Climate

Nuclear cost study 3: Responding to Heritage’s staggeringly confused ‘rebuttal’

Part 1 presented a new study by power plant cost expert Craig Severance that puts the generation costs for power from new nuclear plants at from 25 to 30 cents per kilowatt-hour — triple current U.S. electricity rates!

Those ideologically promiscuous folks at the Heritage Foundation have replied with “New Study on Staggering Cost of Nuclear Energy, Staggeringly Pessimistic.” Craig’s point by point response follows a few of my comments.

Heritage is a leader of the conservative movement stagnation. They have written “the only thing a green ‘New Deal’ will do is lead us down a Green Road to Serfdom,” comparing such a policy to “collectivism in the Soviet Union and Nazi Germany,” and their Senior Policy Analyst in Energy Economics and Climate Change is quite confused about both of the subjects he analyzes (see “Heritage even opposes energy efficiency“).

The key paragraph in Heritage’s new critique is:

Aside from the cherry-picking of data and its clear tilt toward Big Green (the vast industrial complex and lobbying machine being built around global warming alarmism), its conclusions are potentially not that far off.

Yes Heritage is among those pushing the grand climate conspiracy, whereby the world’s National Academies of Science (including ours), the American Geophysical Union, the American Association for the Advancement of Science, every major government in the world, and the leading science journals are conspiring to deceive the public — see Diagnosing a victim of anti-science syndrome (ASS).

[Note to Heritage: ‘Big’ Green is a “Vast industrial complex”? The nuclear and fossil fuel industries have maybe 50 times the revenues of the cleantech industry. So what does that make them — gargantuan? Try not to be so paranoid — For 30 years now (100 years?), your guys have had the ball and written the rules.]

And still, they can’t really dispute the conclusions. They can only try to blame environmentalists (i.e. the public) for supposedly slowing down the construction of nuclear power plants and running up the costs. But given that the public is assuming most of the liability of any major nuclear accident and given that the public is now assuming most of the economic risk of new nuclear plants with major loan guarantees (see “Nuclear energy revival may cost $315 billion, with taxpayers’ risking over $100B“), it is hard to argue against the public weighing in to ensure that the plants are built and run safely and affordably!

Indeed, to support the public taking all the risk of new plants while opposing the public having any say in the licensing process is some strange combination of socialism and totalitarianism. Hmm. Could that be Soviet collectism? Nah.

The Heritage critique notes, “As one who believes in the value of nuclear energy, I am fully supportive of removing all the subsidies and government preferences and allowing the market to decide. If Big Green is so confident, then they should be prepared to do the same.”

If the government removed all subsidies and preferences for nuclear, we probably wouldn’t build another nuke. They simply couldn’t get insured or financed. I support removing subsidies and preferences for any power source that has more than a 5% market share. Nuclear is a mature technology and has seen vastly more subsidies than renewables, whereas many renewables are still coming down the cost curve and deserve government support (see “Nuclear Pork — Enough is Enough“).

That said, once we have correctly priced carbon dioxide to reflect its full harm to our health and well-being, then I would certainly be for removing virtually all subsidies and preferences for existing energy sources (though technologies with less than, say 1% marketshare could still get temporary support).

Finally, in Part 1, I wrote “So feel free to criticize the analysis, but anyone offering different all-in cost estimates for power from new nuclear plants should detail their own assumptions and calculation.” Heritage did not do that, so no one should take their critique too seriously. Nonetheless, here is Craig Severance’s detailed response:

Bravo! to the Heritage Foundation for calling for an end to all Federal subsidies for nuclear power, and “allowing the market to decide”.

I am a registered Republican and chaired my precinct caucus in this year’s Colorado caucus. However, John McCain’s and other supposed conservatives call for singling out nuclear power for massive Federal subsidies caught my attention last year. Heritage Foundation may recall that on June 20, 2008 I posted the following remarks on The Foundry:

I agree we should let the market work but McCain is proposing hundreds of billions in Federal pork for the nuclear industry that no other energy option will get. This is not letting the different industries (who also are American businesses creating American jobs) compete with nuclear on a fair
basis.

