Wednesday, December 28, 2016

Obama's "Nuclear Renaissance" Receives Its Final Obituary with Toshiba's Write Down

Back in 2009 at the start of Obama's first administration he proclaimed that a "nuclear renaissance" was coming. Although I am a fan of nuclear power, I knew right away that this effort was doomed to failure by a lack of structural incentives in the USA and the ability of NIMBY's and lawyers to drag out and kill any project by a thousand cuts. I wrote that it was doomed here and summarized the players here.

Yet 2 companies plowed along with their nuclear projects - Southern Company (big in Georgia and the south) and SCANA (a South Carolina utility), mainly because their state rate environment was favorable and allowed them to include the cost of assets in their "rate base" rather than being forced to price energy at something close to market prices. Eventually those that pay for electricity in these jurisdictions are going to be soaked with the enormous costs of these plants and / or the finances of Southern Company and SCANA will be seriously impacted. Southern Company has a market cap of around $50B and SCANA has a market cap of around $10B. For context, the Southern Company nuclear project is currently 3 years behind schedule and $3B over budget and likely to cost up to $20B (although costs are borne by many parties, not just Southern Company) and the SCANA project is likely to cost up to $12B (although not all borne by SCANA).

These nuclear projects, already non-competitive due to price declines in natural gas (caused by fracking), became even MORE non-competitive as their completion dates were extended and costs ballooned due to inevitable and completely predictable delays. The history of nuclear power projects is littered with failed efforts and those that were completed often had huge cost overruns, especially those completed near the "tail" of the initial nuclear building effort which petered out in the 80's.

Now Toshiba is being hit with part of the overrun costs. Their stock recently went down 20% (the most that it can fall in a single day trading session) with discussion of potentially billions of dollars in write downs tied to their work on nuclear power projects.

What is sad about all of this is that the debacles that will hit rate payers in the south (predominantly Georgia and South Carolina) and / or shareholders were completely predictable, although the situation could get even worse if delays stretch on indefinitely and the plants are never even completed (which is always possible in the litigious USA). As the current administration leaves their utterly failed nuclear policy should be something that they accept responsibility for, as well as their ameteur-ish ignorance of history and the predictable consequences of these sorts of mega-projects (in our current legal and regulatory environment). However, I highly doubt that will occur.

Cross posted at Chicago Boyz

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