Dr. Mark Cooper is strongly opposed to the use of nuclear energy, but on July 18, 2013, he issued a report sponsored by the Vermont Law School titled Renaissance in Reverse: Competition Pushes Aging U.S. Nuclear Reactors to the Brink of Economic Abandonment that may inadvertently spur action to create a more competitive industry. If nuclear professionals and nuclear energy supporters take the time to study the report and use it to motivate changes in our behavior, the effort will improve our ability to capture market share from natural gas, wind, solar, and coal.
The alternative is to ignore the criticism and allow external events to control our destiny, to the grave detriment of future prosperity, international security and climate stability.
Renaissance in Reverse is Mark Cooper’s latest in a string of critical reports about nuclear energy economics published during the past half decade. In this instance, however, Cooper’s publication timing is nearly perfect; four nuclear plants have been shutdown in the past six months, ostensibly because they could no longer provide electricity at a competitive price.
That experience has made reporters receptive to Cooper’s message; the press release he issued to market his report has been picked up by both local outlets like Asbury Park Press, Columbus Business First and Southern Maryland News that serve markets near nuclear plants and national news outlets like BusinessWeek and CNBC. The press conference introducing the report featured Mark Cooper and Peter Bradford, his Vermont Law School colleague; it attracted reporters from outlets as diverse as the New York Times, Associated Press, Baltimore Sun, Reuters, Platts, Toledo Blade, and S&L Energy who participated in a lively Q&A session that lasted for more than 45 minutes. The event probably would have lasted much longer, but it was only scheduled to last an hour and had to be cut short.
As Cooper and Bradford pointed out during their press conference, the reference case for the most recent Energy Outlook published by the Energy Information Agency only included one nuclear plant retirement before 2040. They did not point out the remaining context for plant retirements contained in that reference case:
The AEO2013 Reference case assumes that the operating lives of most of the existing U.S. nuclear power plants will be extended at least through 2040. The only planned retirement included in the Reference case is the announced early retirement of the Oyster Creek nuclear power station in 2019, as reported on Form EIA-860. The Reference case also assumes an additional 7.1 gigawatts of nuclear power capacity retirements by 2040, representing about 7 percent of the current fleet. These generic retirements reflect uncertainty related to issues associated with long-term operations and age management.
Even though the industry expected that there would be some plant retirements precipitated by unpredictable events during the next 25 years, the four nuclear plant retirements in 2013 have come as a surprise to customers, stockholders, and industry observers. In three of the four early retirements (San Onofre 2 & 3 and Crystal River) plant owners faced a fix-versus-destroy decision sparked by a material issue with costly requirements and an uncertain timeline to a repair that would be approved by regulators. In the fourth case (Kewaunee), one of the best maintained and operated plants in the country was retired because the value of its product in the market was not high enough to pay the continuing cost of keeping the plant running.
In all cases, the presence of a legally mandated decommissioning fund was part of the decision process and part of what makes nuclear power plants different from all other commodity production infrastructure. All commodity suppliers have to occasionally deal with market price weakness; they will often “mothball” a facility to save current operating costs while waiting for the market to improve. They will not invest capital to purposely eliminate the future potential for production when the market improves. In the case of nuclear energy plants, the existence of a protected decommissioning fund that cannot be used unless the plant is actually being destroyed can entice owners to take more permanent action.
Aside: Though not the subject of this post, I cannot help but point out that the timing of Cooper’s critical report was apparently aided by a rush to publication that skipped at least one stage of proofreading. I counted at least a dozen purely editorial errors that included subject-verb disagreement, improperly placed graphics, run on sentences and missing words in the context of the published statements. Atomic Insights has been known to contain similar errors at times, but this is a blog, not a formal research report ostensibly issued by a professional scholar with the support of an institute of higher learning. Here are a couple of examples:
“Indeed, the first reactor retired in 2013 (Kewaunee) was online and had just had it (sic) licenses (sic – nuclear plants have a single operating license, not several licenses) extended for 20 years, but its owners concluded it could not compete and would yield losses in the electricity market of the next two decades so they chose to decommission it.” (Page 2)
“It review (sic) reliability, capital expenditures, and safety retrofits.” (Page 3)
“In those areas of the U.S. were (sic) the wholesale price of electricity is set by the market, prices have been declining dramatically, as conceptualized in Exhibit II-1. (Page 4)
Figure 8 on page 7 obscures a line of text, which results in the following nonsensical sentence “A similar study for measure.” End Aside
Here is Cooper’s conclusion:
The lesson for policy makers in the economics of old reactors is clear and it reinforces the lesson of the past decade in the economics of building new reactors. Nuclear reactors are simply not competitive. They have never been competitive at the beginning of their life cycle, when the build/cancel decision is made, and they are not competitive at the end of their life cycles, when the repair/retire decision is made. They are not competitive because the U.S. has the technical ability and a rich, diverse resource base to meet the need for electricity with lower cost, less risky alternatives. Policy efforts to resist fundamental economic reality of nuclear power will be costly, ineffective and counterproductive.
