Monday, May 12, 2008

Let the Battle Begin: The Wall Street Journal on the Expense of New Plants

The argument that building new nuclear energy plants will represent ruinous expense for anyone to undertake has percolated among nuclear opposition folks without much mainstream notice. Now, however, the Wall Street Journal has taken a crack at it. It's nicely researched and written up to WSJ standards, although you've heard the argument of the piece many times. Here's the lede:

A new generation of nuclear power plants is on the drawing boards in the U.S., but the projected cost is causing some sticker shock: $5 billion to $12 billion a plant, double to quadruple earlier rough estimates.

$5 to $12 million? That seems a pretty big spread. Here's a longer taster, with a soupcon of that "on the one hand, on the other hand" thing journalists use to cover all bases:

Several things could derail new development plans. Excessive cost is one. A second is the development of rival technologies that could again make nuclear plants look like white elephants. A drop in prices for coal and natural gas, now very expensive, also could make nuclear plants less attractive. On the other hand, if Congress decides to tax greenhouse-gas emissions, that could make electricity from nuclear plants more attractive by raising costs for generators that burn fossil fuels. Nuclear plants wouldn't have to pay the charges because they aren't emitters.

Coal and natural gas are not really rival technologies. They are part of the energy mix and will be for a long time. So-called clean coal and carbon emission sequestration may cause their stock to rise in the greenhouse-gas-reduction sweepstakes, but likely not at the expense or even benefit of nuclear energy. Likewise, the rise and fall of prices in those markets would have next to no impact on nuclear energy because nuclear energy solves different problems.

The second point  - that Congress will turn a fishy eye on fossil fuels - is widely perceived to be certain, which is what has led in part to the nuclear renaissance and also to the increased interest in solar, wind and tide technologies. (Other non-emitting energy sources are not mentioned at all in the article, an odd omission.)

What the article represents is what newspapers are actually good at, which is pushing back at orthodoxy. That nuclear energy now seems the orthodox way to address climate change is heartening; that the Wall Street Journal would want to push back at nuclear energy and try out the expense argument is inevitable - it gets the issue into the public sphere. Fine: it had to happen sooner or later and it's not that tough an argument.

The article treats nuclear energy as though it were an all-or-nothing proposition; it's not. Coal, gas, wind, solar, nuclear and all the usual suspects will feed the energy grid. Nuclear has a place at the table, but it won't scarf down all the food.

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Leave it to our friends at the Heritage Foundation to have a go of their own at the WSJ article:

The simple fact is that energy prices are increasing and if the nation wants to limit CO2 emissions, then nuclear must be part of the answer. So the question for policy makers is two-fold. First, what can be done to reduce energy prices overall and second what can be done to reduce the construction costs of nuclear power plants.

Heritage lists six proscriptive points, some of which reiterate our own, some of which are new:

...Commit to the free trade of commodities. Simply lifting tariffs on the products, like steel and cement mentioned by the WSJ would reduce construction costs. The U.S. would have the added benefit of gaining access to the resources to build the energy plants, of whatever source, to meet its energy demands.

And some of which are conservative boilerplate we could take or leave:

Sixth, minimize regulation. The nuclear energy industry is one of the most heavily regulated in the country. At best, it will take nearly four years before the Nuclear Regulatory Commission will give approval to build a new plant. Furthermore, regulatory mandates have drastically increased the amount of construction materials needed to build a plant despite experience showing that such reinforcements were unnecessary.

Minimizing regulation has done this country so much good, hasn't it?

But read the whole thing - and the WSJ article too - and watch the fur fly.

4 comments:

PFPeterson said...

There is an important misconception now about the role of commodity prices in nuclear power construction costs. There is a detailed 1970's report by ORNL on the quantity of commodities needed to build a 1000 MW PWR of that era, which is quite similar to the quantities needed to construct a BWR. A 1000 MW PWR needs 36 t of steel per MW of installed capacity. Recently, commodity steel has been around $600/t, so the commodity steel needed to build a nuclear power plant now costs $21.5 per kilowatt, out of the $3000 per kilowatt price now being discussed.

Adding together all of the commodities (steel, concrete, copper, etc.), the total cost is around $36/kW (steel is the single most important ingredient). Commodity prices have nothing to do with recent inflation in cost estimates for nuclear power plants. It's just like uranium--extremely large increases would be required before commodity costs will have any substantive effect on nuclear power costs.

The Heritage Foundation is off base in a couple of areas. First is on the idea that it is important to "minimize regulation". The only reason that existing U.S. plants are now operating with extremely high reliability is because utilities have uniformly realized that there exists a very strong correlation between safety (NRC's goal) and reliability (industry's goal). There are a few areas where one could argue that NRC's requirements do not naturally align with higher plant reliability and revenues, but overall these are tiny compared to the benefits of operating at above 90% capacity factor. Blaming the regulator is a lousy excuse that most likely points to less than competent management.

The same applies to new construction. Areva's Finland project is behind schedule and over budget in part because Areva had only finished about 40% of its detailed engineering. The entire idea behind the NRC's Combined Construction and Operating License is that everything has been thought out in detail, in advance. This is good business practice.

Heritage foundation also complains that post-TMI safety regulations have increased the quantity of construction materials needed to build a nuclear plant. Steel and concrete inputs increased by about 30% in the EPR and ABWR compared to 1970's designs, but all of this has been reclaimed with the new passive LWR designs (AP-1000 and ESBWR).

Nuclear energy is all about making energy using extremely small amounts of material. Thus it's all about competence in executing technically challenging work.

If a vendor today can charge $3000/kW for something that takes $36/kW of commodities to build, then there's a room for nuclear construction prices to come down a lot in the future. But it will take highly competent commercial organizations to compete in this market, and for them meeting safety requirements will come as a natural part of the more complex problem of developing excellent reactor designs and executing modular construction with a high degree of factory prefabrication, and making a rapid transition toward passive safety systems and advanced reactor designs.

The truth is that the most competent vendors will place a very high value on the USNRC's technical stamp of approval that comes with a Design Certification and Combined Construction and Operating License. Just as with current plants, NRC's independent assessment provides one of the best measures an investor can ask for in judging their investments in nuclear energy.

Centrillium said...

'Coal and natural gas are not really rival technologies' - well, a coal plant and a nuclear plant operated by the same utility may not be competing with each other in the marketplace, but when utilities considering investing in new generating capacity are actively deciding between coal, natural gas and nuclear, surely its fair to describe them as 'rival technologies'?

(I know NEI represents utilities that operate fossil fuel plants, and therefore has to mince words a bit, but as someone with genuine concerns about carbon emissions I would rather not see new coal plants built in the US.)

Joseph Somsel said...

One area of regulatory improvement is in time to a COLA.

Using a certified design, NRC is forecasting 42 months from acceptance of an application to issuance of a combined operating license. At that point, nuclear-grade concrete can be poured. Of course, it takes maybe 18 months to even develop the application. That means it takes 60 months or 5 years from "gleam in the CEO's eye" and the beginning of cash outflow until license.

In comparison, the Japanese claim they can go from first concrete pour to 100% power in 37 months.

If these estimates hold, 60% of the schedule is driven by regulation. The old adage, "time is money" remains true.

Surely we can do better than that.

Dash said...

just pointing out a wishful thinking typo here...

"$5 to $12 million? That seems a pretty big spread."

its billion... I mean, I know you know, just saying for clarity sake...
(I wish it was actually million)