Wednesday, September 24, 2008

Go Slow or Go Fast?

A new article in the business section of the New York Times by Matthew L. Wald explores the expansion of nuclear power in the US. In this article, the question is not if, but how fast?

With the federal government offering the nuclear industry $18.5 billion in loan guarantees and billions more in production tax credits and insurance against bureaucratic delays, at least a few new reactors seem certain to be built.

But how many?
It then goes on to discuss "two opposing viewpoints on expanding nuclear power," with Roger Gale, a former DOE official and consultant, presenting the slow and cautious approach, and General Electric's John Krenicki posing the case for a "large-scale campaign to build plants" to capitalize on economies of scale.

Other people interviewed for this article include Michael Wallace, the chairman of UniStar Nuclear Energy, on his company's strategy for building multiple plants simultaneously and NEI's Richard Myers, who discusses the possibility of a large-scale construction of nuclear reactors in the US.

One thing that left me wondering, however, is the final paragraph. When discussing a future in which "companies line up to build nuclear plants," Mr. Wald concludes
Few American companies will be in the line. Of the four American companies that sold the bulk of nuclear reactors in the 1960s and 1970s, Westinghouse, the biggest, is now owned by a Japanese company, and General Electric is in a global partnership with a different Japanese company. The other two companies were absorbed by larger players.
By "American companies," does Mr. Wald mean American-owned companies, companies that employ Americans, or what? What about the many companies that are hired as contractors for a project as large as the construction of a new nuclear reactor? Do they not count?

In a world with an economy that becomes ever more global with each passing year, it is hardly surprising that the few companies in the world that sell nuclear reactors are international companies. Perhaps Mr. Wald does not realize that one of the "other two companies" that he mentions -- what was once the civilian side of Babcock & Wilcox's US nuclear business -- is now part of the French-owned nuclear company AREVA, which is one of the key partners in UniStar Nuclear Energy, the company that is mentioned in his article.

Nevertheless, this article is definitely worth a look.

16 comments:

Rod Adams said...

Matthew Wald uses an interesting phrase in the early part of his article "Even its boosters say nuclear power is not a short-term solution."

Reading through the next couple of paragraphs, however, indicates that Wald believes that Exelon's ownership of a large fleet of operating reactors makes it a natural "booster" of the technology.

Nothing could be farther from the truth. The companies that will be financially threatened the most by a booming nuclear industry are those that own existing generation assets built with 1950s and 1960s vintage technology and that are saddled with aging work forces that cannot see the changes in the world since the 1990s.

We are no longer in an era of cheap natural gas, or in a place where people will continue to allow coal fired power plants to operate under grandfathered, pre Clean Air Act emission limits.

No - now is the time to realize that boosters are needed in the nuclear industry, that serial production works to drive down costs, that there is no reason at all to accept the notion that a nuclear plant will have higher capital costs than a coal plant that meets even today's emissions standards. If carbon dioxide is included as an emission needing control, the competition is not even close.

Clean, proven nuclear technology is actually simpler to build and operate than even moderately clean coal.

However, a "go slow" approach allows big, established companies like Exelon to wrack up another decade or more of exciting profits - at the expense of all of the rest of us.

Anonymous said...

Yup - Rod Adams is right. He should include Entergy in this, too.

Brian Mays said...

Well, Rod, I agree that Exelon is a poor choice for a "booster"; although, it is often perceived as one (particularly by journalists) because of the size of its nuclear fleet.

However, most people miss a very important point: because Exelon has a large fleet of operating reactors, nuclear makes up a substantial portion of its generation portfolio, which makes Exelon much less likely to be interested in a new nuclear build. Smart companies and smart executives know better than to put most of their eggs in too few baskets, and skewing Exelons's portfolio even more towards nuclear is undesirable from a risk management point of view.

Besides, Exelon has had a somewhat spotty record (to the point of bordering on schizophrenic) when it comes new reactor technology. At the beginning of this decade, it was involved in the development of the pebble bed modular reactor, but then dropped it like a hot potato, once the winds began to change and it became apparent that building a new generation light water reactors was not the impossibility that everyone thought it was in the nineties.

Now, I suppose that it could be argued that this indicates a bullish attitude and an enthusiasm on the part of Exelon to build something sooner, rather than later, but I could equally make the argument that this indicates a lack of any real vision.

Of course, personally, I favor the "go fast" approach, but it is difficult to see it happening without a clear vision on the part of someone in a position to make things happen. Where will that vision come from? That's a difficult question for me to answer today.

The main problem is that attempts to form a vision of a reasonable future energy policy are being obscured by pixie dust, fairy tales, and mythical creatures, such as "Grand Solar Plans" and "Clean Coal."