It is difficult to use current market reality to reject Cooper’s assertions. Nuclear plants are complex machines; repairing or upgrading them is a challenging task that often results in substantial cost and schedule overruns. Building new nuclear plants is not easy, especially with inexperienced workers. Once they are completed, starting them and working out all of the initial operational kinks usually leads to disappointing performance figures that may last for several years. It is quite logical to be tempted to give up or to join the John Rowe chorus of naysayers who claim that nuclear will not be competitive in the US for at least two decades.
Aside: Cooper seems to be quite a fan of John Rowe. He quotes Exelon’s former CEO about a half a dozen times in his report. End Aside.
What Cooper fails to acknowledge in his report, however, is that many of the risks associated with nuclear energy are financial and imposed by choices made by human beings. In contrast, the risks associated with all other energy competitors are often part of their fundamental nature; their weaknesses cannot be solved by the best efforts of the most skilled engineers on the planet.
As Cooper points out, a substantial portion of the current fleet of 100 nuclear power plants in the US is under significant financial strain as a result of persistently low wholesale electricity prices, rising costs, licensing uncertainty and risk of a single bad event that could impose costs high enough to cause a corporate bankruptcy. Cooper modestly fails to take any credit for helping to impose both enduring additional costs and “black swan” risks by his participation in the organized opposition to nuclear energy.
Cooper and his antinuclear associates play on artificially created and carefully stoked fear to impose unreasonably costly required actions to address incredibly inconsequential issues. The most egregious example is the tens to hundreds of billions in costs that have been imposed on the people of Japan in a vast overreaction to the modest risk of negative health effects from the small amount of radiation released at Fukushima Dai-ichi.
Another costly example is the recent experience of San Onofre in Southern California. Political pressure created an environment where utility decision makers, thinking they were following a “conservative” course of action, made choices that led to the permanent shutdown of 2200 MW of clean electricity capacity with a market value of several billion dollars. That action was taken in reaction to a 75 gallon per day (0.05 gallon per minute) seep of nearly pure water.
My final example is the several billion dollars worth of design modifications that will be imposed by the Nuclear Regulatory Commission to protect Americans against the remote possibility that our reactors suffer the same consequences as those experienced by 40 year-old reactors located on the northeast coast of Japan. Antinuclear activists like Cooper and Bradford like to tell people to remember Fukushima, but they never remind them that no one was even injured, much less killed by the radiation released by three nearly completely melted reactors.
Cooper’s analysis fails to mention the financial risk associated with nuclear energy competitors. He talks a little about what he calls the quiet period of nuclear energy from the last 1990s through the beginning of the Great Recession in 2008, but he did not mention the turmoil and financial challenges faced by electric power producers that were dependent on natural gas. He did not mention the natural gas driven energy crisis in California in 2000-2001 that got so bad that it resulted in a recall election. He did not mention bankruptcies and financial distress that plagued almost all of the independent power producer industry as gas prices rose from $2.00 to $14.00 per MMBTU in a brief, 8 year period.
He did not mention how nuclear power plants, operating at an average capacity factor of 90% or better for the entire decade, turned into cash generating machines in competitive markets and into hugely beneficial assets for entire regions in rate regulated markets whose electricity prices remained well below the national average.
He also exposes himself as more interested in getting rid of nuclear energy than in developing a power system that produces as little CO2 as possible. In some parts of his report, Cooper sounds almost like an employee of a natural gas company’s marketing department.
Many of the things that nuclear energy critics say irritate me, but one of their most annoying tendencies is their inability to acknowledge that nuclear energy has room for massive improvements. Cooper makes the following statement about renewable energy:
In contrast to nuclear reactor construction costs and cost estimates that have been rising dramatically, several of the alternatives are exhibiting reductions in cost, driven by technological innovation, learning by doing, and economies of scale.
That statement might be historically true, but it fails to recognize that there is nothing inevitable about it being true in the future. We have the ability to gain control over construction costs, to apply innovative technologies that lower costs, to resist regulatory ratcheting that does not improve public health and safety, to learn by doing, and to capture economies of improving the scale of our enterprise.
During the press conference, Cooper called this a “teachable moment” for the nuclear industry; I agree, but I am pretty sure that Cooper would disagree with what I want to teach. Nuclear energy is far too valuable to abandon; it is worth a considerable effort to make it better.