Thursday, August 21, 2008

Should Nuclear Plants be Owned by the State?

Jerome a Paris has published the same post at several locations making a case that nuclear plants should be financed and owned by the government:

As we see news of the possible (and increasingly likely) bailout of Freddie Mac and Fannie Mae by the US Treasury, I am reminded of something that I have been writing about nuclear energy, ie that it should be financed by the State, and I'd like to extend on why I think there are fascinating similarities between the two topics, however distinct they may seem.

My point about nuclear is that it is a capital intensive form of power generation, ie that the main component of the cost of the electricity produced is the long term amortisation (or financing) of the upfront investment. That means that the single most important driver of the cost of nuclear energy is the interest rate applied. In turn, that suggests that the easiest way to lower the cost of nuclear energy is to give it access to State funding, given how the State will always be the entity that has access to the lowest borrowing.

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We need to make government able to do its job, which means using both the stick and the carrot. If you want cheap mortgages (a worthy goal of public policy), regulate the hell out of banks, and nationalize Freddie and Fannie; if you want cheap electricity, allow public funding of power plants (which, btw, will also heavily favor wind and other renewable energies) and make sure that all forms of generation are fully regulated for their externalities. ...
Be sure to check out the rest. What are my thoughts? I think governments should have as little a role as possible in the markets. Some of my reasoning for this includes the fact that: governments are inefficient, competition is gone (which helps reduce prices) and politics are always changing (which does not provide consistency if we want to have some sort of long-term energy policy). Critics to my reasonings point out that private companies "screw the customers and enrich the greedy." So what do you think? Can the government do a better job with nuclear energy than private companies?

20 comments:

David Walters said...

David, you miss the point. Jerome is noting that historically this is HOW energy systems were built. If you took this 'let the market decide' there would be no nuclear power industry anywhere in the world, especially in France, which had it's entire electrical system nationalized in 1947 as the *result* of a socialist and communist lead General Strike.

It is, however, a success story few would argue with.

This has broken down over the yeas, as Jerome noted in some of his comments, as all the leading *state* executives in companies like Aveva and EDF have been caught up with the "market" religion.

Markets really have no place in certain commodities areas, like electricity, which simply doesn't need them. But that's MY opinion :)

David Walters

Anonymous said...

One nuclear plant comes to mind: Davis-Besse. First energy put their corprate greed ahead of safety and got burned. Then again, the NRC couldn't regulate Davis-Besse as well. Both private and public companies are iresponsible when it comes to nuclear power. The simple answer: no nuclear plants.

David Bradish said...

David Walters,

I didn't see that point at all from Jerome. What I read from him was that governments can get a lower interest rate to finance and build a nuclear project. Therefore, the price of power from a nuclear plant will be lower than it would be under a private entity. This is why he argues nuclear plants should be state owned (or at least what I interpret it to be).

Joffan said...

TVA is a good example of a compromise... an organisation that is "of the government" and yet is not the government - and so has sufficient distance to be regulated effectively.

That quasi-independent arrangement won't always succeed either (and I believe that any mechanism will inevitably screw up at some point), with WPPSS as the classic case.

I tend to believe that things would move faster initially with close government support or even direction... but long term the private sector with suitable regulation will probably do best at the day-to-day process of delivering power, provided it maintains the community-responsibility approach that the nuclear industry currently appears to have in many areas.

Anonymous said...

The power went out at my house the other day (I live in Fla), and sitting around in the dark got me thinking how pervasive the uses of electricity are in our world. Well, at least in the mainstream world and even in most of the offbeat lifestyles. It is like the roads, or like the water - I don't know, are there lots of "private" water utilities out there? My experience is either municipal water or my own well (nothing in between). Maybe electricity is such a pervasive and necessary aspect of our society that it should be a "non profit." The question I have is, would the feds do a better job of running it than wall street?

David Bradish said...

would the feds do a better job of running it than wall street?

I would argue no because the Feds probably wouldn't be able to get the talent that the private industry could with higher wages.

Brian Mays said...

Well, the answer is obvious: private investment with responsible oversight and incentives from the government works best.

Jerome has a point in that government can certainly provide some powerful incentives to get investment going, but after that, one has to ask and consider whether the point has been reached at which the government is doing more harm than good.

Having seen the system first-hand in both countries, I would argue that what works in France will not necessarily work in the US. The two systems of education, employment, politics, planning, oversight, and so on and so on, are far too different to make a meaningful comparison beyond the trivial.

Joffan makes a good point that TVA is a pretty good example of what can be done in a situation that is between the completely private and completely public extremes, but even then, TVA is hardly perfect. So like anything in real life, there is a fairly narrow range of scenarios that are "optimal." We'll just have to feel our way around until we find it or come close to it. It won't depend wholly on the "free" markets, nor will it depend wholly on the government. It will require the two working together, in whatever fashion, to make the system work.

Anonymous said...

I am in favor of regulated, private utilities. Let them make their profits, but require them to justify it before a panel of experts and public advocates.

I lived through electricity deregulation (around the year 2000) while working in a professional position at a nuclear power plant. This was a miserable time to be there. My former colleagues remain miserable to this day.

I remain in the nuclear industry, but not at a utility/plant. I seriously doubt I would ever again work for a deregulated utility. Life's too short.

