nuclear subsidies

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These have been busy months in the world of subsidies to nuclear power.

1)  Reality continues to bite the nuclear renaissance.  Over the summer, Duke Energy moved to cancel its Lee nuclear project in North Carolina and its Levy project in Florida.  Duke is seeking reimbursement of $353 million in expenditures from ratepayers on the Lee project.  On the Levy Project, Duke announced it will not seek reimbursement of $150 million in expenditures not already recovered from ratepayers, meaning that shareholders will absorb the loss.  However, with total expenditures of $800 million over 9 years at Levy, it appears as though ratepayers are bearing by far the largest losses from Duke's managerial missteps.

Dominion Energy has paused its development of a new reactor at its North Anna nuclear plant in Virginia.  Next Era announced a pause of its Turkey Point project in Florida. Ratepayers in the Turkey Point district are expected to pay $300 million for NextEra's never-built plants (though the utility claims they still plan to build them, just in a decade or so). 

Meanwhile back in Georgia, the Vogtle project seems still to be a "go," with Southern Company deciding to continue building the reactors.  "The project's co-owners, Oglethorpe Power, MEAG Power and Dalton Utilities, all support the recommendation."  Dalton Utilities, the smallest of the partners, is also the only investor in Vogtle not to be getting subsidized federal loans.  But at least as of last December, they were still upbeat on the project, and paying their costs on an ongoing basis from collections from ratepayers.  The President of Dalton Utilities previously worked in finance at Southern Company.

2)  While ratepayers could be on the hook for bloated mismanagement of reactor projects, executives may not be.

  • VC Summer executives.  Retiring CEO Lonnie Cooper at state-owned Santee Cooper (45% interest in the project) will receive $1 million during his first year of retirement, $800,000 per year for the next 20; and $345,000/year for the rest of his life after that point.  He is currently 58 years old.  Cooper also received about $35,000 in bonuses related to the VC Summer project, with a similar amount flowing to other executives.  The other partner, South Carolina Electric & Gas Company, paid out roughly $21 million in bonuses over ten years, some linked to VC Cooper as well.  Kevin Marsh, CEO of SCANA (the parent company of SCE&G) received $1.6m in performance pay in 2016 in part due to his oversight of the nuclear project.  In total, the two firms spent nearly $10 billion on the project prior to its abandonment; all is expected to be collected from ratepayers. 
  • Tom Fanning, CEO of Southern Company.  Through its Georgia Power subsidiary, Southern Company is the major player in the Vogtle nuclear project.  Within months of signing a multi-billion dollar federal loan guarantee on the reactor project in February 2014, Fanning liquidated nearly all of his Southern Company shares -- often years before his options fully vested.  This is fairly odd behavior for a CEO who is not leaving the company.  Relative to historic patterns, the share prices realized were attractive (though not as high as today's prices).

3)  Counter-party risks, or why nuclear utilities so like those "costless" government loan guarantees.  Toshiba's Westinghouse division played a central role in the construction of new US reactors now floundering.  Earlier this summer, the parent committed to a multi-billion dollar settlement payment on the VC Summer reactor project.  The first payment on this nearly $2.2 billion agreement is $150 million, due in October.  However, it is looking increasingly unlikely to arrive on time as Toshiba is running into hurdles around selling its flash memory business.  The business is a joint venture with US company, Western Digital, who also wants to buy it.  Western Digital is not happy with the direction Toshiba is taking on the sale. 

Payments from Toshiba continue through September 2022, meaning there are many more opportunities for the pressures now facing Toshiba's survival to blow up, resulting in larger losses to the nuclear utilities and their shareholders.

4)  Without subsidies to nuclear power we won't have a world-class navy:  national security is the latest prop to flailing US reactors.  The economic intersection of the civilian and military nuclear spheres is a fascinating, though fairly opaque area in the world of energy subsidies.  Unlike toothpaste, proliferation and national security concerns preclude the civilian sector from building and selling their wares broadly.  This is one reason why costs in many competing energy technologies fall much faster than the forever promised (and rarely delivered) cost reductions for building nuclear reactors; and why they will continue to do so for the foreseeable future.

That send, the interchange isn't zero.  While cutting edge designs or materials with military uses aren't going to spill into the civilian sector, some of the capabilities developed on the military side can be shared.  This could include less sensitive innovations or spreading of fixed costs related to facilities, life cycle management, or personnel.  This cost-spreading also helps those on the military side as well:  if they've got to build a massively expensive socialized nuclear waste facility and can store civilian wastes there too, there are some economies of scale in spreading the fixed costs.  In addition, some sharing across sectors allows the military to argue that their programs have benefits beyond weapons.

Subsidy allocation needs rules of thumb that are a bit less mushy, however.  Where there is clear spreading of common fixed costs, allocation on a capacity-used basis seems logical and fair.  In contrast, if military requirements on materials research are much more stringent than what the civilian sector uses (or is allowed to use due to secrecy concerns), 100% of the subsidy costs should be attributed to the military sector. This holds true even if there is a theoretical commercial benefit of the research, or an expectation that 20-30 years from now, it will be able to enter the civilian side.

My general rule of thumb on this stuff is that the group that needs a technology more is the one to whom the costs should be allocated; and that the least price-sensitive user is the one driving the market.  Stated a bit differently:  military nuclear programs are mission critical to the US and not price sensitive.  While the presence of a civilian nuclear sectors may offer some opportunities to spread or share costs, it is not determinative: the military programs will continue regardless of what is going on in the civilian sector.  For this reason, I find the argument that we need to massively subsidize civilian reactors in order to maintain our military nuclear capacity incorrect and misleading.

The Energy Future Initiative, a DC-chartered non profit founded this summer and led by former DOE Secretary Ernest Moniz, has come out swinging on this issue with a recently-released paper (The U.S. Nuclear Energy Enterprise: A Key National Security Enabler) on why we need to massively subsidize nuclear if we want to keep our navy running. 

Moniz is a high-powered guy, as are many of the people affiliated directly or as advisors to EFI.  Yet, for an organization that is supposed to focus on an "all of the above" approach to achieve more effective and efficient deployment of clean energy, to have this "special report" come out as one of their first major deliverables -- and with no funding source listed in the document -- is problematic.  The Emerson Collective, led by Laurene Powell Jobs, is a major initial funder of EFI, and may have funded the nuclear study.  But EFI also notes it will take money from industry as well, so a lack of disclosure at the study-level is not acceptable.1   Exelon, in particular, has been actively funding studies that come out in favor of large new subsidies to their reactors; appropriate disclosure is not a theoretical concern

For a critique of many some of the core claims in the EFI report on the security benefits of propping up civilian nukes, this article by Victor Gilinsky and Henry Sokolski is a start.  Their point that civilian subsidies shouldn't be granted for military purposes without being forced to compete in terms of efficiency with other security options is spot-on.  The desire instead to earmark massive subsidies to nuclear with no competitive tender mirrors the nuclear industry's strategy on climate change as well -- where carbon subsidies awarded based on who can reduce ghg emissions at the lowest subsidy cost would be likely to flow mostly to non-nuclear recipients: 

The report suggests several ways to subsidize the “nuclear energy enterprise.” A telling omission: EFI never suggests that subsidies with the putative purpose of supporting national security come from the national security side of the federal budget. EFI obviously knows that if the money had to come out of, say, the defense budget, it would have to compete with other defense priorities, and would never make it.

