How Much Is that Pony in the Window?

The purchase of a major asset, whether a car or a new power plant, frequently involves a trade off between the purchase price and operating costs. A column by Joseph B. White published in The Wall Street Journal's Eyes on the Road column on June 16, 2008 titled, "Still Waiting for Hybrids to be the Smartest Buy", updates us on the trade-off between the higher purchase price and lower fuel costs of hybrid cars like the Toyota Prius.

White shows that, even with gasoline at $4 per gallon, a typical consumer would have to drive the hybrid vehicle for more than seven years to begin to realize net savings compared to the non-hybrid alternative. Said differently, if the consumer expects to keep the vehicle for more than seven years, purchasing the hybrid could make sense economically. Interestingly, the article also mentions some of the non-economic reasons buyers offer to explain their willingness to pay a premium for a hybrid. Among them are a desire to be "greener" and gain access to commuter lanes reserved for high occupancy vehicles and hybrid cars.

Similarly, electricity suppliers are looking at the trade off between initial construction costs and fuel costs for the next generation of power plants now under consideration. While recent press reports (typical is an article in the June 11 Chattanooga Times Free Press) often highlight the cost of constructing new nuclear power plants (i.e., the initial purchase price), they seldom mention the lower, and by comparison more stable, cost of nuclear fuel (part of the operating costs).

These articles offer opportunities for eye-catching headlines, but there is much more to the story. For the consumer, the real issue is not what the initial purchase price will be, but what will be the "cost of ownership", i.e., the cost of the electricity produced by the new power plant. Our analyses and our review of outside studies indicate that the price of electricity produced by new nuclear power plants will be very competitive when they enter the market in 2016 and beyond.

Finally, as was mentioned by hybrid owners quoted in the Wall Street Journal article, there are important non-economic reasons to consider. Chief among them is the importance of maintaining diversity in our energy supply, helping to keep our electric system among the most reliable in the world. NEI has long maintained that the nation will need to tap all of the available options to meet its electricity needs, including efficiency and conservation, renewables, clean coal, and gas.

Later this week, the NEI Blog will present additional information on the cost of new nuclear power plants. Stay tuned.

UPDATE at 2:45pm, 6/17/08
A tip of the hat to our friend and former co-worker Eric McErlain who forwarded a link to an interesting mention of plug-in hybrid electric vehicles (PHEVs) in Nashville, Tennessee this week. Thanks, Eric.