Summary

Future orders for nuclear plants depend in part on electricity demand and on the financial comparisons that utilities will make with alternatives to nuclear power. Utilities ordered far more generating capacity in the early 1970's than they turned out to need, and have canceled many of their planned plants. Nuclear plants have borne the brunt of the slowdown in construction.

There has been a pronounced decline in the growth rate of electricity demand. Demand growth has averaged about 2.5 percent annually since 1973, compared to about 7.0 percent from 1960 to 1972. Utility executives contemplating the construction of long leadtime coal or nuclear powerplants must contend with considerable uncertainty about the probable future growth rates in electricity demand. With certain assumptions about the future, it is reasonable to expect fairly slow growth rates of 1 to 2 percent per year. Very few large new powerplants would be required to meet this demand. With other plausible assumptions, electricity load growth could resume at rates of 3 to 4 percent per year, which would require the construction of several hundred gigawatts* of new powerplants by the year 2000. The actual need for new powerplants will depend on the growth rate of the economy, the rate of increase in the efficiency of use of electricity, price increases for electricity vis à vis other energy sources, new uses for electricity, and the rate of retirement of existing plants. None of these variables can be predicted with certainty. The effects of the electric growth rate and the replacement rate on the capacity that would have to be ordered in time to be completed by 2000 are shown in table 1.

In addition to the slowdown in electric load growth, powerplants have also been canceled and deferred due to deterioration in the financial condition of utilities. Although the industry's

*One gigawatt equals 1000 MW (1,000,000 kW) or slightly less than the typical large nuclear powerplant of 1100 to 1300 MW.

financial picture is improving as external financing needs decline and allowed rates of return increase, current rate structures still may not provide adequate returns for new investment in large nuclear projects. Without changes in rate regulation, utilities may not be able to attract capital when they need it for construction, because investment advisers associate construction with a deterioration in financial health.

The primary targets for rate reform include the current lag between allowed and earned rates of return, the "rate shock" which results in the first few years after a large, capitalintensive plant is added to the rate base, and the absence of explicit incentives to reduce fuel costs. Options for resolving these problems assume that the investors and State public utility commissions will take a long-term perspective and will maintain a particular method of determining revenue requirements for several decades. Yet when commissioners may only remain in office for a few years, or when State legislatures adopt a short-term perspective, methods that take a long-term view of rate regulation are difficult to achieve.

Although ratemaking changes to increase the attractiveness of capital investment would eliminate some disincentives, utilities and their investors and ratepayers would still face substantial financial risks from nuclear power. These risks include the unpredictability of the capital costs of a nuclear plant at the beginning of construction, the difficulty of predicting construction leadtimes, the very high costs of cleanup and replacement power in the event of a major accident, and the possibility of future regulatory changes.

Nuclear plant average construction costs more than doubled in constant dollars during the

1970's and are expected to increase by another 80 percent for plants now under construction. Some of this increase has come from new regulatory requirements which are applied to all plants, whether operating or under construction. Some utilities, however, have adapted better to these new regulatory conditions, as shown by the increasing variability in capital costs. Of the group of plants now under construction, the most expensive is expected to cost more than four times the least expensive. The variation in cost has been due in part to regional differences in the cost of labor and materials and the weather, but more to differences in the experience and ability of utility and construction managers. Only the best

managed construction projects are now competitive with new coal plants.

Average nuclear plant construction leadtimes. doubled over the decade (from about 60 to about 120 months) and are now about 40 percent longer than coal plant leadtimes. Very long leadtimes increase interest costs and the difficulty of matching capacity with demand. Average plant construction costs and leadtimes could be reduced in the future in several ways: 1) Plants could be built only by experienced and competent utilities and contractors, who would work under contracts with incentives to control costs and use innovative construction techniques. 2) Standardization of design and licensing could bring the lowest U.S. construction costs down by another 20 to 25 percent. 3) Further reductions in plant carrying costs could come about if leadtimes were cut by 25 to 30 percent and interest rates were reduced. It should also be recognized, however, that there are circumstances under which costs might increase. In particular, further serious accidents or resolution of important safety issues could lead to a new round of costly changes.

Utility executives are also aware that single events could occur causing the loss of the entire

value of a nuclear plant. The accident at Three Mile Island will have cost the owner $1 billion in cleanup costs alone, plus the cost of replacement power, the carrying costs and amortization of the original capital used to build the plant, and the cost of restarting the plant (if possible). Only $300 million of the cleanup cost was covered by property insurance. Nuclear plants can also be closed by referenda such as the narrowly defeated vote in 1982 that would have closed Maine Yankee.

Utility executives have other options to meet future load growth than constructing new generating plants including: converting oil or gas plants to coal, building transmission lines to facilitate purchase of bulk power, developing small hydro, wind or cogeneration sources, or load management and energy conservation programs. Some of these alternatives may prove more attractive to utilities than nuclear plants given the uncertain demand and financial situation. Even if rate regulatory policies across the country were to shift to favoring longer leadtime capital-intensive technologies, smaller coal-fired powerplants would be preferred because they have shorter leadtimes, lower financial risk, and greater public acceptance than current nuclear designs.

Virtually all nuclear powerplants in this country and most in other countries are light water reactors (LWRs). This concept was developed for the nuclear-powered submarine program, and was adapted to electric utility needs. Since then, many questions have been raised over the safety and reliability of LWRS in utility service, costs have risen dramatically and regulatory requirements have proliferated. There is no specific indication that LWRs cannot operate safely for their expected lifetimes, but it appears that current LWR designs are unlikely to be viable choices in the future unless concerns over costs, regulatory uncertainties and safety can be alleviated. Either LWR designs will have to be upgraded, or alternative reactor concepts will have to be considered.

There is no standardized LWR design in the United States. This is due to two major factors. First, the different combinations of vendors, architect-engineers (AEs), constructors, and utilities. produced custom-built plants for each site. In addition, the reactor designs themselves have changed greatly since introduction of LWR technology. The pace of development from prototype to nearly 100 commercial reactors was very rapid. Large, new reactors were designed and construction started prior to significant operating experience of their predecessors. As hardware problems developed or new safety issues surfaced, changes had to be made to existing reactors, rather than integrating them into new designs. As regulatory agencies improved their understanding of nuclear power safety, criteria