Economic Competitiveness of New Nuclear Power

Predictions of future costs play a large role in the discussion of whether or not to enable the construction of new nuclear power plants. A commentary in the Duluth News Tribune (free registration required) titled Pro/con: Nuclear power is not competitive with coal, natural gas encouraged me to share some of my thoughts on the matter.

According to Evan Ringquist, a professor of public and environmental affairs at the School of Public and Environmental Affairs, Indiana University Bloomington, nuclear power has already been the beneficiary of a number of relatively recent government actions to encourage its development, yet he believes it is still not competitive with coal and gas. His list of encouraging actions include the one step licensing process, Nuclear Power 2010, early site permits, loan guarantees, risk insurance for project delays, and the production tax credit for new plants. According to Evan, despite all of these costly encouragements, building new nuclear power plants will have the following effects:

First, greater reliance upon nuclear power will mean higher prices for electricity. Predicted prices for atomic energy are 25 percent to 60 percent higher than electricity from coal and 20 percent to 25 percent higher than electricity from natural gas. While electricity costs will rise under any plausible scenario for reducing greenhouse gasses, citizens should not expect nuclear power to delay or prevent these price increases.

Second, because we import 90 percent of our uranium, increased use of nuclear power will mean greater reliance upon foreign nations for our energy resources.

Third, the security risks posed by nuclear power are unique among potential sources of electricity. Products from the nuclear fuel cycle and nuclear wastes are attractive targets for terrorists. Therefore, greater reliance upon nuclear power will require a larger and more expensive domestic national security apparatus.

While it is certainly possible that his prediction could come true if the development proceeds along a path that includes project delays, continued successful opposition, and a continued dependence on a once through fuel cycle with a heavy hand against the US uranium mining industry, I see a different future because I have a different view of the past. Here is the comment that I submitted to respond to Evan’s analysis:

Though the selected facts included in Evan’s list are essentially true – the exception is his description of Nuclear Power 2010 which was only a pilot program assisting two selected projects and is not available to any other applicant – I disagree with his assessment.

The actions taken by the government to encourage nuclear power development have been half-hearted. For example, the “streamlined” licensing process still requires at least 42 months and costs the applicant $258 per bureaucrat hour spent in the review process. None of the already delivered 17 applications for 21 new plants have completed the process and the NRC has delayed the completion of reviews for several projects already. I also disagree with his assessment of the long term electricity price effect of encouraging the development of new atomic fission power plants.

It is a very complicated discussion, especially when you begin to dig through the analysis underlying the prediction of future power costs. There are a lot of variables in the equation with regard to future interest costs, costs of competitive fuels like gas and coal, length of time it takes to build facilities, labor costs, labor productivity and length of time that it takes to work through a federal licensing process that includes many opportunities for legal challenges.

There is a lot of uncertainty. There are also a lot of opportunities for the industries that compete with nuclear energy to successfully hobble the technology without even seeming to be involved in the discussion. Please believe me when I state that the coal, oil and gas industry has some powerful friends in DC and that they often influence decisions in closed door meetings.

I like to look at the success rate of historical predictions when deciding whose future predictions I want to believe. People opposed to nuclear power in the 1970s and 1980s made exactly the same kinds of comments and predictions about its prospects and its effects on future electricity costs as Evan does.

With a lot of hard work and slogging against that well organized chorus of opposers, nuclear power plant engineers, constructors and operators established a fleet of 104 atomic power plants that provide 20% of the electrical power in the US. Those plants initially cost more than they should have, partially due to the delays imposed during the fighting about whether or not they were economical. When those plants were built, interest rates were as high as 20% and inflation was in the middle double digits. Delay costs real money in large construction projects.

Today, those plants each have at least 20 years of life remaining. The owners have essentially paid off all of their construction loans. Nuclear power plants in the US generate electricity at an average cost of about 1.7 cents per kilowatt hour, at least 20% less than “cheap coal” and about 1/5-1/2 (depending on volatile gas prices) the cost of power from natural gas. That power is now essentially emission free; nearly all of the emissions that can be attributed to nuclear power are associated with plant construction. In regions that have retained a cost of service regulation model for electricity, the consumers benefit from that low cost electricity and will continue to benefit for several more decades.

In places where the businessmen, accountants and lawyers that often run power companies managed to convince the public to let them take the nuclear plants into a “competitive” service model, the plant owners are capturing something close to half a billion dollars per year per plant in profits above their cost. That situation is really nothing special about nuclear power – the leaders of companies often have more information and more negotiation expertise at their disposal than government decision makers. In the case of electricity deregulation, the regulators and legislators “got rolled” in the negotiations over the deal structure, much to the disadvantage of electricity consumers – all of the rest of us.

Just think where our country would be today with regard to energy independence if we had simply beat back the opposition from the established fossil fuel industry and continued building nuclear power plants at the rate that we maintained during the period from 1963-1973.

There would be no coal burning power plants; they would have been pushed out of the market by 2000. (That alone would have reduced our annual greenhouse gas emissions by 40%.) There would be little gas being burned in power plants. Instead, it would all be available, at lower prices due to the shift in power between consumers and suppliers, for uses like home heating, fertilizer manufacturing and chemical production.

Take this history into account as you decide whether or not the US government should enable nuclear power to be developed without giving quite as much power to the people with economic interests in slowing it down or increasing its costs through opposition and delay.