The authors also point out a conflict between the push for civilian growth through exports and the implicit weakening (sorry, "developing more flexible approaches for negotiating) of the 123 Agreements that protect against proliferation. 

Jim Green of Friends of the Earth Australia has a detailed review of the security claims in the Moniz report as well, which is well worth a read.  

 

  • 1EFI's exact wording is: "Consistent with the prior practice of the principals, EFI seeks multi-source funding, including from relevant industries, for its products. Once a study is initiated, the work and the results are EFI’s; they are in no way vetted or approved by any sponsor, public or private." This disclaimer aside, the funders should be still listed.
NuSubsidies cover page
NuSubsidies cover page

It's been a rough few months for nuclear power, with the bankruptcy of Westinghouse, the US nuclear arm of Toshiba; continued cost escalation at both US reactor projects and the UK's Hinkley C; and the decision on Monday to abandon two in-process reactors at the V.C. Summer site in South Carolina.  This is clearly an escalation of bad news, but the problems have been coming on a regular schedule for over a decade at this point.  There's been a continuous economic bleed since the heady days in which a nuclear "renaissance" was to usher in a wave of clean baseload and dispatchable power.  If not quite too cheap to meter, new nukes were still sold as being a good deal for ratepayers and for the country. 

Big projects being built with other people's money always warrant careful and skeptical review

This was not a story I ever believed.  Massive historical cost overruns in the US on reactor projects; all sorts of delivery problems on recent European ones; rising competition from natural gas; sharply falling costs for wind, solar and power storage; and the significant unresolved long-tail challenges of accidents, waste management, and decommissioning all contributed to a tough-sell to investors for an industry that produces what is, at its most basic, a commodity. 

Then there is the fact that when companies spend other people's money they tend to be way less focused on good decisions.  They certainly don't want to fail, but they often take more risks, pay less attention to cost control, and less carefully vet their assumptions on market trends and alternative solutions.  All told, the headwinds impeding a broad industry turnaround seemed very strong.

Some subsidies are easy to see and understand:  cash from the government goes to a firm to spend in a pre-determined way.  In contrast, nuclear subsidies can be both fiendishly complex and eye-wateringly boring.  Despite their importance in skewing the direction of energy markets, this combination of features makes them quite hard to explain to more general audiences.  That changes, of course, when there are bankruptcies and members of this general audience begin to lose lots of money (as is now happening in South Carolina).  Suddenly, they care about the details and want to change them.  By then, however, it is usually too late. 

Back in 2005, and in an effort to make the subsidies more accessible, I developed a slide pack promoting a satirical new industry association called the NuSubsidies Nuclear Consortium.  The name was in reference to the real NuStart initiative, an effort to restart the industry that included many of the largest players at the time.

NuSubsidies was focused on maximizing use of the public trough.  It had the tagline "Where the Taxpayer is our Favorite Investor," and it's strategy was to boost the financial returns for reactor project developers using its patented Policy Enhanced Investment, or PEI.  The PEI approach shifted all sorts of operational and financial risks away from investors onto taxpayers, while retaining the full share of profits from any successes.  

Although many of the links have likely gone dead over the past 12 years, it is striking how many of these core satirical strategies have played out in reality. 

Nuclear Energy Institute, good times ahead

The Nuclear Energy Institute (NEI) was leading the charge touting nuclear as energy market salvation.  A decade ago, they were working hard not only on public subsidy front -- a continued area of focus for the industry's largest trade association -- but also on the private financing side as well.  There was a belief, or at least a hope, that under the right conditions private money would flood into new reactor projects, restarting supply chains and rebuilding an industry in which both the specialists and the equipment were rapidly aging. 

The slide below is from NEI CEO Frank Bowman's Briefing for the Wall Street Utility Group on September 22, 2005.  Only Bowman himself knows if he even believed the numbers back in 2005, but they sure painted a rosy picture of the technology despite a half-century of prior fiscal problems, cost overruns, and project abandonments.  Look how positively competitive nuclear looks, even against natural gas.  NEI pegged the highest nuclear cost in their scenarios at $68/MWh, and combined cycle natural gas at $57/MWh. 

Turns out these estimates were not very accurate.  EIA's most recent projections have similar values for natural gas, but estimate advanced nuclear at more than $96/MWh, more than 40% higher than NEI's old high estimates.  Further, the EIA projections are based on the two US projects ongoing at the time of their work, and their estimates show a lower levelized cost than reality because they seem to embed significant financing subsidies (including CWIP and and large loan guarantees) within their cost models.  Further, there is nobody who believes cost escalation is finished at the one remaining US project (Vogtle in Georgia), and this will play out in future EIA estimates.  For another benchmark, taxpayers in the UK are guaranteeing a price of £92.50/MWh (roughly $122/MWh) at the Hinkley Point C nuclear project.  This is twice the price of power in Britain.

Bowman's slide is also interesting in that it quantifies large financial benefits from federal loan guarantees.  Only once political opposition to the loan guarantees started to mount did the industry begin claiming (often concurrent with grabbing the subsidies) that they didn't really need the guarantees and they weren't worth very much. 

While the VC Summer project did not tap into the federal loan guarantee program (relying instead on fixed price contracts with Westinghouse that ultimately drove that supplier into bankruptcy), executives had been scrambling in recent months for a bailout from Uncle Sam.  Apparently, DOE did offer them a loan, but they wanted more financial support, and for it to convert into a grant if they ran into continued trouble.  To the credit of the Trump Administration, DOE did not offer it.

A few years ago, Taxpayers for Common Sense compiled a summary of Southern Company (the largest partner in the massively expensive and only remaining nuclear new build in Georgia) executive quotes claiming they didn't need a massive federal loan guarantee to move forward.  This was something I had hoped the government would have taken Southern up on -- why give subsidized money to a firm that says that they don't need it, particularly when key aspects of the decision making for these loans were done on private emails that do not seem ever to have been released during FOIA requests? 

