8/19/2023 0 Comments Southern company new nuclear plantAnd notably, despite some chatter on earnings calls, no one has stepped forward in a meaningful way to date. But coupled with a lack of commonsense permitting reform in the US–and with the fact that solar generation is both much cheaper and far faster to build-the big boost in finance costs is likely to discourage all but the most determined developers in North America. The Inflation Reduction Act of 2022 does include substantial incentives for developing new nuclear, including modular reactors such as those proposed by companies like NuScale (SMR). ![]() But while that greatly reduces the ultimate risk to Southern and all but ensures the reactors will ultimately prove to be valuable assets, it does little to encourage others to build. And in fact by maintaining relations with its counterparts in Asia, the company has been able to learn from their challenges. But it is proof of concept that the design works. One big reason I’ve stuck with Southern both as an investor and an advisor in recent years is AP1000 reactors have been operating successfully in China the past few years. But generation-low borrowing costs are a Southern advantage that future would-be nuclear power developers are not likely to have anytime soon, with inflation stubbornly high and the Federal Reserve seemingly determined to rein it in by pushing up interest rates. New nuclear projects can plausibly make the same claim for prospective fuel replacement costs. And in fact, lower fuel cost pass throughs may actually cut Georgia customers’ bills the next few years. That’s a point the company and regulators are now making with the public. ![]() Starting up the Vogtle units will also immediately reduce Southern’s dependence on volatile priced fossil fuels. Mainly, the expected borrowing costs baked into the initial plan in 2008 were far lower than envisioned. And it means the company’s only remaining exposure is basically whatever additional it costs to get the reactors running.Įqually important, despite Vogtle’s cost overruns and delays, the actual impact on Georgia ratepayers has been greatly offset by the low interest rate environment that prevailed from the aftermath of the 2007-09 Financial Crisis up until 2021. That ensures there would be no repeat of the writeoffs taken in the 1980s for construction of the first two reactors at the site, when Georgia regulators balked at passing on billions of dollars of higher costs to ratepayers. Southern also had the foresight to request and win regulators’ approval from the very beginning to recover Vogtle project expenses in customer rates as incurred. And despite forcing the company to absorb more recent costs, there’s no question the Commission is still solidly behind Vogtle. First and foremost, it’s enjoyed the support of Georgia regulators from day one, including following the contractor bankruptcy that triggered the cancellation of the South Carolina project. On the other hand, it’s also fair to say that Southern has also been lucky with this project in other ways. And finally, just as the Vogtle project was entering the home stretch, Covid-19 struck the highly skilled labor force, further delaying needed work and pushing up expenses even more. Shortly after Georgia regulators signed off on its plans, the Fukushima disaster in Japan greatly elevated political and therefore regulatory scrutiny of nuclear power in general–though the AP1000 design would at least theoretically have prevented a meltdown due to a self-contained cooling system.įukushima raised development costs, which eventually triggered the bankruptcy of the utility’s first contractor and induced much smaller South Carolina utility SCANA to cancel its AP1000 construction effort. ![]() In a very real sense, Southern has been extremely unlucky with its latest round of nuclear construction. That includes plans to double the dividend growth rate to a mid-single digit percentage sometime in 2024, and 2025 at the latest. And it was largely developed in coordination with the company’s regulators, which greatly increases the probability plans will stay track and therefore provides a great deal of visibility on future results.īottom line: Despite the continuing less-than-favorable news at the Vogtle project-as well as the likelihood of even more delays-investors should still consider Southern’s post-nuclear construction guidance as deferred rather than derailed. The regulated utility portion of Southern’s CAPEX plan (97 percent) is the primary driver of its long-term earnings and dividend growth.
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