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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Six Years Late And 250% Over Budget: Georgia’s Newest Nuclear Plant

  • Vogtle 3 and 4 stations are now likely to cost roughly $34 billion.
  • Nuclear power continues to fail to gain commercial respectability in the U.S.
  • The Vogtle plant is up to 10 times more expensive than alternative projects in Europe.

It has not been a good week for advocates of new nuclear power plant construction in the US. An energy cooperative in Georgia, the Municipal Energy Authority of Georgia (MEAG), announced in a recent filing that the new twin unit Vogtle 3 and 4 nuclear generating stations approaching completion in Waynesboro, Georgia were now likely to cost roughly $34 billion. MEAG, along with other electric co-ops like Oglethorpe Power and Dalton Utilities own minority stakes in the nuclear facility along with majority owner Georgia Power. The two Westinghouse design AP1000 reactors, which are now scheduled to enter commercial service in 2023, were originally estimated to cost $14 billion and enter commercial service in 2016/2017, that is, six years late and 250% over budget. And people wonder why this technology is still struggling for commercial respectability.  As for regulators, the Georgia Public Service Commission (PSC) might sound to some like an extension of Georgia Power’s legal and accounting departments. PSC Commissioner Nichols has extolled the virtues of this wildly expensive plant on two interesting grounds. First, he cited the likelihood of a large carbon tax, which we should point out, most Republicans strongly oppose. And second, he emphasized the so-called “war on fossil fuels”. Sorry but anyone watching oil and gas stock prices lately knows the war on fossil fuels is as real as the war on Christmas. Bottom line: we would expect the Georgia PSC to disallow a token amount of the egregious cost overruns, the company will respond publicly by lamenting a grievous financial wrong, while its stock and bonds rally strongly. 

Related: Brazil Considers Full Privatization Of Oil Giant Petrobras

To us, few words define this AP1000 saga as well as “debacle.” Let's take a look at what was initially promised. Six year construction times, factory built modules to speed up construction, and a commercial service cost of $6,400 per kilowatt. Instead, we see a fourteen-year construction project at an astounding $15,500 per kilowatt. It isn’t even controversial to say this technology is deader than a proverbial doornail in the US. What’s more important is that the small modular reactor business has made many of the same claims (factory built, short construction times, smaller physical footprint), all of which deserve increasing scrutiny.

But the key energy statistic of the week was from Europe where last year they spent about $40 billion to add 26,000 MWs of renewables. In the US we’re spending $34 billion for 2200 MWs. That makes Vogtle ten times as expensive, on a MW basis, as the European alternatives. Even after adjusting for the fact that renewables only produce about one third of the time, compared to 90% of the time for a well-run nuke, Vogtle looks expensive. 

As we have said previously, generating electricity from nuclear energy may be a worthwhile societal endeavor (think defense, national energy security, security, research, radioisotopes used in medicine) but it is not even remotely commercial. This means that further nuclear power developments need to proceed as a government-financed or owned enterprises, as they are in most other countries.  Otherwise, nuclear power in the US it is likely to go the way of the dodo.

By Leonard Hyman and William Tilles for Oilprice.com

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  • John Paul deOliveira on May 12 2022 said:
    If I remember correctly this is the nuclear power plant project that was federally insured by the Obama administration, whose 08&amp;#039; campaign was heavily backed by... yes, a nuclear power plant operator. I believe that there were no insurance companies who would take it on, so the Obama administration had to step in to subsidize it, or it would have never got past the planning stage.

    The author does not state whether that taxpayer cost was integrated into the final cost analysis.
  • Bill Tilles on May 13 2022 said:
    Dear Mr deOliveira,
    No commercial nuclear facility ever constructed in the US has ever been able to obtain liability insurance from the private sector which is why Congress passed the Price-Anderson Act. Second the Obama administration had almost nothing to do with this facility although the Trump administration’s DOE did approve various low cost loan guarantees.
  • John Paul deOliveira on May 17 2022 said:
    Dear Mr. Tilles,
    A quick search of Wikipedia (not that it is always, or mostly correct) refutes your assertions and shows the following:

    "Power reactor licensees are required by the act to obtain the maximum amount of insurance against nuclear related incidents which is available in the insurance market (as of 2017, $450 million per reactor).[2] Any monetary claims that fall within this maximum amount are paid by the insurer(s). The Price-Anderson fund, which is financed by the reactor companies themselves, is then used to make up the difference."

    The entry further explains any amounts over and above the Price-Anderson fund will be handled by our govt. on a per case basis.

    You are implying this is a Trump project?
    "On August 26, 2009, the Nuclear Regulatory Commission (NRC) issued an Early Site Permit and a Limited Work Authorization" the first year of Obama's presidency.

    Construction began:
    Unit 3: March 12, 2013
    Unit 4: November 19, 2013

    If memory serves correctly, the Obama administration did indeed cover the insurance of the Georgia reactors. That lack of coverage was supposedly the specific reason for no new reactor builds in decades after the 3 Mile Island accident.

    This is not my area of expertise, and obviously not your area of expertise either.
  • Leonard Hyman & William Tilles on May 21 2022 said:
    Somehow, our article on the cost of nuclear and implications for its revival turned into a discussion of loan guarantees and insurance, so here is the story on both, relevant in that they underline our final point, that any revival of nuclear will require a rethink of the government’s role.

    First, Vogtle 3-4 reactors received $12 billion of Federal loan guarantees in total from the Obama and Trump administrations. It was bipartisan. To the extent that the guarantees reduced interest on loans, they may have lowered Vogtle’s cost 5-10%.

    Would the plants have been built without the guarantees? Georgia Power and its partners in their embrace of Vogtle reminded me, in a way, of Captain Ahab's pursuit of Moby Dick, I suspect the answer is yes, although the project might have been delayed. Never underestimate the ability of bankers to find financing, at the right price. But why pay market when government gurantees lower the cost?

    The Vogtle licenses were submitted to the Nuclear Regulatory Commission (NRC) during the George W. Bush administration and approved in the Obama administration. The final approval vote at the NRC was 4-1. The NRC approves licenses based on ability to build and operate safely, not whether the plant makes good business sense.That is for corporate directors and regulators to decide.

    Price-Anderson insurance, first passed in 1957, changed dramatically in 1975, a year in which nuclear output reached 9% of electricity production. Congress rewrote the law to turn it into a full scale government rescue scheme, aided by an industry risk sharing agreement with a sliver of commercial insurance attached, almost as a fig leaf. As of now, the commerical insurance underwriters pay up to $450 million for an accident. All nuclear operators together can be assessed for another $13 billion to cover additional losses. . After that, government payments kick in. The NRC in 2021 expressed concern about the stress that the assessments would have on nuclear operators. Perhaps it should worry about how many could pay at all. Considering that a bad accident might cause $200 billion in damages (Fukishima), it should be clear that the commercially underwritten payments might represent a pathetically tiny portion of payments and leave the nuclear indutry in big trouble. Which brings up the question of why taxpayers should take those risks while the operators make the profits.

    Final point. I was in the power finance business all through the nuclear rise and fall, and I never heard anyone claim that lack of insurance was the reason utilities stopped building nukes. Demand for power fell below expectations,and the nuclear plants were too expensive, too complicated, too large for the market, and too financially risky because of their size and long construction duration. There were better alternatives. Simple as that.

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