But rising costs at Vogtle make abandonment of the project there more likely as well.  Such an outcome would dump up to $8.3 billion in loan liability onto federal taxpayers.  While former DOE Secretary Ernest Moniz clearly wants nuclear to make it in the US (he was co-chair of the study group that produced MIT's very detailed review of nuclear power in 2003), his decision to move forward with the loan guarantee despite company statements they didn't need it will be a large stain on his legacy should Vogtle become insolvent.

 

NEI cost projections for nuclear in 2005
NEI promoted very low nuclear power costs in 2005


Endless Summer:  Costs of abandonment in South Carolina

On July 18th, Mark Cooper, a Senior Fellow at the Vermont Law School, submitted a detailed brief on the costs of the Summer 2 and 3 reactors and estimated that abandoning the project now would save ratepayers billions of dollars.  Conducted on behalf of environmental NGOs Sierra Club and Friends of the Earth, the material provided background detail for a complaint to be filed with the South Carolina Public Services Commission in October.  Cooper had done a similar review back in 2012, also finding that the completed plant would be unlikely to produce power competitively, and that terminating the project despite sunk costs would be economically rational. 

On July 27th, Toshiba, the parent company of bankrupt reactor manufacturer Westinghouse, agreed to pay a $2.2 billion settlement for the two reactors whether or not they were ever completed.  This gave the management team on the Summer projects more latitude to bail, and bail they did.  On July 31st, the two owners of the Summer 2 & 3 project South Carolina Electric & Gas Co. (SCE&G) and publicly-owned Santee Cooper announced they were abandoning the project after roughly $9 billion invested.  They were less than 40% complete and years behind schedule. 

Power demand in the region was flat and natural gas prices remained low.  Costs to complete were now projected at $25 billion, more than double the initial $11.5 billion estimate -- and that is with significant embedded subsidies by funding a portion of the projects in ratepayers' bills under South Carolina's Baseload Review Act.  The Act allowed the utilities to charge customers for the new construction before the plants came on line, operating like an interest-free loan.

Santee Cooper raised rates five times to cover rising construction costs being passed through to its customers.  Nearly 20% of SCE&G's customer bills were due to these costs as well, with $1.4 billion collected thus far through nine rate increases over roughly ten years. 

Of the $9 billion spent, nearly $7 billion is likely to be put through to ratepayers though the plant is unlikely to ever be completed.  The remaining $2.2 billion has been pledged by Toshiba under the recent deal.  While Toshiba remains solvent, it is under significant financial strain and may not be able to make good. Further, news coverage discussing the Toshiba payment say it could be used for relief to ratepayers though make no firm commitment to do so.  

And while the Summer project seems dead for the foreseeable future, it will indeed be an endless summer for ratepayers.  Surcharges to fund the construction are likely to continue hitting their bills for the next 60 years

Unheeded warnings from the past

As reported in the Charlotte Business Journal

PSC Chairman Swain Whitfeld told the SCANA group [the parent company of SCE&G] “this commission was blindsided ... by this news” that Summer would be abandoned.  “This is going to shatter lives, hopes, and dreams, in Fairfeld County (where the project was being built) and in the state of South Carolina,” he said.

But there have been warning signs for years, and hopefully the ratepayers in the VC Summer district will comb through the PSC' history on the project to see why this outcome would have come as a surprise.  Back to Mark Cooper here, and also to former NRC Commissioner Peter Bradford.  (In full disclosure, I know both of them and respect their work).

Cooper has been writing about cost escalation in the nuclear renaissance for the entire period of this supposed rebirth.  Bradford has long focused on the mechanisms used to shift funding and performance risks to ratepayers through various permutations of construction work in progress rules. 

Here's a few related tidbits from Bradford's testimony before the South Carolina PSC in 2008.  Though it related to Duke Power (which was planning its own reactor in SC), many of the issues are the same with the Summer plants:

Q. WHY DOES SOUTH CAROLINA'S STATUTORY FRAMEWORK CONFER AN "EXTRAORDINARY BENEFIT" ON DUKE?

A. Because it allows the decision to construct the proposed nuclear unit to be deemed prudent based on a review conducted long before events point to anything that has actually gone wrong. On the basis of this necessarily incomplete review, Duke will be well on the road to being able to recover a very substantial portion of its costs before the plant ever operates. No other type of large industrial facility enjoys this capability. A paper mill or an oil refinery must produce products at a competitive price to recover their costs. Indeed, even a nuclear power plant built in restructured markets (where cost recovery depends on participation in a power market) cannot recover costs until it produces kilowatt hours at a competitive price.

….

Q. WHAT IS THE RELATIONSHIP BETWEEN THE POINTS THAT YOU HAVE MADE AND DUKE'S RETURN ON EQUITY?

A. Shifting risk from investors to customers does not produce real savings. It lowers the cost of capital used in building the plant by increasing customer exposure to costly events that might otherwise have been borne by investors. If any of these events occur, the customers will pay for them, and this risk offsets any savings from the reduced cost of capital.  The Commission should at least lower Duke's return on equity in order prevent the injustice of having customers pay investors as if they were bearing the risks that have in fact been shifted to the customers.

Cooper's positions on nuclear costs and competitiveness seem to have been far more on target than those promoting the industry as well.  Not surprisingly, however, the industry thinks things are just fine.  Here's NEI's David Bradish on CWIP, Cooper, and Bradford in 2013.  Bradish is an articulate, albeit partisan, explainer of all the reasons why subsidies to nuclear aren't really subsidies. 

Because the interest on debt and return on equity are being paid each year, these carrying costs are not accumulating as they would in the absence of CWIP, to be recovered when the plant begins operation. Because these costs, like all debt, compound over time, the quicker they are paid, the less they build up. When ratepayers pay these carrying costs while the plants are under construction, customers will save substantial sums over the life of the units.

But this isn't really a savings; it is a trade.  Take money from customers now, pay them no interest, and as a result the amount you charge them later will be less.  But what if your customer is in debt, and has higher credit card bills (at very high interest rates)?  Because SCG&E is charging him 18% more per month for his electricity, his consumer debt is higher, and he is clearly worse off.  Or what if the plant is never completed, so the customer has just fronted money for ten years, for free, with no recourse? 

More from Bradish:

Cooper’s paper [an earlier one] claims that “ratepayers are on the hook” and taking all the risk of building a nuclear plant because of CWIP. Apparently, Cooper does not understand how utilities build and recover the costs of power plants in regulated states.

Just because many regulated states allow CWIP doesn't mean that it isn't a subsidy.  Indeed, it is one reason that no new reactors were getting built in merchant power states.  CWIP is a financing strategy that is lucrative for utilities, particularly those building long-gestation, high capital cost projects and looking for places (other than their shareholders) to shift the risks of cost escalation. 

