The pendulum swings back toward nuclear power

Article By Charles Stein

I spent more years than I would care to admit writing about the Seabrook nuclear power plant in New Hampshire. The Seabrook story was exhausting, but it taught me a valuable lesson: When it comes to energy, especially the price of energy, the future is very hard to see.

Seabrook was conceived in the late 1960s, a time of great optimism about nuclear power. Nuclear plants, the utilities promised, would produce electricity that was ”too cheap to meter.” When oil prices shot up in the 1970s, eventually reaching the unheard of price of $30 a barrel, Seabrook had another selling point: it would reduce New England’s dependence on costly foreign oil.

Things turned out differently. Like many of the nuclear plants in that era, Seabrook ran into engineering and political problems. Construction advanced at a snail’s pace. Every year, the plant’s estimated cost got higher and its completion date got pushed further into the future. When Seabrook finally went on line in 1990, its price tag had reached $6 billion.

The owners had to eat some of that money, because regulators refused to pass the costs along to consumers. Changes in the price of oil made Seabrook’s economics even worse. By 1990 oil was selling for less than $23 a barrel and the price fell even lower in the years that followed.

The verdict was clear: Nuclear power was a financial disaster; oil was a bargain.

Fast-forward to today. In case you hadn’t noticed, the price of oil has gone up a lot — to about $64 a barrel. The price of natural gas — the most popular fuel source in New England’s power plants — has gone up even more sharply. Utilities that venture out to buy electricity in the spot market are paying three times as much for power as they did a year ago. Consumers could pay about 20 percent more for electricity this winter, largely because of higher oil and gas prices.

And those ”white elephant” nuclear plants like Seabrook? It turns out they are sitting in the catbird seat. Their steep initial costs have been written off over time. Their cost of fuel is minuscule, according to Steven Taub, an executive at Cambridge Energy Research Associates, a consulting firm. Even with all other costs thrown in, nuclear plants today produce power at less than half the cost of plants that burn natural gas or oil.

Like the Saudi Arabians, the owners of nuclear plants have plenty of cheap power that they can sell at high prices in deregulated energy markets, earning big profits in the process. Many of the plants, Seabrook included, were purchased by new owners in recent years who paid relatively little for the assets. In 2002, FPL Energy, a Florida company, bought a controlling interest in Seabrook for $836 million. ”In today’s market, many of those plants are worth significantly more,” Taub said.

The verdict is clear: Nuclear power is a bargain; oil and gas are a financial disaster.

There are plenty of specialists around who are firmly convinced that high oil and gas prices are here to stay. Richard Lester suggests we should be wary about such pronouncements. “Smart people don’t get this right,” said Lester, a Massachusetts Institute of Technology professor of nuclear science and engineering. In 2003, Lester and some colleagues wrote a report on the future of nuclear power. They assumed natural gas prices — the main competition — would stay in a range of $3 to $6 per million BTUs. Last week natural gas was selling for more than $12 per million BTUs.

The solution here is obvious: We need to be diversified. Investors spread their bets around because they don’t know which stocks will do well and which will do poorly. We need to do the same with sources of energy because, in truth, we don’t have a clue what will happen to their prices in the future. The cheap may become expensive and the expensive cheap.

When it comes to the energy future, a little humility goes a long way.

— Right on the head.