Power Prices Could Rise in Response to Japan Nuclear Crisis

By Peter Gardett, AOL Energy

As Japan continues to reel amid an ongoing crisis following the earthquake of March 11, the U.S. electricity sector is bracing itself to deal with a backlash against the recently-resurgent nuclear power industry.

An explosion at the Fukushima nuclear power plant caused by the earthquake has sparked an ongoing effort to control the reactor and potentially dangerous fallout from the unit prompting renewed concerns about nuclear power in the U.S.

Increased concerns about both existing and new nuclear power units should boost the prospects of natural gas markets in the short term, ratings agencies said, particularly liquefied natural gas (LNG) that can be imported to Japan to provide power in the absence of nuclear units.

"Gas is the natural substitute fuel" for Asian utilities dealing with nuclear power interruptions, Fitch Ratings director of energy and utilities Arnon Musiker said in issuing a research report on the sector.

Over the longer term the reactions to the Japanese nuclear industry's crisis could burnish the appeal of renewable fuels for use in generation. Solar, wind, biomass and energy efficiency expansion efforts have intensified in recent years but remain limited contributors to the overall US electricity market, in part because renewable supply can be unreliable and units are expensive to build and integrate into the system on a large scale.

"The issue of nuclear energy security is going to create renewed interest in the renewable energy deployment in the U.S. despite anxiety over the higher costs of renewables," Global Change Associates chairman Peter Fusaro told AOL. Fusaro's firm hosts the upcoming Wall Street Green Summit, and he says that large scale renewable project finance has continued to appeal to "big money" in the finance sector.

Analysts at investment firm Raymond James highlighted the prospects for renewable generation in a report issued after the earthquake. "Will Japan's earthquake be the death knell for the 'nuclear renaissance"?" the report asked, saying the likely beneficiaries were other low-carbon fuels.

Reliability and a limited carbon-dioxide emissions profile had burnished the appeal of new nuclear power units in the U.S. and elsewhere over the past decade, especially as older units began to near retirement dates. There are currently 443 nuclear units globally, but 143 are scheduled to close by 2030, the World Nuclear Association says.

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With 62 reactors under construction globally, regulators in the U.S. and elsewhere were expecting nuclear power to help meet growing demand for power. There are 23 planned new nuclear units in the U.S., the Nuclear Energy Institute said, although most are still not fully approved and have not begun construction.

Currently operating nuclear plants could be in greater trouble than new projects able to adjust to new safety requirements, Fitch Ratings public finance group Senior Director Chris Jumper told AOL. Impacts will be plant-specific and the additional equipment costs could be added into the rate base that determines consumer power prices, Jumper said.

Political leaders in the U.S. have largely maintained their broadly positive stance on nuclear power in the days since the accident at Fukushima.

President Obama included nuclear capacity in speaking about the need for U.S. energy "diversification" in a press conference called after the Japanese earthquake, and Energy Secretary Steven Chu has defended the administration's current approach to including nuclear power in new electricity generation. Current Obama administration budget requests include loan guarantees that would promote the development of new nuclear plants currently treated with trepidation by investors concerned about headline and political risk.

The proposed loan guarantees for new nuclear plants have detractors even within the energy industry, who say that the arbitrarily low liability caps on nuclear power plant owners and operators are failures of regulatory oversight. "The recent earthquakes in Japan and subsequent loss of 10% of Japan's electric power...demonstrates the frailness of relying on any 'one' energy source, particularly one that has extremely high dangers of contamination of air and water," Scott Sklar of clean energy advisors The Stella Group told AOL.

Most energy industry representatives contacted by AOL said they were unable to take a position on the nuclear industry's future while the emergency response to the disaster remains ongoing, but several electricity industry representatives said they expect the policy environment to "evolve" over the next few months as the impacts of the Fukushima accident become clear.

"[Building] nuclear in the near term is going to be a lot harder than it was a week ago," Biomass Power Association president Bob Cleaves told AOL. Cleaves said his organization supports an "all of the above" energy policy that includes reliable baseload energy like biomass as well as intermittent electricity generation resources like wind power.

Launching in Spring 2011, AOL Energy will provide news, data and tools to the electricity sector as it innovates, reinvests and repowers in swiftly-evolving regulatory, financial and market environments. Follow Peter on Twitter at @petergardett.