Comment by AnthonyMouse
12 hours ago
> Nobody wants to hold 30-80 year debt on giant capital projects that could be rendered obsolete.
There isn't really an "obsolete" after it comes online because things get built when expected revenue exceeds construction costs + operating costs, but once built (or close enough to completion) they continue to operate as long as revenue exceeds only operating costs because by then the construction cost is in the past. When the construction cost is large, the amount the price of electricity would have to decline to fall below operating costs is equally large. And investing in something where you expected a positive ROI and you ended up with a slightly negative ROI clearly isn't what you'd have preferred, but it isn't nearly as bad as the -100% ROI you'd get from shutting down the plant instead of selling it for slightly less than what you put in. There's a reason the US is not only continuing to operate 20th century nuclear plants but even looking to reactivate some of the ones that have already been decommissioned.
Moreover, solar has the same problem. You invest in a solar farm because you're expecting to profitably sell power at current prices, but if e.g. the AI thing turns out to be a bubble then there will be oversupply and current prices won't stick. Solar also has the added "everybody is doing it" risk. If you and everybody else add solar then the price at times when solar output is highest is going to be lowest and vice versa, i.e. if too many people invest in the same type of generation then your output gets inversely correlated with the market price, which is bad for ROI.
I think you’re misunderstanding the economics at a fairly basic level. The cost to build is funded through debt that’s paid off over time. The construction costs aren’t in the past; they’re in the present, and in the future, in the form of debt payments.
Think of it this way: if you buy a house, the “operating cost” is fairly small: upkeep and painting, mostly. Does that mean you can buy a house, move out of your apartment, and quit your job, because your cost of living has just dropped a few thousand a month?
No, of course not. Upkeep isn’t the real cost of buying a house. The real cost is the monthly mortgage payment. Unless you were already independently wealthy, you have to keep your job. Sorry.
The cost of energy for a nuclear plant is the cost of paying back the loans. As other forms of power generation get cheaper, those loans stay the same, making it harder and harder for nuclear to compete. As they get squeezed out of the energy market, they have to raise their per-watt prices in order to continuing to service the loans.
Think of it like this. You rent your house to your cousin, who pays you enough to cover the mortgage. But then your cousin finds a sweet deal couch-surfing in the tropics in the summer. He stops paying you for June, July, and August. You can’t get anybody else in your house during that time, so you say, “Sorry dude, you have to pay more for the rest of the year. I’ve got bills to pay.” That works great until your cousin gets tired of your high prices and moves out, and now you’re left with a mortgage to pay and no one renting it.
> The cost to build is funded through debt that’s paid off over time. The construction costs aren’t in the past; they’re in the present, and in the future, in the form of debt payments.
That isn't a future cost, it's a past cost with a future payment date. It's like taking out a mortgage on a piece of land to buy some lumber and build a house on it. The past cost is buying the lumber; the hardware store isn't going to give you a refund six months after you already paid them and used the lumber to build the house. What you have now is a house instead of money and separately a mortgage against the house.
What do you think happens if you don't pay the loan? Is the bank going to get a refund from the hardware store? No, they're going to take the house, sell it to someone else for whatever they can get for it and apply the money to the loan. And then the house continues to operate as a house.
The same thing happens with a power plant. If the plant company itself has a bank loan and isn't making enough to pay it, the bank is going to foreclose, sell the plant to someone else, possibly take a partial loss, and the new owner -- who might have gotten the plant for a lower price than it originally cost to build -- is going to continue to operate it as long as its revenue exceeds its operating costs.
And that's assuming the plant was funded with a bank loan. If it had investors then there is no loan payment; the "loan payment" is when the company pays the owners dividends. If they were expecting the plant to pay enough dividends to recover their initial investment plus interest and its operations only generate enough revenue to repay most of the original investment but no interest, then they continue to operate the plant (or sell it to someone who does) because "recover 90% of the original money instead of the expected 200% of the original money" is still significantly more than "recover 0% of the original money by closing the plant".
What happens if the operating company can't pay the debt? The bank repossesses the facility. Now what does the bank do with a solar facility? Does it (A) let it rot, losing massive value, (B) run a bulldozer through it, destroying massive value or (C) find a way to operate it, receiving profit from doing so?
The bond covenants usually tie it to revenue and external factors. With a solar facility, it's pretty cut and dry -- the if the operator fucks up, they default, the bondholders take a haircut and someone buy the asset at auction.
With a nuclear facility, the capital costs are ridiculously high and the facilities are too big to fail and too impactful to close. So the ratepayers and taxpayers get stuck with it. In New York, the state is providing $33B in subsidies to keep 4 nuclear plants that are hemorrhaging money online.
That's why my opinion is that they should just be public assets. Let the state or federal government make some revenue instead of sending billions of mid-cycle capital to Constellation energy.