Taxes and Nuclear Power

Joe Somsel, a contributor and frequent commenter here on the blog, asked me to share this with our readers:

Since I'm posting on the day my US and state income taxes are due, let me expound a bit on relative tax treatments for nuclear generation compared to wind and solar generation.

In the US, the Internal Revenue Service allows accelerated depreciation (actually "Modified Accelerated Cost Recovery System" (MACRS)) that classifies assets into classes then gives the percent of first cost (basis) that can be deduced per year from taxable income. [Note - I'm not a tax accountant - I just took some classes!]

Solar and wind equipment used to make electricity is a five year asset class while a nuclear plant is a 15 year asset class. Both exclude the underlying land values which do not depreciate.

That means that the owner of two new $3000/kW plants, one wind (or solar) and one nuclear, could write-off $960 the first full year for his wind or solar plant but only $285 for his nuclear plant per kilowatt of capacity.

At the 39 percent top corporate tax bracket for 1,500 MWe installed, that's almost a $40 million a year difference to solar or wind in after tax earnings that can be used for dividends whether electricity is sold or not.

For perspective, with 50% equity and 6% ROE, total before-tax profits would be about $135 million if everything went well. The after-tax profits available for distribution or re-investment at the top rate would be about $83 million. This favorable tax treatment increases the cash available for dividends from wind or solar by almost 50% over nuclear for that second year of operation.

Again, I'm no tax or financial accountant but this is a reasonable ballpark estimate of the difference that tax treatments make in investment decisions for new generation. Specialists in taxation are welcome to correct or expound on this estimate in the comments.

Comments

Activists' Claims Distort Facts about Advanced Reactor Design

Below is from our rapid response team . Yesterday, regional anti-nuclear organizations asked federal nuclear energy regulators to launch an investigation into what it claims are “newly identified flaws” in Westinghouse’s advanced reactor design, the AP1000. During a teleconference releasing a report on the subject, participants urged the Nuclear Regulatory Commission to suspend license reviews of proposed AP1000 reactors. In its news release, even the groups making these allegations provide conflicting information on its findings. In one instance, the groups cite “dozens of corrosion holes” at reactor vessels and in another says that eight holes have been documented. In all cases, there is another containment mechanism that would provide a barrier to radiation release. Below, we examine why these claims are unwarranted and why the AP1000 design certification process should continue as designated by the NRC. Myth: In the AP1000 reactor design, the gap between the shield bu...

What Happens During a Refueling Outage?

You may have noticed over the past few weeks that a number of nuclear plants are shut down for refueling outages or are resuming operations after just returning from one. This type of routine outage usually occurs in the spring or fall when electricity demand is low so that nuclear reactors can replace about one-third of the spent fuel rods with new fuel and conduct other routine maintenance and repairs at the plant. To get a better sense of how refueling works at a nuclear energy facility, I spoke with Marcus Nichol, NEI’s senior project manager for used fuel storage and transportation, and asked him to explain the basics. Why does a nuclear plant need to replace one-third of its fuel? Nichol: The main purpose of a refueling outage is to replace older fuel that is depleted—meaning it can no longer efficiently produce energy from nuclear fission reactions—with new fuel. This “used fuel” has typically been used in the reactor for four-and-a-half to six years before it is pe...

How Much Land Does Nuclear, Wind and Solar Really Need?

Not too long ago, we reviewed a report that looked at nuclear energy (and other energy sources) as biodiversity agents. This had to do, in part, with the amount of land a facility needs to function. Nuclear energy and fossil fuel plants use relatively little, wind farms and solar arrays quite a lot of land . Based on an objective and transparent analysis of our sustainable energy choices, we have come to the evidence-based conclusion that nuclear energy is a good option for biodiversity conservation (and society in general) and that other alternatives to fossil fuels should be subjected to the same cost–benefit analyses (in terms of biodiversity and climate outcomes, as well as sociopolitical imperatives) before accepting or dismissing them. Writer Barry Brook, who collected 75 scientists to endorse his paper, is interested in land use as it impacts flora and fauna. Biodiversity concerns do not get as much play as they might – and, when they do, it annoys many when land is withdraw...

NEI Nuclear Notes

Search This Blog