McCain got it right proposing a “cap and trade” carbon emissions reduction plan that will allow the most cost-effective methods to be adopted using a free market approach to meet the mandates. For instance, if a limit is set on the utility industry, then the utilities will bid out proposals.
Industries such as wind, solar, energy conservation, and nuclear will submit options, and if nuclear is the most cost-effective it could win some of those contracts.

The nuclear industry, however, with its $8000+/KW costs, knows it cannot compete on a level playing field, and has now convinced McCain to throw it billions in special subsidies.

This sounds like Energy Pork all over again. Round One was the corn ethanol lobby, now Round Two of Energy Pork is the nuclear lobby.

Is John McCain a true conservative, against pork projects for big lobbies, or not? No taxpayer funds should be needed whatsoever with a cap and trade plan. Why is it always the taxpayer who has to pay? Anyone who proposes cap-and-trade PLUS extra subsidies is just helping out a particular lobby
group.

We should just cap-and-trade (which by definition achieves carbon reduction goals), and let the free market work out the best means to meet the goals.

I’m glad to see Heritage has purportedly adopted a position in concert with conservative principles. My suspicion, however, is that when actual legislation and budgets are proposed, the ire of the Right against government manipulation of free markets will not be levied equally. These are just technologies we’re talking about here, folks. Yet too often, as Jerry Taylor, Senior Fellow at the Cato Institute, commented in his article “Nuclear Energy: Risky Business” posted here:
“Nuclear energy is to the Right what solar energy is to the Left: Religious devotion in practice, a

wonderful technology in theory, but an economic white elephant in fact (some crossovers on both sides notwithstanding).”

Jerry Taylor’s full article is excellent, I suggest conservatives review it carefully. Of particular note
is Taylor’s point “There’s another good reason why the [nuclear] industry is not protesting government intervention these days – the industry would not exist without it.

As regards to the numbers in my Study, I am glad we are now going to be talking about specific numbers and how they play out — we can get past the mysterious Black Box, and the “religious devotion” noted by Taylor. If you have read my Study, you can see the final cost outcomes depend upon certain key factors. Are any of the following “Staggeringly Pessimistic”:

“Overnight” Cost Estimate — drawn directly from Florida Power & Light, using the midpoint of their Case A and Case C estimates. In other words, this is the industry’s own number. (See here for my
discussion of the “nth” plant factor, in other words the advantages and realities of reaching economies from mass production.)

Cost of Capital — I use MIT’s assumption for the cost of equity capital but cut that cost by reducing the % assumed to be funded by Equity. I use 6.25% as the assumed cost of debt, which is 1.75% lower than the 8% rate assumed by MIT, and more than two full percentage points lower than current bond market rates. Also debt (the cheaper financing) is assumed to be 55% of funding instead of the 50% assumed by MIT or the 45% debt more commonly seen in public utility debt/equity ratios.

Escalation in Construction Costs During Construction Period — I plot out the effect of two different cost escalation rates, both of which are lower than recent experience with escalations in power plant construction costs. In other words, I optimistically assume that power plant construction costs will not continue to escalate as rapidly as they have.

Delays in Construction — I optimistically assume the proposed construction schedules laid out in utility dockets now underway will be achieved as proposed, with absolutely no delays. I do note with caution to investors, that if delays do occur, these utilities may face funding shortfalls so massive it may be impossible for the utility to obtain funds to complete the project. However, the cost projection numbers do not factor in any additional costs from delay.

Amortizing Capital Costs — David Bradish has suggested I should have assumed a higher initial cost/kWh for amortizing the capital costs, by assuming a shorter amortization period. He argues that once the power plants are finally paid off, the costs levied on ratepayers will decrease. Is this an advantage for nuclear, or is this a basic fact for all types of power plants? In other words, its ok for my family to buy a $2 million house, and its even better if I pay it off with a 15 year mortgage instead of a 30 year mortgage — because if I can just get past those 15 years, it will be a lot cheaper after that? Another example — a new movie house design is so expensive you will have to charge $50 a movie ticket, but that’s ok because you’ll only have to do that for the first 20 years? You won’t get past
opening night.

My major concern is for the health of the electric utility industry (as also spelled out in Cato Institute Taylor’s article cited above). If a utility spends tens of billions and then tries to drastically raise electric rates to cover the costs, what will its customers do? If the increased rates dampen demand for kWh’s, the utility will not collect the projected revenues. Yet, almost none of its costs would go down, as they are fixed costs.

