Loan Guarantee Foolishness by the Folks With Green Eyeshades
On Monday, October 4, 2010, the ANS Nuclear Cafe published a DC Perspective column discussing the complex topic of loan guarantees for new nuclear power plants. It is not exactly a page turning topic; understanding the nuances requires a good deal of research into legal language and an understanding of the way that decisions get made in a politically charged environment. (Disclosure: I wrote that article.)
This morning, the Washington Post published an article titled Constellation Energy shelves plan for Calvert Cliffs reactor that demonstrates why an effort to better understand the loan guarantee program would have been worth more time and energy by people who want new nuclear plants to be built and operated in the United States in the near future. After many months of wrangling with the green eyeshade folks at the Office of Management and Budget who claim to believe it is their duty to protect American tax payers from risky ventures, Constellation Energy has walked away from the negotiating table. The analysts at that for profit company simply could not make the numbers work.
The people at OMB and DOE have expressed surprise that the company would not take the offer and are trying to lay the blame for the lost opportunity on the company. Here is a quote from the article:
Constellation Energy has shelved its proposal to build a new reactor at its Calvert Cliffs nuclear power plant, Obama administration officials said Friday, even though the administration had decided to award the project a $7.5 billion loan guarantee.
Senior administration officials said Constellation’s decision was “a surprise,” but a Constellation Energy spokesman Larry McDonnell said that the administration’s loan guarantee terms were “unworkable” and that Constellation had told the Energy Department “we can’t move forward.”
The article concludes by describing a more successfully concluded loan guarantee effort.
Separately, administration officials said they had approved a $1.06 billion loan guarantee for an Oregon wind farm, the world’s largest, after project developers waged a vigorous lobbying campaign to bring the year-long application process to a conclusion.
“We’re gratified that this lengthy process has come to an end, and we look forward to closing the transaction shortly,” said John McNamara, chief financial officer of Caithness Energy, the project developer.
The wind project, known as Shepherds Flat, will provide 400 jobs, 845 megawatts of power and avoid emissions of 1.2 million tons of carbon annually.
I added the following comment to the thread associated with the article.
Just in case anyone wonders why the wind farm project accepted its loan guarantee while Constellation refused, the key is in understanding the terms and conditions.
For a project that would have produced 4,000 jobs for 4-5 years in Maryland, the companies involved were being told that they had to PAY the US government a non refundable fee of $880 MILLION dollars in order to BORROW $7.5 billion for a project where they would have to invest at least 20% of the project cost as their own equity, thus giving them at least $2.0 billion in reasons to make sure the project succeeded.
In contrast, the wind farm, which will produce 400 jobs for a relatively short period during construction, was able to obtain a $1.06 billion dollar loan with NO CREDIT SUBSIDY COST at all. The ARRA has provided all of the money required for the credit subsidy cost for politically defined “renewable” energy via a change in section 1705 of the Energy Policy Act. In addition, section 1603 of the ARRA provides a CASH GRANT in lieu of a production tax credit of 30% of the cost of the project via a check within 6 months after the project closes. The wind project thus gets a $1.06 billion loan with no closing cost and the sponsors have no equity in the project at all since they get their 20% down payment back with a 50% kicker less than a year after the project starts.
We live in VERY strange times.
Rod Adams, Publisher, Atomic Insights
The space in that comment thread is limited, so I wanted to add a few more numbers for consideration. Assuming that the loan guarantee for the wind project is limited to 80% of the project cost – the maximum allowed by the Energy Policy Act, the total project will cost at least $1.325 billion. The 30% cash grant in lieu of a production tax credit will cost the federal government almost $400 million.
That project will employ 400 people for perhaps 2 years, leading to a direct cost per job of $500,000 per year.
The power plant cost is $1600 per kilowatt capacity using a technology that has an average capacity factor of less than 30% in the United States.
In contrast, the Calvert Cliffs project would have had to pay the government $880 million to employ an average of 4,000 people for a construction project that would last for 4-5 years. It would also repay the $7.5 billion loan at an interest rate higher than the government’s cost of funds.
After the construction project was complete, the plant would have employed 400-500 highly paid operators, engineers and security personnel for 60-80 years – two to three generations. The total project cost, assuming an 80% loan guarantee, would have been $9.4 billion and produced 1600 Mwe using an emission free technology that has an average capacity factor of 90% in the United States.
Update: (Posted on October 9, 2010 at 0841) The comment thread at the Washington Post continues. One of the commenters tried to lay all of the blame at the feet of the current administration. I responded to that comment with the following:
Re: “The issue also is the Obama administration tabling support for nuclear energy and then always playing games to support special interests.”
Not that the current Administration has solved the problem, but the rules that OMB created to calculate the credit subsidy cost were issued in 2007 and the law establishing the loan guarantee program as a way to share the risk of financing very large, capital intensive nuclear plant projects was signed into law in August of 2005.
The Republican administration had more than 4 years to make the program work – they did not award a single loan guarantee.
Nuclear energy takes market share from coal, oil and natural gas. Unlike unreliable wind generators in Oregon that will actually be supplementing hydro power most of the time, reliable nuclear plants replace a need to burn (and buy) fossil fuels. A 1600 MWe nuclear plant like Calvert Cliffs Unit 3 eliminates the need to burn more than 300 million cubic feet of natural gas every day!
Nuclear plants threaten the business interests of politically powerful people that have been financially supporting both Republican and Democratic administrations for more than 100 years.
My belief is that OMB is full of establishment bankers who know exactly where their post government financial interests lie.
Publisher, Atomic Insights
Constellation Energy Press Release on Market Watch
Constellation Energy Letter to DOE
Dan Yurman at Idaho Samizdat offers additional details about Constellation’s decision announcement at Constellation Walks Away from Calvert
The Obama administration, which has been overwhelmed with other issues, has allowed the future of the nuclear energy industry to slip below its radar screen. The White House de-facto ceded energy policy to bean counters and sent the wrong signal not only in this country, but also to the rest of the world.
