the stage on how to approach future decision making. I think that given the current market, and capacity demand, SMRs (small modular reactors) fill a unique niche. While the reduced initial capital is certainly attractive, for this article, I would like to focus on the electric market forces that could factor into utility decision making.

Figure 1: U.S. Energy Consumption over time [1]

Figure 1: U.S. Energy Consumption over time [1]

Figure 1: U.S. Energy Consumption over time [1]

Energy demand since the great recession of 2008 has largely remained stagnant, as indicated in figure 1. Many suggest various reasons for this anemic growth.  Some reasons include a decrease in new construction and manufacturing, increased energy efficiency, young adults living at home etc. Given future outlooks, this may be subject to change, but many experts doubt there will be a large growth in energy demand here in the U.S. anytime soon. Rather, we should expect to see this demand slowly increase.

It’s also important to note here that the U.S. experienced the most rapid growth in demand post WWII. This also coincides perfectly with the economic boom seen directly after the war’s ending. It’s no surprise that a country’s energy demand strongly correlates with the economic ups and downs.

In a competitive environment, new power plants are only introduced to replace plants that are no longer viable because of ageing, because of fuel-cycle economics (for example, if the price of oil increases or if the efficiency of a new plant is increased) or to match increased demand.  Some excess capacity is necessary to accommodate plant outages but idle capacity makes a utility non-competitive.  Most new power plants in the U.S. are low in capacity, as illustrated below:

Figure 2: New plant capacity compared with the number of new plants built [2]

Figure 2: New plant capacity compared with the number of new plants built [2]

Figure 2: New plant capacity compared with the number of new plants built [2]

This figure shows the average capacity of each type of plant that came online in 2016, and the number of these plants that were finished in 2016.  For wind mills and natural gas turbines, there are few economies of scale that would drive the plants to larger sizes.  There is very little future potential for hydroelectric plants in the U.S. and it is extremely unlikely that there will be any future major hydroelectric projects, similar to the Hoover Dam.  What stands out is that the only nuclear plant to come online had a larger capacity than all the other plants combined; however, wind, natural gas, and solar in their entirety had a higher share of overall capacity.  What has driven the nuclear industry to large plant designs are the economies of scale such as associated with large turbine-generators and more efficient use of manpower per MWe.  However, the upfront cost of a large nuclear plant is so large that financing represents a major barrier for the typical utility.  Furthermore, the interest rates on loans for nuclear power plants are very high and, unless the public utility commission allows costs to be passed onto the consumer during the period of construction, return on investment is poor.  But if there is one takeaway from this information, it’s that utilities prefer to purchase smaller plants for new capacity. Therefore, at this time the market for new nuclear limits is intrinsically limited, since the only licensed designs by the NRC right now are large capacity designs. This doesn’t completely mean that new nuclear isn’t an option for utilities, but as it stands, it won’t be overtaking any other source in the near future. Given utilities are favoring smaller, incremental increases in capacities, this opens the door for a new type of reactor, the small modular reactor (SMR).

Well-developed economies, like that of the U.S., are likely to see slow energy growth for a time period consistent with the planning horizon of utilities.  Particularly in de-regulated states, any return on investment for a utility must occur quickly.  Inevitably, as petroleum and natural gas resources become limited and more expensive, the transportation sector will move toward electrification but with improvements in hydrofracturing techniques in low short term costs that transition is likely to occur slowly over a period of decades.  A financial commitment to large-scale plants is therefore unattractive for utility companies that are focused on short term payback. This applies to most countries with an established middle class. It makes sense to build large plants in places like China and India with very large populations, high growth rate of electricity demand and an extended time period of growth. This is why SMR’s may make sense for countries with developed economies, such as the U.S. as well as for smaller countries with smaller grid size. NuScale’s SMR design, for example, provides a utility with more flexibility in how much capacity they want to install, which is a very attractive feature of the design. One could also assume that smaller economies, like that of the UAE, could benefit from smaller reactors.

I personally foresee SMRs also being built in the developing world, after the learning curve of “First of a kind” construction is passed. A standardized, and factory fabricated SMR should be cost effective and attractive to a country looking to give power to its people. If developing and under developed countries embrace an SMR option for electricity, SMRs have the potential to help lift billions of people out of poverty, and sets its citizens on the course for a low emission, high quality of life. SMRs could be the future face of nuclear energy.




Douglas E. HardtmayerDoug Hardtmayer is a graduate student studying nuclear engineering at The Ohio State University. His research is focused on pyroprocessing and fuel assessment. He is a member of the American Nuclear Society.


