Construction on Vogtle units 3 and 4, april 2017
Construction on Vogtle units 3 and 4, april 2017

1) Earth Track congressional testimony.  Read Earth Track's testimony to the Subcommittee on Energy of the Committee on Energy and Commerce, U.S. House of Representatives: Federal Energy-Related Tax Policy and its Effects on Markets, Prices, and Consumers

2) New work on subsidies:  US public lands, European coal, Asian fossil fuels. 

  • A review of subsidies to fossil fuel extraction on public lands released by Oil Change International.
  • Coal subsidies in ten European countries released by the Overseas Development Institute.
  • IEA's review of subsidies within APECTracking fossil fuel subsidies in APEC economies: toward a sustained subsidy reform

3)  Exelon fails to clear latest capacity auction with two of its reactors.  Exelon's Three Island Mile and Quad Cities nuclear facilities failed to clear the latest PJM auction.  Trade publication Utility Dive noted that Exelon said the loss "stemmed from 'the lack of federal or Pennsylvania energy policies that value zero-emissions nuclear energy,' and, in the case of Quad Cities, not falling under Illinois ZECs program." 

Reliability is the main selling point of baseload nukes facing increasing operating and maintenance costs.  Thus, it is notable that while nuclear blames renewables for its heartache, non-hydro renewables comprise a tiny portion of the PJM capacity market. 

A cynical view of the politics of nuclear power leads one to at least consider that perhaps Exelon is playing a bigger game.  The only way for the firm to extract multi-billion dollar subsidies to keep its aging fleet open is to present as realistic a case of distress as they possibly can.  Strategic losses in capacity auctions could be part of this.  Indeed, the firm's management may well decide that its highest return "new" line of business is extracting subsidies from taxpayers to prop up their old plants.  Here's Crain's, which has long tracked the political strategy of Exelon:

Fresh from winning subsidies in New York and Illinois, Exelon wants ratepayers in other states to pony up more to keep nuclear plants open... In an email, Exelon says only that it "continually evaluates strategic opportunities to add value for our shareholders and customers." Speaking generally of its desire to subsidize nuclear power beyond Illinois and New York, Exelon says, "Right now, active discussions on the economic and environmental advantages of nuclear power are occurring in Connecticut, Ohio, New Jersey and Pennsylvania."

And their strategy seems to be working.  According to Crain's:  "Exelon's stock has risen 36 percent since the Dec. 1 agreement in Illinois, well above the 20 percent increase for the Standard & Poor's 500 Utilities Index."  UPENN's Kleinman Center for Energy Policy noted in a recent blog post that it is quite difficult to ensure the subsidies flowing to old nuclear reactors (which are often part of a complicated corporate network) are actually needed rather than simply juicing corporate returns. 

4)  Sounds of silence: G7 and fossil fuel subsidy reform.  The G7's 2016 pledge to end harmful subsidies to fossil fuels by 2025 was not re-affirmed in their most recent meeting in Italy.  While it was agreed to in April, the issue was not included in the formal ministerial communique in May, an omission bleakly noted by fuel subsidy research NGO, Oil Change International.  These things aren't particularly binding, so the inability even to make clear statements of direction is troubling.

5)  The persistent areas of overlap between civilian and military nukes.  A sobering review of Japan's plutonium stockpile, its civilian origin, and the weapons proliferation risks going forward.

6)  Westinghouse bankruptcy: about that $8.3 billion they owe Uncle Sam...  Turns out the last sliver of the "nuclear renaissance" in the US is at risk due to poor management, fiscal distress, and the bankruptcy of one of the key vendors, Westinghouse.  Gee, if only somebody could have seen something like this coming.  In one of the finest moments of pretend finance in recent years, DOE flagged the risk of these massive loans (roughly sixteen Solyndra's) at zero

The bankruptcy affects nuclear projects in both SC and GA, though only the GA project (Plant Vogtle) is receiving federal subsidized loans.  The big question is how much of the DOE loans will end up in the lap of taxpayers.  As of now, Vogtle hobbles on, with Southern Company -- the largest investor in the project -- taking over the lead from Westinghouse.  Whether or not the Vogtle reactors are completed, there are billions in costs to be covered by some combination of customers, taxpayers, and utilities.  Here's the Atlanta Journal-Constitution's summary:

The Plant Vogtle project was backed by $8.3 billion in loan guarantees from the U.S. Department of Energy – during the Obama administration...[T]he Congressional Research Service noted that those loan guarantees came with this price: “If the Vogtle project is terminated, the borrowers must repay the entire outstanding loan amount in five years.”

But the CRS also said that the secretary of energy has the power “to modify the loan agreement terms and take other steps upon a default.”

This battle will not be resolved soon.  Good thing Southern Company CEO Thomas Fanning sold most of his shares in the company back on 2014.

Update, June 3rd:  a key deadline in the continued financing of Vogtle has been missed, and analysts predict litigation.


Earth Track Logo

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, Kidd 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.


Natural gas fracking well in Louisiana

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.