This is a setup for a spectacular insolvency and yet another trip to Washington for taxpayer bailouts. Have shareholders fared well in such cases? The nuclear industry has said not a single new nuclear plant can be built without Federal guarantees. What does that tell you?

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32 Responses to Nuclear cost study 3: Responding to Heritage’s staggeringly confused ‘rebuttal’

  1. Brewster says:

    I have been reading a bit about Integral Fast Reactors.

    They seem to have many advantages over conventional nukes, but I have not been able to get a good handle on their costs.

    Anyone any idea how they stack up against the numbers shown above?

  2. Mark Shapiro says:

    Kudos to conservatives Craig Severance and Jerry Taylor for seeing a conservative argument against nuclear power. There’s more.

    Conservatives only have two policy cases against nuclear power: domestic and foreign. Nuclear power requires government subsidies, bureaucracy, and regulation — the hallmarks of big (and thus bad) government. There can never be a free, unregulated market in nuclear power. In fact, only countries with strong central governments (and bureaucracies) have nuclear power today. Nuclear power is highly concentrated power: physically, economically, and politically. Conservatives shun and mistrust concentrated power. Except for nuclear.

    And that is only domestic policy. Why do conservatives get amnesia about terrorism and other threats when touting nukes? How can a real conservative ignore the globalization of information and technology, failing states, and now terrorism long enough to praise the most lethal power ever wielded by man? Power is indeed seductive.

    Yes, the liberal in me has some problems with nuclear power. The conservative in me is dead set against it.

  3. Mr. Severance said:

    David Bradish has suggested I should have assumed a higher initial cost/kWh for amortizing the capital costs, by assuming a shorter amortization period. He argues that once the power plants are finally paid off, the costs levied on ratepayers will decrease. Is this an advantage for nuclear, or is this a basic fact for all types of power plants? In other words, its ok for my family to buy a $2 million house, and its even better if I pay it off with a 15 year mortgage instead of a 30 year mortgage — because if I can just get past those 15 years, it will be a lot cheaper after that? Another example — a new movie house design is so expensive you will have to charge $50 a movie ticket, but that’s ok because you’ll only have to do that for the first 20 years? You won’t get past
    opening night.

    This is way too simplistic and is not how it would work. You cited on page 21 a Moody’s study which discussed how a fictional company (NukeCo) would finance building a nuke plant under three different scenarios. Here’s page 12 of the Moody’s report: “From a retail rate ($ / kwh) perspective, Moody’s observes that the rate increases do not differ materially between the various scenarios. This is largely explained by our simplifying assumption that capital expenditures are immediately placed into rate base and commence depreciation, essentially smoothing out the potential for rate shock, and reflecting regulators authorizing enough rate relief to maintain a 10% annual ROE.”

    This is because the electric companies building nukes will have a large enough cash flow from other power plants (such as today’s already paid off nukes) to help pay back the costs of construction without essentially raising rates after one time. Then once the new plant is paid off in 15-20 years, the additional cash flow for the remainder of the plant’s life goes towards other capital projects. It’s a circle and is how utilities finance plants.

    [JR: No. This is because Moody’s assumes rates are going up sharply anyway, as your next paragraph makes clear. BTW, if you like Moody’s so much, than I assume you accept their (not all-in) cost of electricity for new nukes of more than 15 cents/kWh.]

    Here’s another interesting nugget from the same Moody’s report on page 3: “Regardless of whether or not a utility decides to pursue a new nuclear plant as part of its long-term resource plans, retail electric rates to end-use consumers are projected to almost double over the next few years, due to rising fuel and purchased power costs, operating and maintenance costs and infrastructure investment needs.” Funny how that wasn’t mentioned in your study. As well, it’s interesting how Moody’s assumes a 7 percent interest rate for financing on page 15 and how your study assumes twice that…

    Thanks for the debate.

  4. BTW, if you like Moody’s so much, than I assume you accept their (not all-in) cost of electricity for new nukes of more than 15 cents/kWh.

