Atomic Insights

Atomic energy technology, politics, and perceptions from a nuclear energy insider who served as a US nuclear submarine engineer officer

NAVIGANT analysis of Vogtle expansion provided to JEA in Sep 2017 understates fuel price risks

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Aaron Zahn, the interim managing director and CEO of the Jacksonville Electric Authority (JEA), believes it is time to give up on the Vogtle expansion project. On August 17, he sent a letter to James Fuller, the President and CEO of of MEAG (Municipal Electric Authority of Georgia) Power detailing his company’s desire to rid itself of its 2008 agreement to purchase 206 MWe for 20 years from Vogtle Units 3 & 4 at a price that will be based on capital recovery over a 40 year facility life plus operations and maintenance.

His company’s proposed action is to cancel the project, pay a cancellation fee, and pay off its share of the already expended plant costs over the initial 20 year period of its agreement.

According to a report provided by Navigant Consulting in September 2017 (starting on page 5), the company could accept paying off those obligations without receiving any electricity, buy market priced electricity and generating capacity and still save its customers between $345 to $727 million (present value in 2017 dollars). Though Georgia Power, the Georgia Public Utility Commission and the other partners in the project decided in December 2017 to continue construction, that decision was based on a cost to complete estimate that has recently grown by another $2.3 billion.

JEA does not have a direct vote in determining whether or not Vogtle 3 & 4 construction continues; its interests are represented by MEAG Power, which also represents a 49 municipal electric utilities located throughout the state of Georgia.

Before making such an impactful decision, it would be prudent for JEA directors to invest in an updated analysis that includes information that was not available in September 2017 and that more fully explores the risks associated with the “no-go” decision.

Limitations of existing analysis

When Navigant Consulting produced its report in September 2017, there was still deep uncertainty regarding the project’s eligibility for an $18 per megawatt-hour production tax credit that was provided by the Energy Policy Act of 2005 and used as part of the financial modeling that supported the initial final investment decision to start the project. The uncertainty related to the expiration date of project eligibility.

During the period since September 2017, legislation has been enacted that eliminates the expiration date and removes the risk that the project will not receive the federal assistance promised. Everyone needs to remember that the assistance was provided as an incentive to attract leaders in what was expected to be a difficult process of restoring the US’s nuclear plant construction capability after a hiatus lasting more than three decades.

The cancellation costs assumed in the September 2017 report must also be revised to take into account the expenditures that have been made during the past year.

The final area where the Navigant analysis needs improvement is in the range of future natural gas prices considered. When the analysis was produced, there was a tightly limited range of modeled price trends, essentially all of which assumed that the abundance of gas stored in tight shale rock will keep gas prices low with annual increases that are only 1% above an assumed rate of general inflation. Here is how the report deals with the magnitude of the risks associated with variations in the future price of natural gas.

There are also risks around the replacement power forecast in the No Go scenario. While the No Go scenario eliminates the significant construction cost risk related to Vogtle, there is some uncertainty around the replacement power forecasts which are driven by gas prices over the 20-year period, environmental regulations, future technological advancement and potentially carbon prices.

Though many energy analysts believe that future gas prices will be relatively low and will increase slowly at a moderate pace, that belief isn’t justified by the volatile history of natural gas prices during the 30 years since they were deregulated. Large abundant reservoirs do not eliminate the risks associated with weather variations, changes in regulations, successful efforts to increase demand through both positive and negative marketing, or more concentrated dependence on a single fuel choice.

Navigant’s future gas price model is proprietary, but it has published at least one slide show that provides clues about underlying assumptions.

Interestingly, one of the assumptions used in its prediction that gas prices will remain low is that the amount of electricity generated by US nuclear plants each year will grow by 25 billion kilowatt hours between now and 2030. That assumption – derived from an EIA prediction – rests on completing both Vogtle and VC Summer while also maintaining existing plants through the end of their licensed operation. Think about that assumption in the context of using it as one of the inputs for a decision about whether or not to complete the only remaining nuclear construction project in the US.

It’s also a questionable assumption to believe that there will not be any price associated with carbon emissions during the 25 years between now and the end of JEA’s 20 year power purchase agreement for 206 MW of emission-free electricity from Vogtle Units 3 & 4.