Certainly a sad state of affairs. Yes, it may be easier to build a wind turbine and thus less financial risk, but we will need baseload and the CSC needs to come down.
Rod, I don’t understand if you are blaming ONLY the unfair juxtiposition of the nuclear vs wind loan guarantees or you blame CC for walking away because their priorities are screwed up.
Personally, I think CC is rotten to the core for taking the position that ONLY a 100% no-lose, no equity stake was unacceptable. Or did I read that right? Is it they could go along with the 20% of their own money but didn’t like the $800 million fee tacked on?
Right now I’m trying to *calm down* a polemic with pro-nuclear but super Libertarian economist Peter Lang on Barry’s blog about the role of public power in building nuclear energy. This shows the problem, the amazing *waste of time* dealing with for-profit utility and financial institutions in trying to get nuclear going in the US. We have no choice of course, but it’s a shame that the *corp* profit motive is so strong (as opposed to the smaller risk-taking entrepreneurial pro-nuclear initiatives like B&W SMR project).
David – Constellation did not ask for a 100%, no equity loan. The DOE program for nuclear power plants is, by law, limited to 80% of the project cost, with 20% being invested by the project owner.
Constellation balked at paying a non refundable fee (quite different from a down payment). Think of this as a loan origination fee for a mortgage. A borrow with no credit history and no downpayment might have to pay a fee to an organization like the FHA to help them buy their first home.
A borrower with better credit and some cash down payment would be able to get a loan without paying an up front fee because if they have income troubles that hurt their ability to repay the loan, the bank can seize the property and sell it off. That sale would probably net enough to pay back the loan amount, but the borrow would probably not get the down payment back.
In this very special case, the government told a credit worthy company that is building a valuable project that they would have to pay a non refundable fee of 12% IN ADDITION to investing putting 20% of the project cost at risk.
The wind farm pays neither a loan fee (the credit subsidy cost is paid by taxpayers) nor actually has any equity in the project because they get a cash grant equal to 30% of the projected project cost within 6 months of loan close.
Do you see why I am so confused? (Actually, I think I am more angry that confused. I think I know what is going on.)
They are probably waiting to see how congress and the senate will look in a month or so. With Republicans controlling the House and Senate a much better deal can be had.
At some point our energy options (Funded, licensed,and blessed by the current administration) will become obviously insufficient to meet our needs. As long as the lights come on when the consumer flips the switch all is well or is it? When world powers develope technology that originated here but was marketed overseas because of our political climate and lack of resolve by the public to demand better we have let the aliens take over. In fact by controlling critical commodities China has already begun the process. It is clear to me that the conditions from which wars begin are being created by the very administrations that claim to defend our way of life. That is contrary to the Constitution which I will defend. Dr. Chu should resign in my estimation for incompetence and abuse of authority with which he was entrusted.
I suspect that there are executives at the B&W mPower group who are high-fiving each other.
If anything good is to come of this, I, for one, certainly hope that it will end the idiotic criticisms of the Bush administration’s failure to build any new nuclear plants.
The legislation for loan guarantees for new nuclear plants — a Bush-era initiative championed by Republicans — was enacted in late 2005. The Bush administration had only three years after that to issue these guarantees, and failed to issue a single one. Since then, we have had almost two years under Obama’s watch.
Building on the groundwork laid by the previous administration, the DOE has finally managed to issue one $8 billion loan guarantee for Vogtle (a minor miracle, it appears). However, despite much fanfare over empty words the Obama administration has failed to increase the amount of loan guarantees offered for new nuclear plants, although this idea has been proposed by both parties. Now, the government has managed to drive away one of the front contenders who hoped to build a new nuclear plant by failing to mollify the onerous terms imposed on the guarantees by the OMB.
So much for leadership under Obama and Chu.
That the Oregon wind farm has had such a relatively easy time speaks volumes as to where the priorities of the current administration lie. Oh … and let’s not forget that Obama is following Carter in putting solar panels on the roof of the White House. I’m the first to admit that Obama was reluctantly bullied into this gesture by the more extreme elements of his base, but what does that say about the fortitude of his spine?
Anyhow, what is the lesson to take away from all of this?
It’s hard to get nuclear loan guarantees past the OMB.
This is a constant that transcends administrations. The reasons are complex, but I think that Rod is not far off the mark in his ANS Nuclear Cafe article.
seth:“They are probably waiting to see how congress and the senate will look in a month or so.”
Seth – If they were waiting to see, why wouldn’t they wait a little bit longer before announcing that they are shelving plans for a new reactor? The elections are less than a month away; the loan guarantees have been promised for the last five years. Is an additional month all that much longer to wait? Why burn bridges?
Paul Lindsey: “I suspect that there are executives at the B&W mPower group who are high-fiving each other.”
Paul – Why the hell would you think that?! Has Constellation announced plans to build a single mPower reactor?
You appear to be completely ignorant of the business plan that Constellation was hoping to put together with Unistar. Building on the French model (note the interest from EdF), the joint effort was intended to put together a package for small utilities who lack the resources to develop sufficient nuclear expertise (which is not cheap, after all). Through Unistar’s turnkey business plan, AREVA would build the plants and Constellation’s nuclear engineering unit would run the plants. The utility would own the plant and collect the profits.
CC3 was supposed to be the prototype for this idea.
Michael Himes: “Dr. Chu should resign in my estimation …”
You assume that Chu’s mandate was to build new nuclear capacity in the US. In my estimation, that was his lowest priority. It’s below even the silly white-roof idea.
