Construction of Peach Bottom Clean Energy Center in Delta, Pennsylvania, circa 1970. The jobs, tax revenue, and regional economic activity generated during a plant’s construction rarely appear in the project’s own financial model. Murphy and Rudolph argue that this economic impact should be modeled alongside financial metrics to capture a nuclear project’s true value. (Department of Energy)

Why Innovative Economic Models Can Rewrite Nuclear Energy’s Playbook

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While nuclear energy project costs and returns have traditionally determined investment decisions, they often overlook the broader societal benefits nuclear projects have on the region. 

All potential megaprojects, including nuclear energy projects, should be strictly assessed across multiple dimensions. However, judging an infrastructure project of the complexity of a nuclear power plant requires an especially detailed analysis of all aspects of the project. These nuclear power projects are not just engineering undertakings; they are investments with far-reaching social, political, geostrategic, and financial consequences.

A facility of two AP1000 reactors would produce more than 2 gigawatts of electricity each hour. From there, the output enters one of the nation’s six major regional transmission systems as high-voltage current. Then it travels across hundreds of miles of transmission lines, stepping down through substations to progressively lower voltages, until reaching local distribution networks where it becomes suitable for residential and commercial use. Ultimately, the steady supply from these reactors provides enough energy to meet the daily needs of about 1.7 million households, powering everything from lights and appliances to heating and digital infrastructure.

The societal, political, economic, and strategic importance of nuclear projects is also well established. According to the US Cybersecurity and Infrastructure Security Agency (CISA), the nuclear sector is “so vital to the United States that its incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety, or any combination thereof.” Nuclear facilities anchor the reliability of many grids as baseload generation, ensuring consistent electricity for hospitals, transportation networks, data centers, and defense installations. 

Nuclear power projects require significant capital early in the lifecycle of the asset. With each reactor a multi-billion-dollar endeavor, coupled with long development and construction phases and a complex regulatory process, investors are reluctant to invest in nuclear projects during the development phase, which can become “bet the company” decisions for the developer/owner. Additionally, nuclear projects have a history of going over budget/over schedule (as do other types of megaprojects), requiring additional backstops to support project completion. 

The State of the US Nuclear Fleet Today

As we consider nuclear power projects, it is important to recognize the following:

The United States has the largest operating fleet in the world, with 94 reactors in operation (soon to be 95 when Palisades transitions to commercial operation). 

With the exception of the two AP1000s at Vogtle in Georgia, the entire operating fleet is comprised of Gen II reactors. 

The Gen II reactors were licensed for 40 years, and many will run for up to 80 years. 

All 94 reactors were also built in regulated markets by regulated utilities when they were built. 

Why Traditional Financial Models Undervalue Long-Life Reactors

What has changed? Now, many markets are deregulated, and the Gen III/III  designs will be licensed for 60 years, which means that they will probably run for 100 years if properly maintained. A 100-year asset seems like it should be an attractive proposition, especially when it generates clean (emissions-free) baseload energy. However, financial modeling fails us. When calculating the present value of an energy generation asset, everything discounts to zero by the time that asset reaches 30 years in its operating life. That is what the math tells us. However, common sense would seem to recognize that a 70-year operating life must have some value. That is just the beginning of the story.

Immense financial demands mean that projects are often backed by complex funding arrangements, typically involving government support and/or regulated markets (outside the United States in part and the European Union in full). These arrangements ultimately pass down the financial risk to taxpayers and ratepayers. So, why should the........

© The National Interest