Frankly, it does not matter if proven nuclear technology is actually simpler to build and operate than even moderately clean coal, if that moderately clean coal is never built. What is being touted as "clean coal" is today at the stage of tiny pilot plants, with no plans to build a real plant. For example, the Vattenfall plant that was launched this month in East Germany is only a 30 megawatt plant, and we do not yet know how well it will work! This is a marketing point, not a serious electricity generation technology. (Well, maybe it could compete with wind and solar -- this is Germany, after all, with some of the highest costs for electricity in the developed world.)

Sadly, I'm sorry to say that we're still fighting dirty coal, which already has economies of scale on its side. Nuclear will need the same advantages that come from scaled production, if it hopes to compete.

Ray Lightning said...

By looking at the post, I thought you would be discussing between thermal (slow) reactors and fast reactors.

I support fast reactors, and we should go there the fastest possible.

Thermal reactors are good only when we are discussing Thorium in a molten salt reactor.

Of course, any form of nuclear power is way superior to the alternatives.

Let's go with the generation 3+ designs for now (AP-1000 or ESBWR etc..) and get into the "fast" mode very soon.

gunter said...

Let me get this straight... is that a choice between issuing more subprime loans via toxic federal loan guarantees on one one nuke or an entire atomic "subdivision"?

Rod Adams said...

@Gunter - There is an enormous gulf between a federal bailout of stupid financial investments with the government paying the full cost of bailing out exceedingly rich bankers and the federal government, deciding in a democratic fashion that a new nuclear industry needs loan guarantees as a kick start.

The "Wall Street investors" who have shied away from investing in real infrastructure projects like new nuclear power plants are the ones that built a paper empire and stole money from taxpayers while they were doing it. Yet those are exactly the same authorities that you and many other anti-nuclear activists have used in your appeal to authority arguments along the lines of "even Wall Street will not invest in nuclear plants."

It is good to understand just what those "authorities" decided was a better investment than new nuclear power plants over the past ten years when it was becoming increasingly obvious that there were real limitations on the ability of natural gas, coal, wind and solar systems to supply all of the power that the world economy needs to function. Instead of acting like real bankers who look at the potential long term repayment ability of their borrowers, the "experts" on Wall Street were buying junk to back up junk while pocketing the fees.

Apparently the plan all along was to build the house of cards until it fell and then to dump it on the taxpayers.

No, the nuclear industry had NOTHING to do with the Wall Street bailout - it has a real product that provides a real service with a real income stream. Apparently that kind of loan just did not throw off enough immediate cash to interest people like Paulson, Rubin, Greenberg, Fuld, O'Neal and countless other rich people who raped and pillaged the rest of us.

drbuzz0 said...

How fast? As fast as is reasonably possible. How many? As many as we can.

Right now we're in a situation where we're left saying "Gee, it's too bad we don't have more nuclear energy. If only we had built a whole lot of plants back in the 1980's and 1990's we'd be in great shape now"

be that as it may, we don't want to find ourselves in five years thinking "If only we had started constructing nuclear plants in 2008 then we wouldn't be in the electrical pinch we're in now."

gunter said...

Hmmmm?... so when the Congressional Budget Office warns there is greater than a 50% chance of nuclear companies and "nuclear power's infinite cost" (quoting Eric Schmidt, CEO, Google, this time) defaulting on massive federal loans, we should see that as the glass almost half full?

Given the economic nose dive, that would be a really stupid financial "investment" to say the least.

Brian Mays said...

Let's see, Mr. Gunter, you have just cited a report that is totally out of date and a guy with an electrical engineering degree as your two sources. That's weak, even for you.

The Congressional Budget Office "warning" is half a decade old, and this estimate was made before any of the industry consortiums (e.g., NuStart Energy, which formed in 2004) had been assembled to share the risk of testing the new regulatory process for new nuclear plants in the United States. To put it bluntly, the CBO simply had nothing to go on and its "warning" was nothing more than a wild guess.

And Eric Schmidt, nuclear expert? Please. Not only is the quote totally ridiculous, but that you chose to quote this "expert" is even more ridiculous. Dr. Schmidt has never worked in heavy industry. Referring to his uninformed opinion is as silly as asking the CEO if Unistar Nuclear Energy about the advantages of state-of-the-art Internet search-engine technology or about the most recent cost trends for digital storage.

gunter said...

Mays,

C'mon, you got a more recent financial report on the risk of default or something?

The S&P and Moody's reports (Aug and May, 2008) reflect that the risk of such default is only increasing. As Moody's points out the commencement of construction is likely to result in a 25% to 30%credit downgrade because of the risk it brings to a business profile.

