Japan's Impact on U.S. Nuclear Power

What does this disaster mean for the future of U.S. nuclear power? There is no doubt that, on the margin, this will hurt it. How much so remains to be seen...

A look back at last year's Deepwater Horizon oil spill in the Gulf of Mexico should humble any prognosticator. The first few days of that disaster were met mostly with a collective shrug.

Within a few weeks of the BP spill, the scale of the actual disaster began to become apparent. Drilling opponents seized the moment to reinforce their prior beliefs, but proponents largely dug in their heels. The nuclear debate has now moved to this second stage: Skeptics have had their beliefs about the risks of nuclear power confirmed, but most pro-nuclear forces are still as enthusiastic as ever.

The ultimate policy consequences of the Japanese crisis will depend on precisely how the situation on the ground develops over the coming weeks

Nuclear power provides about 20 percent of U.S. electricity, but new construction has been stalled for decades by a mix of high costs and public apprehension dating back to the 1979 accident at Three Mile Island. Opposition to nuclear power has softened slightly in recent years, but the old patterns of debate remain largely intact.

Pro-nuclear forces are unlikely to reverse their prior stance in response to the unfolding disaster. Some in the anti-nuclear camp, on the other hand, may change theirs. Many moderate nuclear skeptics in the environmental community have become more open to zero-carbon nuclear power as part of a grand bargain on climate policy, much as many drilling skeptics had become open to an offshore exploration deal by this time last year. The Japanese disaster, though, may make moderates in the environmental community far more reticent to deal, just as the BP disaster made them less willing to deal on offshore drilling. A big swing within this bloc could have real consequences for U.S. policy on nuclear power.

Many observers have already pointed out correctly that the future of nuclear energy will still come down to costs. But cost and regulation are tightly intertwined when it comes to nuclear power. One of the central drivers of nuclear power's high costs is the uncertainty surrounding regulation and permitting, which drives up project developers' cost of capital. Any big changes to the regulatory process or to power plant design increase uncertainty, at least in the short term, and hence increase the cost of financing new plants. With nuclear power already under pressure from cheap natural gas, regulatory reactions to the latest disaster could tip the balance.
It is safe to say, though, that prediction remains a dangerous task. Less than a year after the oil spill, in the midst of upheaval in the Middle East, the drilling debate has largely returned to its preexisting form. It will not be surprising if nuclear memories are short lived too.

Different types of financial instruments....

Shares: A unit of ownership interest in a corporation or financial asset. While owning shares in a business does not mean that the shareholder has direct control over the business's day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends. The two main types of shares are common shares and preferred shares.

Bonds: A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

Derivatives: A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Options: A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).
Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

Futures: A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.