Business Risks and Costs of New Nuclear Power: The Staggering Cost of New Nuclear Power
By Craig Severance
On January 5, 2009 the Center for American Progress published here my new study Business Risks and Costs of New Nuclear Power which projects that power from new nuclear plants will cost from 25 to 30 cents per kWh -- putting dramatic upward stress on electric rates and financial solvency for utilities which pursue these projects.
This staggering cost for new nuclear energy places nuclear power solidly in the "Trash Bin" category of new generation options.
Many will mourn the loss of nuclear power as an "easy" option to reduce carbon emissions, as nuclear has often been the "magic wand" waved by policymakers faced with finding energy solutions. (For further discussion of this point see here.)
The actual costs of new nuclear power, however, bring us face to face with a new "inconvenient truth" -- building new nuclear power plants will actually make global warming worse, because hundreds of billions (indeed, trillions) would be needed to build any substantial fleet of new reactors. If even a fraction of this money were instead spent on other low-carbon choices such as energy efficiency, wind, geothermal, and solar, vastly greater amounts of low-carbon kWh's and greenhouse gas reductions could be achieved.
At a time when the world climate is a "3 Alarm Fire", choosing to build new nuclear power plants is like buying a gold-plated garden hose, when with the same amount of money you could buy the fire engines we really need.
This analysis of new nuclear power's costs was sorely needed, because the nuclear power industry's glossy public relations campaign had succeeded in convincing the public and policymakers that nuclear power was a cheap and effective means to reduce global warming. However, when exposed to open scrutiny, the numbers just don't add up that way.
Open scrutiny is the goal of the Study, as I wrote to Center for American Progress Senior Fellow Dr, Joseph Romm, who is the editor of the ClimateProgress.org blog, which released the Study:
All assumptions, and methods of calculation are clearly stated. The piece is a deliberate effort to demystify the entire process, so that anyone reading it (including non-technical readers) can develop a clear understanding of how total generation costs per kWh come together.
As a former utility commission staffer, I find it very disturbing that utilities now proposing new nuclear power plants are actually succeeding (in PSC dockets!) in hiding basic assumptions about what the new nuclear plants will cost. Quoting further from my correspondence to Joe Romm:
In contrast to this transparency, many nuclear promoters have adopted a “Black Box” approach. It has unfortunately been the case over the last couple of years that some utilities have begun to claim that even rudimentary basics of their nuclear cost estimates must be hidden from the public as “trade secrets”. For instance, in the South Carolina Electric & Gas proposal to build two reactors now under consideration by the South Carolina PSC, there is literally a large “box” obscuring the bulk of the calculations in the SC E&G Exhibit which presents the utility’s projection of construction and financing costs for the proposed two-unit facility. In a different case, Duke Energy claimed that it does not even have to disclose its new cost estimates for a proposed nuclear facility in Cherokee County, S.C.. In the Duke case, C. Dukes Scott, South Carolina’s consumer advocate, who represents the public in utility rate cases, noted, “If the cost wasn’t confidential in February,” Scott said, “how is it confidential in April?”
Even when no effort to conceal information is apparent, the very terminology used when projections are presented can be confusing or misleading. For instance, in 2007 when a number of new nuclear proposals began to advance, it was common for “Overnight Cost” estimates to be quoted. For a project (such as solar or wind) whose construction period may be as short as several months, the difference between an “overnight” cost and the full cost to complete the project may not be significant. However, for a nuclear project that may typically take a decade to complete, cost escalations that occur during this long construction period, plus the financing costs during construction, may easily double the total cost of a project compared to its “overnight” cost. When the full picture is presented, some may perceive the total cost estimate has mysteriously doubled. However, it simply should have been stated clearly to begin with that major escalation and financing costs cannot be avoided when it takes a long time to complete a project. Failure to do so is tantamount to selling someone a house with “teaser” initial mortgage payments and failing to make clear that the mortgage payments will later reset to a much higher level.
Another mysterious “black box” presentation method is to fold the overall costs of the new facility into the general rate base of the utility, without ever mentioning what the generation costs per kWh of the nuclear unit will be. Instead, it is often only presented how total costs per kWh for all ratepayers will increase — which includes kWh’s generated by existing generation units. (For instance, if a nuclear unit is to supply 20% of the kWh’s for the utility when it comes on line, any cost increase per kWh appears to only be 1/5 as large because the additional costs are also spread over the 80% of kWh’s generated by other facilities, even though those other facilities did not cause the rate increase.) While it is important to know the impact on final overall retail electric rates, it is also important to know the generation costs per kWh from the nuclear facility. If this step is “skipped” in public presentations, the nuclear units (or any new generation power source that is more expensive than existing units) can appear far cheaper than their real impact.
The Paper takes the approach that it is best to lay out in detail “how you got that number” at each step of the way. All parties can then proceed to have discussions based upon real numbers rather than mysterious “Black Box” secrets.
The "Black Box" is now blown open. As Dr. Romm said in his Article on the Study:
Given the myriad low-carbon, much-lower-cost alternatives to nuclear power available today — such as efficiency, wind, solar thermal baseload, solar PV, geothermal, and recycled energy (see “An introduction to the core climate solutions“) — the burden is on the nuclear industry to provide its own detailed, public cost estimates that it is prepared to stand behind in public utility commission hearings.
Here is the Executive Summary to Business Risks and Costs of New Nuclear Power:
It has been an entire generation since nuclear power was seriously considered as an energy option in the U.S. It seems to have been forgotten that the reason U.S. utilities stopped ordering nuclear power plants was their conclusion that nuclear power’s business risks and costs proved excessive.
With global warming concerns now taking traditional coal plants off the table, U.S. utilities are risk averse to rely solely on natural gas for new generation. Many U.S. utilities are diversifying through a combination of aggressive load reduction incentives to customers, better grid management, and a mixture of renewable energy sources supplying zero-fuel-cost kWh’s, backed by the KW capacity of natural gas turbines where needed. Some U.S. utilities, primarily in the South, often have less aggressive load reduction programs, and view their region as deficient in renewable energy resources. These utilities are now exploring new nuclear power.
Estimates for new nuclear power place these facilities among the costliest private projects ever undertaken. Utilities promoting new nuclear power assert it is their least costly option. However, independent studies have concluded new nuclear power is not economically competitive.
Given this discrepancy, nuclear’s history of cost overruns, and the fact new generation designs have never been constructed any where, there is a major business risk nuclear power will be more costly than projected. Recent construction cost estimates imply capital costs/kWh (not counting operation or fuel costs) from 17-22 cents/kWh when the nuclear facilities come on-line. Another major business risk is nuclear’s history of construction delays. Delays would run costs higher, risking funding shortfalls. The strain on cash flow is expected to degrade credit ratings.
Generation costs/kWh for new nuclear (including fuel & O&M but not distribution to customers) are likely to be from 25 - 30 cents/kWh. This high cost may destroy the very demand the plant was built to serve. High electric rates may seriously impact utility customers and make nuclear utilities’ service areas noncompetitive with other regions of the U.S. which are developing lower-cost electricity.
The full study is here.