Cooper and his fellow anti-nuclear critics contend that CWIP allows utilities to collect costs without having to build the plant. Cooper’s paper claims that they can get halfway through the project, cancel it, and then collect the incurred costs of construction from ratepayers without having to pay anything. This is of course an erroneous view of how states govern projects.

Wow, hold on David.  Isn't that exactly what is going on now in South Carolina?  Yes, there might sometimes be a prudence review, so CWIP isn't always a blank check.  But it is (a) a subsidy even when the plant is completed; and (b) has often been modified such that there is much less prudence review (e.g., with "super-CWIP" where money is recoverable just by the utility demonstrating that it has been spent).  And just to be clear, the customers expecting a refund on their advance funding of a new nuclear albatross shouldn't count on it

Bradish:

CWIP is not new and, as shown above, allows customers the benefit of lower electricity costs from a reliable, affordable, emission-free source of power that can last 60 to 80 to 100 years.

A few final points.  First, percentage depletion for oil, gas, and coal is even older than CWIP, but is still a subsidy, still distorts market choices, and should still be eliminated.  Age has nothing to do with CWIP being a subsidy either; it is simply an old subsidy.  Second, these schemes shift capital risks from the investors to ratepayers, and an important side-effect can be that they skew markets to take on more capital-intensive approaches than would otherwise occur.  This is a negative policy outcome.  Third, while it is certainly true that running any piece of capital equipment for longer reduces the capital cost per unit of production, it seems reckless for Bradish to claim we have any reactor technologies capable of lasting 80 or 100 years in a safe manner. 

Facing cost pressures and eroding market position?  Time for a bikini contest

Because nothing screams technical competence in an industry where mistakes can spread radioactivity over a wide region than a bikini contest:

Power generation conglomerate CEZ had 10 bikini-clad high school graduates pose in a cooling tower of its Temelin nuclear power plant, which was briefly closed for maintenance.

It then asked Facebook users to vote for their favorite, with the most popular winning a 14 day internship at the plant.

In a press release CEZ likened the photoshoot to its previous cultural enrichment programs, such as hosting the Bohemian Philharmonic at the plant in South Bohemia. The release said the experience was greatly enjoyed by the girls, who were required to wear hard hats and enclosed shoes at all times.

Yeah, really.  After an uproar on social media, the plant eventually apologized. 

PJM Interconnection is a regional transmission operator (RTO) serving more than 60 million customers in 13 states and the District of Columbia.  The service region is centered in the mid-Atlantic region of the United States. Incumbent base load generators within PJM have complained that subsidies to renewable resources have been cutting their ability to win capacity market auctions, stripping them of revenue, and harming them competitively. They have been proposing adjustment factors that would improve their competitive position by adjusting bid prices to exclude the subsidy.

These proposals have been contentious, and PJM established the Capacity Construct/Senior Policy Task Force to work through them. From my perspective, two features of conventional generators are problematic for their case. The first is that while renewables play a growing role in energy markets, they are still quite small in capacity markets. Competitive pressures, such as from new gas plants, have been much more significant.

The second is that government subsidies to energy -- at all levels of government -- have been around for a very long time.  Indeed, many of these very same conventional energy resources have also received significant subsidies for their entire operating lives. For some, subsidies helped them to reduce plant construction costs. Others have reduced their cost of input fuels, a significant cost factor in fossil plants. Still others have shifted the long-term costs of fuel extraction or refining, accident risks, or managing toxic wastes from the power plant to taxpayers or plant neighbors.  Risk shifting is particularly important with regards to coal and nuclear.

To demonstrate the complexity of the situation, working with the Natural Resources Defense Council, I assembled an initial listing of state-level subsidies to conventional energy within PJM states. Data compiled by the OECD in Paris, and by Good Jobs First, an NGO, were extremely helpful inputs.

Although the timeline was short and it was impossible to capture everything, the listing is nonetheless long. The figures are sometimes quite big as well.  The unfunded cost to remediate abandoned coal mine sites within PJM states, for example, exceeds $8 billion and the region comprises nearly 80% of the national total.

The list is available here or on the PJM website (file in Excel).  If you know of big ones we are missing, please email me.

For more on the general issues before PJM, Jennifer Chen of NRDC has a blog post and statement before FERC that summarizes it well.  A recent paper by Amory Lovins at the Rocky Mountain Institute challenges some of the claims by coal and nuclear plants that they deserve special subsidies because of their provision of baseload dispatchable power. 

The PJM task force has proposed a structure to identify relevant subsidies to power markets in the region.  Since the most important subsidies to particular forms of energy can vary tremendously, unless one captures all categories the results can be highly skewed.  Part of the work for NRDC was to evaluate potential areas where PJM might miss important policies.  The results were summarized in the table below.

Mechanisms of Value Transfer to the Energy Sector
     
Intervention category Description How Characterized in PJM State Action Listing?
     
Direct transfer of funds  
Direct spending Direct budgetary outlays for an energy-related purpose. 8. Grant Programs, though PJM category not necessarily capturing spending on energy-relevant activities by the state, rather than through grants to a private party.
     
Research and development Partial or full government funding for energy-related research and development. 8. Grant programs
Tax revenue forgone* Special tax levies or exemptions for energy-related activities, including production or consumption; includes acceleration of tax deductions relative to standard treatment. 9. Tax incentives captures most of this, although the current workgroup description focuses on tax exemptions and tax credits. There is another whole class of support through more rapid deductions (generating a time-value benefit) and organizational structures (such as Master Limited Partnerships) that are not being picked up. In addition, the inventories at present are not capturing the pass-through of federal subsidies into the state tax code (e.g., percentage depletion allowances, or preferential tax rates on earnings from Nuclear Decommissioning Trusts). States can and sometimes do deviate from federal rules and require adjustments to the federal Adjusted Gross Income values flowing from federal returns, so when this is not done and federal subsidies flow through for incremental benefits at the state level, a subsidy does exist.
Other government revenue forgone  
Access* Policies governing the terms of access to domestic onshore and offshore resources (e.g., leasing auctions, royalties, production sharing arrangements). Not captured. Most relevant in PJM states with significant levels of fossil fuel extraction.
Information Provision of market-related information that would otherwise have to be purchased by private market participants. Not captured. Examples would include geological surveys for mineral location or siesmic risks to energy infrastructure; or data and statistics collection of relevance to producers.
Transfer of risk to government  
Lending and credit Below-market provision of loans or loan guarantees for energy-related activities. 7. Loan programs, though PJM definition also includes lending of physical property on favorable terms. PJM also seems to cast net very narrowly by requiring programs to target a specific resource. In practice, powerful industries within a state will capture large portion of more general loan programs as well.

