UK

Lot's happening with nuclear around the world -- mostly associated with continued problems with market-competitive delivery, seeking alms from taxpayers, and attempts by taxpayer groups and trading partners to block the largest of the subsidies.

1)  Prefab reactors not so cheap.  The Wall Street Journal notes that even though utilities promised modular construction of reactors would bring construction costs down, it has not worked out that way.  Two reactors, Vogtle in Georgia and Summer in South Carolina, both rely on Westinghouse designs, which is owned by Toshiba.  Although the reactors are designed to use modular construction, there are 2,000 separate modules, each of which must meet stringent safety and production requirements.  Proponents say they are still along the learning curve, and soon (yes, very soon) the promise of these new methods will be realized and unit costs will fall.  In the meantime, costs are ballooning.

In other news, Toshiba's top executives resigned last week due to a massive accounting scandal that overstated earnings from multiple divisions (including nuclear) by more than $1.2 billion over the past 7 years.

2)  Small modular reactors not so cheap.  Another main thread of the industry's effort to convince politicians and Wall Street (though mostly, I suspect politicians) that they can build cost-effective reactors has been small modular reactors.  Build them standardized, in a factory production line, and unit costs will fall.  Kind of like, I don't know...photovoltaic panels, though just with way fewer manufacturers, and way, way smaller production runs.  The talking points have had some success.  Bill Gates has dumped a chunk of cash into modular nukes.  Boston-based entreprenuer Russ Wilcox, who's former firm e-ink brought us many of the crisp text displays we take for granted on text readers today, seems to be investing a sizable chunk of his fortune into nuclear startup Transatomic Power.  He acknowledged in a panel discussion I heard at Harvard Business School that any solution he came up with would be more than a decade away, and that the delivery lead time would be a factor in its usefulness for dealing with climate change.   I suppose if these folks are kicking in their own money, best of luck to them.  But the history of nuclear power is that much of the risk and cost always seem to end up in the lap of taxpayers.  The push for small reactors is likely to be the same.

Small nukes have caught the imagination of some of the folks at Harvard Business School as well.  They have written recent business school cases on TerraPower, NuScale Power; Professor Joe Lassiter has been writing a great deal about the topic in other venues, and hosting many panels on it as well.  He summarizes his thinking on nuclear here and here.  In this piece, he articulates his view that new reactors could be the miracle to save the world from climate change.  The reason we've not seen these miracle boxes already?

The barriers to rapid progress in New Nuclear are not technical, not even economic. The barriers are in the outdated nuclear regulations that scare off private investors and in the nuclear industry-regulatory culture that accepts timelines measured in decades as normal.

I don't think NEI could have said it better.  While some of the technologies Lassiter is pushing could potentially provide some benefits to energy markets, he is understating (dramatically) the problems the sector has with cost, waste management, and proliferation should construction and deployment or reactors expand broadly.  He is also underestimating the ability of smaller scale, lower risk renewable technologies to scale in a period far shorter than what the nuclear sector has a prayer of achieving.  Wall Street has already signalled its unwillingness to be the one left holding the bag for missed milestones and cost overruns that make the fully-loaded cost of power to expensive to sell.  I doubt even Bill Gates can carry the ball here; his total net worth of $80 billion seems big until one looks at the history of write-offs in the nuclear sector.

The enthusiam of these folks for modular reactors begs one additional question:  why now?  With more than sixty years of economic trends in nuclear moving the other way -- to ever larger reactors in order to spread massive fixed costs over ever more kWh -- what has suddenly changed?  It's not as though production line manufacturing has just been invented, after all. 

Enter Princeton University nuclear researcher M.V. Ramana with a nice dose of reality.  In the nuclear arena, virtually no path has been left unexplored technologically and trolled for government largesse.  Small reactors are no different -- and Ramana has written the best summary of small reactor economics that I've seen.  He provides a great historical review of past efforts by the industry to build small reactors, why they failed, and why they are likely to fail now.  Read the whole thing.   Here's hoping that at one of his upcoming panels, Professor Lassiter saves a seat at the table for Dr. Ramana so there can be a real debate.

