"Lively Discussion" with Nuclear Energy Institute
July 23, 2009
by Craig Severance
On July 10th, I participated in a "Lively Discussion" with the Nuclear Energy Institute, represented by Leslie Kass, NEI Director of Business Policy and Program.
The Event, sponsored by the Foundation for Nuclear Studies, was structured as a luncheon in the House Rayburn Office Building, with the primary audience being Congressional staff members. The room was full, with perhaps 70-80 attendees.
It was a very cordial discussion and afterward we all shook hands and posed for pictures. Yet, the differences were sharp.
Is New Nuclear Power Competitive?
The Foundation called me to Washington, to discuss the Question of the Day -- Is New Nuclear Power Competitive?
My full Power Point Presentation is here.
Not Competitive if Begging for Subsidies from Taxpayers
The reason we were before Congressional staff in the first place is that the nuclear industry is asking for even more subsidies from taxpayers, in the form of hundreds of billions of dollars of Federal Loan Guarantees.
Wall Street rejected any thought of financing new nuclear power plants in 2007, when investment banks wrote the Department of Energy they will not fund any nuclear plants without full Federal Loan Guarantees. The private sector simply regards nuclear power as too expensive and hence too risky.
Four Choices if Your Industry is Not Competitive.
The U.S. nuclear industry hasn't had a new order in over 30 years, because utilities have had more economical choices. There are four choices if your industry is not competitive:
1. Go Out of Business (which the new nuclear industry effectively did)
2. Change So You Are More Competitive
3. Become the Only Choice (Monopoly); OR
4. Ask for Taxpayer Dollars for Support
My presentation details each of these options. The nuclear industry has actually tried very hard to change to be more competitive, with new Generation III+ designs expected to cost only about half what an old design reactor might have cost to build. However, increases in new power plant construction costs have now wiped out these gains, leaving nuclear power still non competitive.
Failing the cost battle, the nuclear industry has tried to argue it is our ONLY choice left, regardless of what it costs. However, a resurgence of cheap and abundant natural gas and the maturation of renewable technologies now offer electric utilities many more choices than have ever before existed.
That has left the nuclear industry with only the fourth choice -- begging for help from taxpayers, dependent on Federal support to begin even a single new project.
Battling Cost Projections.
Ms. Kass presented NEI's version of nuclear economics, citing the recently released 2009 Update to MIT's 2003 study "The Future of Nuclear Power". She did not mention the Update concludes nuclear is still not competitive with coal or natural gas, but did stress its very low cost estimates.
I detailed the need to "Count the Costs" to complete
a nuclear power project. There is a well known story of the man who began to build a tower but had to abandon the project to the ridicule of his neighbors, because he did not "count the costs" that would be needed to actually complete the tower.
For a Mega-Project such as a nuclear power plant whose construction stretches over several years, these costs include exposure to significant cost increases and financing costs over the long construction period. These costs must be realistically included, resulting in expected new nuclear power costs from 25 to 30 cents per kWh. (See my full study here.
Optimism or "Ostrichism"?
I was asked in the Q&A why there were such big differences in cost projections, and I answered "Optimism". For instance, Florida Power & LIght is projecting that nuclear construction costs (which rose an average of 15%/year from 2002-2007), will now only increase by 2.5%/year, which is less than recent Consumer Price Index inflation rates.
The nuclear industry has every reason to present an optimistic picture -- it is selling its wares.
However, this is a mature industry with a (very poor) track record. The industry failed before to accurately predict costs, with the last wave of nuclear plants costing 2-4 times original projections. Ms. Kass mentioned the industry today is "learning" from overseas projects now underway. (I pointed out these projects are turning into similar cost overrun disasters e.g. French vendor Areva's Finnish project which is already 3 years behind schedule and at least 50% over budget.)
The nuclear industry is always saying in effect, "Next time we'll get it right."
For Congress to accept this argument, with no nuclear vendor willing to stand behind the optimistic cost projections, would be more than optimism. It would constitute "Ostrichism" -- a refusal to face facts --about an industry that has never achieved its economic promises
This Article was originally posted on July 23, 2009.