No need to point to Davis Besse as an example. The United States has a much better one: Three Mile Island Unit II. Speak to people who are intimately aware of the 1979 plant and organization - those who testified during the hearings - and you will come to understand the downside of market pressures on nuclear power. There is agreement that TMI-II had no adverse environmental or health impacts. TMI-II was the ultimate economic catastrophe (the ultimate market burn).

I want to be absolutely clear: I am VERY pro-nuclear and worry that even with significant deployment, the world may not meet required emissions cuts and/or security of supply. However, I also acknowledge that each plant within this industry is uniquely held hostage by the performance of its peers throughout their entire lifecycle (isn't everyone looking to Finland and France as a gauge of modern construction cost and schedule compliance?...).

We can not afford to relearn the lessons of the past.

Joseph said...

On the one hand, public ownership makes it easier to shut down something. On the other hand, it takes away part of the incentive to do so. On the gripping hand, public ownership makes it easier to stop growth without removing as much of the incentive.

Since we want to expand nuclear power and not merely preserve it, private ownership looks like a better bet.

There is a strong advantage to private ownership of nuclear energy. It will attract environmentalist hysterics and keep them away from other projects.

D. Kosloff said...

It is interesting that TMI and Davis-Besse have been mentioned in this discussion; while the government owned and operated reactors at Chernobyl have not>

Anonymous said...

When people start talking about the state running the nuclear plants, I start thinking about the way they have maintained our highway system and made it so that our schools have all the money that was needed to be maintained and staffed as needed.
Imagine a nuclear plant that is being maintained soooo well.

David Walters said...

When was the last time you couldn't get a glass of water from turning on the tap?

There are litteraly millions of Americans and their children who give thank to the US gov't building the TVA.

I think that you have to have a broad look at this, including the Stalinist state in Russia that was responsible for the Chernobyl events.

David

Anonymous said...

You missed Sacramento Municipal Utility District -- Rancho Seco; Omaha Public Power District -- Fort Calhoun; and Nebraska Public Power District -- Cooper.

David Walters said...

Nebraska Public Power District is unique in that it was written into the Nebraska Constitution in the early 1930s by a Republican New Deal governor that all generation and distribution will be in the hands of the people and not private corporations. One of the best state constitutional statues in American history.

Generally speaking the American Public Power Association states that public power entities provide power about 16% cheaper than privately held utilities.

As I stated, the worlds power grid was build as part of a gov't program because there simply was not "profit" in the last 100 years for private companies to do it themselves. It's not unlike public transit.

But David B is right, Jerome's POV on this is clear: it has to do with equity markets, interest rates and general financing. But Jerome *whole* basis of writing this is his experience in Europe which as an electric power grid that is completely state owned.

Robert Synnott said...

" But Jerome *whole* basis of writing this is his experience in Europe which as an electric power grid that is completely state owned." - That's not true; it's generally heavily state regulated, which is as it should be. Energy is too important to be left entirely to the free market. It's generally operated by private or semi-states, though.

I don't think state ownership of plants would necessarily be a good thing, but effective regulation and possibly loans mightn't be a bad idea. The TVA would be an example of a highly successful US state-aided project. Private companies also tend to have a bad record when it comes to very long-view projects with massive initial capital investment; the shareholders want to see profit in their lifetimes.

"I don't know, are there lots of "private" water utilities out there?" - There are a few. Generally in developing nations, and they generally don't work out so well...

"I think that you have to have a broad look at this, including the Stalinist state in Russia that was responsible for the Chernobyl events." - It could, though, be argued that that accident was driven partly be an analogue of market pressures; in a command economy, there was great pressure on energy producers to supply demand at any cost.

D. Kosloff said...

TVA a success? How many years were the Browns Ferry Units shut down? How long were the Sequoya units shut down? What happened to Watts Bar? Has Bellefonte been completed yet?

Also, let us not forget WUPPS.

Robert Synnott said...

I was more thinking of the TVA's non-nuclear aspect. Granted, it hasn't had great success with nukes.

Anonymous said...

WPPS was not a federal gov org, it was a bunch of local farmers, elected to a board that tried to simulaneously build five nuclear plants at two sites. That effort was doomed from the start.

D. Kosloff said...

Thus WPSS was a democratically formed government organization. So why pretend that it did not exert "state" ownership of nuclear power plants?

Arvid said...

Come on you people, since when are state owned companies inefficent?

EdF or Vattenfall or Fortum inefficient? I don't think so. They are run by businessmen and elite experts, not by politicians.

EdF is the most valuable company (mesaured by market cap) in Europe for crissakes! Does that sound like inefficiency to you?

And lack of competition? Every single place in the world where power markets have been deregulated prices have shot up. The Frenchhave the cheapest power in Europe and the least deregulated market. Process industry executives here in Sweden are constantly screaming for a reregulation of our power market.

Check your facts mister.

Still, I don't think the state should own all nukes. I have no problems if they do, but I also think private companies have a role to play.

But state ownership or not, heavy regulation is needed so state funding or loan guarantees can be justified, and they have to be for nuclear and or wind projects to make sense financially.

In the US, nuclear companies arguably only gets the carrot (loan guarantees) but not the stick.