If Dr. Chu were to resign, it would be because he decided to jump ship at this moment like several other prominent Obama appointees. I seriously doubt that Chu is about to fall on his sword for the sake of this administration.
I have no idea if Constellation plans to build any mPower reactors, and yes, I am completely ignorant of Constellation’s and Unistar’s business plan, but if I were in the business of designing a small modular reactor that cost a lot less than really big reactors, I’d be cheering the fact that a really big reactor can’t get funding. After all, isn’t one of the drawing cards of a small modular reactor its lower cost overall and hopefully, its lower cost per MW? So one of my potential major competitors is marketing an object that can’t get built because it can’t get financing. (I say “potential” because, as far as I know, B&W’s mPowerdesign has not been licensed by the NRC yet, if that is the proper term.) In naval terms, it would be ike building a gigantic battleship, then discovering that there’s a really big problem with the center of bouyancy. The admirals of the other navies would be laughing their asses off.
I fully support nuclear power, but here in New Mexico, none of the current 1000+ MW designs will ever be built in the foreseeable future. 1. There is insufficient demand, except as a replacement for something like the Four Corners coal-fired plant. 2. The requirements for backup generation capacity available in case the reactor scrams and 1,000+ MWe suddenly goes offline. Yes, there are three huge coal-fired power plants near Farmington, NM and in NE Arizona, but when you look at them closely, they are really multiple sub-1,000 MW plants on common sites. (I don’t know how the transmission lines are run. If a single line carries all the output of, for example, the 2,040 MW Four Corners plant, then the worst case loss of power is a loss of the transmission line. However, that would not be good engineering in my opinion.)
It is the same problem that every officer like myself who was qualified on the Nimitz-class A4W plant is intimately familiar with: no maintenance and no drills that could possibly cause one of the two reactors to be taken offlineare are allowed during flight ops. I never even stepped aboard Enterprise, but fellow officers told me that scheduling maintenance on her was generally “a gimme”, because taking one reactor down or even shutting down both reactors in a single reactor compartment does not affect the operation of the other three reactor “pairs” and their respective propulsion shafts.
Well, it’s not something that I would be celebrating if I were B&W, since it shows that the US government is still screwed up when it comes to nuclear power.
If the government can’t get a simple loan guarantee worked out satisfactorily, why should anyone think that government will be able to implement successfully all of the regulatory reform that is needed before the mPower design can be economical in the US?
This is a damn shame. After reading your other article Rod, I feel like I understand the loan guarantee program a lot less than I thought I had. Basically, I thought it was a cosigner type of program but the way you phrased a few items leads me to believe that the government would be the creditor for the whole thing. So which is it, I’m a little confused?
The 800 million non-refundable fee killed the project no doubt. The playing field is so uneven that it’s just a joke.The anti-nukes will be all over this, but I’d rather see nuclear get off to the rights start rather than take a bad deal.
Rod, thanks for doing the research, I hate dealing with stuff like this.
Sorry to add to your workload, but I think the best illustration would be a line by line comparison of the offer CC turned down with the offer they would have received if they were given the same terms as the wind farm.
Maybe its time to realize that the loan guarantee program for the commercial nuclear industry in the US is a failure!
What we really need, IMO, is a simple Federal nuclear energy bank willing to offer low interest loans to finance up to 49% of the cost of a project. Like a bank, the Federal government would simply be offering a loan that has to be paid back with interest instead of offering a Federal insurance policy in case of default.
Such a Federal Nuclear Energy Bank should offer at least $10 billion a year in loans to utilities and energy companies attempting to finance commercial nuclear energy projects within the United States with a preference for projects with the highest percentages of self financing. I also see no reason why a public power utility like the TVA should not be allowed to participate in such a Federal program.
China’s has 23 nuclear power plants currently under construction, Russia has 11, Europe has 6, South Korea has 5, India has 4, and the US only has one nuclear power plant under construction: ONE! This is ridiculous! Don’t we want to create clean carbon neutral energy and high tech jobs in this country?
It seems there are further developments:
CORRECTING and REPLACING Constellation Energy Releases Statement Regarding U.S. Department of Energy Loan Guarantee
> [..] In a letter sent to DOE, Constellation Energy said the cost of the loan guarantee that is calculated by the Office of Management and Budget (OMB) is unreasonably burdensome and would create unacceptable risks and costs for our company. There is a significant problem in the way OMB calculates the credit cost. After repeated unsuccessful attempts to resolve this issue with DOE and OMB, we no longer see a timely path to reaching a workable set of terms and conditions.
> The letter represents the views of Constellation Energy. EDF, our partner in UniStar, is aware of our views. UniStar has not withdrawn its application for a federal loan guarantee and no decisions have been made regarding the future of Calvert Cliffs 3. [..]
Key line from the Constellation letter:
the purpose of the loan guarantee program is supposed to be to provide sovereign support to help bridge the financial risks inherent in such long-term captial intensive projects, not increase such risks
An “incentive” program that adds financial risk. This is not what I’d call joined-up thinking.
Some additional thoughts about this mess.
I understand that folks actively involved in the nuclear industry would be upset that Constellation may not pursue new nuclear plant construction. A contrary view of the financing is proffered for discussion.
As a member of the Constellation executive committee, I have been notified of
@Brian (3:59:24 on 10/10/10)
Thanks for stopping by to participate in the discussion and thank you for your contrary view.