5 thoughts on “Roadblocks to Nuclear: Understanding the Electricity Market

  1. David Squarer

    The information presented in Figure 2 should be supplemented by the capacity factors for each type of plant, Otherwise with approximately 31 GW of new capacity shown in Figure 2, there is hardly a need for any new generation capacity.

  2. Jeremiah Lawson

    What reasons are there for the NRC not to certify SMRs, if any?

    What can I / we, as a citizenry, do to promote nuclear as a viable renewable energy option? Is a government-subsidized initial investment cost a worthy taxation policy, given the efficiency/sustainability/longevity of nuclear power?

    Looking forward to the next article.

  3. John Kessler

    Interesting article. I have a question about SMR costs: I understand that the overnight cost per installed MW for SMRs is higher than for large-scale nuclear. If that is correct, then wouldn’t the time to recoup the SMR capital costs be just as long or longer than for a large-scale nuclear reactor?

  4. Sidney Bernsen

    Significant changes in regulatory requirements for nuclear plants will b needed to have them survive in the US. SMR are likely to have greater unit capital costs than large plants and probebly higer unit operating cost as well. Below is a paper I drafted several years ago:

    Written sometime in late 2008
    I recently read the presentation Ted Rockwell gave last September at the 33 Annual WNA Conference in London and commend him for a clear and rational argument for promoting Nuclear Power as the preeminent solution to our energy future – not CO2 sequestration, not Solar, not windmills. However, as has been the case time and time again we keep finding ways to shoot ourselves in the foot whenever great opportunities emerge.
    While we typically blame public acceptance for the delays, addition of safety features, and extensive, unnecessary design and QA procedures, in most cases the drivers for these excesses reside within our own communities. Although a fleet of approximately 400 nuclear units around the world designed for safe power generation have operated with an unmatched safety record, we continue to add features to mitigate extremely improbable occurrences, even in the face of the most advanced risk assessment technology that supports reduced concerns.
    We worry about extremely unlikely events and produce complex and overly analyzed designs to cope with them. We postulate terrorist threats that could produce significantly less serious consequences from a nuclear power plant than they would from a myriad of other targets and we modify future designs to try to cope with them while the other threatening circumstances are not similarly addressed because of cost or impracticality. Also, one wonders why new nuclear plants would be preferred targets as compared with the existing plants that will likely continue operation for the next 20-40 years. It’s as if the current crop of nuclear engineers enjoy the challenge of designing and analyzing complex details without regard for cost-benefit considerations.
    There clearly is a high risk that the unreasonably high projected costs of current nuclear power plant designs could prevent them from obtaining the financing needed to license and build them. While most successful industries continue to provide products at continually reduced cost or products with significantly more useful features at similar costs, the nuclear power industry is moving in reverse. What is needed is a dedicated, experienced tiger team to challenge current advanced designs, the licensing basis established for them, and design and construction practices with the objective of substantially reducing their cost and complexity.
    Current suggestions 2015
    In the intervening years, the costs and schedule delays for licensing, designing and constructing plants has substantially increased, even though we have introduced seemingly improved practices such as: combined construction and operating licensing (COL), advanced computer design and analysis tools and modular construction. I believe one of the principal drivers has been the growth and interpretation of regulatory requirements and codes and standards, and the inability (or apparent unwillingness) of industry to effectively challenge these.
    New plants have been saddled with some “feel good” features that have little safety benefit, and risk-informed evaluations have been inadequately employed to evaluate these. Quality assurance practices and deficiency reporting requirements have escalated, also with little or no consideration of risk significance or benefit.
    It would be prudent for industry, probably through NEI, to propose and lead a high level effort involving NRC, nuclear codes and standards developers and the nuclear industry to:
    Identify the more significant current requirements and practices that are impacting decisions to choose nuclear, and
    Initiate actions to simplify, reduce or eliminate requirements that are considered excessive or unnecessary.
    It is recognized that overall economics, especially for merchant plants that must compete for power sales, are another significant deterrent for nuclear plants that must operate at full power continuously to remain economically competitive, but this is an issue that each owner must resolve with their governing energy regulatory authority. Clearly, nuclear must be the preferred source of base load power if CO2 reduction is desired .

  5. Wade Williams

    These “big-picture” articles are helpful for those of us who don’t live in the nuclear industry daily, but care about it. Thanks to the author for taking the time to put it together and for ANS publishing it!

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