There is certainly a risk that the cost to complete Vogtle is still underestimated, but the risk that natural gas prices will misbehave should be quantified. No one should forget that today’s gas prices are still less than half of the level they achieved during the period from 2006-2008. That statement does not even consider any inflation adjustment for the 10 years that have elapsed since that apparently dimming memory.

JEA tells its customers that their rates are kept in check by a diverse portfolio of fuels and the capability to switch between them. Unfortunately the current menu includes coal, residual oil, pet coke and natural gas. JEA’s ability to switch between those fuels is likely to be more and more constrained to the single, historically volatile choice of natural gas if they manage to back out of the Vogtle PPA.

Atomic fission technology is a terrible candidate for a “do not resuscitate” order. Antinuclear groups MUST not be granted right to put one in place

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I’m going to beg forgiveness and literary license for the following extended, potentially inappropriate, and perhaps too personal metaphor.

For several weeks, I’ve been struggling with finding my “voice” in dealing with current events related to the U.S. electricity production system. As part of my healing process, I went on a several day long reading binge that included some histories, an advice book by a famous cartoonist about finding paths to success through multiple failures, and even a few mystery novels.

A reading binge can produce a hangover characterized by a stimulated mind armed with new methods of expression. It provides a variety of new filters useful for finding unusual patterns in a complex world.

Looking through my new set of lenses, the following headline from one this morning’s Google Alert emails struck me hard.

Environmentalists split on letting carbon-free nuclear power die.

My immediate reaction was to wonder who the heck gave “Environmentalists” the authority to make the “do not resuscitate” (DNR) decision for nuclear energy in the United States.

It reminded of a recently devoured novel about a patient, cold-blooded, calculating chess player who decided that he was ready to move on to another woman. Divorce didn’t cross his mind. Instead, he created a long-term plot that would eliminate his first wife, cast himself as a deeply caring and emotional man, and allow him to walk away with a huge life insurance payment. The setup for the payoff took almost a decade, but his plan succeeded.

Even though not part of the original strategy, he took advantage of a painful illness and a claimed DNR discussion to get away with a skillfully executed murder. His success required the assistance of a number of additional characters; some were unwitting people taken in by the murder’s act, some were knowledgable co-conspirators.

It’s my belief that the U.S.’s ability to effectively use nuclear fission energy is in a situation analogous to the inconvenient wife in that story. Unlike the situation in the novel, where the patient is dead and buried when the book begins, our nuclear technology sector is still alive, but in the throes of a painful struggle with an uncertain outcome.

It’s at a point where active intervention is required to keep it alive.

Aside: Sure, I know about new nuclear and have a great deal of optimism about its potential. I can’t shake the belief that there will be no “new nuclear” in the U.S. for a very long time unless we take action now to slow the demise of old nuclear. End Aside.

There is obvious potential for occasional, potentially painful code red actions, but it is far too young and potentially vibrant to be a candidate for a DNR. An awful lot of people will miss the electricity production option if the plot to kill nuclear power promptly enough to avoid the potential of a cure succeeds.

Not only has the industry been severely battered by external forces, but it has developed habits that have damaged its ability to thrive. An identifiable group of opponents would like nothing more than to prevent the possibility of recovery. The people with harmful intent are deeply involved in the situation and looking for opportunities to kill the patient.

Some attending specialists have declared a terminal prognosis with a near term demise after a significant amount of additional pain. Others are praying for a miracle. Many are feverishly working on potential cures; I feel compelled to try to give them more time.

Unlike the defense attorney protagonist in the novel that inspired this admittedly unusual post, I’m under no ethical code of confidentiality. There’s nothing to stop me from sharing what I know about what I believe is a sustained plot to kill nuclear and reap a huge payoff.

One contribution that I can make to potential recovery of the patient is to step into the plot and identify the evil intent of the people actively – but not always openly – seeking the final demise of the patient.

Of course, it’s still going to be my word against that of a skilled, ostensibly credible, and beguiling group of assassins who have attracted a number of innocent supporters and clever co-conspirators. Convincing people to listen requires providing them with insights into motive and methods that open their minds to asking hard questions.

