Reactor under construction at VC Summer nuclear plant South Carolina 2014 (photo US NRC)
Today we offer two expert perspectives on subsidizing nuclear power. Here’s the argument for ongoing support by Arthur T. Motta, Professor of Nuclear Engineering at Pennsylvania State University. Courtesy The Conversation.
In one of the courses I teach at Penn State, we discuss the characteristics of an ideal electricity production portfolio for the United States and consider what form of energy policy would best achieve it. The class typically identifies the most important factors as cost, reliability of supply, public safety and environmental impact. Students also cite other characteristics, such as national security, domestic availability of fuels and technologies, and electric grid stability.
Because no real-world energy source fulfills all of these characteristics, we have to make compromises to find an optimal combination of energy sources. Ideally a well-designed national energy policy would give us a framework for making these choices by balancing short-term goals, such as cost, against long-term goals, such as environmental protection.
However, there really is no coherent long-term energy policy in the United States. What exists instead is an ad hoc hodgepodge of subsidies, taxes and regulations differing across regions of the country, that, along with the free market, end up determining what energy sources are used for the production of electricity. In particular, we have no carbon tax to penalize carbon-emitting technologies.
As a result, long-term goals are often neglected.
Under this ad hoc approach we currently reward some sources, such as renewables, for providing carbon-free electricity, but not others, such as hydro and nuclear power. In my view this is wrongheaded and inconsistent. The United States would do better by following the example of New York, which recently decided to support nuclear power plants to keep them from closing because of competition from cheap natural gas.
Natural gas: a mixed blessing
In the past decade U.S. domestic natural gas production has increased by 50 percent. Natural gas, which emits half as much carbon dioxide as coal when burned, is replacing coal for electricity generation. As a result, U.S. greenhouse gas emissions from electricity generation have actually decreased over the last decade, even as electricity consumption has increased.
This is very good news for the environment. Also, the low price of natural gas puts money in people’s wallets. However, natural gas is still a carbon-emitting technology and contributes to climate change. Thus, as concerns about climate change have grown, Congress and the states have adopted subsidies and tax credits to expand electricity production from low-carbon and carbon-free renewable fuels in an effort to reduce greenhouse gas emissions.
Such subsidies acknowledge that the monetary cost of energy production – which is now the primary factor in whether an energy source is developed and used – is in fact an imperfect tool for shaping medium- and long-term energy policy.
A long-term energy policy to achieve environmental goals
At a recent Department of Energy summit on improving the economics of U.S. nuclear power plants, speakers noted that, along with cost, factors such as production of carbon-free electricity, reliability, grid stability and diversity of fuel supply should influence decisions about energy supply. But energy sources do not consistently receive credit for helping to attain these goals, and are not consistently penalized if they fail to do so.
The subsidies and tax credits mentioned above are a step in that direction, and have increased development of renewable energy sources. As a result, the percentage of electricity from renewables has significantly increased in recent years, which is great. Solar and wind together currently provide about five percent of U.S. electricity.
Unfortunately, increasing reliance on renewable energy also has a downside. The intermittency of renewable energy and unavailability of energy storage means that the installed capacity of renewable sources has to be considerably higher than the desired output (by a factor of three or more). In other words, we have to build more than we need, and other energy sources are needed to provide backup when the wind is not blowing or the sun is not shining.
Moreover, at present renewable sources are not economically competitive without subsidies, but they become very competitive with them. With subsidies, wind power is practically free in some markets. This distorts the market because utilities have to produce less energy in cheaper nuclear power plants so they can use subsidized renewable energy. This causes utilities to operate nuclear power plants in an up and down mode rather than their normal baseload operation, making them even less competitive.
Recognizing the benefits of nuclear power properly
However, subsidizing carbon-free sources is justifiable to provide for the future greater good of the country because they provide climate change and clean air benefits. Perversely, however, the U.S. Environmental Protection Agency and most states have declined to consider rewarding the same benefits from existing nuclear power plants.
The main argument for not including existing nuclear power plants – as well as electricity from large hydropower dams – in clean air mandates and subsidies is that contributions from these conventional sources would dwarf new renewable generation, which the federal government wishes to encourage.