Your description of “stranded costs” may be close to correct for some areas where the existing utilities not very good nuclear plant operators, but it sure does not describe the experiences of people who buy electricity in Pennsylvania, Georgia, Florida, South Carolina, North Carolina, Arkansas, Virginia, Mississippi, and Louisiana. In those states, the companies that built the nuclear plants still own them and the ratepayers who helped to purchase them still benefit from the low operating costs of plants that have been paid off. Go ahead, look at the average cost of electricity in the states that I named and compare it to those of other states. The Energy Information Agency publishes the figures. http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html
Yes, some intelligent businessmen recognized that there were some utilities that were not doing a good job with their nuclear plants and that those same utilities undervalued them to the point of being willing to almost give them away to avoid the difficult job of operating them properly. The companies that were led by good operators (Entergy, FPL, Dominion, Exelon) took advantage and picked up some great assets for a low price. They have turned those assets into cash flow machines that will continue providing excellent returns for several more decades. That is the way of the world – some people are competent and visionary, others are not.
Once again, the fee that the Office of Management and Budget (not the DOE) proposed charging Constellation was 12% of the loan amount upfront. That is not a down payment, that fee is analogous to “points” on a consumer loan. That directly adds 12% to the cost of the plant without adding any value at all.
Certainly, the risk for a loan offered to a merchant plant operator will have more risk than one for a rate regulated utility. Some of that risk, however, is sovereign risk that the government will change the rules of the game after the developer invests a few billion in building the plant. History is clear on this one – the NRC imposed enormous changes in response to a non fatal accident. The local governments in the state of New York decided that they did not want to sign off on the emergency response plan for Shoreham after the plant owner had finally completed the plant and obtained a full operating license from the federal government. That one resulted in nearly $6 billion in stranded cost for a plant that was never allowed to operate.
One more thing – taxpayers did have say in the Energy Policy Act. It was passed by duly elected leaders in Congress with a healthy majority and signed into law by another elected official. That is the way that taxpayers have a say in the way that their money gets invested – they elect Constitutionally responsible leaders. They do NOT ask appointed bureaucrats to impose their own choices by stupidly assuming that a loan borrowed by a company that has invested 20% of the project cost as equity has a 55% chance of default and that the assets that could be seized could only be sold for 55% of their value. Those are the numbers that were put into the model.
By the way, according to Senator Bingaman, there is nothing in the Energy Policy Act that even gives OMB a say in the computation of the fee.
My reading of Energy Policy act of 2005 sect 638 says that the loan guarantees only apply to risk related to government induced screwups, not to vendor faults or regular business risks. So why should there be any difference due to the fact that CC3 is a merchant plant?
Sorry for the off-topic post, but wasn’t sure how else to try to reach you. I tried sending an email to your atomicengines.com email address, 4 days ago, and wasn’t sure if you had received it? It was re: What are the safety characteristics of Nuclear Pebbles if a ship reactor with pebbles ended up on the ocean floor? Basically, if the pebbles cannot be recovered, can the graphite and Silicon Carbide safely contain the fuel long enough for the fuel to become ‘cool’ wrt to radioactivity?
@Jeff – Sorry for not responding quickly enough. Been a busy time.
Bottom line – water is a terrific shield. There are several nuclear reactors at the bottom of the ocean; none have released any detectable radioactivity or caused any human health effects.
Neither pyrolytic graphite and silicon carbide react very much with water. Pebble bed reactors are designed to be at their most reactive configuration when they are kept together in a reactor, if the reactor gets destroyed because the ship sinks, the pebbles will be scattered and cooled. They cannot combine into a critical configuration.
Well, it’s good to hear that it won’t react with the salt water – but one concern I have (perhaps it’s a false concern – I honestly don’t know enough to know whether it might be a problem or not), is erosion. That is, even if the SiC and Graphite don’t react with the salt water, is there any risk that particulates in the water (sand, other bits of various types of rocks and minerals), might erode away at the Pebbles until the fuel core is exposed to the ocean, and becomes exposed to nearby wildlife (plants, fish, shellfish, eels, etc)? Erosion is a powerful, relentless force which can eventually destroy mountains, so why not Fuel Pebbles?
Could we end up with small amounts of materials from such Pebbles being injested by filter feeders (like clams/muscles) or bottom feeders, then working its way up the food chain (and getting greatly concentrated each level it goes up the food chain), until it reaches our dinner plates?
Oops – forgot to login. Above post was me. Also, I forgot to mention – no problem on the delay, I realize you are probably pretty busy with all the blog posts you have written up.
I got to thinking about it more, and while the big environmentalists probably wouldn’t like this answer. . .
I suppose, we can say this: in the past, some of the major Powers did undersea testing of nuclear weapons, which would surely release far more radioactive material into the water than even an eroded civilian power reactor, so perhaps the occasional lost reactor at the bottom of the sea just really wouldn’t have much effect on something as vast as the ocean. The other thing I got to thinking about after posting the above, is that it’s my understanding that there is (comparitively) a huge, huge amount of natural radioactive elements disolved in ocean water (it’s been said when we can’t find any more economical uranium in mines near the surface of the earth, we can filter it out of water, and that would provide us power until the sun rips the atmosphere off the earth and renders it uninhabitable in 5-6 Billion years.
So if there’s that much uranium already disolved in the water, would more uranium and transuranics disolved in the ocean even make any difference? Kind of seems like the same environmental effect of one or two people pissing in the sea – would immediately get so dilute you couldn’t detect it and it wouldn’t have any kind of real effect on the biosphere?
If only people understood that radiation is natural and that there is no such thing as “zero radiation” and “zero risk”. The best thing would be to have radiation dosimeters everwhere, perhaps included in smartphones, then the uncertainty – one of the best weapons in the antinuclear arsenal – would go away.
Jeff Schmidt wrote,
So if there’s that much uranium already disolved in the water, would more uranium and transuranics disolved in the ocean even make any difference? Kind of seems like the same environmental effect of one or two people pissing in the sea
That’s right. I find it helpful to measure radioactivity in watts, and on this scale, the uranium in the sea is 400 MW, the potassium-40 is something like 1800 MW, and a sunken submarine is a few hundred watts.