    The numbers are what they are. Yet they’re about half of what Severance concludes. You have the Lazard study and this Moody’s report cited by Severance and their results are half of what Severance calculates. What does that say about his study when his own sources come to way different conclusions?

    Also, the cost of electricity from Moody’s IS an all-in cost. It’s just deflated to current year numbers which is common practice in many of these types of studies. Simply citing nominal dollars, as done in Severance’s study, is meaningless unless you actually do the same for the alternatives, which his study doesn’t do.

    BTW, did you see wind and solar’s cost of electricity in the Moody’s report? I recall it was 12 cents/kWh for wind and 25 cents/kWh for solar. I assume you accept those?

    [JR: I don’t accept the Moody’s since they don’t provide enough detail. Wind is a tad lower. The solar PV is about right — for now. CSP is closer to 15 cents. They aren’t his “sources” but rather things that he cites — but I’ll let him reply.]

  5. Bob Wallace says:

    In all this discussion is there an assumption that every nuclear plant built in the future will operate 80%+ of the time for 40+ years?

    If so, is that a reasonable assumption? Look at the previously constructed plants that failed shortly after starting (Humboldt Bay and Rancho Seco, to name a couple) and the ones which were abandoned along the way.

    If future building is anything like past building then we would need to add it another great big number to pay for these nonperforming investments.

    (And please don’t reply that we no longer make engineering/construction mistakes. We have yet to replace humans in the equation.)

  6. Bob Wallace says:

    Craig, as a self-described Republican conservative and someone who clearly understands the economics of energy production I think it would be very valuable to the less capable of us if you would lay out the basics of a non-fossil fuel/nuclear plan for electricity production.

    Something along the lines of how we might use a combination of wind and solar to replace the ~50% of our power which we now get from coal.

    Given that we’ve got hydro and existing nuclear for partial baseload needs and that if we hook multiple windfarms we can count on 35% of that power as reliable baseload, how much overbuilding would we need to do to replace coal? How much CAES and pumped-up hydro would we have to build to make the system work? What would the resulting kWh price be for that replaced 50%?

  7. Jack Spencer says:

    I’m not sure where you are coming from in your criticism of my criticism (geez, that could go on forever).

    A couple of things. I don’t dispute the numbers. I say clearly that what is put forth is a plausible outcome. I simply add that it is not a necessary outcome. I then suggest a handful of instances where I thought more optimistic projections were warranted.

    As for your questioning of my commitment to the free-market, please read what I’ve spent the last two years writing. (C’mon NEI bloggers, come to my defense here. You’ve consistently criticized me for being ideologically free-market). I am nothing if not committed to the free market. I am equally committed to the value of nuclear energy. I simply believe that the best way to build a strong, robust and sustainable industry is through free-market principles.

    I am not sure why you spend so much time criticizing McCain and republicans in your criticism of me. You seem to imply that I share their views, which I do not. I am in no way professionally associated with the Republican Party or John McCain. I have written enough to have established my own record. I don’t need to be assigned anyone elses.

    As for blaming environmentalists for driving up costs… Again, I do not quite understand the criticism. The report acknowledges the role of organized opposition in slowing construction schedules. I absolutely do not blame environmentalists. I simply pointed out what I believed was an inconsistency in the report. Besides, that is hardly the only point that I make.

    Finally, I find it hard to believe that my remark on Big Green could be construed as the “key” point of my criticism. It was meant to be a tongue-in-cheek way to express my belief that the study was skewed toward non-nuclear renewables. I should have realized that my poor attempt at sarcastic humor would only detract from the larger point. It was in no way meant to be the “key” element of my criticism and that it was mistaken as such is unfortunate.

    And for the record, since I somehow got criticized for it without ever suggesting it, I absolutely do not believe that there is some big conspiracy out there attempting to deceive the public.

    So anyway, that is my response to my response.

    Great debate! I enjoyed the report.

