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Nuclear energy is being pressured across the United States. In recent years nearly one dozen nuclear reactors have been taken offline or scheduled for decommissioning, including the last nuclear power plant in California. Despite a heightening sense of urgency for responding to climate change and reducing carbon dioxide emissions, politicians and environmental groups continue to turn their backs on the nation's largest source of carbon-free power, which provided 20% of the country's total electricity in 2015.
The issue at hand has nothing to do with building new, prohibitively expensive nuclear reactors. Instead, it seeks answers to a simple question: How far are we willing to go to keep existing nuclear energy facilities online? Exelon (NYSE: EXC), the nation's largest producer of nuclear power, has attempted to work with state regulators in Illinois -- which generates 48% of its electricity from atomic energy -- to provide a small subsidy that would keep reactors online and competitive. Politicians balked, afraid of providing "corporate bailouts," despite handing generous state subsidies to wind and solar power owners. As a result, Exelon is planning to close two nuclear facilities in the state that generate 12% of Illinois' total electricity.
That got me thinking: What would the United States look like without nuclear energy? Answering that question by swapping in other forms of power generation and comparing emissions provides insight into the importance of existing nuclear power plants.
By the numbers
Let's consider a few hypothetical scenarios where all American nuclear power plants -- which generated 797,000 GWh of electricity in 2015 -- ceased to exist and were instead replaced by other power sources. What happens?
Most electricity in the United States is generated by coal and natural gas, so let's start there. Here's what would happen to emissions if all nuclear power were replaced with either fossil fuel source, using per-unit emissions data from the U.S. Energy Information Administration:
Source: Calculated by author with data from EIA.gov
Replacing all nuclear power generation in the United States with coal would result in a 14% increase in the nation's carbon dioxide emissions, equivalent to doubling all industry-related emissions. It would also increase global emissions by 2.1%, or the equivalent to adding another Germany.
Natural gas fares better, but only slightly. A complete replacement would result in a 8.2% increase for the United States, equivalent to giving up all of the country's climate and pollution gains since the year 2000, and increase global emissions by 1.2%, or the equivalent of adding another Brazil.
These scenarios would set the United States back on its overall climate goals, so let's consider what would happen if all nuclear power were instead replaced by wind and (photovoltaic) solar power. Obviously, replacing one carbon-free power source with another wouldn't have a net effect on emissions, but there are other things to consider -- like capacity factors.
A capacity factor is the average power generated divided by the maximum power generation possible, or a measure of how close a power source is to operating at full capacity over time. Wind and solar power have among the lowest capacity factors, which means more capacity has to be installed to generate the same amount of power. Consider the following table comparing American nuclear, wind, and solar on these metrics from 2015 operations:
In other words, to replace all of the electricity generated from 98 GW of nuclear energy would take 309 GW of wind power and 570 GW of solar power at current capacity factor ratings. This isn't to say that wind and solar aren't valuable sources of clean power, but it goes to show the importance -- and efficiency -- of nuclear energy.
What does it mean for investors?
This simple analysis shows the difficulty facing regulators and politicians that consider neglecting existing nuclear power plants. Reactors that close will need to be replaced by fossil sources -- resulting in a net increase in emissions -- or impossible amounts of wind and solar power. This also hints that states such as Illinois will eventually need to allow subsidies for all forms of clean power generation, which includes nuclear energy. Investors have already seen this demonstrated. Not long after Illinois told Exelon to beat it, New York passed a Clean Power Standard that provided subsidies for wind, solar, and nuclear power. Exelon responded by investing $300 million into existing nuclear facilities, including purchasing a troubled power plant from Entergy for $100 million.
If New York's move sets a precedent for other states to follow, then Exelon could become considerably more profitable in the next several years. After all, in the last seven years it has lost $800 million from the two soon-to-be-closed facilities in Illinois. Simply breaking even at those two facilities alone would boost EPS by 5% compared to last year. In other words, I think long-term investors should be more optimistic than the stock price would suggest.
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