I’ve seen photos of the ocean bottom looking like windless desert. No light means no plants, so no basis for the high-energy ecologies we have up here. I don’t see how erosion could be the sort of problem it would be in a mountain stream.
It’s interesting you mention a mountain stream. . . a couple weeks ago I was reading, and now I don’t remember where – I think maybe Ted Rockwell’s Nuclear Facts Report, about how much natually occuring radioactive material gets eroded out of the Rocky Mountains into the tributaries of the Colorado River, so apparently, as long as the concentration isn’t too high, even in a mountain stream it’s not such a problem (concentration’s really the key, it seems to me – if you have the situation I described of the Pebbles getting eroded over time, only a very small amount of fuel material will be released into the water and surrounding seafloor in any given period of time – it’d take like a thousand years or more, I would think, to erode away all the fuel (that’s once erosion has even reached the fuel, which would probably take a long time to erode away the SiC and Graphite), so the released fuel material would likely never be in any great concentration in the surrounding waters.
Still, it’s once thing to ponder what seems like it would be the likely outcome – has anyone actually done any followup on those other sunken reactors, to see how things are doing in actual real life (I don’t think any of the sunken reactors actually use fuel pebbles, so that would probably not speak directly to my question, but it would at least give a general idea of maybe how erosion affects reactors, and any subsequent release of fuel material)?
Brian, my first choice would be to sell power on a totally level playing field with all externalities included.
http://www.theenergycollective.com/TheEnergyCollective/60501 [see the comments]
No renewable mandates or feed in tariffs. Fossil fuel would pay for the enormous number of deaths and non fatal health problems they cause, and they would have to implement reliable long term solutions for their waste products, many of which have infinite half lives [mercury, lead, arsenic cadmium etc]
Under these conditions the kWh cost would reflect the true cost of making that energy, a much higher number than we pay now, and the payback on a new nuclear plant would be much higher than it is now. I believe conventional financing would be abundant under those conditions.
Now the market is highly distorted, so other countries are ramping up nuclear while we spend billions on impractical unreliable intermittent energy systems. If nuclear gets the same terms as wind and solar, the investment money will flow into nuclear and wind and solar will dry up and blow away.
My gut reaction is that I’d walk away from terms like that, too. The absurdity of the $880 is million beyond my comprehension, especially while on vacation in sunny Orlando. I look foward to reading the details of all this and being outraged later this week.
I also have to wonder how the electorate in my former state of MD might react to a carefully framed narrative of this. I guess Steny Hoyer just can’t get it done for Maryland.
Hi Rod, Bill – excellent feedback
Allow me an exception to a few of the points made. There seems to be an implication that ‘stranded costs’ were imposed on customers due to incompetent operation of the nuclear assets by a few utilities. In fact you point to Pennsylvania as an example of how ‘stranded costs’ had no significant impact on customers. As an electrical utility customer in Pennsylvania, I can tell you that Duquensne Light Company in conjuction with the PUC assessed their customers ‘stranded costs’ in the range of hundreds of millions of dollars. Similar ‘stranded costs’ charges were allowed in VT, NY, MASS, MI, and IL. Perhaps the stranded costs were the result of incompetent operation of nuclear assets (which is a scary thought in itself). On the other hand it may be possible that these nuclear assets did not have an underlying viable financial model in a non-regulated market place.
I really have no issue on this one time stranded cost concept as the industry transitioned from a regulated to unregulated market – or with companies that susequently purchased the undervalued nuclear assets- after all in many states the PUC mandated utilities to over invest in generation capacity to minimize brown/black out potential. The stranded cost concept allowed utilities to recoup returns on their mandated investments, calmed the financial community, and allowed utilities unfettered future access to the capital markets. In return for paying these stranded costs, customers were to have access to the lowest cost electrical generation. So I continue to be a little miffed when taxpayers must continue to provide corporate welfare (financial guarantees) to these same utilities. My main point is for a project which is privately owned and whose primary purpose is to maximize the private investor’s financial rate of return – why do I, as a taxpayer, have to fund this project? If Wall Street is unwilling to finance these projects, then why is the project viable – investors are supposed to make decisions based on risk/reward – if you don’t want the risk – don’t invest- and most importantly don’t ask for the reward and dump the risk onto taxpayers?
Bill, excellent point on true cost of coal- it somewhat mimics my rant with PACs and lobbyists – coal producers and end users (utlities) have been very successful in delaying or preventing the EPA from mandating installation of state of the art pollution controls on existing plants – and therefore distorts the true cost of generation from coal. However, the days of heedlessly dumping SO2 and a suticase full of other toxins in the air/water appears to be ending – Senator Byrd is dead. As a minimum, financials for proposed new coal plant projects reflect added construction lengths and costs for the pollution abatement equipment (typically $1.5B – 2B for 2 unit site) – these costs in combination with a fudge factor for CO2 abatement add project risk (hopefully these guys won’t ask for financial guarantees from taxpayers also)
I suspect the biggest show stopper for new nukes (and coal) in the US has been the development of Marcellus Shale – enabling electrical generation from gas a viable option unforseen at the time of COL applications. Marcellus gas development/prodution continues at fever levels even as the price of gas is down over 40% from 2008 levels. A fortuitous source of energy unavailable to other countires that are choosing nuclear. Based on the recent annual coal industry/financial community meeting, gas production from Marcellus will cause coal prices to be ‘stressed’ for the forseeable future. Most CEOs that have submitted COLs have gone on the record to say they are at least re-evaluating the nuclear option. Some of the major players have said flat out that the new gas supplies has changed everything (excellon, ducke)- just another reason why taxpayers shouldn’t be subject to market risk (financial guarantees for nuke projects) – let the investors reap the rewards or pay the consequences.
