Nuclear Subsidy Briefs, April 29, 2015
1) Reuters attributes sunk costs of German nuclear capacity to renewables. Michael Marriotte of NIRS flagged this one. In a recent post, he pointed out that $75 billion Reuters implied was associated with Germany's transition away from nuclear was actually "for decommissioning Germany's reactors and building a permanent radioactive waste dump." This is a sunk cost, and will need to be paid under any scenario. It is an open question, however, who will pay the tab. The Reuters piece calls to some potentially problematic utility restructuring now underway. Utility E.ON, for example, is spinning off its conventional power plants (i.e., the "good" assets) into a separate company -- leaving the closing nuke assets on their own. E.ON, as well as other German utilities, released statements saying that the residual nuclear firms had adequate assets to cover the costs of closure and decommissioning. The German government is not so sure. Billions will ride on which side is correct. I'm betting on cost overruns (the end-of-life fuel cycle costs for nuclear are not well tested) that get dumped on taxpayers. Some advance planning by the government to ensure a larger funding buffer, cost overage insurance, or continued access to related corporate entities in the case of shortfalls seems warranted.
2) Former nuclear reporter Matt Wald changes acronyms; bad optics, better money. For decades, most every story in the New York Times covering the nuclear power sector was written by Matt Wald. In December he took a buyout offer from the NYT to leave the paper; and in March he announced that he was taking a new position with the Nuclear Energy Institute (NEI). NEI is funded with nearly $50 million per year in fees from the nuclear industry, and serves as it main lobbying mouthpiece. This is lobbying in a policy-influencing kind of way rather than however federal law defines lobbying expenditures: the tax-exempt NEI lists formal lobbying expenditures at zero in its most recent tax filings (see PDF pages 16 and 17).
There is no question that being a reporter for conventional media is a tough business today. Pay was never particularly good, and old media companies remain under financial pressure from all sorts of new competitors. The economics of the move are obvious: Wald will take home a much bigger slug of cash working for the industry than he did reporting on it. In NEI's most recent tax filing, we can see that NEI President Marvin Fertel earned more than $3 million in direct and deferred compensation (Schedule J, Part II, PDF page 55). In contrast, Kevin Knobloch, president of the Union of Concerned Scientists (an organization which often counters NEI claims and proposals on nuclear energy), earned $301,000, roughly one-tenth of a Fertel (Schedule J, PDF page 30). Senior VP Alexander Flint, who worked on nuclear issues for Senator Pete Domenici prior to joining NEI, earned $771,000; and Wald's apparent new boss Scott Peterson, earned $584,000. Pay at the NYT was, umm, lower, according to Glassdoor and an article on top executive pay there in Slate.
But the move inevitably raises all sorts of questions, just as when a senior government regulatory official goes to work for the industries he or she previously regulated. How long was the move being considered? How did it affect the way the person previously did their job? Even if the new employer matches a policy or ideological perspective the new hire always had, what effect did that world view have on their prior work? Additional commentary here.
3) Back to the Future with former WNA economist Steve Kidd. Kidd penned a wide-ranging article on the benefits of nuclear energy and how to refocus its expansion in Nuclear Engineering International Magazine ("Is climate change the worst argument for nuclear," January 21, 2015). He argues that linking nuclear's growth primarily to its low carbon footprint is not working strategically, and advocates some other approaches. Specifically, Kid
d suggests the industry focus on nuclear's clear-air benefits, since so many people are suffering from eggregious emissions of soot, particulates, SOx, NOx and ground level ozone so often linked to coal-fired electric power. No disagreement from me on the magnitude of the polution problem, but I fail to see much leverage in his strategy. It's not as though the nuclear industry is, or ever has, missed a chance to claim its benefits relative to coal. There is the current nuclear clean air campaign run by large nuclear firms; and big campaigns in decades past showing green skies, happy animals, and much assorted goodness arising from the use of nuclear. NEI's predecessor, the US Council for Energy Awareness, was a big funder of these campaigns (see ad). Further, all of the non-nuclear alternatives that are out-competing new reactors (natural gas, wind, solar, and efficiency) also eliminate or dramatically reduce these air emissions.
Kidd also clings to some of the common "blame-other-people for nuclear's problems approach." For example, he dislikes promoting environmentalists who have turned pro-nuclear because they have been "wrong" for so many years (i.e., by opposing nuclear) that they won't be trusted to be "right" now. And these people are the reason for nuclear's little cost problem:
Why on earth would one cosy up to the very people who killed your market in the first place because their foolish advocacy led to much higher costs.
This one is even better:
Nuclear has suffered far too much throughout its history from government intervention and controls. It now needs to sell itself on the grounds of cheapness, reliability, and security of supply. Nuclear advocates in the United States would do better if they could get the Department of Energy to back off the tangle of regulations put into place post-Three Mile Island, which have helped stall further development of nuclear there.
So in short, deregulate, silence critics, promote clean air. Hardly a business model and project delivery revolution. I am sure Wall Street will be impressed and the cash for new builds will flow in.
4) Gimme money or else I'll close the plant. Nuclear utilities in at least three states (NY, OH, and IL) are pushing for large operating subsidies or they say they will shut their plants. While nuclear plants have been touted as expensive to build but cheap to operate, these are examples where even the operating costs of plants that have already been paid off are too high to compete with alternatives. According to the Wall Street Journal, about half of the operating reactors in the US are in deregulated markets and therefore face the most acute pricing pressure. The Journal reports that about 1/3 are at risk of closure due to poor economics -- though if the utilities believe they might get cash bailouts, one must always assume the industry is overstating their pain.
The subsidies being requested are large. The Ginna reactor in NY is seeking more than $200 million per year. The bailout of three Exelon plants in Illinois is a cool $1.6 billion. Consumer groups and large industrial customers are not impressed, and oppose the bailouts. Note that these very same reactors have been subsidized in multiple ways for their entire existence. And they aren't opening their books even to verify they are losing what they claim they are losing, and SEC filings perhaps indicate they aren't actually losing money.
There are a host of related questions I'd love to see addressed on this issue. First, why is it not possible for the reactors to close voluntarily during periods of price weakness as other large industries do, and then restart if market conditions improve? We know this happens involuntarily, for example if reactor repairs take longer than expected -- so it is technically feasible. Voluntary shutdowns would preserve the capacity without government subsidy should the downturn really just be temporary -- while also keeping deregulated power markets competitive.
Second, as more reactors close, the insurance pool for nuclear accidents -- already way too low -- continues to drop linearly. How is the NRC planning for this? What steps are being taken to ensure even reactors that remain open have the financial capacity to pay their retrospective premiums under Price-Anderson, should the need arise?
5) Cost of MOX facility in Georgia close to $50 billion in current estimate. One final post on the problematic economics of the nuclear fuel cycle. The most recent cost estimate conducted by the National Nuclear Security Administration put the price to finish building and operate a mixed-oxide fuel facility at Savannah River in Georgia at $47.5 billion, according to a story in the Augusta Chronicle. This is much higher than previous estimates of life cycle costs (about $30 billion). Industry sources argue the newest estimate is too high, and there is no real problem.
The plant would convert surplus plutonium from weapons into materials that could be used to fuel nuclear power plants. Alternatives to dilute the plutonium to below-weapons grade, but not use in a reactor, appear to be less expensive. However, critics argue that downblending does not render the plutonium unusable for weapons and may not comply with US-Russian non-proliferation agreements.
NNSA has not released the report to the public because it contains "proprietary information." It is not classified however. Ed Lyman of the Union of Concerned Scientists has been tracking MOX cost escalation for years, and suggests the lack of a public release is driven more by political concerns over the price tag.