During the recently completed Nuclear Energy Assembly in Miami, Fl, one of the panel discussions focused on the importance of ensuring that nuclear energy has a loud voice and is at the table in policy discussions related to clean power production and CO2 emissions reductions.
The panel participant list included a last minute change, substituting Jay Faison from the ClearPath Foundation for Jason Grumet, who now leads the Bipartisan Policy Center.
Moderator – Lawrence Makovich, Vice President and Chief Power Strategist, IHS
I hope that whatever took Jason Grumet away from the panel is nothing serious, but his absence provided a terrific opportunity for Faison to introduce himself to the nuclear industry. Faison shared some refreshing thoughts and made several useful suggestions for nuclear advocates to move from talk to action.
“Back to the advocacy piece. I think one reason that solar is so strong is that every solar installer is an advocate. And I would entreat you that perhaps every nuclear industry person should be an advocate as well…. I’ll put another guy on the list that you can write a letter to, and that would be Mark Jacobson at Stanford. The Left has put so much… they’ve hung so much on this one report that says we can get through this energy crisis with wind, solar, storage and efficiency, 100%… People I know that live in the energy industry laugh at that, but the Environmental Movement hangs their hope on that…There needs to be a bigger voice around making nuclear a reality that has to be part of the solution to the Environmental groups.”
(Emphasis in original.)
Faison’s Clearpath Foundation has positioned itself in an almost unoccupied space. It is an unabashedly conservative organization focused on clean energy solutions with a major focus on “the nuclear option.”
Though he describes himself as a staunch conservative who prefers a smaller government, Faison makes it abundantly clear that he believes in democracy and effective, problem-solving government action. He and his team are bringing their strong, successful business backgrounds into the halls of Congress to help them understand the importance of their decision processes and their need to understand the effects of those decisions.
Makovich: Jay, I think you mentioned complexity, trade offs, fuel diversity is really complicated. So your sense here about whether we’re going to appreciate these things on the nuclear side or not?
Faison: Well in Congress today, when you score a bill, there’s no differentiation between investment and expense. That is a huge problem. They’re two wildly different things. These are some of the crazy learnings that I’m having and we have to fix that. Because nuclear is an investment. Nuclear is an investment in a stable… You know the talking points so I don’t need to go through them. Gas is volatile… These are all investments that you need to make. And somehow we’ve got to break through the complexity and have policy makers understand that there’s expense and there’s investment.
And low cost expense is not always the winner when America was built on innovation and investment. That’s were we’re focused to try to make those arguments.
As the Chief Power Strategist for IHS, one of the foremost energy consulting groups in the world, Makovich has a comprehensive understanding of energy market relationships that cannot be obtained by skimming headlines.
He asked some probing questions that indicated he is more than little concerned about the way that power markets are using short term price signals to make choices that have effects over a much longer time frame. He asked some really interesting questions about the risks that come with increasing dependence on natural gas, which has a long history of volatility.
Transcript of above segment
Makovich: Natural gas has come up a couple of times here as putting a lot of competitive pressure on nuclear plant operations and so forth. There’s a couple of questions on gas. A lot of people think that nuclear has a competitive problem with gas. But that would be true if we had evidence that gas-fired generators are winning in the marketplace. But as you look at their financials, the key merchant generators have all gone bankrupt at least once in the past decade.
Natural gas fired power plants… we’ve had billions of dollars of write downs. I think that there’s a perception problem here that power markets are working well and the prices are a real economic test, and I’m not sure that’s true. An observation on that, yes or no? Your sense?
Vine: Ummm… My sense is that low natural gas prices… regardless that companies are taking write downs and they are harming all of the sources that bid in at low or zero prices like nuclear, wind and solar, the price-takers in the market, but that’s how it was designed to work. It’s to the benefit of consumers, more than having an environmental goal, for example, which is what we are talking about here.
That market was not designed to solve this climate problem. If it were optimized around zero emission generation or reliable generation or other characteristics, then this group would certainly be more happy with that outcome. Delivering low prices to consumers is a great thing and I smile when I open my electric and gas bill because it just seems to be getting cheaper every month, but it’s not solving this problem.
Aside: Ideally, commodity prices are set by the balance between supply and demand and rarely have a strong relationship to the underlying costs of production. Prices cycle up and down and send signals of either opportunity for profits by making investments and increasing supply when prices are high, or the need to slow investments in new capacity and begin closing down the least efficient producers to bring production into alignment with demand.