All we’re saying is that we don’t see why renewable energy sources should receive treatment (i.e., far more generous loan guarantees along with a host of more direct subsidies) that is vastly different (better) than the way nuclear is treated.
As for shale gas, it’s “superior” economics are just one more example of the ridiculously unlevel regulatory playing field. While nuclear spends billions per plant to reduce even the chance of a release down to negligible levels, and spends decades proving complete containment of wastes at Yucca Mountain, shale gas extraction recieves a blanket exemption from the Clean Water Act!! Basically, for the same reason that coal ash is specifically exempted from being classified as a hazardous material even though it clearly is, i.e., they would immediately go out of business if they were held to reasonable standards. Fairly regulated, shale-gas-fired power plants would not be competitive with nuclear. And given the growing public uproar, stricter regulations are probably coming. There’s hope on the coal ash front too. You can actually thank the Sierra Club for that.
And, despite what you hear people saying, the price of gas will go up substantially after the economy recovers. The price of gas and oil are extremely sensitive to the balance of supply and demand, with small changes in that balance leading to large price swings.
I’d like to raise a couple of points on Calvert Cliffs-3, with the caveat that I don’t know whether, or to what extent, they factor in to the conditions placed by the DOE on the loan guarantee offer, and whether it’s valid to compare a guarantee for a power reactor to a guarantee for wind turbines. Please allow me to cover my behind by saying that this is just to stimulate further discussion.
First, the U.S. EPR design is still in the certification process, and it was set back recently by NRC concerns over diversity/defense-in-depth of digital instrumentation and controls. Areva has responded with a plan to submit design changes, with submittals to continue through the end of March. Even if the NRC accepts these changes as responsive almost at once, certification will probably not take place until 2013, with a final safety evaluation report (perhaps suitable for use in licensing) possibly available during 2012. In the view of the DOE credit review board, this uncertain status for certification may constitute a larger risk than the applicability of wind turbines–which, love them or hate them, have a mature technology. The AP1000 design to be used by Westinghouse’s customers also isn’t certified, and while Southern Company took extra time to think about the terms of its guarantee, they were eventually accepted.
Second, 10CFR52 licensing itself is not yet proven, even for certified designs. The permitting process for wind turbines appears to be pretty well established. Here too, the comparative uncertainty of the process for power reactors may strike DOE as a different sort of risk.
“the U.S. EPR design is still in the certification process, and it was set back recently by NRC concerns over diversity/defense-in-depth of digital instrumentation and controls”
This is a minor issue. I recently spoke with someone familiar with the issues about this “problem.” He (a student intern, no less) was able to explain to me what the brouhaha is all about. This is simply a case of the NRC being a bunch of idle-headed bureaucrats, without any common sense whatsoever. These “concerns” have more to do with semantics than anything substantive. The European regulators had no problem with this design, for good reason.
So the AREVA electrical engineers will simply redesign the component — placing the requisite chips on two separate circuit boards (yeah … that’s all that is required) — and that will be the end of these “concerns.”
The advantage that wind turbines enjoy has nothing to do with the permitting process. Wind gets a free pass because it’s popular with politicians who want to appear “green.” Financially, these turbines don’t have to produce any electricity to pull in a profit. They can simply sell their production tax credits for real money, before they generate their first watt-hour. In some places, utilities are required by law to purchase a certain fraction of their electricity from sources like wind turbines, whatever the cost. What’s worse is that these utilities can gain the PR benefit of claiming to generate “renewable energy,” and then can sell the rights to call their electricity “renewable” to other utilities for a quick buck (google “renewable energy certificates”). It’s all a scam.
Brian – I agree that wind is a scam. I just wish that you would acknowledge that the perpetrators of the scam are the establishment energy companies that get to abscond with both taxpayer money and rate payer money since the wind turbines do not take any of their market share and do not increase the supply of energy – which would have the effect of driving down the price based on the balance between supply and demand.
The face of the scam might be the liberal “Environmentalists” that you love to hate, but those people are actually quite powerless compared to the moneyed interests that are the real beneficiaries of the multi decade effort to fool Americans about the potential value of non nuclear renewable energy.
“I just wish that you would acknowledge that …”
Huh? When have I ever denied that? Geez … some of these perpetrators (Pickens) are even shameless enough to admit that their plans are a scam. (Although anyone who has followed Pickens’s plan closely knows that the real prize is water rights.)
Before you talk about “environmentalists,” you need to distinguish between the various types of this beast. On one side, you have the naive do-gooder, who just doesn’t know any better (the kind parodied in The Goode Family, on TV last year). I know many of these folks; quite a few are my friends; and I mostly reserve pity for them, without any hate. They are the type who will state what they “believe” at a cocktail party, but do not have much substance to back up their convictions. They will back down every time that they are challenged (something I do on occasion), preferring to retreat to their own little make-believe world rather than deal with genuine facts and statistics. A few dollars every month to the Sierra Club is usually the limit of their involvement with the environment. If they are dedicated (consumers) they might own a Prius. The rich ones might even have solar panels on their roofs. Anything to save the planet or impress their friends, depending on the situation.
On the other side, you have the professional “environmentalists,” and those are the ones I despise. They make a living preying on the naivet
Amen, Brian. If I might offer the translation: “The people wish to be deceived, therefore they will be deceived.”
As far as your post is concerned, you took the words right out of my mouth. Snap!
@Brian – my use of the word “powerless” was in specific reference to political power. Willingness to “use their heads” does not give anyone that kind of power within our system of government.
If it did, I would not feel quite so helpless myself to make any real difference in the way our energy was produced. No matter what you might think about the results, I think I have demonstrated pretty conclusively that I am willing to use my head, pay attention to reality and run the numbers. I am also not the kind of person who simply muses in private about illogical actions by others.