Advanced Cost Recovery or CWIP schemes act as interest-free loans from customers to utilities, and would fit well within this category. Particularly if CWIP rules differ by source, or result in large subsidies to generation assets that are selling into the broader PJM market (advanced cost recovery is most valuable for the highest risk projects).
Government ownership* Government ownership of all or a significant part of an energy enterprise or a supporting service organization. Often includes high risk or expensive portions of fuel cycle (oil security or stockpiling, ice breakers for Arctic fields). 10. State takeover, though this is defined quite narrowly, and misses large areas of government involvement, such as municipal utilities or state responsibility for ensuring private market safety (e.g., mine inspections).
Risk Government-provided insurance or indemnification at below-market prices. Not captured (would be captured by added category NEW2: Risk or reclamation).
Induced transfers    
Cross-subsidy* Policies that reduce costs to particular types of customers or regions by increasing charges to other customers or regions.  
Purchase requirements* Required purchase of particular energy commodities, such as domestic coal, regardless of whether other choices are more economically attractive.  
Regulation* Government regulatory efforts that substantially alter the rights and responsibilities of various parties in energy markets or that exempt certain parties from those changes. Distortions can arise from weak regulations, weak enforcement of strong regulations, or over-regulation (i.e. the costs of compliance greatly exceed the social benefits). Partially captured in category 11 (Rate-based Cost Recovery for Certain Resources) -- though PJM definition limits relevant rate basing to DSM and efficiency resources. What about high cost/high risk generation (coal with CCS, nuclear, offshore wind)? What about excess allowable return rates in regulated markets, an issue of contention for years particulary as interest rates fell?
Added category NEW1: Preferential regulation, would capture other aspects of this issue.
Costs of externalities Costs of negative externalities associated with energy production or consumption that are not accounted for in prices. Examples include greenhouse gas emissions and pollutant and heat discharges to water systems. PJM captures this in item 2 (Emissions tax) and item 3 (cap-and-trade), though there may still be residual negative externalities not being well captured even after these carbon constraints are incorporated.
Notes:    
* Can act either as a subsidy or as a tax depending on program specifics and one’s position in the marketplace.
The categorization in this sheet is the work of Doug Koplow.  For additional detail see: Doug Koplow, written comments submitted to the Subcommittee on Energy of the Committee on Energy and Commerce, U.S. House of Representatives for a hearing on Federal Energy-Related Tax Policy and its Effects on Markets, Prices, and Consumers, March 29, 2017.
http://docs.house.gov/meetings/IF/IF03/20170329/105798/HHRG-115-IF03-20170329-SD063.pdf
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.

 

Fukushima power plant after explosions, March 2011
Fukushima power plant after explosions, March 2011

It was pure coincidence that the release event for my detailed review of US subsidies to nuclear power -- a document a couple of years in the making -- was on March 11, 2011, the day of the Fukushima accident.  I was in DC for the launch, traveling in a cab to the event with David Lochbaum of the Union of Concerned Scientists, who was also releasing a new report

Lochbaum's analysis examined 14 "near misses" at US nuclear plants during 2010 and how the NRC dealt with them.   He is also a world-recognized independent expert on nuclear power and power reactors.  His encyclopedic knowledge of the industry was known by many five years ago, and his cell phone rang of the hook as the accident unfolded.  Questions from the press and government flooded in, trying to get context on the event, its causes, and how it was likely to play out over the coming days. 

Over the past fives years, the nuclear sector in some ways has changed greatly, but in others remained remarkably the same.  The sector is still heavily subsidized across the world; still promising innovation will bring costs down to competitive levels; still struggling with delivering on those cost promises on the ground; and still facing little interest in projects by investors. 

Within Japan, the accident is still playing out.  The stabilization and cleanup of the accident area remains fiendishly complex, as this snapshot in today's New York Times illustrates.  And while one silver lining from the accident might someday be a world-class export industry in Japan for advanced robots, at present even the robots are having trouble surviving the harsh conditions.

The human costs of the accident continue to mount -- not just in terms of health, but in broken communities, scattered families, and lost professions.  There are some interesting first-person accounts on the GreenWorld blog, documenting meetings and conversations across the affected regions with people still struggling with the after-effects of the accident. 

Economists (myself included) tend to focus on things that can be measured and quantified.  So before I shift to discuss the numbers, it is important to recognize that much of the suffering that accidents like this cause are not easily quantified.  Quantitative damage estimates are a useful proxy for the suffering an accident has caused, but should be viewed as the lower bound to reflect all of the impacts they miss.

Reasonable questions to ask five years on include how the prospects for commercial nuclear power have changed, whether reactors are safer as a result of post-Fukushima requirements, and what the scale of damages from the accident have been.  It is notable that key details even of critical, world-changing events, may not be known until years later.  A recent article on the Fukushima accident highlights that poor transparency and communications by TEPCO brought the government very close to evacuating tens of millions of people from Tokyo.  That's a pretty big deal.

So what's in play?  Here's a quick synopsis on three areas:  health effects of the accident; costs of the accident; and nuclear economics.

Health Effects

The health impacts from nuclear accidents are always points of contention.  Immediate deaths from accident-associated trauma are fairly easy to tally.  In contrast, morbidity and mortality from exposure to radioactivity play out slowly over time, can be tough to disaggregate from baseline levels of disease, and are subject to data collection challenges.  Because the data matter in terms of political support for current and future reactors, and in terms of the amount and distribution of compensation, getting "clean" data are not easy. 

Here is the World Nuclear Association describing the Fukushima accident in a posting updated this month.  Basically, they conclude that there is no problem from the accident.  But gosh, that government "nervousness" over the accident sure did cause a bunch of hardship and death:

  • "There have been no deaths or cases of radiation sickness from the nuclear accident, but over 100,000 people were evacuated from their homes to ensure this. Government nervousness delays the return of many.
  • Official figures show that there have been well over 1000 deaths from maintaining the evacuation, in contrast to little risk from radiation if early return had been allowed."

Given that people still don't want to move back to areas designated by the government as safe, WNA's characterization seems a bit simplistic.  Ironically, this same article then states that "[m]ajor releases of radionuclides, including long-lived caesium, occurred to air, mainly in mid-March. The population within a 20km radius had been evacuated three days earlier."  So one might conclude that the evacuation wasn't so dumb after all.

The WNA also points to the the UN Scientific Committee on the Effects of Atomic Radiation (UNSCEAR)'s final report of radiation effects in April 2014:

This concluded that the rates of cancer or hereditary diseases were unlikely to show any discernible rise in affected areas because the radiation doses people received were too low. People were promptly evacuated from the vicinity of the nuclear power plant, and later from a neighbouring area where radionuclides had accumulated. This action reduced their radiation exposure by a factor of ten, to levels that were "low or very low."

