Lew Hay is the CEO of NextEra Energy, Inc., the new name for the energy holding company once known as FPL Group. His company is one of the largest developers of renewable energy systems in North America. It owns 7,450 MWe (peak capacity) of wind turbines in 17 states and Canada, operates the world’s largest solar energy plant Solar Electric Generating Systems (SEGS) in the Mohave Desert, and produces hydropower using 81 units on several rivers in Maine. The company also owns and operates eight nuclear units at five plant sites in Florida, New Hampshire, Iowa and Wisconsin, with a total capacity of 5,900 MWe.
Lew Hay has written an op-ed for the most recent issue of Bloomberg BusinessWeek titled A New Dawn for Nuclear that lays out the need for new nuclear energy, the reasons why he and his well qualified planning staff know that traditional “renewables” cannot do the job, and the reasons why he and his fellow utility executives are pressing hard for consistent policies that enable and encourage nuclear energy investments. Here is how he described the way that they feel about policies to encourage nuclear energy:
All we need is the political will to do it. The most important economic incentive policymakers can adopt to make nuclear power viable is to put a price on the emission of carbon dioxide. Currently, fossil fuels enjoy a huge implicit subsidy in the form of a lack of carbon pricing. If carbon were priced, non-emitting power generation sources such as nuclear would be able to compete on a truly level playing field. By contrast, the lack of a price on carbon is a thumb on the scale of fossil fuels.
Just as important, policymakers and regulators must ensure that a handful of antinuclear activists does not abuse the rule of law in order to introduce delay and uncertainty into the long process of bringing a new unit online. The argument will always be that nuclear power is not “safe,” even though the number of fatalities from America’s most significant nuclear accident, Three Mile Island, has always been the same: zero.
As a participant in Internet debates about nuclear energy since the days before there was even a World Wide Web, I have often been asked – if nuclear energy is so wonderful, why does it need “subsidies”? (Aside: I opened my AOL account under the username of atomicrod in 1991 and immediately started discussing energy on USENET bulletin boards. End Aside.)
My answer is often a pile of statistics showing that our current fleet of nuclear energy producers do not receive any subsidies or tax preferences – in fact, they pay numerous fees and taxes that do not apply to their fossil fuel burning competitors. Those fees include an annual licensing fee for each reactor of $4.5 million plus a fee for all “services” provided by the NRC that is assessed on a staff-hour basis, with each staff hour charged at a current rate of $257 per hour. In addition, there is a special fee (tax) levied on every kilowatt-hour produced in a nuclear power plant of 0.1 cents. That fee is intended to pay for the cost of long term storage or disposal of the used fuel.
Of course, the people in the discussions who are adamantly opposed to using nuclear energy or to building any new nuclear energy facilities start throwing out creative theories about the value of policies like the insurance pool arrangement provided by the Price-Anderson Act. Some of them talk about the inflation adjusted total of the government expenses remotely related to developing nuclear energy that were incurred prior to 1974, when the Atomic Energy Commission was split up and turned into the fee supported Nuclear Regulatory Commission and a drifting set of nuclear energy support programs that eventually landed within the Department of Energy.
However, even the exaggerated and inflated total cost turns out to be relatively small when compared to the value of a fleet of clean energy plants that are producing 800 billion kilowatt-hours per year (worth between $40-80 billion) and will continue to do so for another 20-40 years.
Recently, of course, there have been a number of incentive programs for new nuclear energy facilities. As Mr. Hay mentioned, few or none of them would be required if there was a predictable fee charged for using our common atmosphere as a waste dump for carbon dioxide from fossil fuel combustion.
One incentive program has paid a portion of the license application costs assessed by the Nuclear Regulatory Commission, but applicants have still paid more than $350 million in new license application fees (as of the end of June 2010). The Production Tax Credit (PTC) for electricity produced in the first 6,000 MW of new nuclear plants will not start costing taxpayers any money for many years – until the power actually starts flowing. It also does not provide much encouragement, since any computation of the benefit must include large uncertainty bars and “time value of money” discounting since no money will flow in until the plant begins operating. (Unlike the PTC for new renewable energy projects, the American Recovery and Reinvestment Act did not offer a choice of an immediate 30% cash payment in lieu of the PTC to any nuclear projects.)
