Nuclear focused investment fund proposal
There was a thought provoking letter to the editor on DesMoinesRegister.com titled MidAmerican’s nuclear plant proposal puts risk on consumers that is worth bringing to the attention of nuclear industry decision makers and influencers. The author is a member of the Iowa Public Interest Research Group, a chapter of an organization that has been opposed to nuclear energy development since it was first founded by Ralph Nader.
However, the message is one that resonates with plenty of cost conscious Americans. MidAmerican Energy, a monopoly electric utility company owned indirectly by Warren Buffett, one of the richest men in the world, is seeking to be able to bill current consumers for construction-work-in-progress costs for a nuclear power plant for which they do not plan to make any commitments in the near future.
Though consumers might benefit if the project is completed by capable managers who exercise good cost and schedule controls, they are being asked to make a risky investment with an uncertain payout. In the world that is not controlled by monopolies and government regulations, that kind of investment is allowed, but it is rewarded with the prospect of significantly above average returns if everything works out.
In this case, the consumers are being put at risk of making small monthly payments for many years before being paid back with perhaps smaller, but longer lived monthly returns in the form of reduced power bills – starting in 8-15 years.
Unfortunately, the nuclear industry did not establish much basis for trust during the first wave of nuclear plant construction. Though many Americans are currently benefitting from far-sighted efforts to build nuclear plants in the 1960s and 1970s, it took a decade or more after the plants started operating before the benefits became apparent. The first thing that happened when the plants when commercial – in nearly every case – was an immediate filing of a new “rate case” in which the owner asked for an increase based on being able to finally put the nuclear plant into the “rate base”.
The message those repeated actions sent to the public, logically enough, was that building a new nuclear plant invariably equaled an increase in the cost of electricity. Many uncommitted members of the public had heard that there were some unknown risks associated with nuclear technology; many of the uncommitted decided that a technology with unknown risks and inevitably higher costs was not worth pursuing.
I know that the reality of electrical power costs is far more complex than that and involves reams of evidence, adjustments for fossil fuel costs, and various allowed rates of return on invested capital. However, if you want an instant eye roll experience, try explaining how power costs are determined to someone who simply asks why their bill is different this month from what it was last year at the same time.
I am also aware that the people who want to build new nuclear power plants are having a challenging time finding financing at a reasonable rate – in large part due to project risks that are imposed by the way that nuclear projects are regulated.
One commenter named George on the DesMoinesRegister.com letter to the editor suggested that a cooperative utility (co-op) model might work better for financing nuclear plants. That way the people who invest – or their beneficiaries – would be the ones who most directly benefit.
Here is my response to the original letter with a riff on George’s idea.
Though I am perhaps one of the most vocal nuclear supporters on the web, I have to agree with George. The cooperative model he describes is close to another financing model for new nuclear plants that I have suggested in the past – that of focused mutual funds for people who not only believe that nuclear energy is superior to its competitors, but who want to eventually profit when their technical evaluation of the alternatives proves to be true.
The people who want to build new nuclear plants are concerned about finding affordable financing. Many investors – large and small – that believe in nuclear energy and its potential to dominate the energy market want to find a diversified “pure play” where they can focus a portion of their portfolio. (Note: a diversified “pure play” on the technology would provide some protection to the fund from the risk of any particular project being mismanaged.) If the structure was a mutual fund, the size of the required investment could be well within the reach of anyone who buys stock funds for their retirement plan or their children’s college saving funds.
Yes, it takes a long time to develop a new nuclear power plant project from start to finish – though the subsequent projects of the same design can be completed in far less time. However, it also takes a long time to save for college or to plan for a retirement. There is patient money out there; the nuclear industry should be working to find it in places other than in state or federal capitals.
If there were such a fund – or even several such funds, there would also be a substantial group of interested people who would work hard to reduce one of the biggest risks associated with developing a nuclear project, the risk that temporarily elected government officials could arbitrarily decide not to allow the project to complete. Incomplete projects generate no revenue and leave big debts.
That has happened to the nuclear industry at least twice – the several billion dollar Barnwell nuclear fuel recycling plant was made illegal with President Carter’s Executive Order forbidding nuclear reprocessing in the United States. The $5.9 billion Shoreham Nuclear Plant on Long Island was completed and successfully conducted low power testing when some local governments refused to sign to the evacuation plan. The state of New York bought the plant for $1; customers are still paying some of the highest power rates in the country because the state also assumed responsibility for the debt.
It is not fair to rate payers in monopoly service territories to ask them to pay in advance for a power generation project where the utility itself has not made a firm commitment to do the hard work of finishing the plant and maintaining the public support required to prevent a political decision that stops revenue generation.
I think this would be a good idea. I’ve kind of been wondering, myself, over the past few months, if there’s some way I could invest in nuclear power plants (even though my personal contribution would be fairly small – maybe a few thousand dollars over the course of a few years).
I realize I could invest in a company like MidAmerica, Entergy or Exelon which build and operate nuclear plants, but a mutual fund might be more diversified, so I’m betting on the industry, not an individual company which might have bad management and go belly up despite the advantages of nuclear power.
As a young guy, this is the first time I can recall hearing about the Barnwell recycling/reprocessing plant. Rod, do you know whether the MIT Nuclear Fuel Cycle study looked closely (or at all) at the experience of the Barnwell project being partially completed and then abruptly halted?
Considering the political aspects of reprocessing/recycling and the past moratorium on even speaking of the subject within DOE, I don’t see any way that an accurate assessment of the economics of an advanced fuel cycle could be made.
When will the debate with Steve Kirsch and all occur?
