Duke Energy Gains New Licenses for Reactors, but Will They Be Built?

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By Rebecca Kern

Duke Energy Carolinas LLC got the green light to build two nuclear reactors in South Carolina, but analysts say they there is no market to build them in the energy economy of low gas prices today.

Duke Energy received two new reactor licenses from the Nuclear Regulatory Commission Dec. 19, permitting it to build two Westinghouse-designed AP1000 nuclear plants, which would each generate 1,100 megawatts of electricity, at the company’s William States Lee III site near Gaffney, S.C., according to the agency’s announcement. Duke Energy submitted the application for the licenses in December 2007.

“The fact they’ve gotten licenses in no way suggests that they’re definitely going to go out and build the nuclear power plant tomorrow,” Chris Gadomski, lead analyst on nuclear for Bloomberg New Energy Finance, told Bloomberg BNA Dec. 21. “But they have the option to do so.”

Similarly, Andrew Bischof, a senior equity analyst at Morningstar Inc. who covers utilities, acknowledged the challenges to building new nuclear plants today. “The economics would be very difficult to build a new nuclear plant,” he told Bloomberg BNA. “The economics are much stronger for gas right now.”

Duke Energy’s decision to build the two reactors will depend on what is in the best interest of its customers as well as energy needs, project costs, environmental regulations, natural gas prices, and existing or future legislative provision for cost recovery, Rita Sipe, a spokeswoman for Duke Energy, told Bloomberg BNA.

The licenses last for 40 years.

Gadomski said it is prudent for Duke Energy to watch how climate policy will evolve in the coming administration, as well as the price of natural gas and the progress of the first four AP1000 nuclear reactors being built—two in South Carolina, two in Georgia.

Changes in Markets for Nuclear

A lot has changed since 2007, when Duke Energy filed its application to the NRC, along with other many other utilities, Gadomski said. “It was a perfect storm for nuclear,” he said.

Then there were government incentives for nuclear plants passed in the Energy Policy Act of 2005. Natural gas prices were high, and there was the prospect of importing more natural gas into the U.S.

Following 2007 there was a confluence of events that ended up hurting the nuclear industry, including discovery of the Marcellus Shale formation, innovations within oil and gas fracking, the 2008 financial crisis, the drop in demand for electricity and the historically low gas prices, Gadomksi said.

If Duke decides to build the two new reactors, they would be constructed on the site of the now-defunct Cherokee nuclear power plant. The NRC previously licensed Duke to build three nuclear reactors there, but the company had to stop construction in 1982 and 1983 due to challenging market conditions and a depression in electricity demand, Sipe said.

To contact the reporter on this story: Rebecca Kern in Washington at rKern@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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