Skip to main content

The CBO Study on Nuclear Energy

Your rainy weekend reading suggestion: the Congressional Budget Office's just released study,"Nuclear Power's Role in Generating Electricity." The pull quote:
In the long run, carbon dioxide charges would increase the competitiveness of nuclear technology and could make it the least expensive source of new base-load capacity. More immediately, EPAct incentives by themselves could make advanced nuclear reactors a competitive technology for limited additions to base-load capacity. However, under some plausible assumptions that differ from those CBO adopted for its reference scenario—in particular, those that project higher future construction costs for nuclear plants or lower natural gas prices—nuclear technology would be a relatively expensive source of capacity, regardless of EPAct incentives. CBO’s analysis yields the following conclusions:
  • In the absence of both carbon dioxide charges and EPAct incentives, conventional fossil-fuel technologies would most likely be the least expensive source of new electricity-generating capacity.
  • Carbon dioxide charges of about $45 per metric ton would probably make nuclear generation competitive with conventional fossil-fuel technologies as a source of new capacity, even without EPAct incentives. At charges below that threshold, conventional gas technology would probably be a more economic source of base-load capacity than coal technology. Below about $5 per metric ton, conventional coal technology would probably be the lowest cost source of new capacity.
  • Also at roughly $45 per metric ton, carbon dioxide charges would probably make nuclear generation competitive with existing coal power plants and could lead utilities in a position to do so to build new nuclear plants that would eventually replace existing coal power plants.
  • EPAct incentives would probably make nuclear generation a competitive technology for limited additions to base-load capacity, even in the absence of carbon dioxide charges. However, because some of those incentives are backed by a fixed amount of funding, they would be diluted as the number of nuclear projects increased; consequently, CBO anticipates that only a few of the 30 plants currently being proposed would be built if utilities did not expect carbon dioxide charges to be imposed.
  • Uncertainties about future construction costs or natural gas prices could deter investment in nuclear power. In particular, if construction costs for new nuclear power plants proved to be as high as the average cost of nuclear plants built in the 1970s and 1980s or if natural gas prices fell back to the levels seen in the 1990s, then new nuclear capacity would not be competitive, regardless of the incentives provided by EPAct. Such variations in construction or fuel costs would be less likely to deter investment in new nuclear capacity if investors anticipated a carbon dioxide charge, but those charges would probably have to exceed $80 per metric ton in order for nuclear technology to remain competitive under either of those circumstances.
The study was written by Justin Falk, an analyst with the CBO's Microeconomic Studies Division, under the supervision of Joseph Kile and David Moore. Hat tip to the CBO Director's blog (?!), for the pointer to the study. You have to believe that when the Director of the CBO is blogging, this medium is here to stay.

Comments

Rod Adams said…
One of the real complexities in predicting the future financial returns for new nuclear plants is that a number of key variables are dependent, not independent.

Completing and operating a moderate number of new nuclear power plants will have a measurable effect on the country's demand for natural gas. Since the demand reduction will occur on the margins, it will reduce the price at which gas can be sold into the market.

If gas is the price setter in a market, the revenue generated by selling electricity in a lower gas price environment may not be as high as assumed in the initial models.

In other words, companies that invest in new nuclear power plants will be helping to reduce production costs for their competitors who refuse to invest in higher capital cost, but cleaner nuclear power and instead wait for lower natural gas prices. Either strategy is risky and sort of like playing chicken because if no one buys new nuclear or coal, the price of gas will certainly surge.

I guess this is one reason why the industry is demanding national level guidance and decision making.
Anonymous said…
Interesting point, rod. And it makes you aware of how dependent all energy policy is upon decisions made by the politicians.
Anonymous said…
Assuming a natural gas price of $6/MBTU is bad enough. Assuming that it will remain at $6 even if we use natural gas for all new power generation is outrageous. One would expect a better, more detailed analysis.

Natural gas is over $10/MBTU right now, and futures prices are ~$10 or more all the way out to 2020:

http://futuresource.quote.com/quotes/quotes.jsp?s=NG

Investors know better (or are more truthful) than the EIA, whose projections for future gas and oil prices have been absurdly low for many years now.

If one merely assumes $8 gas, the gas-fired electricity cost curve shifts up so that it becomes more expensive than nuclear at a CO2 cost of ~$20/ton, the same CO2 cost required to make coal more expensive than nuclear. At a CO2 price of $20-25 per ton (as opposed to $45/ton), nuclear will become the primary (and cheapest) choice for new baseload generation.

Jim Hopf
Anonymous said…
Actually, since oil went above $110/b, natgas trades above $11/MBTU. Coal went up 93% last year.

"substitution effect" in economics.

That decrease of natgas prices at futuresource is IMHO a wishful thinking. Fertilizers, plastics, home heating in developing countries, new car/truck/buses running on natgas are all increasing in demand rapidly, not to mention the idiocy of burning natgas for electricity.

-t-

Popular posts from this blog

An Ohio School Board Is Working to Save Nuclear Plants

Ohio faces a decision soon about its two nuclear reactors, Davis-Besse and Perry, and on Wednesday, neighbors of one of those plants issued a cry for help. The reactors’ problem is that the price of electricity they sell on the high-voltage grid is depressed, mostly because of a surplus of natural gas. And the reactors do not get any revenue for the other benefits they provide. Some of those benefits are regional – emissions-free electricity, reliability with months of fuel on-site, and diversity in case of problems or price spikes with gas or coal, state and federal payroll taxes, and national economic stimulus as the plants buy fuel, supplies and services. Some of the benefits are highly localized, including employment and property taxes. One locality is already feeling the pinch: Oak Harbor on Lake Erie, home to Davis-Besse. The town has a middle school in a building that is 106 years old, and an elementary school from the 1950s, and on May 2 was scheduled to have a referendu

Why Ex-Im Bank Board Nominations Will Turn the Page on a Dysfunctional Chapter in Washington

In our present era of political discord, could Washington agree to support an agency that creates thousands of American jobs by enabling U.S. companies of all sizes to compete in foreign markets? What if that agency generated nearly billions of dollars more in revenue than the cost of its operations and returned that money – $7 billion over the past two decades – to U.S. taxpayers? In fact, that agency, the Export-Import Bank of the United States (Ex-Im Bank), was reauthorized by a large majority of Congress in 2015. To be sure, the matter was not without controversy. A bipartisan House coalition resorted to a rarely-used parliamentary maneuver in order to force a vote. But when Congress voted, Ex-Im Bank won a supermajority in the House and a large majority in the Senate. For almost two years, however, Ex-Im Bank has been unable to function fully because a single Senate committee chairman prevented the confirmation of nominees to its Board of Directors. Without a quorum

NEI Praises Connecticut Action in Support of Nuclear Energy

Earlier this week, Connecticut Gov. Dannel P. Malloy signed SB-1501 into law, legislation that puts nuclear energy on an equal footing with other non-emitting sources of energy in the state’s electricity marketplace. “Gov. Malloy and the state legislature deserve praise for their decision to support Dominion’s Millstone Power Station and the 1,500 Connecticut residents who work there," said NEI President and CEO Maria Korsnick. "By opening the door to Millstone having equal access to auctions open to other non-emitting sources of electricity, the state will help preserve $1.5 billion in economic activity, grid resiliency and reliability, and clean air that all residents of the state can enjoy," Korsnick said. Millstone Power Station Korsnick continued, "Connecticut is the third state to re-balance its electricity marketplace, joining New York and Illinois, which took their own legislative paths to preserving nuclear power plants in 2016. Now attention should