According to this twisted logic, environmental benefits from new nuclear power plants do receive proper credit under the Obama administration’s Clean Power Plan. But the plan includes no economic rewards for keeping existing efficient, well-run plants in operation.
This makes no sense.
If these plants are shuttered, their output will be replaced in many cases by natural gas generation, which will increase greenhouse gas emissions, as has occurred after recent nuclear plant closures in Vermont and Wisconsin.
Nuclear power provides other benefits in addition to clean air. Nuclear plants also provide stability to the electrical grid, as their output is constant and reliable. They are available at nearly all times and especially in times of need – for example, during severe winter weather when coal deliveries may be disrupted.
Additionally, nuclear power is a technology-intensive industry in which the United States has traditionally led the world. With each closure of an operating U.S. nuclear power plant, the infrastructure built over the past 50 years – including suppliers, vendors, operators, maintenance and manpower – becomes increasingly imperiled as it serves a dwindling number of plants. If the industry disappears here, it will be very difficult to rebuild as China and Russia becomes world leaders in nuclear technology.
Finally, nuclear power is also one of the rare industries that generates many high-paying jobs for engineers and technicians, as well as blue-collar jobs for plant workers – all of which must be sited in the United States. This is one reason why regulators in New York recently adopted a Clean Energy Standard that will provide significant yearly subsidies through 2029 to keep several existing reactors operating. Other states should consider taking similar steps to recognize the benefits of nuclear power and prevent premature plant closures. This would support their environmental goals.
In sum, there is a case for government intervention to improve the economic competitiveness of nuclear plants and avoid early closures. The nuclear industry does not need handouts, but a coherent U.S. energy policy should provide a level playing field in the electric markets by recognizing the essential contributions that nuclear power plants make toward reducing greenhouse gas emissions, ensuring reliable electricity and preserving grid stability. Failure to act could foreclose the nuclear power option in this country and make the road to clean air and energy independence in the future that much harder.
Editor’s Note
For a contrasting view, see this article by Peter Bradford of Vermont Law School. Republished with permission from The Conversation, a great source of highly readable viewpoints from academics on a wide range of topics. Recommended.
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The author forget to mention of all the subsidies nuclear power has and that nuclear power is to expensive.
This makes no sense.
Please be specific if you have criticisms. What subsidies are you referring to? And the author clearly does acknowledge that nuclear power is “too expensive” if left to the market.
History of federal support here, these nuclear powerplant have been built through massive subsidies at the early stage.
http://i.bnet.com/blogs/dbl_energy_subsidies_paper.pdf
In the 80s and 90s, utilities went bankrupt after they were not allowed to charge rate payers for the costs of building the power plants as they were building them after starting construction under rules that allowed them to do so. Plus utilities were required to purchase power at the lowest price for its customers under deregulation which meant the cost of their own nuclear power was too high for their customers who wanted cheap power from independent producers. And deregulation let big producers generate their own power.
The result was the government bailout of nuclear in bankruptcy court. The people who paid to build the nuclear plants got 50 cents on the dollar and the corporations that bought them got them dirt cheap and then claimed nuclear was cheap and profitable.
Cotton produced with slaves was cheap and profitable.
The existing nuclear power plants were built by people who got neither their money back nor any of the profits.
Note that the newly started construction nuclear power plants are being charged to rate payers before they generate power, something made possible by restoring CWIP rate hikes. Plus the government has invested tens of billions in getting things lined up for the builders and utilities, for which government won’t be paid. And nuclear power plants are producing at least 20 times more waste so fuel is cheaper by starting from ore, instead of reprocessing fuel for reuse as the French do, at higher fuel cost.
So, when old nuclear reactors that are debt free can’t compete with natural gas and wind because they need fairly costly maintenance to extend their operating license 20 years, and that’s after decades of subsidies, the argument is nuclear needs forever subsidies to compete with wind and solar that get subsidies for only 10 years of a 30 to 50 year investment.
