Last week the California Energy Circuit published an article on the economics of ongoing operation and maintainence at the state's two nuclear power plants titled: Juice: Corrosive Investments. It's important to look at any sort of article like this with a jaundiced eye, because as we've seen before, it's easy to manipulate data to get the result that you want.
In particular, the authors are concerned about the cost of replacing the steam generators at both California nuclear power plants: Diablo Canyon and San Onofre. The California Public Service Commission has already approved this in the case of Diablo Canyon:
Just this fall, 5 out of the 23 nuclear units that went into refueling outages replaced steam generators. And due to the replacements, nuclear units will be able to perform more efficiently and generate more electricity. More often than not a utility will spend money on uprating existing nuclear units than adding more natural gas-fired and coal capacity.
I'm also bothered that the authors have once again set up a "straw man" when it comes to nuclear energy and renewables: That if you choose one, you can't have the other. Why not both? Again, there are some clear indications that solar can play an essential role in peak power production during the summer months when electricity demand is highest. Especially in the Southwest.
By promoting energy diversity, rather than depending too much on one source of electrical generation -- as California and the rest of the U.S. has with natural gas-fired electric capacity -- you can't be held hostage to price volatility.
But why don’t you ever hear about nuclear prices being high? You don't, because nuclear energy's distinct advantage is its low cost of operations once plants get up and running. We call this "forward price stability," and without it, retail electricity rates in California and around the country would be a lot higher.
As our CEO, Skip Bowman, said in a speech before Town Hall Los Angeles back in September, California shouldn't just go ahead with the planned work at Diablo Canyon and San Onofre, they also ought to seriously consider lifting the moritorium on new nuclear plant construction in the state. If they are serious about reducing air emissions and freeing the state from volatility in natural gas markets, they can’t leave nuclear out of the equation.
Technorati tags: Nuclear Energy, Environment, Energy, Politics, Technology, Economics, California
In particular, the authors are concerned about the cost of replacing the steam generators at both California nuclear power plants: Diablo Canyon and San Onofre. The California Public Service Commission has already approved this in the case of Diablo Canyon:
We are very worried about spending scarce resources on risky investments. We're pretty darn sure that it will become a bad deal for utility bottom lines in the long run. We certainly don't want more bankrupt utilities to pile on top of a cringing state economy.That's quite a statement to make, as the replacement of steam generators has become a pretty common occurence at American nuclear plants. In fact, replacing steam generators is probably more common and economical than many people think.
Just this fall, 5 out of the 23 nuclear units that went into refueling outages replaced steam generators. And due to the replacements, nuclear units will be able to perform more efficiently and generate more electricity. More often than not a utility will spend money on uprating existing nuclear units than adding more natural gas-fired and coal capacity.
Let us throw out a number. A rather large number. It's $37.5 billion.We ought to take a closer look at exactly what benefit you could derive from just one photovoltaic panel. In essence, it's enough electricity to warm up your shower. You won’t “reap” any pollution reductions because California will then have to rely more on natural gas to make up for the cloudy days and absent nuke plants. California already relies on natural gas for almost 50% of its electricity.
What could California do with that much money? That's over $1,000 per person in this state of 36 million people. Let's buy everyone a roof over their heads. One with at least one photovoltaic panel on top of it. We'd have enough left over to invest a few billion dollars in energy efficiency measures in businesses, hospitals, schools and homes. Imagine the energy and pollution reductions we'd reap.
I'm also bothered that the authors have once again set up a "straw man" when it comes to nuclear energy and renewables: That if you choose one, you can't have the other. Why not both? Again, there are some clear indications that solar can play an essential role in peak power production during the summer months when electricity demand is highest. Especially in the Southwest.
By promoting energy diversity, rather than depending too much on one source of electrical generation -- as California and the rest of the U.S. has with natural gas-fired electric capacity -- you can't be held hostage to price volatility.
We don't doubt that financiers will come up with the first $1.4 billion for replacing steam generators. But when the utilities start coming back to the well for the next $250 million and another $250 million, Wall Street might just start to look at ratepayers' ability to pay back the loans. Looking at the timing of this borrowing - it will come after this winter's walloping energy prices - consumers will be more than unhappy. There will be pressure to put price caps on utility bills and Wall Street won't like that. Yes, "It's the economy stupid."Ironically, the third sentence from the above paragraph boosts the economic case for nuclear energy. We all know our heating bills are expected to be high this winter--primarily due to demand pressure on natural gas markets.
