Senior Fellows from the Cato Institute – a conservative think tank – cheer the No Nukes crowd

One of the more common arguments on this blog is one about the left-right, conservative-liberal views about atomic energy. I and a number of readers like to caution people that you cannot equate liberal with anti-nuclear any more than you can equate conservative with pro-nuclear. The effort to slow or halt nuclear power developments is more complex and has led to some alignments that may seem a bit strange from many perspectives.

A recent case in point is a commentary in the November 26, 2007 issue of Forbes Magazine titled Hooked on Subsidies: Why conservatives should join the left’s campaign against nuclear power. The commentary comes from two senior fellows of the Cato Institute and the basic thrust of the article is to cheer the efforts of the No Nukes organization led by Bonnie Raitt and Graham Nash.

Here is how they start their article:

When it comes to politics, we don’t often find ourselves in agreement with Bonnie Raitt or Graham Nash. But now that they are campaigning against new nuclear plants, they’re our friends.

According to the authors, Jerry Taylor and Peter Van Doren, the ONLY reason why there is any interest in new nuclear power plants is that there are some federal subsidies and policies either proposed or in place that encourage the industry. They assert that no investor would be interested without those policies because they believe there is a fundamental price disadvantage that nuclear power cannot overcome.

They use some rather funny numbers to support their argument.

A cold-blooded examination of the industry’s numbers bears this out. Tufts economist Gilbert Metcalf concludes that the total cost of juice from a new nuclear plant today is 4.31 cents per kilowatt-hour. That’s far more than electricity from a conventional coal-fired plant (3.53 cents) or “clean coal” plant (3.55 cents). When he takes away everyone’s tax subsidies, however, Metcalf finds that nuclear power is even less competitive (5.94 cents per kwh versus 3.79 cents and 4.37 cents, respectively).

The first thing that makes me question these numbers is their precision – three significant digits of accuracy in a prediction of future costs over plant lifetimes indicates either a false sense of stability or a lack of comprehension about the importance of expressing uncertainty by using a range of values. I also question the small difference in price between a conventional coal plant and one that is considered to be “clean coal”. I need a definition here; it does not seem like the phrase could possibly be referring to a plant that separates, captures and stores the emitted CO2.

I used my favorite search engine to find the original document by Gilbert Metcalf titled Federal Tax Policy Towards Energy that Taylor and Van Doren used as a source for their comment. Dr. Metcalf’s definition of a “clean coal” plant is one that uses Integrated Gasification Combined Cycle (IGCC) technology. There is no indication that he expects that plant to also capture the carbon. The paper includes a table of what Dr. Metcalf calls the “key parameter values” for a levelized cost analysis of various types of generating plants. The table not only assumes that the capacity factor of a nuclear plant is 85%, it also assumes that both conventional coal, IGCC coal and combustion turbine combined cycle plants also reach that value.

None of those assumptions is supported with current data that shows nuclear plants in the US with an average capacity factor of 90%, coal plants at about 75% and gas turbine CC plants at about 35-40%. Capacity factor assumptions play a large role in levelized cost projections, especially with high capital cost inputs. A 5% variation in capacity factor can lead to a 4-5% variation in overall cost of electricity.

Another key parameter for any cost projection for electrical power is the cost of fuel. For coal fired power plants, for example, fuel costs are 77% of the total cost of electricity and for gas plants fuel costs are about 92% of the total costs. In contrast, fuel only accounts for about 26% of the production costs for nuclear plants. Without some idea of the fuel costs used by Metcalf, there is no way to determine how accurately he has predicted the eventual cost of power.

A major part of the assumed tax subsidy assigned to nuclear plants in the Metcalf article is the effect of their ability to use accelerated depreciation tables. That is a real stretch since their depreciation period is not substantially different from any other capital investment under US tax codes.

In other words, the total cost projections by Metcalf are simply guesses that are not necessarily based on valid assumptions. By extension, neither are the comments provided by Taylor and Van Doren.

It is difficult to engage in a discussion about the prospects of a nuclear power revival without getting into a discussion about the importance of government assistance in the effort. People adamantly opposed to nuclear energy – not surprisingly – like to state that the industry is “mature” and should have no need for subsidies. Conservatives like the Cato Institute generally oppose all subsidies; their point is that the free market should make technology decisions, not the government. The leaders in the nuclear industry have been working hard for a number of years to convince lawmakers that they need some assistance to level out the playing field, pointing to the subsidies and rules that encourage the development of many competing energy sources.

I am conflicted in this area. I generally agree that government bureaucrats and elected politicians are not necessarily the right people to make hard technical choices that involve complex engineering, economics, and environmental tradeoffs. However, no matter what one thinks about the value of the free market, the fact of the matter is that governments are an intricate part of the decision process when the choices include nuclear power.

In the US, the costs of obtaining a license to operate and the cost of maintaining that license are major portions of the cost of developing and owning a nuclear power plant. A disguised cost that is important and well understood by business and investment specialists is the time value of money – the length of time required to obtain a license to operate delays the start of project revenue and increases the eventual cost of construction because of component cost inflation.

My company, Adams Atomic Engines, Inc., has been developing our concept of small, passively safe, economical atomic power plants for more than a dozen years. We have pitched our designs and plans to a number of investors over those years. In almost every case, the audience saw the potential market almost immediately, but with the next breath asked how we planned to convince the government to let us prove the safety claims. In all cases so far, the discussions have bogged down as I explained how the licensing process works, especially the part about the unconstrained hourly billing power given to the Nuclear Regulatory Commission.

It is apparent to me that unconstrained dependence on the market as it exists today will not result in the right long term energy choices. There is no charge assigned to fossil fuel plants for the privilege of using the atmosphere as their waste dump, there is a misunderstanding of the risks of future price increases in coal and natural gas, and there is an inherent advantage given to technologies that do not need a federal license to build and operate their facilities.

It has been already proven that federal policies CAN be implemented that will have the effect of shutting down entire sections of the industry. The nuclear industry learned this real politic lesson when the nascent recycling industry was shuttered by Executive Or
der in the late 1970s. Investors understand this and are looking for proof that the same thing will not happen again before they put huge sums of money at risk.

There are plenty of politically powerful interests that do not like nuclear power; the rest of us need to help politicians understand that catering to those interests is not in the country’s best interests. In other words, we do need to ask our representative government to pass laws that provide confidence to those investors. The provisions in the Energy Policy Act of 2005 seem pretty reasonable to me as long as they recognize nuclear power as a zero emission energy source.

Nuclear power could compete without subsidies or encouragement on an even moderately level playing field. The existing field, however, is already slanted and populated by some very powerful interests. We need long term thinking to overcome the existing market disincentives to invest in nuclear power plants that will produce reliable, clean power for the next 60 or more years.