Posted by: roger6t6 | November 16, 2009

Nuclear Power and the Bottomless Bank

 

By Roger Witherspoon

            Congress and the Obama Administration are on a course to provide the nation’s nuclear industry an unprecedented financial package which could dwarf the combined expenditures of the bailout programs enacted during the past year. The legislative package is accompanied by restrictions – billed as efforts to streamline bureaucracy – which would block the Nuclear Regulatory Commission from completely examining the major components of untried nuclear power systems and preclude counting nuclear underwriting in the national debt.

            The extensive support for the development of nuclear power is incorporated in the Clean Energy Jobs and American Power Act moving separately  through Senator Barbara Boxer’s (D-Calif.) Environment and Public Works, and Senator Jeff Bingaman’s (D-N.M.)  Energy and Natural Resources committees. They are already incorporated in House version of the bill, which passed in June.

            If enacted, the legislation would create a special “bank” affiliated with the Department of Energy called the Clean Energy Deployment Administration which could potentially provide underwriting for 187 new nuclear power projects – at a present, estimated cost of $10 to $14 billion each – and assume responsibility for expenses emanating from cost overruns and delays.

            If the Senate version is approved, there would be unlimited funding for nuclear power projects throughout the country, instead of just in the three states – Florida, Georgia, and South Carolina – which allow utilities to bill consumers in advance for the cost of constructing nuclear power plants. Federal investment in nuclear energy would replace that from the Wall Street investment community which has been loathe to invest in these expensive capital projects.

            The reticence, said energy analyst Jim Hempstead of Moody’s Investors Service, stems from the fact that these plants tie up a large percent of a utility’s capital and have a high probability of default. Moody’s, therefore, downgrades the ratings of companies beginning nuclear projects. “History has not been a friend to the sector,” said Hempstead. What we know is that the last go-round, things didn’t work out so well.

            “These designs we are talking about are not in operation, so there is a first of a kind risk with all of these plants. None of these designs have been approved and there is a significant amount of execution risk with any of these projects. China has two of these Westinghouse AP-1000 reactors under construction. But it doesn’t work.  It’s like Boeing’s Dreamliner, which worked wonderfully well on the computer, but didn’t fly.”

            The energy bill would scrap the system used to build the nation’s existing energy infrastructure: investors and lenders paid for the construction, and the public paid for the energy and amortization of capital costs after the plant was in operation.

            “It is very bad public policy,” said Peter Bradford, a former NRC commissioner and former member of the New York State Public Service commission. “It means the entities best positioned to control costs and control risks – mainly construction managers and the private financial system – don’t have to worry about those risks because they are being borne by the taxpayers who have no control over them.

            “It exposes taxpayers to very large potential losses when you consider that nearly half of the nuclear plants that received construction permits were cancelled before they came on line.”

            Specifically, CEDA would take over the loan guarantee authority currently vested in the Department of Energy, which has is currently budgeted at $18.5 billion for nuclear plants underwriting.  DOE Secretary Steven Chu told the Senate Committee that the current allocation should underwrite the development of four nuclear power plants.

            The Senate bills, however, starts the new funding at $100 billion – a figure the Nuclear Energy Institute, the industry’s lobbying arm, calls “a minimum acceptable additional loan volume.”

            In theory, CEDA would be used to underwrite the development of a variety of technologies having difficulty obtaining funding on Wall Street. To that end, the House version of the bill states no more than 30% of the funds can go to any one energy source. The Senate versions, however, remove that restriction, which would allow the nuclear industry to pursue funding for far more nuclear development.

            “This is pretty breathtaking,” said Ellen Vancko, nuclear energy and climate change project manager for the Union of Concerned Scientists. “On top of the loan guarantees, they are looking for investment tax credits, production tax credits, worker training tax credits, changes to the IRS codes for nuclear decommissioning funds and the inclusion of nuclear energy in the nation’s renewable energy standards. That’s pretty ambitious.

            “Up front, they say that without massive underwriting and tax breaks they can’t get it done. I believe them there. But if all these risks get shifted from the private sector to the public sector, then why don’t we just nationalize the nuclear industry like the French – whom they are always pointing to – and be done with it?”

            In addition to financial support, the industry is pushing for provisions which would bar NRC engineers from examining the capabilities of new reactor systems as they evolve in the design process. In practice, the NRC tests each major system designed for a new reactor, and then tests its interaction with previously certified systems. That has been deemed necessary to discover unforeseen glitches as complex electrical and pressurized systems interact. But under proposals in the bills designed to streamline the approval process, once a system is approved it could not be subject to a new test with another newly designed system. Public hearings on nuclear safety issues, under the bills, would become informal and non binding instead of an integral part of the license review process.

            Between the trillion dollars in construction loan guarantees and the regulatory restrictions, said Vancko, “it’s early Christmas for the nuclear industry if they can get it.

            “They have successfully branded the public as the problem for their previous difficulties in launching the nuclear renaissance, and are blaming the regulators for their current delays. If they can eliminate the public and tie the hands of the regulators and get the taxpayers to pick up the bill, they should be able to move along quite nicely.”

            Sources:

            Nuclear Energy Institute: www.NEI.org  “Legislative Proposal to Help Meet Climate change Goals by Expanding U.S. Nuclear Energy Production.”