3)  More cracks in the French model.  The US industry often claims a pernicious regulatory environment is behind their cost travails; if only they didn't have to waste money on the needless bureaucratic meddling and civilian attempts to slow their work via lawsuits, the projects would be cost-competitive and operating years earlier.  France is held up as the model for appropriate regulation, allowing reactors to succeed.  Alas, it turns our letting businesses get on with business doesn't always work so well, even in France:

Areva, France's nuclear giant, has been aware since 2006 that the steel vessel of its flagship new-generation reactors that confines radioactivity is faulty...Until now, it was thought that Areva had only recently become aware of "very serious" anomalies in its 9 billion Euro (6.5 billion pound) European Pressurised Reactor, or EPR -- the same model sold to Britain.  The EPR is being built in Falmanville on France's Channel Coast.

In April, it was revealed that excessive amounts of carbon in the steel in the top and bottom of the reactor's vessel, which forms a shell around it, could cause cracks which could prove disastrous, since the vessel, which houses nuclear fuel, cannot be replaced during the lifespan of the reactor.

Oops.  Areva, of course, says it did nothing wrong and hid nothing.  But what do you do when there are basic engineering flaws that a company knew about for nearly 10 years and said nothing -- continuing to collect money from customers and potentially putting millions of people at risk?  Well, this France and Areva is a national champion:  they plan to bail them out with public money by effectively merging Areva and EDF:

The deal would not make the order books look better by ramping up international demand.  Instead, it would absorb losses by spreading them across the merged new company -- and eventually transferring them (at least in part) into tax budgets...[T]he bailout may eventually add up to more than 10 billion euros.

4)  Third Vogtle partner gets its free government nuclear loan guarantee; costs to ratepayers continues to rise.  The US Department of Energy finalized the third and last tranche of its $8.3 billion loan guarantee to build Vogtle 3 and 4 in the US state of Georgia.  Backstopping the borrowing of the first two partners (Georgia Power and Oglethorpe Power) was done with zero credit subsidy fee based on justifications that remain secret to this day.  The third partner, the Municipal Electric Authority of Georgia (MEAG) closed on its $1.8 billion piece of the action last month.  No word yet on whether it, also, received a guarantee with zero credit subsidy fee. 

MEAG the borrower is actually different from MEAG the Electric Authority, as it created three separate special purpose vehicles for the Vogtle project.  How these separate entities benefit from the loan guarantee, how they have demonstrated financial strength, and how the project company assets would play out in a bankruptcy is buried somewhere in the final agreement documents that remain a closely held secret of DOE. 

Minority partner Dalton Utilities did not apply for a share of the federal loan guarantee that is protecting all of the other project investors.  Time will tell whether that oversight will be a painful one for the ratepayers in Dalton's service area.

The Vogtle project cost overruns and time delays continue to mount, and will result in additional charges to customers both from financing costs and replacement power since the promised power from the new reactors is delayed by years.  Alison Chiock, Georgia Power's director of resource policy and planning acknowledged the cost increases, but pushed back on criticism noting that "You lose sight of the 60-year benefit when you sit here in 2015 and focus on those schedule changes."

She noted that customers will still come out $3 billion ahead over the life of the plant relative to a natural gas plant.  Walter C. Jones of the Athens Banner-Herald noted in return "that lifespan benefit shrunk by $2 billion just since the last semiannual construction-monitoring report due to a drop in the price of natural gas." It is highly likely that continued delays and cost overruns will erode this benefit still further before opening day.

4) Octogenarian reactors.  Hey, we all hope to live to be 80 or older, and still be spry in mind and body.  Who can fault your friendly neighborhood reactor for wanting the same?  How many more happy days and nights these reactors could share with us, lighting up our world, avoiding carbon, accruing 0.1 c/kWh for the cost of the government taking care of their nasties (oh, forget that; the fee was canceled), and lots more time to build those decommissioning trusts funds and continue to provide retrospective premiums under the government's subsidized accident liability scheme.  The additional four decades just might even be enough to keep the industry alive so the next generation (the better, safer, cheaper ones) enter the market. 

Alas, like the human body, reactors don't tend to age too well.  Indeed, the aging process drives up both the maintenance costs and the risks of serious problems.  Hopefully the former would trigger closure before the latter.

Here's a nice summary of the issue at the GreenWorld Blog, as well as the mandatory NEI happy quote:

Much work remains to be done, but early results indicate that there are no generic technical reasons to prevent well-maintained nuclear power plants from operating beyond 60 years…

Let's review the all of the hedging language in this one mere sentence:  "early results" mean we haven't studied the problem that carefully yet, though clearly many aging reactors have had problems with brittleness and cracks; "no generic technical reasons" leaves the many site-specific issues associated with the wide variety of US installations wide open as a source of problems; "well-maintained nuclear power plants" -- I'm guessing the horse has already left the barn on this issue for some US reactors.

