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Commodity inflation pushing up nuclear plant construction costs

The rise in commodity prices is set to complicate the growth plans for yet another sector.

Projected costs for a new generation of nuclear power plants on the drawing boards are increasing at an enormous rate -- in some cases double to quadruple their earlier, rough estimates - - The Wall Street Journal reported Monday(subscription required).

Further, that new generation of nuclear power plants has emerged as an important component of the United States' future energy supply, due to $100-plus oil and the technology's superiority to high-pollution, coal-fired energy plants, The Journal reported Monday. However, surging costs for cement, steel, and copper, among other factors, have caused nuclear plant construction costs to soar to $5-$12 billion -- a trend that could lead to delayed or canceled projects.

Rising energy costs

Economist Peter Dawson told BloggingStocks Monday what investors should take away from the rising nuclear plant cost phenomenon is not so much a comparison of the positives/negatives of each energy technology, but the rising cost of energy, across all platforms, in general.

"Here again we have more evidence confirming the new era of higher energy costs. Some thought, at least initially, that nuclear compared to coal was both a soot pollution win and a cost win," Dawson said. "But now we're seeing that the cost win may not be as large, and in some cases, it may have evaporated." Dawson added that we does not own shares in any utility or power company.

Moreover, renewable energy sources, such as wind and solar, are not immune to commodity cost pressures, Dawson said. Both wind and solar "have made enormous strides" in lower costs per watt through technological advancement, but each has been hit by the commodity price surge: wind, by the rise in cost of materials used to build windmills; solar, the rise in the cost of infrastructure networks to transmit the power captured from solar cells.

Energy Analysis: As Dawson noted, the key data point from next-generation nuclear plant construction appears to be the higher cost of all energy forms, given rising commodity costs and other costs. Clearly, in the energy sector there are no slam-dunk, superior alternatives, from a cost standpoint, as the rising costs of cement, steel, and copper for nuclear plants demonstrate. The nuclear plant cost issue also underscores the wide reach of the commodity cost phenomenon: one wouldn't think that concrete highway construction in, for example, China, would increase the cost of electricity for U.S. homes, but it's likely to do just that.

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Last updated: July 24, 2008: 05:33 PM

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