Even with a lot of mental effort over the years, people who are willing to think hard about the logical conclusion that we should be using more nuclear energy have not been terribly successful.
Yes, there might be some people who allow themselves to be deceived because they do not have a questioning attitude. However, they would not BE deceived into stupid actions unless there were willing and able deceivers out there were working hard to lead them astray, often because such activity is immensely rewarding from a financial perspective.
I know it is terribly naive of me, but I believe that people in positions of power have a moral responsibility to use that power for good, not for greed. I am not an altruist and I have never taken a vow of poverty, but I am willing to serve others who have had fewer opportunities.
I work hard in return what some might consider to be a rather modest amount of money and security. I simply cannot understand those who insist that they should capture enormous slices of the pie and leave others with crumbs.
“my use of the word ‘powerless’ was in specific reference to political power. Willingness to ‘use their heads’ does not give anyone that kind of power within our system of government.”
Geez, Rod, in what kind of world do you live? In case you haven’t noticed, we still live in a country in which all political power ultimately rests with the people, should they choose to exercise it. I know that we can all become cynical at times when we consider the power of entrenched politicians and bureaucrats, but if we are to learn anything from the current election cycle, it’s that the people have the final word. The recent phenomenon of the Tea Party is an interesting example. Love ’em or hate ’em, they are influencing politics nationwide. Nobody can deny that.
In any case, I certainly wasn’t criticizing you here. If I didn’t like your blog, I wouldn’t keep reading it.
Nevertheless, I just don’t buy your argument. It’s akin to explaining how wonderful the world would be if there were no crime. We wouldn’t need policemen or judges or lawyers. Whoopee! The one problem is that it just ain’t going to happen.
There will always be unscrupulous people trying to take advantage of others, just as there will always be criminals (and in many cases, particularly in Illinois, the two are the same thing). Thus, excusing the intellectual laziness of some people with the explanation that they wouldn’t be taken advantage of in an ideal world is silly utopian nonsense.
People in power don’t get there by wandering into the position. These days, they have to get there through some sort of public support. Thus, the public has a “moral responsibility” to try to understand the issues as much as practically possible so that they can support the best people into politically powerful positions.
Most people who style themselves as “environmentalists” simply don’t do that, and so, we see the likes of Robert Kennedy Jr. setting the environmental agenda. Surely you can see the problem with that.
Yes, these so-called ” environmentalists” deserve to be criticized for this and for much more.
@Brian – It appears that you have bought into Glenn and Rupert’s story that the Tea Party is purely a grass roots effort by “the people”. Forgive me; I do not believe that for a moment.
Well, Rod, you’re certainly free to “believe” (or disbelieve) what you
want. I’m not going to stop you.
People believe all sorts of things. Some people “believe” that President Obama is a Muslim. Some other unpleasant people believe that they will receive 72 virgins if they kill themselves in the proper way. Perhaps you believe that the U.S. Chamber of Commerce is secretly using foreign money to fund its campaign ads. There are all sorts of crazy beliefs.
Please forgive me if I think that you believe way too much of what George S. wants you to believe.
Me, I go on evidence rather than belief. I’m willing to change my mind as new, credible evidence presents itself, and I’m more than willing to accept what you “believe” if you could simply provide some solid reason why I should accept your claims. So far, you have provided nothing but your usual nutty conspiracy-theory foolishness.
For what it’s worth, I don’t watch Glenn (my wife won’t let me). It’s funny that you should mention him, however, since as I recall from my blog, he was saying years ago pretty much the same thing that you regularly blog about. This was back when he was working for Ted and before he was working for Rupert, by the way.
My advice, Rod, stay off the ThinkProgress. It rots your brain.
In case you haven’t been following what’s been going on with them, here is the latest from the Center for American Progress. (Note that they hate Glenn Beck too.)
Once again, however, Joe Romm is completely wrong. Here is the latest news on Calvert Cliffs.
@Brian – I am not sure where you get the idea that I agree with ThinkProgress or the Center for American Progress. Yes, I have sometimes used them as references – even a blind squirrel finds a nut now and again.
I also do not “hate” Glenn Beck – like you, I do not watch him. (I did watch one complete show a few months back when he was interviewing an old friend of mine.)
My point about Beck and Rupert is that they are not exactly average people with average incomes. There is ample evidence pointing to the fact that Tea Party gatherings are well attended, but also well financed by people who do not necessarily share my own view of the world as a place where it is not advantageous for winners to take all that they can.
Like anyone else, I recognize that our government has its faults and spends money unwisely. It also has some very good programs that have helped a lot of very bright people to be able to contribute more than they otherwise would have been able to contribute if they had been stuck within the limits of the resources in the families to which they were born.
George Carlin used to do a black humor bit about those who tag others with accusations of “conspiracy theories”
Here is a link to an audio version with some illustrations http://www.youtube.com/watch?v=bO0-u900OG4
“I am not sure where you get the idea that I agree with ThinkProgress or the Center for American Progress.”
Rod – I’m not sure where you get the idea that I’m a Fox News acolyte; nevertheless, that didn’t stop the accusations coming from you.
If I were citing such sources to back up my claims, you might have been justified in being so impolite. On the other hand, you have relied on such sources as the Center for American Progress on your blog to make several points. What is someone supposed to think?
Your latest sources are … er … interesting. The first is simply an opinion piece. The second might be considered more objective, since it appears in The New Yorker. I find it interesting, however, that two of the biggest critics of Koch in the article are Greenpeace and Joe Romm. Considering that these two are habitual liars whom you regularly criticize on your blog, I’ll take their criticisms with a huge grain of salt. I hope that you’ll understand.
The only relevant part of the rest of the article is a story of self-proclaimed libertarians supporting and trying to coopt the Tea Party movement … oh, and they happen to hate Obama. Heh … who is really surprised?