Schmidt probably read the same the S&P and Moody corporate financial reports which clearly point out that there is no way to accurately predict the current accelerated cost of nuclear power, in particular.

So how much of that $1.2 trillion in financial losses yesterday's crash evaporated out of reactor decommissioning funds? Guess we might have to wait for the 10K's to the Security Exchange Commission.

A colleague notes an "interesting squeeze play" with the cost of nuclear construction skyrocketing and the available funds for decommissioning plummeting.

Brian Mays said...

Sorry, Mr. Gunter, but you were the one who brought up the five-year-old CBO report, not me.

So tell me ... is this the same S&P that rated Lehman Brothers an "A" in August and is this the same Moody's that rated Lehman Brothers as "investment grade" in May?

Just checking.

Sorry, but after this month, I just don't trust the ability of these guys to predict risk of default for anything. They haven't been doing a very good job this year, don't you think?

Rising construction costs and shrinking funds are not problems that are unique to the nuclear industry, no matter how hard you want them to be.

gunter said...

The Moody's and S&P reports I refer to mention nothing of the Lehman Bros subprime loan scandal.

But here's my point--- its all about subprime loans, that definition being "A loan being made to someone who is considered risky."

Where have you seen that new nuclear power construction is a solid investment? I dont think you have an argument. Right?

The referenced CBO report, yes from 2003, assumed that the first 1,100 MW nuclear power plant using a federalloan guarantee would have an associated construction cost of $2.5 billion.

"CBO considers the risk of default on such a lan guarantee to be very high----well above 50 percent. The key factor accounting for this risk is that we expect that the plant would be uneconomic to operate because of high construction costs relative to other electricity generation costs."

The days of the $2.5 billion 1100 megawatt reactor are over... for quite some time, actually.

So, unless you want to throw out every corporate finance report off Wall Street from 2007 and 2008, starting projected construction costs are in excess of $7.7 billion for an 1100 MW unit.

Ray Lightning said...

@Gunter

Referring to authority is a bad method for winning a debate, particularly when that "authority" is one who screwed up big time in the recent past.

Investments that are risky are ones which are in unproductive sectors, for example, real estate or home mortgages. These sectors can take only a limited amount of investment. Put in more than they can carry, and you will be feeding the bubble. The "authoritiy" that you are referring to screwed up in this simple calculation.

There are some sectors which are always productive. Energy sector is one of them, it doesn't satisfy the law of diminishing returns. More energy is always better for the economy. In this way, any investment in the energy sector will always pay.

This is particularly so for nuclear power because of its extremely high power density. The fuel costs are going to be negligible for this sector (unlike natural gas and coal). And the construction costs will always be cheaper than renewable power because you need less land, less steel and less construction material for nuclear.

gunter said...

Ray,

The thread in this discussion is where "risky" refers to "default on federal loans" aka subprime loans whether it be for mortgages, nukes or weapons systems.

Predictably I disagree that more generation capacity is necessarily economically beneficial. I would argue that more efficiency and conservation will continue to be cheaper, quicker and a still larger untapped resource.

Uranium fuel costs will always be speculative, not "negligible" and subject to any number of factors.
Example, should governments start requiring mine tailing clean up to protect public health? That would result in additional uranium fuel cost. What are the global security costs that result from uranium mining? That's not tallied.

On the other hand, wind and solar fuel costs are zero.

Anonymous said...

The drift of several comments on this thread is that only those who build nuclear power plants are qualified to comment on nuclear power plants. That's a recipe for self-sealing optimistic analysis and intrinsic bias.

Brian Mays said...

Anonymous, that is not at all so.

Mr. Gunter's entire argument is essentially a naked appeal to authority, and if he is going to use that debating tactic, then it is only right and fair that the credibility and competence of his sources be questioned. His argument is only as good as the credibility of the authorities that he cites.

Everyone is free to "comment" on nuclear power plants, but not everyone has the right to be taken seriously. That right has to be earned, and given the current situation in the financial sector, many people are questioning the competence of Wall Street and its financial analysts.

Rod Adams can tell you more about this, but apparently, he has forgone continuing the discussion here and instead has published a much longer commentary on his own website. Please have a look and comment if you wish.

Finally, Mr. Gunter is being disingenuous when he focuses only on the rising costs of nuclear construction, without mentioning that the cost of everything, including greater efficiency, is also increasing. The only thing that is unaffected by the rising costs of materials is conservation -- that is, doing without. Unfortunately, conservation is neither progressive, nor economically stimulating (it has the opposite effect), nor politically popular in the long run.

Mr. Gunter is essentially trying to sell us snake oil with the same type of short-sighted thinking that resulted in Wall Street's current financial crisis. But then again ... that's his job.