As a younger guy, I had never heard of the Barnwell facility. Considering all the political back and forth, there is no way an accurate assessment of the economics of recprocessing/recycling/advanced fuel cycles could be made. That uncertainty plays a bit of a role in adding uncertainty to the evaluations of individual nuclear power plant projects. Rod, when will the debate at MIT over their Fuel Cycle report, with Steve Kirsch and others, be happening?
As a younger guy, I had never heard of the Barnwell facility. Considering all the political back and forth of the past, particularly the long-term moratorium within DOE on even speaking of reprocessing, there is no way an accurate assessment of the economics of recprocessing/recycling/advanced fuel cycles could be made. That uncertainty plays a bit of a role in adding uncertainty to the evaluations of individual nuclear power plant projects. On that note Rod, when will the debate at MIT over their Fuel Cycle report, with Steve Kirsch and others, be happening?
As someone who’s still paying for the Shoreham nuclear plant, a badly managed and corrupt operation that never delivered a watt of electricity to a single rate-payer, I am heartily in favor of some sensible alternative for funding new nuclear plants.
Rod, this is a good article if only because it raises or tries to deal with questions not always adequately answered by the pro-nuclear community.
I think the general paradigm of turning consumers into investors (either voluntarily or mandating it) has a lot going for it.
In some ways I deal with this question on a blog item I wrote on the DK a year or so ago called “Financing Nuclear Energy”.
I start with a different perspective. My historical perspective tells me that every significant civil engineering project (not ‘a reactor’ for example, but building a nuclear genration industry) is not hindered necessarily by gov’t regulation or monopolies, per se, but by the lack of a serious, *governmental* plan that is the root of all great engineering projects, from nuclear energy originally to the rail roads to the highway system to every water way built anywhere in the world for purposes of commerce to every dam project I know of.
It is not ‘gov’t regulation’ but what kind of regulation. That that end we have to decide as a society if we are going to employ the atom to solve our energy needs. This means convincing the communities at large that nuclear is better, in fact the only way to survive as a species, the only way to develop the underdeveloped word etc.
Every one of these endeavors uses, often, private companies a sub-contractors for components and labor. But in all these instances, the overriding planning wasn’t done by private industry, it was done by gov’t. If flies in the face of libertarian “mythology” but it’s historically accurate. The role of the gov’t, or “The State” is paramount. And this, after all, is paramount.
The second problem with telling the gov’t to stand out of the way is that private investment, as a historical trend in capitalist societies everywhere, is toward speculation, not “capital” investments (the production of things in factories, and services that service those industries). That is because capital *always* flows to an ever greater return on profit in the shortest amount of time. The current financial crisis, born out of *deregulation* of the financial community, was caused by getting rid the banking laws passed starting with Glass-Stegal on up.
Nuclear energy based on a truly free market is not as profitable as investing in real-estate or oil futures or derivatives and other papers. It just ain’t and ain’t gonna be, neither.
This is why I propose in my blog linked to above to establish a truly credit-based National Nuclear Development Bank whose only mandate is to finance the deployment of nuclear energy without having to have consumers pay the cost of a project you so correctly pointed out the natural utility monopolies may not be so interested in completing.
Such a NNDB would have some form of negotiated *equity* holding in any nuclear facility that generates revenue and thus would eventually become self-financing, and exponentially so. It could offer almost zero interest loans (in reality 1 to 2%) plus some from of specific revenue return based on out put of each facility. Both loan and equity not occurring until the unit goes COD (commercial ontime delivery).
No private banks, just gov’t credit. But it would take the *political* commitment to pull this off.
Just my contribution to this discussion.
David
Something funky was going on with the site earlier. Apparently my attempts at leaving comments took quite a while to show up on here.
Joel,
My last few comments over the last few days lagged as well!
If you look into the reason that all of the nuclear power plants caused an increase in rates I believe that you will find that the common driver is delays caused by interveners. Each plant that I worked at while working in the Construction/Startup area took more than double the time to construct and license due to these delays. Since, these utilities were not able to pay down the debt, the debt grew and more than doubled, some even quadrupled! The Utilities had to borrow money to make payments on their loans. That is similar to you using the highest interest rate credit card to pay your mortgage, then paying that cards minimum payment on that card with the next highest rate card, ad infinitum. That is how you neighborhood Public Utility Commission protects you. Keep in mind, any good business person will tell you that if you owe money, the true interest rate you pay is the rate of most expensive line of credit you have payments on. The More a utility owes, the higher these lines of credit, and the more that new plant costs. They have been building coal plants for years. They know, within weeks, when it will be done, including all interventions. In most cases, they complete months ahead of “schedule” saving millions on interest payments. Nuclear power plants blew all of those schedules to hell, and the interveners learned faster than the utilities how to delay even more. Why not – they were getting all of their bills paid by the utilities!
Expect more of the same for all future Nuclear plants as none of these root causes have been fixed.
Yes – there have been some backend database issues. I think they have largely been resolved.
Interestingly enough, the first response from my hosting company was a recommendation to move commenting to Discus. That is NOT my plan.
Regulatory ratcheting, and interveners are a huge cause for delay. AECL completed several new builds and referbs for offshore customers in the last twenty years on budget and on (or before) time. Yet this same company constantly runs into delays and cost overruns on domestic projects, mostly due to interference of this sort.
However having said that the greatest challenge to the growth of nuclear energy for North America in the coming decades is the growing glut of methane. Until the CO2 emissions from this product are costed in, new nuclear builds are not going to be economically viable except in a few isolated cases.
Rod, the issue seems to be persisting as of this morning (February 6th).
I concur.