While waiting for the NRC to do the "much research," we ought to be starting to track maintenance spending and insurance costs for the oldest reactor cohorts.  Those financial signals will be taken a great deal more seriously than industry PR pieces.

5)  Sordid tales of political deceit in the Uranium industry.  This stuff is hard to make up.  According to the New York Times (kudos to reporters Jo Becker and Mike McIntire for their detailed sleuthing), the following events have unfolded:

• Russian atomic agency Rosatom gradually acquired a majority stake in Canadian uranium company Uranium One.  The deal gave Russia substantial uranium assets in many parts of the world, including Canada, Kazakhstan, and South Africa.  The deal also gave Russia control of 20% of the US' uranium reserves.

• Background work to facilitate the first deal in this industry roll-up was done by former President Bill Clinton back in 2005, when he and Canadian mining financier Frank Guistra met privately with Kazakh president Nursultan Nazarbayev.  Clinton expressed support for Nazarbayev president to head an international elections monitoring group, counter to US policy.  Days later, Giustra's company UrAsia Energy Ltd. got a deal allowing it to buy stakes in three state-controlled mines.  In 2007, Guistra's firm merged with South African company Uranium One, gaining additional stakes around the world.  It continued to acquire additional uranium minin interests around the world in the ensuing years.
• Uranium One ran into financial and legal trouble as markets shifted and its Kazakh purchases were declared illegal and a key official arrested.  Leaked documents indicated a concern of the US government that Russia had orchestrated the arrests as a way to achieve control of the uranium assets, noting that Vladimir Putin was concerned Russia's domestic uranium reserves were too low.  Rosatom bought a minority stake in Uranium One in 2009; a year later, it moved for control (at 51%).  Because of the US holdings, the controlling interest required approval by the US government -- specifically by the Committee on Foreign Investment in the United States.  Key cabinet members, including then Secretary of State Hilary Clinton, were on the committee. 
• Significant direct contributions to, and fundraising on behalf of, the Clinton Foundation were done by a variety of players involved with Uranium One.  A fundraiser for the Foundation led by Guistra five months after the deal with Kazakhstan was completed brought in $16 million.  Ian Telfer, the chairman of Uranium One after the Russian's assumed control, dontated directly and through his family's Fernwood Foundation millions of additional dollars.  Between $1.3 million and $5.6 million of these donations were not disclosed by the Clinton Foundation as had been required under a deal Mrs. Clinton made with the Obama administration prior to taking up her role as Secretary of State.  There was also a large speaking fee paid to Bill Clinton by one of the Russian banks with ties to the deal. The Clinton Foundation says the lack of notification on some of the donations was an oversight, and that they did nothing untowards. 

There are a number of interesting aspects of this story beyond the fascinating details:

• Nuclear power is never a "normal" market and never will be.  The connection between the power sector, weapons, and perceptions of state power from nuclear capabilities mean that governments will continue to intervene in market structure and make all sorts of decisions to keep them "in the game".  The economics of nuclear power will be distorted in significant ways from these decisions, interfering with the risks and returns of competing forms of energy and other energy sector objectives. 
• The control of known uranium reserves sought by Russia probably doesn't mean that much in terms of market power.  Uranium markets have been depressed for a long time, and investments into finding, re-establishing, or improving known deposits has not been robust.  Here's a story from 2012 indicating that, indeed, there is more uranium than people think; rising prices would further accelerate that process.  Further, significant value-added arises at the enrichment stage, and even after enrichment, the uranium component is not a significant fraction of the cost of nuclear power.  The risks to me from this deal seem fairly low.
• The failures of disclosure associated with the Clinton Foundation are quite troubling, and a more robust system should have been in place not only to report donations retrospectively, but also in a way that links activities of the foundation to possibly related contributions from parties or countries related to those activities.  That said, the fact that the Clinton Foundation reports donations from foreign entities at all is uncommon.  It is a huge improvement over what nearly all other foundations and trade associations do.  How interesting it would have been to see flows of money to the Carter Foundation, for example, when it releases particular books, or observes elections in particular (democratically-challenged) countries.  Or to see flows of foreign donations to the Nuclear Energy Institute when foreign firms were applying for large federal loan guarantees or hoping to get approval for US-based reactors or enrichment facilities a few years ago. 

