Regulations Have Prevented Electricity Price Declines In The US
Informed by Wright’s Law,1 ARK’s research indicates that, apart from WWII, US electricity prices fell consistently from the late 1800s until 1974, as shown below.
What happened in 1974? The 1974 Energy Reorganization Act split the Atomic Energy Commission into the Nuclear Regulatory Commission and the Energy Research and Development Administration. More than a coincidence in our view, nuclear energy cost declines reversed, as shown below. After the 1974 Energy Reorganization Act, nuclear costs turned up, preventing a further decline in electricity prices.
Now that small modular reactors are limiting the risks associated with large-scale nuclear energy projects, if regulators were to shift from hindering nuclear development to supporting it, then overnight construction costs could drop from ~$10,000 per kW hour today back to and below the ~$1,000 achieved during the early 1970s.
While reversing ballooning costs might seem like a lofty goal, SpaceX has set the precedent. After years of rising rocket launching costs caused by little to no competition to the government defense contractors, SpaceX disrupted the industry by reimagining its cost structure with reusable rockets and launched the Falcon 9 in 2015. Since then, SpaceX has continued to lower costs, changing the trajectory of the space industry—a useful model for the nuclear industry.
If the trajectory had remained in force, the capital costs associated with nuclear would have been comparable to those associated with utility solar and wind today, as shown below. That said, the higher utilization rate of nuclear compared to intermittent energy sources like solar and wind could lead to much lower baseload power costs—an exciting opportunity.
Now that nuclear energy is regaining support from regulators and environmentalists, execution risk—particularly cost overruns—is likely to be the primary concern for capital allocators during the years ahead.