Skilled, experienced commodity suppliers and traders aren’t always passive observers of these cycles. As anyone who has been closely watching the world oil markets during the past several years should recognize, there are times when dominant suppliers feel the need to flood the market, drive down prices and drive out competitors so that they can enjoy the next high price cycle a little sooner and longer than might naturally have occurred.
I believe that has been happening in the U.S. natural gas market for several years.End Aside.
Makovich: Well, I’m thinking, for example, Christine… New Jersey is part of PJM and PJM has had an energy market and then they added a capacity market because it didn’t look like the energy revenues were high enough and then the polar vortex hit and PJM realized that they hadn’t really defined what they meant by energy, so these market rules continue to evolve. So my sense is that we still have some problems where the market prices aren’t really where they need to be. Do you see that as a problem contributing to this nuclear run off that we’re seeing and the higher CO2 emissions as a result?
Aside: The term “run off” is appropriate. It comes with the implication that it is an actively pursued strategy, not an effect of passive, well-functioning markets. End Aside.
Whitman: Well there’s no question that all the regulators and everyone is looking now at how we take advantage of the lowest cost of energy to provide to the consumers, to the ratepayers. And right now, the natural gas phenomenon is driving a lot of that, and it is causing a dislocation in the long term investment strategies of a lot of those in the industry.
Aside: The players in the industry are fully aware of the effect that low prices have in terms of discouraging investment. They are banking on a long runway of high prices once enough of their competitors have been driven out of the market. New capacity cannot arrive promptly after a period of low to no investment. End Aside.
Because they kind of have to take advantage of this, and it is a good thing. People are happy when they see their power bills go down. And the problem with that is, as I said before, we’ve been there before. And it gets very dangerous when you see everybody’s eggs are being put in one basket. You see this is where we are going to go and this is what we are going to do and we don’t have to worry about the rest of it. The solar and the wind that’s the other side and they leave nuclear out of the equation because they say “it’s just so expensive.” And until the Nuclear Regulatory Commission really streamlines its review process and starts to move some of these things through, it’s going to stay expensive, perceived as expensive, and people are going to go with the natural gas.
Makovich: Well Christine, you bring up an important point about not having all your eggs in one basket. When you look at natural gas, there’s some interesting things happening there. FERC commissioners right now have protesters that are showing up at their houses protesting gas pipeline approvals. We’ve seen increasing seismic activity associated with fracking, it’s getting a lot of people alarmed. Aliso Canyon in California, huge leak that’s contributed to California’s greenhouse gas emissions. The EPA is very focused on the leakage of methane from the whole system.
Do you see a danger here, that we’re going to lose a good portion of our nuclear supply here, and then gas is going to run into some problems politically and physically?
Aside: This is a clear and present danger. The physical constraints associated with extracting and delivering gas are well known in the business. So is the fact that gas is so difficult to store that only a few gas fired power plants have any onsite storage; most that do actually store fuel in the form of distillate fuel oil, which has its own history of price volatility. Closed nuclear plants cannot be restored to service to alleviate the coming natural gas crunch. Some closed coal plants might be recoverable. End Aside.
Whitman: I think we have to be very careful about that. Because I do see that we’re going to see a slowdown in this appetite for fracking and for natural gas. I’m on something called the Center for Sustainable Shale Development, and the Marcellus Shale is where we’re focused. And it’s developing standards that go beyond anything currently required in law or regulation on how to do fracking. How to have an enclosed system and no flaring and those kinds of things. But the problem you run into is that the big guys get it. And they’re willing to go through the process, which takes some six months on anyone of the standards to be certified. They understand it; it’s the Mom and Pops. And in the energy field, you get so many of those.
But I believe we will run into… There are places where fracking is entirely safe and could be done; there are places where it shouldn’t be done. When you stand the potential of damaging the water supply for thousands of people, hundreds of thousands of people, you may think twice about whether that is where you want to frack. And you are seeing seismic activity. So I think the downside is going to start being elevated in people’s minds. But if we don’t continue making the investment in nuclear, we are going to be left hanging. Because the renewables cannot step up and meet the need in the timeframe we’ve got and we don’t want to go back to coal. In spite of Donald Trump.
In a way, I’m glad that I was not in the audience for this panel. Makovich asked such good, probing questions that provoked such thoughtful answers that there was almost no time for questions from the audience. I’m one of those annoying people that asks a lot of questions at conferences.