6)  Austria files challenge to UK nuke subsidies to Hinkley Point C.  This follows a similar challenge launched two weeks earlier by ten German and Austrian energy companies.  All argue that the UK funding to build two new reactors, including 35-year above market price guarantees for the power the reactors produce -- the UK's so-called "contract for difference" policy.  The UK was adament that this policy was not a subsidy (see my parsing of the bull here); it's nice to see so many others disagree.  Austrian chancellor Werner Faymann minces no words:

Subsidies are there to support modern technologies that lie in the general interest of all EU member states.  This is not the case with nuclear power.

More evidence that nuclear power isn't competitive in the marketplace is coming out of the just-announced deal for Britain's first new nuclear reactors since 1995 -- to be developed at Hinkley Point C, Somerset.  The deal also provides a fairly striking example of just how badly government officials and politicians want to pretend that they didn't really have to provide massive subsidies to make the project happen. Keep a straight face, and maybe nobody will notice...

The following quotes highlight the mental gymnastics so often evident in press reports about these reactor projects:

The British government will finance two-thirds of [the] $26 billion project.  At the same time, it is agreeing to a 35 [year power] purchase agreement that will enable the developers a chance to recoup their construction outlays...One of the more controversial elements of the deal has been the "strike price," or the a[m]ount of money [for] which the plant's electricity will be sold.  While EDF [Electricite de France] had wanted a notably higher price, the UK government did agree to a price that is roughly double that of the wholesale price of power there..

-Ken Silverstein, "Great Britain Sparks Global Hopes by Infusing its Nuclear Energy Program," Energy Biz, 23 October 2013.

For the first time, a nuclear power station in this country will not have been built with money from the British taxpayer.

-Ed Davey, Secretary of State for Energy and Climate Change in Great Britain, as quoted in the Silverstein article.

My earlier summary of the UK's massively subsidizied 'non-subsidy' program can be found here.  Additional details on the new subsidized reactors to be built at Hinkley can be found here.

Politicians don't like to admit that they have caved, and so try all sorts of wiggles to make it look otherwise.  But let's be clear:  even if you call it "Contracts for Difference" instead of "Contracts that Commit Taxpayers to Pay Prices Well Above Market for a Very Long Time" the essence of what you are doing doesn't change.  The policy is a long-term above-market price floor for new reactors.  Stated otherwise, the UK has jumped the shark, and, in a repeat of its historical approach (see p. 81) to the sector, will be subsidizing new nuclear in a big way for decades to come.

Nuclear industry: policy-enhanced investment offers the most favorable returns

Big projects mean big risks.  You might screw up construction, or markets could change so your product is worth less, or there is an accident somewhere in the world that sets all the annoying regulators atwitter forcing you to spend money you weren't expecting to have to spend just to prove you are safe (which of course everybody already knows you are).  Investors don't like this uncertainty, and using government as a special investment partner (i.e., pay money, bear risks, but don't have a stake in the profits) is a strategy that has proven quite successful for the nuclear industry over the years.  I've coined it "policy-enhanced investing (PEI)," and it normally offers better returns than the old-fashioned type.

The nuclear industry is nothing if not persistent.  Faced with an endemic inability to deliver market-competitive power, industry participants, its trade associations, and the politicians who support them, have used a three-pronged strategy for decades. Many of these attributes pop up in the UK justifications for the long-term price floors for new nuclear plants.

• Prong 1:  our cost overruns are other people's fault -- delays, litigation, regulation, all of which was unfair and uncessary, is what drove our costs up. 
• Prong 2:  we are the only, or the fastest, or the primary solution that works to deal with (depending on the time period) clean air, domestically-produced power, climate change.  Other fuels or strategies may claim they can solve these problems, but we are big, we are baseload, and we are really the only serious contender.  These themes have shown up in industry ad campaigns over the years, yet steer clear of the quite logical premise that solving the problem nuclear is supposedly best at solving is rather uncertain, with a variety of uncertain potential options each of which has varying estimates on costs, risks, scalability, and delivery times.  Accepting such a premise with respect to uncertainty of options would then argue one should just integrate the problem (carbon capture, emissions, etc.) in power prices, forcing nukes to prove in market competition that they were really the best solution to the issue at hand.  Getting hardwired subsidies is so much more attractive. 
• Prong 3:  government policy needs to support our sector in a big way, and doing so is some mix of:  in the interest of national security and retaining key manufacturing skills; needed to protect the climate; only temporary to overcome irrational investor fears of losing money (created mostly by prong 1 claims of problems being other people's fault), or to get us over the "first of a kind" engineering challenges that will soon be surpassed at which point we'll be really cheap; or merely in line with support the government has given to everybody else; or is not really support because we're not getting cash and we're not going to default, and if you are not giving us cash stuffed in an envelope it's not a subsidy.  No matter that many of these arguments conflict with each other: the industry will trot them out from the policy salad bar in any combination it thinks will work. 