But why don’t you ever hear about nuclear prices being high? You don't, because nuclear energy's distinct advantage is its low cost of operations once plants get up and running. We call this "forward price stability," and without it, retail electricity rates in California and around the country would be a lot higher.
As our CEO, Skip Bowman, said in a speech before Town Hall Los Angeles back in September, California shouldn't just go ahead with the planned work at Diablo Canyon and San Onofre, they also ought to seriously consider lifting the moritorium on new nuclear plant construction in the state. If they are serious about reducing air emissions and freeing the state from volatility in natural gas markets, they can’t leave nuclear out of the equation.
Technorati tags: Nuclear Energy, Environment, Energy, Politics, Technology, Economics, California
Comments
You don't hear about nuclear prices being high because the technology has low variable costs. Oh, and the very high fixed costs to build the plants have already been dumped on ratepayers prior to deregulation; and again onto ratepayers as stranded costs at the time of deregulation. And the key areas of financial uncertainty, the things that make investors demand much higher rates of return like catastrophic accident risks and long-tailed liability for radioactive wastes, have all been shifted to the government.
Should you see new plants being built with investor money rather than taxpayer money you will once again see discussions about high nuclear costs.
That's at least 14 reactors. Privately funded.
And waste is payed for by the utilities. Get your facts straight.
Thanks for the link. I believe these lists refer to design licensing and siting, not funding. Big difference. Had there already been 14 new reactors funded and ready to build, you wouldn't have seen the massive new subsidies to design certification (e.g., NuStart) and plant construction that have emerged from Congress over the past couple of years.
Do share if you find documents that the private sector has already inked the financing deals, and that these deals aren't contingent on the rash of federal handouts from the Energy Policy Act of 2005.
"But why don’t you ever hear about nuclear prices being high? You don't, because nuclear energy's distinct advantage is its low cost of operations once plants get up and running."
He was inferring that was an important benefit of nuclear energy in general, as opposed just with the existing fleet of reactors. For new plants, it is a good deal more complicated.
My point is that the FULL cost of nuclear power is extremely high, and that the high overall cost (and long construction time) greatly mitigate the benefits of low operating costs from an investor (or regulated customer) perspective.
While the very high capital cost for existing reactors is sunk (borne by ratepayers through bankruptcies, higher rates during past periods, and shifting of stranded costs), it is not a sunk cost for new reactors.
Furthermore, it is far too simplistic to say that historic costs were only high due to regulatory inefficiency and unfounded opposition, as many industry boosters allege. Nuclear is a complicated technology, and was not implemented particularly well (lots of one-off designs). Large cost overruns were common even prior to the TMI accident.
Your point about accident risk or waste management having no impact on plant investment decisions is ONLY true because these risks have been shifted to the federal government in return for a low fixed payment. Were the industry to actually bear these risks, they would have quite a large affect on the investment patterns and costs within the sector.
In terms of new reactors, it is also true that the capital costs won't matter once the plant starts operating. As with the old plants, the massive capital expenditures will also become "sunk", and not affect operating costs.
But these capital costs matter quite a lot when trying to build a new plant. After all, sunk capital costs are not recovered through prices, and are not available to repay investors. The investors are aware that even the new plants are complex, and often new designs that have much higher likelihood of surprises than an old, well tested technology. Rarely do these surprises reduce costs or construction time. For this reason, the industry has worked very hard to shift as much of this capital risk as possible from investors and onto US taxpayers.
I just printed out the WNA report and will look at it in more detail. Its authors do recognize the critical importance of capital costs, and the related issue of discount rates, which I'm glad to see. Assumptions in many of the studies they cite seemed unrealistic without government subsidy, however, and these assumptions seem to drive the WNA conclusions as well.
Will debt really make up as much as 60% of the capital structure for these new plants without sovereign guarantees? I doubt it. Assumed discount rates also seem on the optimistic side, perhaps wildly so, given the uncertainties involved.
I am interested in the specifics of the deal that GE offered to build plants on a fixed price that you mentioned. Please e-mail me details and documents. The address is on my website.
Having spent a long time watching federal subsidy programs, I am also skeptical that the subsidies put in place for the "first" plants will be killed after the first plants are built. Were the industry so certain that these costs were transitory, they could easily have recommended legislative language in which they would reimburse the federal subsidies on the first 4 or 8 or 10 plants with excess fees that took effect as soon as later plants came on line. No such terms were included. That says to me they aren't nearly as confident in their ability to build unsubsidized plants as they project in their press briefings and at WNA conferences.
It's also important to note that some of the large subsidies are not limited to the first few plants.
