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Econ Focus

First Quarter 2016


Nuclear Reactions

Lessons learned from projects in Georgia and South Carolina might determine the course of U.S. nuclear development for decades to come

Article by: Karl Rhodes
Georgia Power and its partners are building two nuclear reactors at the Vogtle Electric Generating Plant near Waynesboro, Ga.

Five years ago, Stanford economist Geoffrey Rothwell and Berkeley economist Lucas Davis made a $20 bet on the cost of two nuclear reactors under construction in Georgia. Rothwell wagered that units three and four at Georgia Power's Vogtle Electric Generating Plant would cost less than $4,200 per kilowatt of capacity. Davis bet they would cost more.

"I went easy on Geoff and agreed to exclude financing costs and focus only on the 'overnight' cost of construction," quips Davis, who heads the Energy Institute in the Haas School of Business at the University of California, Berkeley.

"I can't remember whether we used 2007 dollars or 2011 dollars," hedges Rothwell, who retired from Stanford University to become principal economist for the Nuclear Energy Agency at the Organisation for Economic Co-operation and Development.

Davis and Rothwell are not the first to gamble on the high upfront costs of nuclear power plants. Nuclear construction boomed in the 1960s and early 1970s, but in the mid-1970s, rising electricity prices triggered increased scrutiny of utilities' capital expenditures. Safety and environmental fears also intensified in 1979 when a film called The China Syndrome portrayed a nuclear power plant on the verge of a total meltdown. The movie debuted 12 days before a partial meltdown occurred at Three Mile Island in Pennsylvania. No one got hurt, but the incident created a sense of panic that radiated throughout the nation. Orders for new reactors dwindled to zero in the United States, but most American reactors continued to deliver clean, reliable, low-cost power for decades with no major problems.

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