  8. paulm says:

    maintenance of existing Nuclear plants due to sky rocket now…

    Vermont Yankee Nuclear Plant Cuts Power After Leak
    http://www.huffingtonpost.com/2009/01/09/vermont-yankee-nuclear-pl_n_156502.html

  9. Mike Keller says:

    The Severance study is seriously flawed with respect to the capital cost component and appears to have been deliberately weighted towards worst case assumptions. While the error is significant (factor of 2 or 3) there is no doubt nuclear power is significantly more expensive than conventional coal or natural gas. Using more conventional “project financing” models yields something like the following for the actual sell price (includes profit) of power: conventional coal, ~ 6 cents/kwh; combined-cycle, ~7 cents/kwh; nuclear, ~10 cents/kwh. This does not include distribution & administrative costs/fees/taxes tacked on by the local utility and government.

    Alternative energy sources would not normally be compared with mainstream power plants because wind and solar are unpredictable and unreliable. However, when the “project financing” model was used, the price of the power was about 35 cents/kwh for a wind plant in the Midwest. Please note this is based on market clearing prices for power. This same model shows the typical “new” nuclear plant does not come even close to making a profit in the market place – neither do “alternative” sources. From a business standpoint, nuclear power is not a good investment and alternative energy is worse. The only way “alternative” energy makes sense is if it is bailed out by the government and that is an indisputable fact.

  10. Rod Adams says:

    I will advance a theory that may be construed as “conspiracy”, but is more properly understood as normal human behavior of working to protect market share, enhance existing wealth, and raise barriers to entry.

    There is little doubt that heavy metal fission is a fundamentally different source of heat from fossil fuel combustion. There is also little doubt that, by an accident of history, fission was introduced to a very limited number of people as a force with great potential for good only a couple of years before it demonstrated to a much larger group its extraordinary potential for causing massive damage.

    Both of those potentials are due to the 2 million plus factor in the energy density of fission compared to combustion. An energy source where a single plane could carry enough destructive force to destroy a large city scared the hell out of people whose power and wealth came from their ability to coordinate the effort needed to put hundreds of planes into the air at the same time and do it over and over again.

    For the first 15 years after its explosive introduction, the US government did everything in its power to put the atomic genie back into the bottle for everyone else in the world. Unfortunately for the “superpower” basic physics is a hard thing to monopolize for very long.

    Once Rickover and other demonstrated that fission could produce readily controlled heat, the competition was on against fossil fuel combustion. Unfortunately again, the US government attempted to keep control of the concepts or at least award control of the concepts to “the powers that be.” The only groups invited into the early days of fission power were large fossil fuel companies, chemical companies and major electric power utilities.

    Again, physics and thermodynamics proved to be difficult things to monopolize and fission began grabbing significant chunks of the fossil fuel market and looked poised to gain far more. As a “child of the 70s” I remember a time when people of a certain type in high school would talk about “doing something in nuclear” the way that those same types talked about “doing something in computers” a decade later. At one time there were more than 200 plants in operation or under construction in the US and nuclear annual electricity product was doubling every three years – and did that for 15 years straight.

    In such a situation it is the height of silliness to believe that the fossil fuel companies and their friends in banking, transportation, metals and government would watch that rapid growth of a competitor and DO NOTHING.

    If you do not believe that nuclear power has anything to do with the low fossil fuel energy prices that reigned from 1985-1999, please take a look at what happened this year when the balance between supply and demand shifted just slightly (less than 5% overall so far) to the point where supply exceeded demand. Of course, this year’s slide in prices came about from a drop in demand rather than an increase in supply, but the law works whichever side moves to cause the imbalance.

    Like Jack Spencer, I do not dispute the notion that Severance’s numbers are plausible and MAY come true for one or two plants. The Shoreham experience tells me that 25-30 cents per kilowatt hour could be considered very low on the potential range of costs per kilowatt hour. Since Shoreham cost about $6 billion and never generated any commercial kilowatts, despite being completed, the potential top of the cost per kilowatt is undefined since division by zero is an illegal operation in mathematics.

    What I do dispute is the notion that nuclear engineers, plant designers, operators, and business managers are stupid or simply out for enormous riches by sucking on the government teat. I also call on my fellow nukes to take Severance’s computations as a challenge that must be beat. We know a great deal more about nuclear plant construction and operational potential than we did 30 years ago. We must also recognize that there are always going to be people who do not like us very much BECAUSE we take their markets and drop the prices of their products when we succeed.

    Yes, Big Fossil has been involved in the nuclear industry in the past, but they have never been very good at it. I think there is a good reason why they did not try very hard to succeed and why they have spent a lot of money paying greenmail to organized groups that work very hard to slow the growth of nuclear power and to put as many threads as possible on the sleeping giant.