Normal long-term contracts discount commitments; UK contracts pay more than market

Long-term contracts for power, or indeed for a range of items produced by large-scale, capital intensive industries aren't new.  Producers like these contracts because they need to ensure enough of their production will be purchased to cover most of the capital costs of their facility over the long period it will be operating.  These types of contracts can greatly reduce market risks prior to committing the capital.  But normally, a buyer entering into such a contract will get a discount on prices, often a substantial one, because they are willing to buy a large quantity for a long period of time.  Much can change in 20 or 30 years, so the purchaser does indeed take on quite a bit of risk that changes in their needs or the marketplace overall, will render the long-term purchase contract a financial albatross. 

Although the UK "Contracts for Difference" are long-term contracts, they differ rather dramatically from private market transactions.  Specifically, they are price floors, committing to long-term purchases at a premium rather than a discount -- the opposite of how private deals would normally run.  How can this be?  Simple:  the contracts are subsidies, not market transactions; and likely to be very large subsidies at that.

Here's Edward Davey, Secretary of State for Energy and Climate Change, and MP for Kingston and Surbiton, doing the "No Subsidy Wiggle" in April 2012:

The  purpose of the Contracts for Differences which Fiona refers to in her article are to provide that greater price certainty in the period of transition towards a low carbon energy future, when investment requirements are so high. I want to make clear, just as Chris Huhne did, that this means that nuclear will not receive a higher price than comparable generation technologies whether they be renewables or indeed gas generation once its emissions have been abated by carbon capture and storage. There will be no public subsidy of nuclear generation.

Logic slip alert.  Davey's point that nuclear won't receive a higher price than comparable generation technologies is quite different from his concluding statement that there "will be no public subsidy of nuclear generation."  It may mean that nuclear subsidies won't be higher than subsidies to other power sources, or that offshore wind or other resources are also getting subsidized, but it certainly doesn't mean "there will be no public subsidy of nuclear generation."  Deep down, we all know that Davey knows this too. 

Current changes make the terms even worse for taxpayers

Recently, the no-subsidy "Contracts for Difference" seem to have gotten even worse for taxpayers.  Rather than a duration of 20 years as originally envisioned, the price floors are now being offered for 40 years.  And far from securing a discount for the project risk the public is bearing, the contracts will be at "more than double the market price for electricity, and higher than all but the most expensive government forecasts for the future."

Here's the promise of engineering miracles (noted in Prong 3) to bring the costs down:

Whitehall sources said they were confident that although the cost of the new reactor would be very high, that will start to fall with subsequent projects, and could fall as low as £55-56 a unit later in the programme.

Hasn't happened for the industry yet (see Exhibits 1 and 5, pages 4 and 14), not even in France, the poster child for industry-supportive nuclear policy.  And its unlikely to happen in the UK with a handful of subsidized reactors hardly comprising the type of production run for major economies of scale and learning to kick in.

Worried that perhaps the UK government doesn't have taxpayer interests at heart?  A Guardian article reveals that you should be:  a surprising number of nuclear industry staff are actually working for the government oversight agencies policing the sector.

A Freedom of Information request undertaken by the campaign group, NuclearSpin.org, showed at least 15 people working for the nuclear energy industry or its consultants have been seconded to areas responsible for policy or regulation, some being paid for by the taxpayer.

The government assures that they have adequate procedures in place to guard against conflicts of interest.  Still, anybody want to find which UK public policy schools think this type of arrangement is a good idea?

The gradually eroding red line on nuclear subsidies

Back to Edward Davey for a moment.  His piece in 2012 harkens back to an October 2010 statement by former Secretary of State for Energy and Climate Change Chris Huhne, noting that:

As Chris Huhne outlined in October 2010 this means that “there will be no levy, direct payment or market support for electricity supplied or capacity provided by a private sector new nuclear operator, unless similar support is also made available more widely to other types of generation.” [Emphasis added].