Radiation expert Andrew Kadam also sees very little risk to human health or even ecosystems.  End of story?  Probably not.  A Greenpeace review of health effects is not quite so sanguine.  Soil contamination remains a problem, and they discuss the  mental health impacts of the accident and its aftermath.  Many of the people in the affected regions still have no plans to return.  And the workforce used to do the decontamination is often marginalized and shunned; work violations are common.

Damages and compensation

The United States has less than $15 billion in insurance to cover damages to third parties from a nuclear accident, and we are the biggest pool in the world.  The system we rely on, set up by the Price-Anderson Nuclear Industries Indemnity Act of 1957, is actually fairly fragile.  The coverage requirements for the policies each reactor must buy for itself have barely kept up with inflation.  The majority of coverage comes not through these reactor-specific policies, but rather based on commitments for each reactor to pay money into a common fund over five years, should a major accident occur.  

As old reactors close, this pool gets smaller.  And even for operating reactors, there are significant counterparty risks that make the availability of funds far less secure.  Accidents anywhere cause increased oversight and costs everywhere.  Reactor consolidation means that a single parent company could be on the hook for many retrospective premiums at once.  These obligations would arise for corporate managers at the same time costs to maintain the rest of their nuclear fleet would be rising.  This could make it difficult for firms to meet their restrospective premium obligations.  The funds, after all, aren't provided in advance.  One need to look no further than recent coal bankruptcies to see how quickly a system of payments reliant almost exclusively on the financial health and solvency of the payors, can go bad. 

One thing Fukishima made clear is that available coverage under Price-Anderson is insufficient to cover the cost of any significant nuclear accident.  In the US, as in Japan, the taxpayer would end up paying most of the money. 

And if we know the pool is insufficient upfront, yet continue to cap liability requirements, this is very clearly a subsidy.  Industry always claims it's not; that the incremental subsidy is tiny.  If that's the case, end the Price-Anderson cap, and they'll ramp up their policy coverage at almost no cost.  Problem solved.

Here's my review of TEPCO's poor liability coverage from March 2011.  Five years later, how big have the damages been? 

Last year, TEPCO estimated it would pay out $57 billion in compensation costs.  James Conca at Forbes, ever the ardent supporter of nuclear, comes out on the low end here.  Conca reports a total cost of roughly $75 billion over the next 20 years, only $15 billion of which is associated with cleanup and the remaining $60 billion in "refugee compensation."  The biggest cost, he says, is not the accident; its the higher price of Japan's replacement power. 

No doubt this is expensive:  nuclear utilities in the US routinely buy more insurance to cover replacement power and damages to their own plant than they are required to purchase to cover third party damage from accidents to all of the people and property outside their walls

But the figures Conca sites need more vetting.  They are quite sensitive to the cost of input fuels, and these have plummeted in the years after the paper he refers to was done.  Further, the baseline price of nuclear clearly excludes some relevant costs -- adequate accident coverage being an obvious one.  

In contrast to Conca, the Financial Times estimates that the nuclear accident has already cost Japanese taxpayers $100 billion, in the form of direct government grants and artificially high power surcharges allowed to make it seem like TEPCO was covering the cleanup costs.  NPR notes that "At the government level, the cost of decontaminating houses and farmland in Fukushima prefecture alone carries a $50 billion price tag." 

Estimates in 2013 by the Japan Center for Economic Research, TEPCO itself, and other experts rose as high as $600 billion.  This included decommissioning of the damaged reactors, compensation to dislocated people, and decontamination of affected lands.   

While the final cost is obviously still unknown, these types of projects tend not to come in under budget.  Expect a long, expensive slog.  And it is clear that post-Fukushima, accident liability systems need not only higher mandated levels of coverage but also a re-think in terms of structure if they are to achieve the dual goals of incenting prudent risk management and operations, and ensuring adequate funds are available to cover the costs of any future accident. 

Nuclear Power Economics

Despite investments and a big shout-out for nuclear coming from people like Bill Gates, nuclear fission has not emerged from the wilderness as a viable solution to world energy needs for low carbon fuels.  Clearly, Fukushima did not help:  a big accident affects the operating environment for everybody else. 

But the pace of innovation and cost reductions are coming faster for nuclear's competitors than for nuclear.  New reactor projects are struggling, not only in the West (see below; slides are from this presentation), but also in parts of the developing world as well.  Competitively, nukes are not doing well. I expect that to continue.

Reactor projects late and over budget

 

Cost-Efficient Greenhouse Gas Reductions: Nuclear is No Silver Bullet

Although nuclear power is a source of low carbon electricity, it is by no means a clear solution to the challenge we face in reducting greenhouse gas emissions.  This presentation discusses common metrics to assess the most cost-efficient source of ghg emissions and reviews multiple studies indicating that new reactors are an expensive option relative to alternatives, and getting more so each year.  Cost escalation, lengthening delivery times on reactor projects, and oft-ignored concerns about proliferation create significant headwinds for the nuclear pathway.  In contrast, competitors cont

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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.

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Another roundup of interesting tidbits from the world of government subsidies.

1)  Nuclear:  A new age of nuclear energy is about to dawn?  Optimism is a good thing, and Michael Brush of the Fiscal Times certainly exudes it.  But optimism probably shouldn't lead you to invest your 401(k) in a bunch of nuclear utility stocks. 

In a recent article ("A new age of nuclear energy is about to dawn"), Brush connects rising prices for uranium to rising fortunes for the nuclear industry overall -- a "move that could signal trouble ahead for the anti-nuke crowd..."  Recent spot prices ar $40 per pound are up sharply from last summer he notes, and

More importantly, it reverses a grinding three-year decline that seemed to signal the end of the nuclear era following the horrible 2011 disaster at Fukushima, Japan.

Is this just a typical bear market rally that will peter out?  Or is the recent strength in uranium a sing of a new nuclear era ahead that will drive uranium prices and mining stocks even higher?

It's probably the latter.

His rationale?  (1) Rising populations and demands for electric power -- not the intermittent type, but "real" power like centralized nuclear.  (2) Large nuclear investments from China, South Korea, India, Russia -- as well as a bunch of smaller countries that "plan to add plants."  (3) Dwindling supply of uranium as companies shuttered mining capacity when uranium prices fell.

I'm willing to concede that uranium prices may spike for awhile as supply readjusts from the recent downturn.  But uranium prices are a very small cost factor in the overall economics of nuclear plants, and nukes are being roundly outcompeted in a host of more important criteria such a cost, flexibility, and build times.