            Ellen Vancko, Manager, Nuclear Energy and Climate Change Project, Union of Concerned Scientists: www.UCSUSA.org 

            U.S. Department of Energy: Office of Nuclear Energy

            Mark Cooper, Senior Fellow, Institute for Energy and the Environment, Vermont Law School: “The Economics of Nuclear Reactors”

            Moody’s Investor Service:  “New Nuclear Generation: Ratings Pressure Increasing” June, 2009

            Congressional Budget Office: “Cost Estimate H.R. 2454 American Clean Energy and Security Act of 2009” 6/5/09

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Responses

  1. Roger:

    I am pretty sure that your cost estimate for a new nuclear plant came from Craig Severance, a long time opponent of nuclear power who has frequently promoted the idea that coal is cheaper. However, it MIGHT not be too far off the mark, depending on what year you are projecting the dollars to be spent. (From a cost accounting point of view, there is a big difference between a dollar spent today and one that will not have to be spent until 2018 or 2021.)

    The concept of the time value of money is one of the reasons why investors have been reluctant to put their money into very large nuclear projects – as you correctly pointed out, there is a history that includes a number of cancelled projects where continued delays imposed for a number of reasons were costing billions of dollars.

    The main reason that nuclear energy has regained some political backing, however, is that it has proven itself to be a technology that generates reliable, affordable, abundant energy. Our current fleet of reactors in the US – which were once considered to be so expensive that they could never compete with coal, oil or gas – now produce more than 800 billion kilowatt-hours per year at an average total generating cost of 1.8 cents per kilowatt hour. Most of the plants have already been paid off and most have at least 20 more years of reliable, revenue generating service remaining before they must be decommissioned.

    I understand that there are concerns and I share your worries about putting taxpayers on the hook, especially since I understand the vast political and financial power that is held by the direct economic competition to nuclear energy – the fossil fuel business in the US is a trillion dollar a year business. It has lost markets to atomic fission in the past and is legitimately worried about the fact that every new large nuclear plant will eliminate a market for either 4 million tons of coal per year or about 100 trillion cubic feet of natural gas annually.

    Rod Adams
    Publisher, Atomic Insights
    Host and producer, The Atomic Show Podcast

    • Mr. Adams;
      Your premise is wrong. I have never dealt with Mr. Severance nor posited that nuclear power should be avoided in favor of fossil or other less costly fuels.

  2. Roger – I apologize for making an incorrect assumption. Can you tell me where you got your cost estimate for new nuclear power plants? It is between 150% and 300% of the numbers I have found from vendors and customers.

    With regard to the use of fossil fuels in favor of nuclear energy – that is the only other option that works on a human schedule and in most locations around the world. Hydro can be scheduled, but it is pretty useless if there is not both water and a change in elevation. Wind, sun and biomass are all completely dependent upon the weather.

  3. Mr. Adams. You are fighting a straw man of your own creation. I wrote about the projected cost of massive public underwriting of the sought-for 100 new nuclear power plants. I have not delved here into what alternatives there are or even if alternatives are needed.
    My role as a journalist is to ensure that the public has complete information for informed decisions. Period. Full Stop.
    What role nuclear power should or could play in the nation’s future energy mix — if any — is another matter. What role alternative or current energy sources may play in future energy policy is another subject, frequently delved into by people like Amory Lovins.
    I am not promoting or opposing any form of energy on this site. Your efforts to engage in an either/or debate will not be productive here.
    As for sources, you should know that journalists do not divulge such information. You should, however, drop the notion that any one person or group has influenced my energy coverage over the last 35 years.
    I am well aware of the posted projected price of the next generation of nuclear power plants, as well as the projected time frame for turnkey operations.
    I discount them since there is no real world experience to justify them and my discussions with industry executives — among others — indicates more realistic expected costs ranging from $9 to $12 billion per plant.
    Connections to the grid are $1 to $2 billion more, depending on a variety of factors, again, according to experts I have interviewed.
    You can quibble about the ultimate costs if you like. Areva’s plant under construction in Finland was projected at $4 billion — a figure US proponents such as Secretary Chu utilize when stating that the $18.5 billion fund can underwrite 4 or 5 plants. Unfortunately, the Finnish plant is likely to come in at double that cost, if it is completed at all. The design which looked so great on paper does not work in real life and Areva’s engineers are back at the drawing board.
    Westinghouse’s AP-1000 is on its 19th revision, etc.
    That will be irrelevant if pending legislation goes through and cost overruns are all passed onto the public — either as ratepayers as in Florida, Georgia and SC — or as taxpayers through the special loan fund.

  4. Roger:

    You wrote: “As for sources, you should know that journalists do not divulge such information.”

    That might be true for traditional journalism and might be true for even on line journalism if the source is hearsay from someone who prefers to remain anonymous or is a special source that the journalist has cultivated.

    However, one way to gain respect in the blogging world is to use a lot of links to primary sources – especially for numbers that contradict published numbers from reputable sources.

    Sorry if it sounds like a lecture. My children and wife have accused me many times of falling into that mode of communication. I guess it comes from years in front of a classroom.

    Rod Adams
    Publisher, Atomic Insights

    • No apology necessary, Rod. I appreciate your politeness. However, I am a journalist and my credibility has been established over the last 4 decades. Time will tell which financial projections are most accurate. I note, however, that if the industry were confident of its posted figures, it would not be pushing so hard for federal underwriting of not just construction, but cost overruns, faulty designs, and expenses due to delays.


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