I agree with calls for a carbon tax that is increasing rapidly and thus eliminating fossil fuels and making energy so expensive tens of millions of jobs in the US are created producing alternatives. Nuclear might be one of those alternatives, paid for with electric rates and bills twice as high as the bills you have today. But it will take hundreds of billions spent building enough nuclear power plants to bring the cost of nuclear down FOR THE NEXT GENERATION of nuclear power plants. But given a nuclear power plant last 60-80 years in the view of advocates, a generation is 30-40 years. So electric prices would need to be high for 40 years.
You are conflating a lot of disconnected issues in an illogical manner.
1. Exactly how is the fact that nuclear power plants were cancelled in the 1980s and 90s have anything to do with the continued operation of existing plants today?
(BTW, in 1983 I authored a DOE report entitled “Nuclear Plant Cancellations: Causes, Costs and Consequences,” so I am thoroughly familiar with the issues you referred to).
2. There were only two utilities that went bankrupt due to the excessive costs of their nuclear plants: Public Service of New Hampshire and Long Island Lighting. The lion’s share of the costs written of from cancellations and disallowances were shared between the utilities’ shareholders and their customers, depending on whether the costs were considered to have been prudent at the time they were incurred. Again, what does have to do with nuclear plants operating today?
3. The corporations that bought the nuclear plants at prices below their book values paid competitive market-based prices for them. At the time that was what the plants were considered to be worth based on projections of their future cash flows. Exactly what is wrong with that. It’s simple Finance 101.
4. The two nuclear plants under construction have not yet been completed so we do not know who will be paying for their cost overruns. Most likely the utility shareholders. The accumulated CWIP can be clawed back by the regulators.
Again, what does this have to do with existing nuclear plants? Nothing!
5. The existing nuclear plants need not be subsidized for decades, only to the extent that wind and solar are subsidized. When the PTC and 30 percent ITC end the nuclear plants will either be able to compete or they will be retired. If retired at least we will get a few more years of carbon-free electricity from them. What’s wrong with that? And who knows where natural gas prices will be when the subsidies end. It they are significantly higher the nucs may well be viable many more years.
6. So you favor a carbon tax and would allow nuclear plants to benefit from such a tax? If so, you have to also be in favor of extending the current PTC to the existing nuclear plants. Sorry but that’s a logical conclusion given what you have said.
7. Lastly, you raise the issue of the cost of building new nuclear plants. Again, what does this have to do with keeping the existing fleet in operation?
Maybe I’m missing something. What exactly is your point (summarized in one or two sentences please).
In short, as stated by you below, present nuclear plants are sunken cost. I they can’t stay in business without subsidies, they should be closed alternatively, those that want that “secure base load” should pay for it.
Nuclear loan guarantees are NOT subsidies. They are vehicles to save ratepayers money without costing the US a dime.
That’s only true if the borrowers don’t go bankrupt and default on the loans. Sorry, but they ARE subsidies.
Ever hear the term, ‘sunk costs?” The subsidies provided to nuclear promoted their construction but for existing plants they are sunk. The largest subsidy was provided by US Navy which developed light water reactors to power our ships. However that subsidy has no bearing on the decision to continue operating existing plants.
The Production Tax Credit that wind power receives (2.3 cents per kWh, equivalent to at least 3.5 cents per kWh on a pre-tax basis) has distorted our wholesale power markets. It allows wind farms to make a profit even when the spot market price falls to a negative $35 per MWh. This is what is adversely affecting our existing nuclear fleet. If the avoidance of greenhouse gas emissions is worth a 2.3 cent tax credit then all operating nuclear plants should also receive these credits.
Bottom line: the congress should pass a law extending the PTC to nuclear power. It’s really that simple.
As I have written above, new nuclear has also a PTC (2005 Energy Act) so please, stop the desinformation about PTC.
Nuclear power advocates claim that the temporary PTC for wind and solar is unfair but forgets that nuclear industry has also a PTC, see
http://www.bna.com/nuclear-industry-lobbies-b17179910781/
This makes no sense.