That is:  there may be a subsidy, but not a bigger one than renewables get.  But going back even further shows that the "Huhne Position," if we can call it that, is itself a subsidy capitulation.  Earlier history has been nicely summarized in a 2008 paper by Professor Steve Thomas, on the faculty at the University of Greenwich and a long-time analyst of the UK nuclear sector.  Here's an extract.

In May 2005, Tony Blair said 'Nuclear power is back on the agenda with a vengeance'[1]. His chief scientific adviser and other government spokespeople suggested that up to 20 new nuclear units would be needed. This was taken by many, internationally, as a signal that the UK was about to launch an aggressive new programme of nuclear power stations. However, in evidence to a Parliamentary Select Committee, the Energy Minister, Malcolm Wicks said[2]:

'It is not for government to say that we shall have X nuclear reactors and so on. Government will not be building nuclear reactors, will not say they want X number of nuclear reactors. I always thought myself that if at the moment one fifth of our electricity is from nuclear, if the market came forward with something to replicate that broadly in the future, from my own point of view it seems to me that would make a useful contribution to the mix. We are not going to do anything to facilitate that, nor this percentage nor that percentage.'

Subsequently, after a challenge by Greenpeace, the High Court found in February 2007 that the government's consultation process on nuclear power was inadequate and had to be repeated. 'Mr Justice Sullivan said that the consultation exercise was "seriously flawed and that the process was manifestly inadequate and unfair" because insufficient information had been made available by the Government for consultees to make an "intelligent response".'[3]

The government's Green Paper on energy published in May 2007 therefore made no specific commitments on nuclear power. However, one of Gordon Brown's first statements as the Prime Minister in June 2007 seemed to pre-empt the consultation. He told Parliament on July 4 that[4]:

'...we have made the decision to continue with nuclear power, and ... the security of our energy supply is best safeguarded by building a new generation of nuclear power stations.'

A new consultation was announced in May 2007 and was closed to submissions in October 2007. In January 2008, the government announced the result of the consultation, which again favoured new nuclear construction. The new White Paper stated:

'Set against the challenges of climate change and security of supply, the evidence in support of new nuclear power stations is compelling.'[5]

The commitment not to provide subsidies was reiterated:

'It will be for energy companies to fund, develop and build new nuclear power stations in the UK, including meeting the full costs of decommissioning and their full share of waste management costs.'[6]

The utilities most likely to build nuclear plants, EDF and E.ON both supported the suggestion that subsidies would not be needed. Vincent de Rivaz, CEO of EDF Energy (UK) said: 'We have made it clear we are not asking for subsidies, all costs will be borne by us.'[7] While E.ON said in a press release: 'It also believes that there is no requirement for either government subsidies or for a guaranteed long-term cost of carbon to make new nuclear power stations economic.'[8]

Lessons from the UK experience

There are certainly some obvious take-aways from this. First, that concentrated industries with large potential gains from favorable policy shifts and large losses from the status quote will invest heavily in getting their positions heard and policies changed in their favor.  They will do this consistently over many years.  This creates significant challenges for taxpayers or less powerful competing industries, but nonetheless requires them to be both organized and equally vigilent.  Second, erosion of political positions (for example, from no subsidies to nuclear being diluted to no subsidies that are larger than what other forms of energy get) require immediate flagging and pushback.  A third lesson is that efforts to obtain energy- or technology-specific carveouts are routine in the world of subsidies.  Restructuring the policy wording to focus on the objective (e.g., lower carbon electricity) can make it much more difficult for politicians to claim their uncompetitive industry-specific subsidy programs are necessary in order to achieve the shared social goal.  Further, the reframing can force the nuclear industry to demonstrate it is the lowest cost way to achieve those social goals in competitive bidding, not just in white papers -- in the process saving public funds and forcing all potential subsidy recipients (not just nuclear) to be more competitive. 

Litigation on the Contracts for Difference as violations of EU rules on State Aid may soon be underway.

