(Bloomberg) -- Southern Co. still sees benefits in finishing two long-delayed, over-budget nuclear reactors in Georgia, even as new cost estimates show the overall price tag of the project has swelled to at least $25 billion.
Southern Chief Executive Officer Tom Fanning stressed that, while the U.S. utility owner is still deciding the fate of the Vogtle nuclear project, dropping it altogether would leave the company with “nothing to show” for its investment. Southern, which owns a 46 percent stake in the reactors, would have to shoulder at least $11.5 billion in costs alone, including financing expenses, to finish the plant by February 2022, company estimates released Wednesday show. That excludes $1.7 billion that Southern's slated to get after the project's contractor, Westinghouse Electric, went bankrupt.
“When you abandon, you have nothing to show for the amount of money you spent,” Fanning said in a call with investors Wednesday. “If we go forward, we have a nuclear plant that will serve us for decades to come.”
The Vogtle project has come to represent the last hope in bringing about a long-hyped U.S. nuclear renaissance that has so far failed to materialize. The reactors became the only ones under construction in the country this week when Scana Corp. dropped a project in South Carolina -- a testament to how cheap natural gas and renewables are undermining the economics of nuclear.
Southern said it would cost it about $6.3 billion to cancel the endeavor. Meanwhile, finishing the job, even at a higher price, would have a smaller impact on customer's utility bills than previously expected because interest costs are lower, Fanning said.
“They've got the conundrum of having spent billions of dollars,” Paul Patterson, a New York-based analyst for Glenrock Associates said by phone Wednesday. “That's why abandonment in the middle of a project usually looks unattractive.”
Southern epitomizes the challenges facing both the U.S. nuclear and coal industries. Two months ago, it abandoned the first-of-its-kind Kemper coal-gasification plant in Mississippi amid ballooning costs, dealing a blow to “clean coal” hailed by President Donald Trump. Earlier Wednesday, it reported its biggest loss in a quarter century as it wrote off that project.
Southern and its utility partners expect to reach a decision on Vogtle this month, and file a recommendation with Georgia regulators, Fanning said.
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“It might be a close call,” Kit Konolige, a New York-based utility analyst for Bloomberg Intelligence, said by phone. “The biggest issue is, what's your level of confidence that if you do go ahead, it's going to be done on time and on budget.”
The economics of both the nuclear and coal projects were undermined by cheap natural gas flowing out of U.S. shale formations and a surge in renewables that have dragged electricity prices to record lows. For the first time in more than 30 years, America's reactors have fallen behind wind farms, solar panels and other renewable energy suppliers as a source of electricity.
‘National Security'
“This thing is in our national security interest,” said Fanning, adding that he's worked closely with members of the Trump administration on the project. Ceding the market for new reactors to Russia and China, “is something we all should consider,” he said.
Southern rose 2.6 percent to $49.78 at the close in New York.
“Just putting some boundaries” around what Vogtle could cost them encourages investors, Konolige said. “It's a big number, but in the context of a very big company like Southern, not necessarily a massive problem."
The effect of Scana's decision to cancel its nuclear project on Vogtle is “mixed,” Fanning said. Layoffs from the South Carolina project mean Southern may have an easier time finding skilled laborers to work on the Vogtle reactors, he said.
“All the major components are either erected or on site, so the major equipment is essentially done,” Fanning said of the Vogtle project. Remaining work consists of buying and installing gear that's priced as a commodity, such as power cables. “So it's a labor-management and commodity issue.”
To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net, Jim Polson in New York at jpolson@bloomberg.net.
To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Carlos Caminada
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