Brush had similar views back in 2010, when he argued that the oil spill in the Gulf opened the door to more nuclear energy (no matter that oil barely competes in power markets).  We'll check back in on the issue in 2020.

2)  Ecosystems:  Subsidies and Biodiversity Loss.  There is a clear connection between subsidies to water, timber, agriculture, energy, construction, and road networks and the inevitable loss of habitat as human industry and homes displace natural landscapes.  Unfortunately, there have been few systematic attempts to document the interactions between all of these areas and loss of critical biodiversity. Ideally, I'd like to see this type of review examining the role of government subsidies on the loss of pristine natural areas (like the Arctic) and biodiversity hotspots around the globe.

Absent the perfect study, a workgroup led by Guillaume Sainteny a few years back did a pretty good one -- examining many relevant pressures, albeit in France instead of in global biodiversity hotspot.  But the detailed look is very helpful for France, and also a good model for what could, and what should, be done elsewhere.  Although the original study (in French only) was released in 2011, an English translation has just come out.  You can access both versions here.

3)  Fossil Fuels:  IMF study finds fossil fuel subsidies even larger than before.  The International Monetary Fund released an update to earlier versions of its work to quantify global subsidies to fossil fuels.  Last time around, they found that the subsidies were really, really big (about $2 trillion per year).  This time, they found they are really, really, really big -- $5.3 trillion per year. 

This IMF paper deserves a more detailed blog posting, as there is a great deal to talk about and their continued focus on this area -- particularly on trying to monetize the externalities, is very important.  I will hopefully have time to do a more detailed discussion of the paper in the near future.  For the time being, however, it is useful to keep in mind that the IMF's numbers are much larger than other estimates (for example, by the OECD, IEA, and World Bank) primarily because of their incorporation of negative externalities (environmental as well as those related to traffic) and their imputation of baseline taxes on fuels if current levels are too low or non-existent (such as a national sales tax on motor fuels in the US). 

Each iteration of their work adds more detail on their externality estimates, and this extra detail should over time help broaden consensus on externality valuation. As of now, however, there is still fairly wide disagreement on some of these values and the IMF's attribution to fuels of some costs more directly linked to patterns of travel, vehicle type, or vehicle weight.  There are also some disagreements between institutions on which costs should be lumped together:  the others focus more on fiscal subsidies, where government actions provide subsidies to particular market players.  Externalities, in contrast, result from government inaction.  I personally feel both elements are important, though mixing them together may not result in a greater impetus or political ability to reform the distortionary policies.

As a practical matter, I'm not sure that whether annual subsidies are $1 trillion or $5 trillion makes that much difference in terms of accelerating the transition away from fossil fuels.  Subsidy reform even at the lower levels would create a very substantial tailwind on fossil-fuel substitutes and conservation; and trying to modify the policies at the upper end of the range may instead trigger widespread political gridlock or riots (since the prices of core commodities would rise so much). 

For more discussion on some of the methodological differences between global subsidy estimates, have a look at this recent World Bank working paper  I co-wrote with Masami Kojima.  There's also an introduction we did on the World Bank's Let Talk Development blog.

4)  Fossil Fuels:  GSI modeling of reforming fossil fuel subsidies to consumers indicates ghg reductions of 6-13% by 2050.  More important analysis from my friends at the Global Subsidies Institute.  The work was conducted with the Nordic Council of Ministers.  You can read more details here.

The Nordic countries have been strong supporters of increased transparency on fossil fuel subsidies for many years.

5)  Nuclear: NRC "caves" on foreign ownership of US nuclear reactors.  The issue was central enough to be part of the original Atomic Energy Act, but the Nuclear Regulatory Commission recently voted unanimously to allow a "graded" approach to foreign ownership.  This would still prevent 100% foreign ownership, but would allow much higher levels of foreign ownership, control, and financing than is currently permitted.  And having unanimous votes on standards weakening in the nuclear sector never seems a good thing.

NEI has viewed the old regulations as unnecessarily hampering foreign investment.  That's par for the course:  pretty much any regulation unnecessarily hampers nuclear progress in their view.  But if foreign money from China or Russia comes in to build subsidized reactors in the US, it will raise all sorts of complicated trade, geopolitical, and competitive issues - both in the nuclear sector and beyond.  It seems a bit odd that the Obama administration was so worried about the terms and transparency of Chinese-led $100 billion Asian Infrastructure Investment Bank, yet seems fine with Chinese money building what will inevitably be subsidized nuclear infrastructure in the US. 

Maybe the best case outcome for the NRC's recent vote would be if the subsidized reactors come from France instead...

6)  Nuclear:  French nukes not doing so well.  So I'm linking to two Michael Mariotte posts in a row.  He raises interesting and important issues, and presents them well.  And in this post, he notes that the nuclear powerhouse known as France has been messing up items both big and small, and is having an increasingly difficult time convincing people to take a risk on their services going forward (not that the problems with France's nuclear program are actually new).  So I guess maybe we ought not count on France being the country to subsidize new foreign-controlled reactors in the US.

Two straightforward concepts drive the inevitable marketplace defeat of nuclear power in most power markets:  incremental innovation and lot size.  People are quite clever in making many things, but we also frequently screw up.  We learn by educated trial and error, and we get better bit-by-bit over time. 

If we have many people working on a problem; and we have many chances to try something new and tweak it to make it work better, the probability of a successful outcome (increased durability, lower cost, better performance) goes way up.  It's not because our initial trials are necessarily more successful in power storage than in fission reactions (even Tesla's recent storage product is hardly problem-free), but rather because we get so many more chances.

This, in a nutshell, is the structure of efforts to improve battery storage for electric power: huge experimentation on storage chemistry and business models (business models can matter as much or more than technical gains at particular stages of product development) across multiple related markets, and an ability to integrate small improvements into product cycles again and again.  In combination, the pace at which power storage is becoming a competitive threat to nuclear (and to many other energy market incumbents) is accelerating.

Nuclear proponents agree with the general approach:  they, too, want incremental and experiential innovation to improve their product.  The idea is behind many of their public policy statements on the future role they want nuclear to play, and the concept that even though the first-of-a-kind reactors (FOAK) may be exorbitantly expensive, they pinky-swear that unit costs will drop sharply in later units (though this hasn't happened historically). 

The structure of the nuclear power industry, however, is far less amenable to this type of innovation than are batteries.  There are a small number of firms making a small number of enormously expensive reactors.  The machines, and their related installations, are complex with many things that can go wrong.  And the limited number of reactors being built are going in over a very long period of time, dampening innovative momentum.   Costs of failure are quite high, both financially and in terms of potential damage to human health and the environment.  This makes technical risk-taking imprudent, further constraining opportunities for innovation. 