Some support programs, like the often delayed loan guarantee program, have been mired in careful, but ponderous government decision making processes. Even though the program was approved by the Energy Policy Act of 2005 – almost exactly FIVE years ago – only ONE new nuclear power plant project has been approved and three others who have been on the lists of finalists for the first round have begun laying people off because they have gone as far as they can without a completed financing package.
Whenever the loan guarantee program comes up for discussion, there are dedicated, well-funded and organized pressure groups who work hard to paint it as a very expensive gift to the industry. The truth is that the applicants will pay substantial fees, even though the risk of project default is very low because of the equity requirements and the stringent due diligence invested by the approval authorities at the DOE.
(Aside: Anytime someone points to a GAO study of the Loan Guarantee Program and claims that it computed a default rate of 50%, I see red. The GAO did not make any calculations based on actual data or specific project circumstances. It simply stated the 50% number as an example ASSUMPTION. Here is a quote from the note listed on the spreadsheet for Table 6 of the Federal Credit Supplement Fiscal Year 2009, which is what the GAO Study references in a footnote mentioning a 50% default rate assumption (page 19):
Assumptions reflect an illustrative example for informational purposes only. The assumptions will be determined at the time of execution, and will reflect the actual terms and conditions of the loan and guarantee contracts.
Every time a new incentive program is proposed by the Administration or by the Senators and Congressmen who recognize the importance of nuclear energy as a secure source of clean energy that can be controlled by humans instead of the weather, there is a new lever that people who are opposed to nuclear energy development can use to slow down the process of moving forward. In many cases, delay is exactly what the opposition seeks. They are savvy enough to know that any delays increase costs, and that uncertainty r
aises the cost of both borrowing and equity investments. Delay also allows more time for the established energy suppliers to make boatloads of money by selling hundreds of millions of dollars worth of fuel every day of delay.
I often wish that the industry leaders would simply step forward, take on the challenge and start building new plants. That is rather easy for me to advocate, because I do not have the responsibility of protecting the billions of dollars worth of investments in those companies. I know from personal experience that many of the people who own stock in utility companies are widows and orphans – the companies sell a commodity that is always in demand and are able to pay a reasonably predictable dividend and have a rather steady rate of appreciation if they are carefully managed.
I will leave you with Mr. Hay’s final thoughts to consider as you engage in discussions about energy and are faced with difficult questions about why utility companies are not moving forward more quickly to take advantage of a power source that they KNOW is safe, reliable and very economical – once they complete the required facilities AND are allowed to operate them steadily.
I believe nuclear is the right answer for the nation. But like Charlie Brown, those of us in the electric power business have been encouraged to kick the football before, only to have it snatched away at the last second. If we’re going to try again, policymakers need to convince us—really convince us—that we won’t end up flat on our backs.
Disclosure: My father worked as an engineer for FP&L, the company that is now NextEra Energy, for 35 years. I remain somewhat biased towards the company, after all, the company gave me presents every year at a well organized Christmas party.
CBO Director’s Blog – Department of Energy’s Loan Guarantees for Nuclear Power Plants
CBO’s 2003 estimate was intended to represent the possible costs of loan guarantees to build the first units of the next generation of nuclear power plants. The estimate reflected the average financing costs, construction costs, and other project characteristics that were anticipated at that time. The assumptions and analyses supporting that estimate reflected information about the technical, economic, and regulatory environment as it existed in 2003, almost seven years ago. Such generalized estimates of credit risk may not apply to a guarantee for any particular power plant because of variations in the technical, economic, regulatory, and contractual characteristics of each project. Without such information, much of which would be proprietary, CBO has no basis for estimating the cost to the government of any specific loan guarantee of this type.
ABC News July 30, 2010 – U.S. Nuclear Front-Runners Begin to Slow Spending