Exelon CEO on energy policy, energy subsidies, and nuclear power economics

John Rowe, Chairman and CEO of Exelon Corporation, gave a very interesting talk at Resources for the Future on May 12th.  He touched on a variety of important topics, including nuclear economics, appropriate energy policy, and energy subsidies.  Below are quotes I found important in his presentation:

On Government-led energy initiatives

Last fall, I testified before the Senate Environment and Public Wors Committee on climate change legislation.  Every member of the committee had their own proposal for how to build a lower carbon economy.  Some wanted more tax credits for renewables, others wanted more loan guarantees for new nuclear plants, others wanted more government funding for clean coal...All of these things amount to putting a de facto price on carbon, but in the least transparent and least orderly fashion.  This hodge-podge approach is done in a fashion that hides the real costs of our actions and fails to incentive the cheapest options.  (Page 4).

* * * *

Everyone in both political parties wants to throw money at their favorite bars on this [marginal cost of carbon abatement] chart. 

Some propose to do it through subsidies.  But after the federal spending binge of the last decade, there simply is no money left for frivolous energy policies.  The subsidies needed to make some of these technologies economically attractive will only worsen that situation.

Some propose to throw money at these technologies through mandates to buy uneconomic power.  But there is no free lunch, and those costs will be paid by consumers through higher utility bills or higher prices for needed goods or services. (Page 9).

On GHG controls and the economics of nuclear power

...we must have a market-based solution to the problem [of climate change].  Picking our favorite technologies in 2008 would have led to some good decisions, like energy efficiency and uprates and some very large, very expensive ones, like new nuclear plants and clean coal.  (Page 8).

* * * *

The shape of this [marginal cost of carbon abatement] curve has changed dramatically in just two years.  None of us is smart enough to predict how it will morph.  We need a price on carbon -- represented by the line [on the abatement curve] -- to focus us on the cheapest options first.  And we need a market-based solution to give us feedback as costs change.  (Page 9). 

* * * *

But pricing carbon is the only long-term, economically rational solution.  It will force us to the lowest cost solutions for customers and businesses.  It will avoid worsening the debt situation.  It will give us a dynamic solution that will adjust to the most efficient solutions as prices and economic conditions change.  And it can include provisions like a price collar that can be structured to keep costs to consumers and businesses from rising too high.  (Page 10). 

* * * *

In 2008: A new nuclear plant was far from the cheapest solution, but reasonable.
In 2010:  But new nuclear plants started to look very expensive.  This analysis led us to slow our plans to build two reactors in Texas.  (Page 6). 

From Exelon's marginal cost of abatement graphs:

• Estimated cost in 2008, $/mt CO2e abated through new nuclear reactors:  ~$40
• Estimated cost in 2010:  $100
• Percentage reduction in 2010 abatement cost from government subsidies to nuclear: ~30%

It would be great if Rowe's ideas on neutral energy policy and market-based innovation using carbon pricing could replace the push for ever-larger government involvement in energy technology selection and funding.

My own thoughts on appropriate energy policy can be found here.