The 1.8 cents per kWh tax credit only applies to new plants that started construction by January 2014 and go into service by 2021. It has no impact on the existing nuclear fleet, which is being adversely impacted by the current PTC for wind power.
Robert,
If only the operating costs of NPP’s are already higher, then NPP’s also emit far more CO2/KWh.
So they should be removed from the portfolio to battle climate change (and closed).
In Europe (except maybe Britain) the point against nuclear is simple: It is an old technology therefore it should be advanced enough to not be in need for subsidies.
The new renewables have to get into an existing market, subsidies should allow them to do so. These subsidies are not meant to be there for the next 50 years. If a technology is not able to be competitive in this time frame, it probably will never be and should be abandoned.
Nuclear is around for that time, and therefore has no right to call for a startup bonus to grow and get competitive.
(This is of course only the main argument, there are others like security issues, nuclear waste and the base load characteristic which does not fit well with intermittent production. They do not bring energy when you need it but always, which is not the best thing to have at hand)
Nuclear advocates should try to understand something. Complaining about the subsidies that renewables receives doesn’t help nuclear. What nuclear advocates should do is join renewable energy advocates and get a carbon tax.
The process to lower carbon fuel usage in future years is to bring more non carbon fueled electricity to the grid and use that electricity for non electricity needs like water heating, space heating, industrial processes, batteries used in transportation, and other energy needs. The plan is to overwhelm the electrical grid with more electricity than it needs for electricity and use demand maintenance of the electrical grid to handle how much demand the grid can supply. Hybrid water heaters and hybrid space heaters.
A level playing field would (rightfully) end all nuclear, as nuclear gets far more subsidies than any renewable!
E.g. compare the new NPP at Hinkley with new offshore wind (the most expensive significant renewable). Assume 1.5%/a inflation and interest.
Hinkley
– Guaranteed price of £100/MWh (=2012 price corrected for inflation until now). Price is inflation corrected during 35yrs of operation. With UK whole sale price of £35/MWh, it’s a subsidy of £65/MWh = €76/MWh subsidy during 35years inflation corrected.
– Add to that the costs of:
* the infra investment guarantee of £17B;
* the costs of the accident, waste and decommission liability limitations (all socialized)
* the costs of the £2B loan guarantee (=9%/a)
And divide those costs by the MWh’s produced.
That deliver extra subsidies worth ~€35/MWh.
So the new NPP will get subsidies of at least €100/MWh during 35years in 2015£’s, inflation corrected until 2060 (if Hinkley succeeds to start in 2025)!
Offshore wind
The 700MW Borssele offshore wind farm (30m deep sea, 25km off the coast, ready in 2020) was auctioned for €72.7/MWh (no inflation correction, no subsidies) during 15years, the >15years thereafter Dutch whole sale prices (~€35/MW).
That translates to an av. subsidy of €30/MWh during only 15years.
So >3 times less subsidy per MWh during a much shorter period!
Note that next offshore auctions next years are officially expected to deliver substantial lower prices (~€60/MWh)!
So the real difference in subsidy per MWh is a factor 4 or more!
Onshore wind and utility scale solar are 50% cheaper than offshore wind, so subsidies ~6-10times less than for Hinkley.
“The intermittency of renewable energy………. has to be considerably higher than the desired output (by a factor of three or more)” A recent wind study from the USA (lawrence berkley Nat’ Labs) shows that the capacity factor of new wind is around 40% – the reference to “three or more” applies to plant installed in the period 2000 – 2010.
The subsidy argument will work itself out over the period of the new PTC & at least for wind it is very likely that by 2021 no subsidy will be needed.
I was dissapointed that the author used the “base load” need for – argument – which ignores the possibilities of DR – taking one trivial example: PV & https://www.ice-energy.com/technology/ (disclaimer – I have no interest of any sort in this company). In the case of jobs, GE is the No 1 supplier of WTs in the USA, Vestas (with US factories) is No 2. The article did not mention the possibilities of modular reactors – world leader – the USA (due to its fleet of nuclear submarines) – these could integrate better into a electricity world where generation is embedded in the network as a whole – not just at the transmission level.