    BTW, I am a liberal, a registered Republican, an Obama voter, a career military officer who took a six year break to try his hand at being an entrepreneur, a blogger and a podcaster. My mother was a teacher and a union member, my father was an engineer who called himself a scab when he had to cross a picket line to keep the power flowing. In other words, please do not try to put me into any boxes.

  11. Bob Wallace says:

    I’d love to see the industry present their set of numbers. Detailed numbers which are adequately identified so that others might evaluate them.

    Perhaps Severance is very wrong. (Although if you back his 2019 numbers back to 2009 numbers they aren’t all that different from other recent estimates, including those of the nuclear industry.)

    But if he’s wrong, let’s see why and how much.

    Right now, based on Severance’s numbers it makes no sense to accept the extra danger created by nuclear power and delay our move away from coal for a decade or more. We’ve got cheaper, quicker on-line, and safer alternatives.

    (I don’t think any of the players you mention are stupid. But I fear that many are closed minded and are not adequately calculating the alternatives.)

  12. Craig Severance says:

    Craig Severance, author of the Study, responds:

    The discussion thread has been of very high quality, and seems now to be moving in the direction of finding solutions other than the large, massively expensive nuclear plants (Gen III+) that are the focus of my Study. I have been impressed with the intelligence and especially the civility of remarks, and hopefully we can all put our heads together to find solutions, as the climate crisis is not going away.

    However, I do need to respond to one last issue, raised by David Bradish in the string above, because his comments perfectly epitomize the nuclear industry’s “PR” approach to mask the actual cost/kWh from new nuclear plants.

    This PR device is essentially this – if the costs of the nuclear plant, divided by kWh generated by the nuclear plant itself are too high, don’t talk about this fact. Instead, talk about how you will spread the costs of the nuclear plant over kWh’s generated by a lot of other plants, to make it appear the costs are not really very high after all. In fact, if this still looks too expensive, start right now and spread the (future) nuclear plant’s costs over kWh’s generated by plants now operating, years ahead of when the nuclear plant will generates any kWh’s at all.

    This PR approach is epitomized by David Bradish remarks:

    “This” [my insistence on talking about cost/kWh from the new nuclear plant] “is way too simplistic and is not how it would work….This is largely explained by our simplifying assumption that capital expenditures are immediately placed into rate base and commence depreciation, essentially smoothing out the potential for rate shock, and reflecting regulators authorizing enough rate relief to maintain a 10% annual ROE.

    “This is because the electric companies building nukes will have a large enough cash flow from other power plants (such as today’s already paid off nukes) to help pay back the costs of construction without essentially raising rates after one time. Then once the new plant is paid off in 15-20 years, the additional cash flow for the remainder of the plant’s life goes towards other capital projects. It’s a circle and is how utilities finance plants.”

    David, I was not born yesterday and of course I know how electric utility rates smooth out and average the overall impact on retail electric rates when a new facility joins the grid. Essentially you and the nuclear industry seem to be arguing, don’t worry about the high costs of new nuclear power, we have a lot of low-cost power from other sources, so it won’t be so bad after all. I specifically addressed this in my remarks posted in Part 1 of this series:

    “Another mysterious “black box” presentation method is to fold the overall costs of the new facility into the general rate base of the utility, without ever mentioning what the generation costs per kWh of the nuclear unit will be. Instead, it is often only presented how total costs per kWh for all ratepayers will increase — which includes kWh’s generated by existing generation units. (For instance, if a nuclear unit is to supply 20% of the kWh’s for the utility when it comes on line, any cost increase per kWh appears to only be 1/5 as large because the additional costs are also spread over the 80% of kWh’s generated by other facilities, even though those other facilities did not cause the rate increase.) While it is important to know the impact on final overall retail electric rates, it is also important to know the generation costs per kWh from the nuclear facility. If this step is “skipped” in public presentations, the nuclear units (or any new generation power source that is more expensive than existing units) can appear far cheaper than their real impact.”