There is an almost unfathomable quantity of money and power riding on whether or not nuclear energy can be revived in time to approach its true potential. Any energy that is not supplied by nuclear power plants will have to be supplied by another source. All competitive suppliers, including those who market coal, gas, wind, hydro, solar, geothermal, and even distillate fuel oil have the potential to increase sales, revenues and profits if they can force nuclear plants to exit the market.

During a brief building period that lasted less than 40 years, electricity production from nuclear reactors in the U.S. increased from zero to 800 billion kilowatt-hours per year.

At $0.05 per kilowatt-hour, that electricity is worth about $40 billion per year. Just imagine how large that number could have been if the technology deployment had not been abruptly halted. Heroic resuscitation efforts are worthwhile.

Is America’s vaunted electricity supply system on course for rocks and shoals?

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Late last week, while many observers were focused on a long weekend of religious celebrations with friends and families, there were several announcements made in the slowly developing crisis in the American electricity supply system. Operators of a number of several large power plants with the ability to produce electricity night and day, wind or […]

I apologize for falling for a dirty trick that might have been planted by an oil and gas lobbyist

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Though I take some pride in my critical reading skills and resistance to getting snookered by scam stories, I fell for a doozy yesterday. Unfortunately, I ended up propagating what might have been a clever ruse designed to paint nuclear energy advocacy in a bad light. It’s a story worth telling after I apologize profusely […]

Will the U.S cold wave help solve OPEC’s oil inventory hangover?

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Since 2014, investor-focused publications have used terms like ‘awash in oil’, ‘oil glut’ and even ‘world is “drowning” in oil’ to describe the world’s stockpile of already extracted and stored inventory of crude oil. Similar phrases have also been occasionally used to describe inventories of various refined products like gasoline, distillate fuel oil, and kerosene. […]

Synergies between nuclear energy and coal

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Some recent converts to nuclear energy advocacy are offended and confused by the fact that nuclear energy and coal have been lumped together in the Department of Energy’s recent effort to return profitable conditions to established power plants that do not depend on favorable weather or just-in-time natural gas fuel delivery. A segment of the […]

Consumers win if electricity production capacity remains high

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There are many pundits writing about the U.S. electricity markets today who hope that their readers haven’t studied market behavior and competitive price formation. They want their readers or listeners to accept their narrative and believe that keeping struggling generators in the market will be a costly market intervention resulting in higher customer prices. The […]

Environmental Defense Fund president has a fundamental misunderstanding of gas markets

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Fred Krupp, the president of the Environmental Defense Fund (EDF), published a commentary in the Wall Street Journal titled How Local Utilities Gamed the Natural Gas Market. The article subtitle briefly explains his theory – They booked large orders and then cancelled at the last minute, which pushed electric prices up by 20%. Krupp’s commentary […]

(Re-)Creating Nuclear Fuel Demand in East Asia

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South Korea, Japan and Taiwan, three historically large markets for uranium and fuel cycle services, have been under siege by organized antinuclear opponents who have made the most from Fukushima to rally public support for their efforts. To paraphrase a cliché, nuclear energy opponents did not let an attention-getting crisis go to waste. As a […]

South Korean Panel Supports Nuclear Plant Construction, Rejecting President Moon’s Plan To Stop It

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Supporters of South Korean nuclear energy are celebrating today. Earlier this morning, a citizen’s panel decided that President Moon Jae-in had made a mistake by halting the Shin Kori 5 & 6 construction projects. The 471-member panel, formed by President Moon to provide advice about his plan to phase out one of the world’s most successful […]

Atomic Show #258 – Energy and the Modern State With Professor George Gonzales

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Dr. George Gonzales is an energy-focused political scientist and professor at the University of Miami. He has written a number of books about the relationships between energy, the environment, international relations, and political decision making. His upcoming work is titled Energy and the Modern State; it is scheduled to be published in 2018. On this […]

Long awaited DOE report on electricity markets and reliability

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In April, Secretary of Energy Perry announced a 60 day study of current U.S. electricity markets with an emphasis on their effects on long term grid reliability, reliance and stability. That report was issued sometime around 10 pm yesterday. It’s a lengthy, detailed product backed up with data, charts, customer feedback, and expert input. Here’s […]