Notes to Steve Thomas extract:

[1] 'Blair to push for new wave of nuclear construction in UK' Nucleonics Week, 18 May 2006

[2] http://www.publications.parliament.uk/pa/cm200506/cmselect/cmtrdind/uc1123-vii/uc112302.htm

[3] Greenpeace (2007) 'Government's nuclear plans declared unlawful by High Court' Greenpeace Press Release, 15 February, 2007 http://www.greenpeace.org.uk/media/press-releases/governments-nuclear-plans-declared-unlawful-by-high-court

[4] http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070704/debtext/70704-0003.htm#07070441001017

[5] Department for Business Enterprise and Regulatory Reform (2008) 'Meeting the Energy Challenge: A White Paper on Nuclear Power' Cm 7296, HMSO, p 8. http://www.berr.gov.uk/files/file43006.pdf

[6] Department for Business Enterprise and Regulatory Reform (2008) 'Meeting the Energy Challenge: A White Paper on Nuclear Power' Cm 7296, HMSO, p 10.

[7] Utility Week (2008) 'Going nuclear' February 1, 2008.

[8] E.ON (2008) 'E.ON welcomes new nuclear to UK mix' E.ON Press Release, January 10, 2008. http://pressreleases.eon-uk.com/blogs/eonukpressreleases/archive/2008/01/10/1165.aspx

Photo credit: Stock Exchange, dms1259, 22 March 2013.

1)  Poker, North Dakota style.  Using a logic that only an industry trade association could understand, the US state of North Dakota has announced plans to close $50m/year in loopholes to oil and gas.  Great!  End subsidies that make no sense, such as lower taxes on low production "stripper" wells that have been exploited by nearby activities producing at much higher rates.  But no reform is free, so the state officials are offering reduced tax rates on oil and gas in return.  The rub:  the reductions will cost the state an estimated $595m/year in new lost tax revenues, a mere 12x what they expect to get back from subsidy removal.  In what world is giving away $12 in state revenues for each $1 you claw back considered good business?  And it is not clear that even the 12:1 figure includes losses from new drilling incentives the state plans to put in place.  Due to fracking, North Dakota is the country's second largest oil producer, after only Texas. This change is a big deal.  For more information on how US states subsidize fossil fuels, go here.  (Thanks to Ben Schreiber for the ND article link). 

Upate, May 2, 2013:  The North Dakota House overwhelmingly rejected this proposed change:

North Dakota's House rejected a measure Wednesday aimed at closing an exemption enjoyed by oil companies in exchange for lower tax rates.

The Republican-sponsored bill - one of the most contentious of the legislative session - also would have given the Three Affiliated Tribes a greater share of the taxes collected from reservation oil production.

Representatives crossed party lines and overwhelmingly defeated the measure 71-21.

Democrats, who are the minority in both chambers, have been especially critical of the measure, saying the proposed tax framework would have cost the state hundreds of millions of dollars in lost revenue over the next few years by lowering taxes on oil companies.

2)  NEI thinks US nuclear export rules are too tight; looks to Russia as a model.  The Nuclear Energy Institute's review of problems with our country's restrictive nuclear export regime is nothing if not bold.  Here's their summary:

Compared to the nuclear export control regimes of Russia, Japan, ROK and France, the U.S. regime is, in many respects, more complex, restrictive and time-consuming to navigate and fulfill. Fundamental aspects of the U.S. export control regime were established over six decades ago – more than three decades prior to the creation of the Nuclear Suppliers Group (NSG).

During this time, the U.S. regime has evolved into a patchwork of requirements with layers of modifications. By comparison, the Russian, Japanese and ROK regimes are relatively modern and, in the case of the Japanese and ROK regimes, were recently amended to address post-9/11 nonproliferation concerns.

Now, I'm all in favor of looking to streamline the way government and business interact, but using Russia as a nuclear export model seems a sketchy strategy even for NEI.  After all, Russian nuclear exports have been a bit of an issue for other parts of the US government for quite some time.  But maybe that's the brilliance of the approach!  Adopt Russian nuclear export rules, boost business for US nuclear suppliers (and NEI's members) by allowing quicker, broader nuclear exports; and force a ramping up of government efforts and funding through the State Department and the IAEA to deal with the political implications of expanding nuclear capabilities abroad.  A job creation twofer!

3)  Subsidy Cycles, UK style.   Worried that your oil and gas operator didn't properly manage their environmental issues and taxpayers will be left paying reclamation costs?  No need to be.  Watch and learn from the UK - using subsidies to turn prior negligence into present opportunities!  A Brownfields Tax Credit "rejuvenates" an "elderly" offshore field, allowing Enquest PLC to buy the Thistle field in the North Sea and for production to go on.  No mention of what the government did wrong (poor oversight? inadequate bonding?) that resulted in the field being mismanaged by its prior operator in the first place; or of whether the government is trying to recapture reclamation costs (including the lost revenues due to the Brownfield subsidy) from that operator or its insurers.  (Thanks to Ron Steenblik for the article link). 