    I also addressed this in Footnote 62 on Page 28 of the Study:

    “The impact upon each utility’s retail rates will vary. While distribution & G&A costs would be added to the “generation only” cost, making it higher, the utility will also have other generation sources, presumably at a lower cost/kWh, resulting in lower cost/kWh overall for ratepayers than if all kWh’s were supplied by the nuclear plant. Nevertheless, all the costs of the new nuclear plant will need to be charged to ratepayers or the utility would risk bankruptcy.”

    Any new generation source, not just nuclear, will have its costs folded into the overall rate base. Any new generation power source will make a contribution to the overall health of the company, when it continues to operate after its capital costs have been paid off (in fact, renewable projects with zero fuel cost/kWh will excel at that).

    However, not every new generation source is so expensive it is necessary to start charging ratepayers billions of dollars in rate increases, in exchange for zero watts – Nuclear NoWatts – years ahead of the plant operating. This is like charging tenants rent for 10 years before you allow them to move in, then asking them to forget about all the rent they’ve already paid (for nothing), when you talk about the price of the apartment.

    Isn’t it the responsibility of the utility to try to find the option that will increase costs the least, instead of talking about how its not going to be so bad because they’ll spread it out?

    If new nuclear costs 30 cents/kWh, but a different overall approach could generate (or avoid the need to generate) those same kWh’s for 10 or 15 cents/kWh, which is better for ratepayers? Which approach will best lessen the chance of severe rate increases?

    That is the point. There really is no other.

  13. Red Craig says:

    Mr. Severance, the only electricity sources available in the 10 to 15-cent range are fossil fuels. None of the alternatives is cheaper than nuclear and none of them provide electricity full-time. This simple point has been proved in this series of dialogues numerous times.

    There is no way to lessen rate increases and avoid climate change. NASA’s Dr. Hansen argues that existing fossil plants will have to be bulldozed. Meanwhile, China is building new coal burners at an alarming rate.

  14. Bob Wallace says:

    Red – the current average price of wind produced electricity is $0.075 kWh.

    Best site, best technology is about $0.045.

    If we wanted we could build 3x as much wind as our baseload requirement and have power from wind alone.

    That’s measured output, not nameplate. We would have to build 8x -9x nameplate. Let’s call that approach a 22 cent solution.

    Bit obviously a mix of renewables including thermal solar with storage would be a cheaper route to reliable power. And it all would be both cheaper and quicker to install than nuclear.

  15. Rod Adams says:

    @Bob Wallace – You make a huge leap of faith between your stated cost for generation at a “best site” with “best technology” to talking about installing enough wind turbines to have a nameplate capacity that is 3x as much as our current baseload requirement. Those best sites can get filled up pretty fast.

    Your costs also include our current subsidies and production tax credits – which may be affordable now, when total non carbon renewables electricity production is about 7% in the US and less than 2% when large hydro is excluded. Those massive subsidies – amounting in some cases to more than $30 per MW-hr would bankrupt us all if they continued through a massive increase in those sources.

    Though it may be possible to install individual projects faster in the renewable world than in the nuclear world, the industrial base needed to build enough turbines, mirrors, steam systems, cooling systems, photovoltaic panels, and switchgrass harvesters to meet your vision would take decades to develop. Before you got where you want to go, you would be reaching the end of life for many of the turbines; they only last 20-30 years because they are massive, mechanically complex devices that must, by design, be fully exposed to weather, sunlight, dust, salt, etc.

    @Craig Severance – I am glad that you are willing to take a approach aimed at tackling the challenges rather than simply accepting things as they are. With a team effort, I believe that many of the cost issues associated with nuclear power can be mitigated without any affect on safety, reliability, or security. Many of the costs are simply wasted effort that add no value to the process.

    BTW – there are many new players in the field that are not regulated monopoly utilities so the entire discussion about rate base effects needs a bit more specificity. NRG, Exelon, Amarillo Power, Constellation, Dominion, Enexis, Hyperion, NuScale, and Unistar are all names of companies interested in owning, operating or developing new nuclear power plants that will probably not be rolled into PUC approved rate base with customers that have no choice of power suppliers. They have taken different approaches than the ones taken by the regulated utilities, so they have the potential for significantly different outcomes.

    Rod Adams
    Publisher, Atomic Insights
    Host and producer, The Atomic Show Podcast
    Founder, Adams Atomic Engines, Inc.