When you add baseline and new subsidies to the cost of nuclear, it is no longer inexpensive. That is the proper cost to look at, not the portion borne by investors. And this is before all of these paper economic evaluations are actually put to the test in real facilities. Do you think costs at that point will rise or fall from paper estimates? I know which way I think they will go. Nukes also face quite high market risk should demand patterns shift, a factor that would be reflected in their cost of capital.
No doubt coal has problems. I am not defending coal, and think the coal industry should be forced to grow up and pay for its own R&D and externalities. It might be reinvented by such pressure, and end up far better off than it is now.
I feel the same about nuclear. After more than 50 years of very large subsidies, it's time to step up to the plate and pay your own way. I'm glad there are no mom & pop nuclear operators any more, as you note. Aside from better operations, this shift also means that the current industry is sophisticated and well enough capitalized to bear its own new product risks. And yet, I read nuke booster sites talking of nuclear power as an infant industry. Pretty old infant...
We face quite severe challenges in energy markets, yet have not yet engaged the price system to help us to meet them. Instead, the country has embarked on a massive energy welfare program to pump federal money, liability caps, and tax breaks to all sorts of energy types. This process is hardly free from political intrusion, and not surprisingly rewards most handsomely the energy resources with the strongest lobbying presence (nuclear is at or near the top). And this process is hardly the way to map out a diversified, efficient, and innovative set of solutions to the energy challenges we face.
You aren't the first to misinterpret (and not accidentally I would say) the NEI posting on New Reactor Status as these communications to NRC are only letters of "intent" not the actual Combined Operation License applications.
Big difference... not unlike finding somebody who has crawled out onto a 10-story ledge and started yelling "I'm going to jump": Its a way of calling attention to a desparate situtation. Then again, they could be serious about jumping.
You also mistakenly identify this same contemplation as backed by private funding. Wishful thinking---but not the case as evidenced by the umbilical financial attachment being rigged through the Energy Bill to the US Treasury/American taxpayer for financing, construction, construction risk insurance, purhcased power contracts, among many other minor necessities like countering the current brain drain for operators as well as regulators before any new construction has a hope of being viable.
Even then that's for parcelling out to as many as 6 new reactors, not 14. Given the history of this meglomania, it would fall far short of completing even 6.
Jim,
You termed steam generator replacement as a "low risk financial operation" just as Diablo Canyon sunk more than $700 million into its replacements. I'd say that makes them a high stakes roller given the many surprises that still lurk within containment (i.e. pressure vessel embrittlement, the same stress corrosion cracking that destroyed the steam gens is attacking the same susceptible materials throughout the pressure boundary) and even U.S. energy policy (like the inevitable advent of more and more demand side management through cheaper and quicker efficency and conservation).
That puts a lot of pressure on license extension for a reactor sited next to the San Andreas fault line.
Paul, NIRS
I appreciate your candor on the subsidies front. I don't believe nuclear would do nearly as well as you do under market competition as you do. I also think that nuclear has quite a few energy security downsides that offset its potential long-term ability to displace imported energy (either through electric cars or displacing the imported LNG so many people are projecting).
However, I do very much concur with your views that the industry got too much in the Energy Bill, and that the battle over the most attractive energy resources should be fought in the marketplace, not amongst lobbyists and restricted access Conference Committee debates.
I would still appreciate if you provided me with information or contacts for the GE fixed price offer that you mentioned in an earlier post. I would also appreciate a citation for the externality study you are referencing as the most respected one. I'm curious to learn more about this specific report and how its authors dealt with some of the very complex issues that this type of undertaking always involves.
Finally, I should point out that there is a financial downside to the nuclear executives getting everything they wanted and more in the energy bill. That danger is complacency. The industry remains at severe financial risk from any single accident. This risk is greatest for an accident or attack in the US, but remains substantial even for an incident abroad.
Their desire to streamline licensing and expell dissenting opinion from the licensing and construction process, while reducing risks of delay, also reduces the ability to catch problems early. Perhaps they are perfect and their internal teams have properly vetted all contingencies to deliver a brand-new, complicated engineering project without a hitch. History in many realms of human endeavor doesn't support this viewpoint however.
I just checked the link you provided regarding the fixed price offer for a new reactor. The piece summarizes a detailed costing estimate of a new GE reactor, but doesn't actually offer any fixed price. Instead, the specific wording is:
"These EPC costs would be the basis for a firm fixed price offering to TVA." As far as I can tell, there was no actual firm fixed price offering.
Please clarify if you can point me to such a contract anywhere in the US nuclear industry -- even with the massive new subsidies from the Energy Policy Act of 2005.
Thanks,
Doug