Thursday, November 12, 2009

Saving Money on Your Next Nuclear Plant

vogtle2 You would be perfectly within your rights to give us the fishy eye if we said anything other than that nuclear energy plants are very expensive to build. Most power plants suffer this problem, because costs are so front-loaded: plants take time to build, introducing bank interest charges, changes in regulation that incur cost and fixed costs on commodities that refuse to stay fixed. But this can work in two directions – just as costs can go up for uncontrollable reasons so can they come down.

The official price tag for Georgia Power's share of two new reactors at Plant Vogtle is $1.5 billion lower than when the company requested permission to build them, according to testimony Tuesday in front of the Georgia Public Service Commission.

Walter Jones reports in the Augusta (Ga.) Chronicle that a lot of information about Vogtle is protected as a trade secret. But still, he could share what was bringing down cost – this time, it’s bank interest.

Projected construction costs dropped, Mr. Burleson said, because the company is avoiding some interest by charging its customers for the reactors before they begin operation.

Customers are paying about $1.30 per month for the reactors; the charge will rise by that amount each year until it tops out at $9.00 per month. When the plants open in six years, the surcharge should stop.

We like that the Georgia PSC is keeping its hand in and having these checkups every six months. This allows everyone to hear that Georgia Power (it’s nuclear energy page is here) is moving the project along – and in the process validating the Construction Work in Progress (CWIP) method of financing a new plant – and, really, such frequent meetings can do no harm.

If CWIP works as intended in Georgia, then implementing it elsewhere becomes easier – and avoids those fishy eyes when we say there are ways to bring down the costs of a nuclear plant.

Those are Vogtle’s towers way off there in the distance.

6 comments:

uvdiv said...

This is silly. There is no real savings for the utility customers: they are paying less, but they paying earlier, and the present value of the cost is (presumably) about the same as if there were no advanced rate hike. They haven't eliminated the interest on the loan: it is now being absorbed by the ratepayer as opportunity costs.

Chris said...

As these are assets that will benefit the next 2 generations why not spread the financing over 50 years or longer?

Brian Mays said...

uvdiv - You're almost right.

You have a good point that the discount from paying earlier is largely the difference between the present and future value of money. However, you have overlooked an important point: paying off the debt sooner, rather than later, reduces risk which translates to real savings.

This is a key advantage of CWIP.

Anonymous said...

It is a good investment for the ratepayers.

A typical commercial rate on the loan for this plant would be 12%. Tell me where the typical consumer can get a low-risk investment that pays 12%. The answer is that they cannot, so the opportunity cost is clearly smaller than the value of the future savings from low electricity cost.

Bryan Kelly said...

Here's another means to that end:

Surety Bonds for Nuclear Energy Facility Construction Cost-Savings

Bill said...

"The official price tag for Georgia Power's share of two new reactors at Plant Vogtle is $1.5 billion lower ..."

Georgia Power's share of Vogtle is about half; does this mean they've knocked ~$3 billion off the finance charge?

Paying for it earlier makes sense in the same way that paying off your credit cards makes sense.