In less than a year, three utilities have made the tough call to close down four nuclear reactors totaling 3,600 MW of combined capacity. Cheap power prices and expensive repairs are pushing some utilities to rethink their power sources, with potential ramifications for revenue down the line. Let’s take a closer look to see who’s opting out of nuclear – and what it means for your portfolio’s profits.
Source: eia.gov
1. Duke Energy Corp (NYSE:DUK)
Duke Energy Corp (NYSE:DUK) revealed plans in February to retire its Crystal River Unit 3 in Florida. The trouble began more than three years ago when a crack was discovered in the outer layer of the containment building’s concrete wall, and Duke Energy Corp (NYSE:DUK) had been on the fence about whether to go through with the $900 million-$1.3 billion repair or cut its losses.
In May, Duke Energy Corp (NYSE:DUK) also suspended plans for new nuclear units at a North Carolina site.
2. Dominion Resources, Inc. (NYSE:D)
In May, Dominion Resources, Inc. (NYSE:D) pulled the plug on its 556 MW Kewaunee, Wis., nuclear station. Although Dominion Resources, Inc. (NYSE:D) noted at the time that it couldn’t achieve the economies of scale it had initially hoped for with its Midwestern nuclear fleet, the nail in the coffin was exceedingly cheap electricity prices. Many of the station’s power purchase agreements were about to be up for renewal, and projected wholesale electricity prices weren’t looking good for Kewaunee to pull a profit.
But Dominion Resources, Inc. (NYSE:D) Nuclear President David Heacock took special care to note that “this closing does not herald the end of our company’s commitment to nuclear power. It is a safe, reliable, and carbon-free technology, but as with all forms of generation, it must compete on economics, including the necessity of being price competitive on a regional level.”
3. Edison International (NYSE:EIX)
Most recently, Edison International (NYSE:EIX) announced a month ago today that it would permanently retire two nuclear units in San Onofre, Calif. Similar to Duke Energy Corp (NYSE:DUK), Edison International (NYSE:EIX)‘s units were shut down in January 2012 after workers discovered a steam generator leak. Unlike Duke Energy Corp (NYSE:DUK), Edison International (NYSE:EIX)‘s generators were manufactured by third-party Mitsubishi Heavy Industries, and the utility is planning to seek damages.
In the meantime, Edison International (NYSE:EIX) will take a $300 million-$425 million post-tax Q2 hit and fire 1,100 workers as it explores alternative replacement options and transmission investments.
More nuclear, please
But even as these three utilities opt out of some of their nuclear capacity, other corporations are moving ahead with new nuclear construction totaling more than 5,600 MW.
In March 2012, The Southern Company (NYSE:SO) received the first construction approval in over 30 years for two new units at its Vogtle plan in Georgia totaling 2,200 MW of electric capacity. SCANA Corporation (NYSE:SCG) wasn’t far behind with approval for two units of its own in South Carolina totaling around 2,100 MW. The Southern Company (NYSE:SO) expects its units to come on line by 2017, while both of SCANA Corporation (NYSE:SCG)’s will power up by 2019.
Source: eia.gov
The nuance of nuclear
Each utility had reasons for retiring nuclear plants. In Duke Energy Corp (NYSE:DUK) and Edison International (NYSE:EIX)’s cases, the decisions were (literally) spurred by cracks in their plans. For Dominion Resources, Inc. (NYSE:D), unfortunate contract timing put it in an economic situation it couldn’t avoid.
Likewise, The Southern Company (NYSE:SO) and SCANA Corporation (NYSE:SCG) have both managed to find new competitive options for nuclear generation, and other utilities like NextEra Energy, Inc. (NYSE:NEE) are hard at work modernizing their current facilities.
Just like smart investors, these utilities have opted out of a one-size-fits-all electricity strategy and are making moves to maximize profit potential – whether that means nuclear or not. Each company’s individual decision is most likely a good one, and investors shouldn’t expect dividends to expand or diminish on nuclear alone.
The article Is Nuclear Energy Dying Out? originally appeared on Fool.com and is written by Justin Loiseau.
Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter @TMFJLo and on Motley Fool CAPS @TMFJLo.The Motley Fool recommends Dominion Resources (NYSE:D) and Southern Company.
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