Industry efforts to overcome these limitations by streamlining regulation, reducing public oversight, and promoting larger production runs of smaller reactors may offer some benefits, but don't change the core competitive constraints.  The differential in lot sizes between reactors and power storage devices remains overwhelming; and the ability to work small innovations into products across markets and time is dramatically larger in the power storage sector.

While nuclear reactors can also benefit from power storage (by running full tilt and banking the extra power to sell during peak demand), batteries able to handle much smaller scale loads are likely to come to market well before products big enough to facilitate reactor-scale storage.  Instead, reactors will need to look to "bank" their surplus power in other ways -- such as through co-location with electricity-intensive primary industries like metal smelting or desalination.  This is an old idea, but has not proven particularly successful.  If the associated industry is also hugely capital-intensive (as it often is) and needs to run at full tilt to be economic (as it often does), the ability to dump only surplus power into the alternative use can be more limited than what is needed for these industries to serve as a "battery" for the reactor.

Here are some numbers to illustrate the competitive wall nuclear faces -- even assuming the myriad subsidies to the nuclear fuel cycle continue:

Nuclear power plant market size

930 Gigawatts - Nuclear generation that the Nuclear Energy Agency projects will be required by 2050 in their 2 degree warming scenario, comprising 17% of global electricity production.  Of this, about 400 GW replaces the closure of existing units.1

580 - 775 - Number of new reactors built to supply this target.  Low-end of range assumes roll-out of 1600 MW Areva EPR; high end of range assumes 1200 MW Westinghouse APR.  The reactor count is already significantly lower than what the NEA projected in their 2010 Technology Roadmap for nuclear, and worsening economics even for existing nuclear reactors make the 2015 projection optimistic as well.

$4,400,000,000,000 - Estimated investment over the next 35 years to build these reactors per the NEA estimates (p. 23).  This figure  includes few, if any, of the many government subsidies to the nuclear fuel cycle -- meaning that the real cost of this expansion would be much larger than $4.4 trillion.

35 years - Time period over which these reactors will be deployed in the NEA 2 degree scenario.

22 - Average number of reactors per year being built around the world over the 2015-2050 time frame modeled by NEA in its 2 degree scenario.  The actual lot size per year will be smaller due to country-specific customization required, multiple reactor types, and multiple manufacturers.  These factors all impede the technical and administrative learning that can occur to improve the competitiveness of the new plants.

100% - Share of reactors in NEA scenario that seem to be supported by significant government interventions to guarantee debt, invest capital directly, guarantee purchases of power, or support the fuel cycle in other ways.

0 - Number of repositories for high level nuclear waste currently operating in the world.  There are one or two operating sites for centralized interim storage, but none for permanent disposal.2   The vast majority of the technical and economic risks for building and operating these facilities around the world is borne by taxpayers, not waste generators.

 

Battery market size

All of the markets below involve high value applications of portable power, where customers pay a premium for lighter, more durable, and longer battery life.  While the technologies may not be identical to the storage approaches most applicable to power plant or distributed generation power storage, there is a great deal of spillover.  The frantic pace of innovation in the sector, the huge amounts of revenue-supported private funds invested into technical learning and production improvements, and the common performance goals across many of the market sectors all support the idea that the combined demand from the sectors below are quite relevant to power storage in the electricity sector. 

Note as well that battery storage in the power sector can support multiple power generation technologies, not just solar; and can substitute for existing cost centers such as emergency backup power.  These attributes increase the competitive threat storage plays to nuclear (since multiple technologies open more pathways to cost reductions) and reduce the cost barriers for commercial or industrial customers to invest in battery storage since they need to pay for backup capacity anyway. 

293,245 - Number of plug-in electric vehicles, each of which contains multiple batteries, sold worldwide during 2014.3   The pace of adoption is accelerating.

148,000,000 - Number of laptop computers shipped by original device manufactures (the firms supplying most of the major brand names) in 2013. 4

230,000,000 to 285,000,000 - Estimated number of tablet computers shipped during 2014.5

1,300,000,000 - Number of smart phones shipped during 2014.6

6,800,000,000 - Number of cell phone lines in the world as of February 2014, nearly all of which have an associated mobile device and battery.7

14 seconds - Amount of time for the lot size of batteries produced for the above devices alone to equal the number of nuclear reactors that would be built over the next 35 years under the NEA scenario.

So which sector would you bet will have the most significant technological improvements and cost reductions over the next two decades?  Arnie Gunderson, a frequent critic of the nuclear industry, framed the issue nicely in a recent Forbes magazine article on Tesla's threat to nuclear:

[T]he nuclear industry would have you believe that humankind is smart enough to develop techniques to store nuclear waste for a quarter of a million years, but at the same time human kind is so dumb we can’t figure out a way to store solar electricity overnight. To me that doesn’t make sense.

His sentiment matches my take on meetings I attended last year at the IEA on finalizing the updated nuclear technology roadmap report.  The majority of participants were nuclear proponents interested in expanding the number of reactors and the market share of nuclear power.

The belief that nuclear was the only viable mechanism to provide large scale, low-carbon power was also widespread. This perspective was particularly striking to me given the long time horizon being discussed.  The scenarios included new plant starts through 2050, which, with operating lives of at least 40 years means the solutions being proposed will span three quarters of a century.  The technical change that will occur during this period will be stunningly large -- think how much has changed since 1939, 75 years ago.  It is hard to believe that nuclear's main competitive advantage over other low-carbon resources (i.e., it is not intermittent) won't be solved during the next few decades; and if it is solved, I'd hate to have national governments guaranteeing trillions of dollars of nuclear debt.  Whereas the nuclear buildout scenarios involve roughly 1,000 new reactors, the pressure for improved power storage will be coming from many different sectors (primarily consumer electronics and phones, electric vehicles, and power storage) with unit counts in the billions.  The range for innovation, incremental technical change and improvement, and cost reductions will be vastly larger than in the nuclear sector.

 

  • 1Nuclear Energy Agency, Technology Roadmap: Nuclear Energy, 2015, p. 5.
  • 2World Nuclear Association, "Radioactive Waste Management," March 2015 update, accessed 7 May 2015.
  • 3http://www.hybridcars.com/top-6-plug-in-vehicle-adopting-countries-2014/, accessed 6 May 2015.
  • 4http://en.wikipedia.org/wiki/List_of_laptop_brands_and_manufacturers, accessed 5 May 2015
  • 5http://tabtimes.com/resources/the-state-of-the-tablet-market/, accessed 5 May 2015.
  • 6http://www.idc.com/prodserv/smartphone-market-share.jsp, accessed 6 May 2015.
  • 7http://qz.com/179897/more-people-around-the-world-have-cell-phones-than-ever-had-land-lines/, accessed 5 May 2015.
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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.