Yes, we realize that you are not a libertarian, Rod. You don’t have to keep explaining that.
Anyhow, this is all becoming very boring, and has very little to do with nuclear power in the US or worldwide, which is the purported topic of this blog. Although I have tried to inject some topic-related content into the current discussion, you have ignored it, preferring to talk about politics.
If you want to turn your site into a political blog, please go right ahead. It’s your blog, after all. Please just be honest about it.
@Brian – first off all – I apologize for implying that you are a Fox News acolyte. That was not my intention.
Second, I roger that this particular thread of discussion has strayed a bit into more of a political discussion than I intend to host. Again, that was not really my intention.
My basic message on Atomic Insights is that expanded use of nuclear energy is very good for the long term prosperity of the vast majority of people on the planet. It is much cleaner than the alternatives, uses up fewer resources in both raw materials and open space, and is essentially unlimited in terms of both the ultimate fuel resource and in terms of the rate at which it can be produced. Whatever quantity of energy people want to use and can pay for, we have the ability to provide. We can even deliver it to the most remote places on Earth. The more we use it, the cheaper it will get due to the almost unavoidable effects of learning and production rates.
That basic message, however, does not match the current reality very well considering the fact that humans began unlocking knowledge of the energy stored inside atomic nuclei about 100 years ago and then demonstrated a way to control the release of that energy about 60 years ago. We have not progressed as rapidly as we could have – compared to the rate that we have progressed with commercial air travel or computerization.
That disconnect between reality and potential leads to another frequent discussion topic on Atomic Insights – why are we where we are today? Sometimes it is impossible to avoid political discussions when trying to explain human behavior. My own political theories are not aligned with any particular party – they really are more about class and interests. I know that is not a popular way to look at politics, but I find that line of inquiry aligns better with the events that I have watched and researched.
Nuclear energy, which has so much potential for making life better for the vast majority of the world’s people, is not such a boon for the people who have already succeeded beyond the wild dreams of most of the people who would benefit. It is also not such a benefit for the entrepreneurial types that want to succeed beyond the wild imagination of most people by selling moonshine in the form of non nuclear alternative energy.
The establishment already has access to all of the energy that they need or want; they already live in clean places because they make sure that energy production infrastructure gets built out of their line of sight and away from their delicate noses. They also have deep and vast investments in the current industrial infrastructure that is based on fossil fuel energy resources. Tankers, pipelines, drilling rigs, storage tanks, railroads, etc. would lose value in a world where uranium, thorium, and plutonium moved relatively freely and could be used in facilities with lower risks than those associated with fossil fuel.
There are moneyed donors in every political party that wish to protect their interests. They have an interest in protecting the current energy production system from the disruption that would be caused by allowing nuclear energy to compete on a level playing field.
That is the point that I try to make here. Do not blame one party or another. Do not look to new parties that receive significant levels of funding from donors whose wealth and income increase when energy is more costly (like both of the established parties do) to actually support nuclear energy developments. (You might get some lip service support, but do not expect real money or real obstacle destruction.)
Align with customers, not other energy suppliers.
@Brian – Here is an interesting glimpse of the way that some people and corporations with large quantities of money use it to influence the political conversation and hope that influences the political end results.
Read it carefully and notice that it again mentions the fact that many groups can receive donations without reporting the sources of those donations. Also notice the part where it admits that a public announcement of any donation is a rare event. That is part of why it is difficult to respond to your request for credible evidence of a sustained effort by moneyed interests to marginalize nuclear energy.
Most of the time, they do not tell you where they put their money or why they put it there. As in the case of targeting torpedoes after an approach in which the only source of information is a towed array, sometimes you have to make a situational judgement based on very scanty and intermittent evidence. (I hope there are at least a few people reading this who will understand the allusion.)
My pet peeve: the X,000 homes BS that you find in almost every single article about renewable energy projects. This one on the Shepherds Flat project states that it “will power 235,000 California homes.” As usual, this is complete BS. The number, assuming a generous 30% capacity factor, will provide about 55,000 homes with intermittent electricity. This is so typical of these articles as to be tiresome…or infuriating for its dishonesty. And by the way, in its estimated $2 billion total cost for that 250MW of intermittent power, the cost of whatever power system fills in for it of course is never considered. Must be free then, I guess.
As for that 30% capacity factor, that may well be overly generous, since many locations get 20% or even less. But heck, don’t let actual data get in the way of wind hype.
You’re not alone to have noticed it. One could almost get the impression the switch from technical terms like megawatts to “homes” has been centrally coordinated by someone. I see several purposes for it:
1. cover up for the intermittency
Residential customers are charged for each kWh, independently of when they use it, so they can be fooled by the “amounts of energy” the wind turbines produce. Electricity is treated as if it were gallons of heating oil, energy that can be stored, perhaps in some big battery at each house, just like a heating oil tank.
2. cover up for the small capacity and high cost of renewables compared to conventional plants
A 10 MW solar plant would be ridiculed by a 1000 MW coal or nuclear plant, so they simply say it “powers 5000 homes” to make a comparison difficult, and since homes are a small electricity consumer compared with industrial users, it looks a lot better than saying “this solar plant powers 5% of a factory”
3. cover up for the instability/backup/storage problems of renewables
To say “this new offshore wind farm powers another 100’000 homes” creates the illusion of a “total package” having been built for electricity generation, with no need for anything else to power these homes, so the assumption is that all we have to do is go on doing what we’re doing, building more of those plants, until one day we reach the utopia of 100% renewables. If it were that, if they would build a large hydro storage unit along with each wind farm for example, it wouldn’t be that bad. In reality however every new wind farm makes electricity MORE expensive and the grid LESS reliable.
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