Energy prices may rise in response to the nuclear crisis in Japan

Author: Peter Gardett, AOL Energy

As Japan continues to grapple with the ongoing crisis following the March 11 earthquake, the U.S. power sector is preparing for a backlash against the recently resurgent nuclear power industry.

An explosion at the Fukushima nuclear power plant caused by an earthquake sparked ongoing efforts to control the reactor, and potentially dangerous fallout from the unit has sparked renewed concerns about nuclear power in the U.S.

Ratings agencies say heightened concerns about both existing and new nuclear units should improve the short-term outlook for natural gas markets, particularly liquefied natural gas (LNG), which can be imported to Japan to provide power in the absence of nuclear units.

“Gas is a natural replacement fuel” for Asian utilities dealing with nuclear outages, Fitch Ratings director of energy and utilities Arnon Musiker said in releasing a research report on the sector.

In the longer term, responses to the crisis in the Japanese nuclear industry may increase the attractiveness of renewable fuels for use in energy generation. Efforts to develop solar, wind, biomass and energy efficiency have intensified in recent years, but their share of the overall U.S. electricity market is limited, in part because renewable supplies can be unreliable and the units are expensive to build and integration with the large-scale system.

“The issue of nuclear power safety will drive renewed interest in renewable energy use in the U.S. despite concerns about the higher costs of renewable energy,” Global Change Associates president Peter Fusaro told AOL. Fusaro is hosting the upcoming Wall Street Green Summit and says financing for large-scale renewable projects continues to attract “big money” in the financial sector.

Analysts from the Raymond James investment company highlighted the prospects for generating energy from renewable sources in a report published after the earthquake. “Will Japan Earthquake Become a ‘Nuclear Renaissance’?” – the report asked, stating that other low-emission fuels would be likely beneficiaries.

Reliability and a reduced carbon emissions profile have made new nuclear units more attractive in the U.S. and elsewhere over the past decade, especially as older units approach retirement. There are currently 443 nuclear units operating in the world, but according to the World Nuclear Association, 143 are scheduled to be closed by 2030.

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With 62 reactors being built around the world, regulators in the U.S. and other countries expected nuclear power to help meet growing energy demand. The Nuclear Energy Institute reported that 23 new nuclear units are planned in the US, although most of them have not yet been fully approved and construction has not started.

Currently operating nuclear power plants could be in more trouble than new projects that can adapt to new safety requirements, senior director of Fitch Ratings’ public finance group Chris Jumper told AOL. The impact will be site-specific, and additional equipment costs could be added to the base rate that determines energy prices for consumers, Jumper said.

Since the Fukushima accident, U.S. political leaders have largely maintained their broadly positive stance on nuclear energy.

President Obama included nuclear capabilities when talking about the need to “diversify” U.S. energy during a news conference called after the Japan earthquake, and Energy Secretary Steven Chu defended the administration’s current approach to including nuclear energy in the new electricity generation process. The Obama administration’s current budget requests include loan guarantees that would promote the development of new nuclear plants, currently viewed with concern by investors concerned about mainstream and political risks.

Proposed loan guarantees for new nuclear plants have opponents even within the energy industry, who argue that arbitrarily low liability limits for owners and operators of nuclear plants are shortcomings in regulatory oversight. “The recent earthquakes in Japan and the subsequent loss of 10% of Japan’s electricity… show how fragile it is to rely on any ‘single’ energy source, especially one that poses an extremely high risk of air and water contamination,” Scott Sklar of the Environmental Advisory . clean energy The Stella Group told AOL.

Most energy industry officials contacted by AOL said they were unable to take a position on the future of the nuclear industry while disaster relief efforts continue, but several energy industry representatives said they expected “an evolution ” political environment over the next few months as the consequences of the Fukushima accident become clear.

“(Constructing) a nuclear power plant is going to be much more difficult in the near future than it was a week ago,” Bob Cleaves, president of the Biomass Power Association, told AOL. Cleaves said his organization supports an “all of the above” energy policy that includes reliable baseload energy such as biomass as well as sources of intermittent electricity production such as wind power.

Launched in spring 2011, AOL Energy will provide news, data and tools to the electricity sector as it innovates, reinvests and empowers itself in a rapidly changing regulatory, financial and market environment. Follow Peter on Twitter at @petergardett.