4)  State subsidies for job creation:  states are losing the bidding war.  The Job Creation Shell Game, released in January, is a great review by Good Jobs First (a Washington, DC-based NGO) examining job poaching from one state to another.  Not only do states routinely pay tax rebates to move old jobs from one state to another, but they then enter a process where large employers routinely threaten to move, extorting "retention" payments for staying put.  Net job gains are small; net tax losses are big.  And who do  you think is left having to make up the lost tax revenues?  Us, of course.

5)  Relative scale:  fossil fuel subsidies versus spending on international development.  An interesting comparison of the scale of fossil fuel subsidies versus fast start climate spending by Oil Change International illustrates that nearly everywhere they looked, the subsidies to increased use of fossil fuels greatly exceeded the spending to start addressing the effects of consuming so many fossil fuels.  Yes, some subsidies help the poor, and not all climate spending is efficient.  But the gross comparison underscores how important it is for any effort to address climate change to incorporate ending subsidies as a central strategy.

Kayla Ente at Ente Consulting has recently released a summary of current subsidies to nuclear power in the UK (summary discussion - full report).  The analysis joints a number of other recent studies (US, France, and Japan) that tabulate government subsidies to the civilian nuclear industry around the world.  A general overview of common subsidy features to the nuclear fuel cycle globally is included as Section III.6 of World Nuclear Industry Status Report 2009.  Section III.6.4 in particular (page 81), written by economist Steve Thomas at the University of Greenwich, provides a historical review of nuclear subsidies within the UK.

Highly capital intensive industries are often global, with similar attributes throughout the world.   Primary metals refining, for example, tends to be co-located to inexpensive sources of energy even if that location is not rich in the ore being processed.  Often, as in the case of primarily aluminum production, the inexpensive power source is a publicly-owned, taxpayer subsidized, large scale hydroelectric dam.

For civilian nuclear power, other factors matter more.  These include large scale government-provided subsidies to financing, plant decommissioning, and uranium mining and enrichment, as well as shifting of key risks of the fuel cycle relating to accidents and long-term management of highly radioactive wastes. 

Ente's review of the UK government's role in the nuclear sector highlights problems similar to those I've found in the US.  Government-owned assets are not run well, resulting in substantial operating losses over time and large legacy costs.  Government-intervention in markets to regulate civilian enterprises, decommission facilities, or manage radioactive wastes have resulted in large losses to taxpayers even in cases where industry is charged some user fees.  For example, the Office for Nuclear Regulation claims that fees on industry cover 98% of its costs.  However, Ente notes that review of new reactor designs is being entirely financed by taxpayers, at a cost of 62 million British pounds/year.

Losses related to the Sellafield MOX reprocessing plant were estimated at 90 million pounds/year in June report.  This is largely the result of a very capital intensive process built to handle 560 mt of waste per year actually processing only 15 mt -- a capacity utilization rate of less than 3 percent.  Any capital-intensive private facility, be it in timber, paper, metals,  or energy, with such an abysmal utilization rate would have been shuttered long ago.  However, Sellafield announced it was closing only last month, a result of the Fukushima accident in Japan.  As Fiona Harvey notes, the Japanese were the only customers of the Sellafield plant, and that demand has been significantly reduced and may never recover now that the Japanese are rethinking their reliance on nuclear power.  

Harvey notes that the potential closure of the UK's Thorp reprocessing facility (receiving much larger subsidies according to Ente at 500 million pounds/year) due to similar market pressures is being denied.  Stay tuned.

(Thanks to Simon Carroll for the link to Ente's analysis)

BP acknowledges that it lobbied for early release of Lockerbie bomber Abdel Basset al-Megrahi in 2007, in order to boost the chances of an oil deal it had going with Libya. 

Released on compassionate grounds because he was supposedly near death's door, the very same doctor who made that prouncement now says Megrahi could live "10 years or more."  Not so for the 270 people killed in the bombing.

The article further notes that

Jack Straw, then Justice Secretary at Westminster, admitted last year that trade and oil agreements were an essential part of the British government’s decision to include Megrahi in a previously planned prisoner transfer agreement with Libya.