For a reliable electricity grid to support the US economy, new nuclear generation capacity is essential and a necessity for development of new renewable resources to transition to cleaner energy. This has become complicated by the significant new demand having to be met caused by AI and data center development to meet US national priorities to maintain competitiveness and national security considerations. Public power electric utilities are being pressured by the combination of the new demand and the pursuit of cleaner energy.
The last US nuclear building cycle ended almost 10 years ago due to dramatic escalation of construction costs partly due to new reactor designs, and the strong regulatory adherence to safety and supply chain issues including a dwindling nuclear work force. Vogtle Nuclear Units 3 and 4 in Georgia were the last units to go online.
For public power electric utilities, however, the record of their existing nuclear generation performance has continued to be very strong with a sound safety and performance record and strong capacity factors on average at more than 90%. Contrast that to solar capacity factor below 20%. See figure 1. In a renewed look now at how to build a power resource mix that can manage new demand and the intermittency caused by renewable energy projects, there has been a resurgence of interest in moving ahead with new nuclear projects.
Figure 1
Federal and Industry-wide Renewed Focus on New Nuclear
Recent advancements in the development of new nuclear generation have taken place. For example, the Tennessee Valley Authority (TVA) has become a leading supporter of new small nuclear reactors, by helping to raise capital through private-public partnerships and long-term offtake agreements. The power purchase agreements with industrial customers and data center developers have helped to reduce longer term risk and instability of future revenue streams.
Another example of nuclear power generation resurgence is Westinghouse Electric, Cameo and Brookfield Asset Management have entered a strategic partnership with the US Government to deploy $80 billion in new nuclear reactors. This new federal commitment indicates a strong emphasis on new nuclear development to meet the expansive growth in new electrical demand.
Also, last week South Carolina Public Service Authority (Santee Cooper) signed a letter of intent regarding the sale of the two unfinished reactors at the abandoned V.C. Summer project in South Carolina to Brookfield Asset Management. The 2.2 GW nuclear development project was mothballed in 2017 following delays and cost overruns. Despite the controversy about the two unfinished units, signs that they will be built are clear as South Carolina seeks to attract new data centers and clean energy.
On October 30, New York State Power Authority issued a solicitation for 1 gigawatt of advanced nuclear generation, a major step in New York's consideration of new nuclear.
Observations About Public Power Electric Utility Financing of New Nuclear Generation
New nuclear generation financing will require recognition that the life of units is now more than 60 years, and debt amortization may need to take that into consideration. In the last building cycle, useful life of assets was an unknown quantity since none were at their useful life. Since reduction of greenhouse gases remains a federal priority, so too would the need for new federal financial support to get the nuclear units constructed. Some form of federal guarantee that recognizes the challenging construction economics, but weighs that against the benefit of lower carbon while assisting in the integration of new renewable energy resources.
Another observation is that during the last building cycle, cities throughout the US formed joint agencies called joint action agencies(JAAs) , to scale up the size to assist the private utilities in financing new construction of new nuclear projects. From Georgia’s MEAG Power (Vogtle) to Florida Municipal Power Agency (St. Lucie) to the two North Carolina joint action agencies, public power agencies co-owned successful projects that were completed and have operated well for decades. Either new JAAs or financing by existing joint agencies can be expected and their use of municipal tax exempt debt will be a positive to the project cost structure.
Risks to investors could come from new projects that are based on flawed economics such as what happened with the Washington Public Power Supply System (WPPSS) that resulted in one of the municipal bond sector's largest bond defaults. But lessons learned could also be used as a powerful guide to ensure public power electric utilities can benefit from the carbon-free and sound capacity factor of new nuclear power.
The private sector now is in search of partnerships to ensure reliable and carbon-free generation can be built. Significant interest by A1, data center and technology companies are an opportunity for public power utilities to partner with the additional benefit of assisting towards their strategy to expand renewable resources.
In conclusion, there are certainly credit risks looming in the evolving power supply decisions before public power electric utilities but also opportunities with an role for sound debt and operational management.