IN PICTURES: Eight Ways To Survive A Market Downturn
Moving Forward In Energy Creation
According to the U.S. Energy Department, nuclear energy accounted for 20% of U.S. power generation in 2008. Increasing from the current 20% will require tremendous capital investment. Companies such as Southern Co. (NYSE: SO), Exelon (NYSE: EXC) and USEC (NYSE: USU) face massive barriers to achieving a higher level of power generation from nuclear energy. The cost of a reactor is estimated to be $9 billion - a capital investment most companies are not able or willing to undertake. At an industry conference, one panelist from a closely held nuclear company said public opposition, as well as the cost of a project, deters most CEOs from undertaking such construction projects, as the project's life will exceed most CEOs' length of tenure. Thus, the CEO could take all the "heat" but not see the benefits of the labor - a poor scenario in an environment where most CEOs are risk averse. Constructing a new plant is estimated to take over a decade, and some even put the life of a project in the 20-year range.
Loan Guarantees Needed
Loan guarantees are needed to backstop this industry and provide some much-needed financing. Several reports have quoted White House sources as saying the President will seek $54 billion in loan guarantees in his new budget proposal. Other alternate-energy industries have felt similar needs for government financing. Solar companies need to receive government subsidies to be viable, particularly when parity with fossil fuels is hard to achieve. Companies such as First Solar (Nasdaq: FSLR) and Sunpower (Nasdaq: SPWRA) have witnessed first-hand accounts of the benefit and deteriment of government subsidies to their industry's growth and retraction, along with each company's individual stock price. Loan guarantees differ from subsidies, and the nuclear industry hopes loans will be more sustainable in creating long-term financial support for the growth in nuclear reactor plants. (For more, See Spotlight On The Solar Industry.)
Bottom Line
Despite the encouraging words from the President and the seemingly unified Congress, deriving a higher percentage of U.S. energy generation from nuclear, while attainable, seems hardly achievable given the high financial barriers; not to mention the public's opposition and fear of having a nuclear facility located close by. However, continual federal support through loan guarantees and public campaigning in the form of White House positive comments may prove to be the necessary forces this industry needs to spur long-term growth. (For related reading, check out Forget Green Stocks, "Green" Will Do.)
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