What Exelon's Wind Energy Buy Means For the Future of Nuclear Power

(MoneyWatch)  Exelon (EXC) announced this week it was buying John Deere Renewables for as much as $900 million, a purchase that marks the company's entrance into the wind generation business and suggests its lack of confidence in a nuclear energy renaissance. As the largest U.S. utility owner and the country's biggest nuclear generator, Exelon's actions often foreshadow where the energy industry is headed.

It wasn't so long ago that President Obama gave nuclear power a huge boost by endorsing the energy source in his State of the Union speech. A month later, the Energy Department announced $8.3 billion in government-loan guarantees to help Southern Co. (SO) to build a new nuclear power plant -- the first in more than 30 years -- in Georgia.

But in the months since, the momentum for the much-touted nuclear renaissance has slowed to a crawl for a number of reasons. For one, energy prices are too low right now to justify the expensive and lengthy process of secure financing and receive regulatory approval for a new nuclear plant, let alone building the reactor itself.

Plus, the Obama administration, which had hoped to triple the amount of available loan guarantees for new reactors to $54 billion, has been unable to get that funding measure passed. Even the remaining $10 billion in loan guarantees that is still available has yet to be awarded by the DOE -- although that announcement is expected. And that's the problem with nuclear power: It's impossible to get the financing to build a new reactor without loan guarantees from the government. Finally, without a climate-change bill that puts a price on carbon, nuclear power has difficulty competing with other low-cost, heavy polluting forms of energy, like coal.

Exelon, which has supported legislation that puts a cap and a price on greenhouse gas emissions, isn't waiting around. The company made a promise two years ago to reduce its carbon-dioxide emissions. Nuclear reactors don't produce greenhouse gas emissions, but because that industry has stalled, Exelon is seeking out other alternatives. This time it's wind, and it's no small potatoes deal either.

Exelon's wind purchase includes $860 million for existing turbines and $40 million if John Deere starts construction of 230 megawatts of projects before the deal is finalized at the end of the year. The 735 megawatts of installed wind capacity it's buying is enough to power up to 220,000 homes in the eight states. About 75 percent of the wind megawatts are already contracted out, which provides some stability for Exelon. With this single deal, Exelon will become one of the country's largest wind operators.

Low energy prices and sapping energy demand has not only cause Exelon to back off nuclear energy, it's also fueled a surge in acquisitions. In fact, acquisitions in the U.S. power industry grew more than 20-fold by value in the first eight months of 2010, according to a recent Bloomberg report. And it's a trend that will continue as companies try to snap up assets while electricity prices remain low.

Modified image uses photos from Flickr user Paul J. Everett and zudark, CC 2.0
Related:

• Obama Speech: Nukes, Offshore Drilling and No Love for Cap-and-Trade
• Exelon Finally Gives Up On NRG Bid