You can’t do a thing about yesterday. But when costs increase, imaginations wane and options narrow.
I was inspired to write this after reading another article on Plant Vogtle. A recent Georgia Public Service Commission report found that the nuclear reactor will cost $1.6 billion more than energy from other sources. Vogtle is the only active nuclear power project underway in the United States. It is notoriously behind schedule, over budget, and troubled by a revolving door of contractors managing the project.
Yet its sponsor, Georgia Power, appears ready to push forward for the completion of the project. To me, this is insane.
Georgia is bathed in sunlight practically year-round. The photons generated by the sun (a natural nuclear reactor that has been in service for 4.5 billion years) are free for the taking. On a drive to Columbus, I passed a massive solar power farm west of Butler. Georgia is well positioned to take advantage of its geographic and climatic advantages by investing in clean energy technology.
So why does the state’s energy utility continue to invest in a questionable nuclear power project?
“Imagine a company that has already spent $50 million on a project. The project is now behind schedule and the forecasts of its ultimate returns are less favorable than at the initial planning stage. An additional investment of $60 million is required to give the project a chance. An alternative proposal is to invest the same amount in a new project that currently looks likely to bring higher returns. What will the company do? All too often a company afflicted by sunk costs drives into the blizzard, throwing good money after bad rather than accepting the humiliation of closing the account of a costly failure.” (p. 345, Thinking, Fast and Slow)
Kahneman goes on to describe how mental accounting brings about this sort of thinking in his chapter titled “Keeping Score.” While I haven’t driven into a blizzard lately (they’re somewhat infrequent in Savannah), the analogy is on point. When trouble is ahead of you, it serves you well to look around for better alternatives or simply stay put until the blizzard passes.