  16. Bob Wallace says:

    Sorry Rod.

    I used 3x build at $0.075 average price. And that is a conservative number as the average includes older technology, much which was installed at less than premium sites. It’s also pre-subsidy numbers.

    We haven’t even started to farm the best sites, places like the coast north of Point Mendocino and the Great Plains.

    And please don’t tell me that it takes decades to build wind and solar manufacturing capability. That’s just wrong. Yo have any idea how quickly new thin film manufacturing is coming online? China just opened a 1 gig per year plant. Took a very short time to get that puppy up and running.

  17. This argument doesn’t make sense to me:

    While it is important to know the impact on final overall retail electric rates, it is also important to know the generation costs per kWh from the nuclear facility. If this step is “skipped” in public presentations, the nuclear units (or any new generation power source that is more expensive than existing units) can appear far cheaper than their real impact.

    What do you mean their “real impact”? After the first and only rate increase, what other impacts are there on the ratepayers?

    Any new generation source, not just nuclear, will have its costs folded into the overall rate base.

    Didn’t you just accuse me of using this fact as a “PR” tool? Yet you’re agreeing with what I just said. And when did Moody’s (which is who I cited) become a PR group for the nuclear industry? NEI didn’t make the statement, Moody’s did! Don’t accuse me of using PR tactics here when I cite a non-industry source.

    Isn’t it the responsibility of the utility to try to find the option that will increase costs the least, instead of talking about how its not going to be so bad because they’ll spread it out?

    Did you not read the FPL study you cited? I believe it was page 12 or 13 in the Petition that said the two nukes they plan to build are “economically superior” to all the other options they looked at. I know the FPL documents are a lot to read (300+ pages) but it might be a good thing for you and the antis to read it all before you guys cherry-pick the numbers and conclusions.

    Essentially you and the nuclear industry seem to be arguing, don’t worry about the high costs of new nuclear power, we have a lot of low-cost power from other sources.

    No, we argue that we will have a lot of low-cost power from the new nuclear plant. That is essentially why utilities build nuclear plants, because the cost to operate them over the 40-60 year lifetime is cheap. But of course you guys don’t like to talk about this aspect because you focus only on the expensive part of a nuclear plant’s cost and blow it out of proportion. That’s the only way you guys can make an argument.

  18. In my sixth paragraph I meant to say: it might be a good thing for you and the antis to read it all before you guys cherry-pick the numbers and make up your own conclusions.

  19. Bob Wallace says:

    “because the cost to operate them over the 40-60 year lifetime is cheap. But of course you guys don’t like to talk about this aspect because you focus only on the expensive part of a nuclear plant’s cost and blow it out of proportion”

    To use a version of Joe’s argument…

    It would be cheap to own a house if Mommy and Daddy gave it to you and all you had to do was pay the property tax.

    But if you have to pay the mortgage….

  20. Bob Wallace says:

    Say Rod, I just got steered to a better price for wind. Source – US Department of Energy.

    Average wholesale cost of wind, years 2003 through 2006 = $0.03 per kWh.

    That would make power less than nine cents per kilowatt hour if we simply built a 100% wind grid.

    Page 13
    http://www.nrel.gov/docs/fy07osti/41435.pdf

    Of course building a 100% wind powered grid wouldn’t be the least expensive way to go. And new nuclear would have to compete with that even lower price.

  21. Red Craig says:

    This really stinks, Bob. These costs represent the subsidized cost, not the real cost. Here’s the pertinent statement in the paper you referenced (page 10):

    “The prices in this database reflect the price of electricity as sold by the project owner, and might typically be considered busbar energy prices.[12] These prices are reduced by the receipt of any available state and federal incentives (e.g., the PTC), and by the value that might be
    received through the separate sale of renewable energy certificates (RECs).[13] As a result, these prices do not represent wind energy generation
    costs, and generation costs cannot be derived by simply adding the PTC’s value to the prices reported here. “

  22. David Lewis says:

    Ontario uses nuclear stations to generate more than 50% of its electricity.

    An independent report estimating wholesale electricity costs in Ontario this quarter stated that electricity in Ontario costs, on average, peak/offpeak $49.47 per MWh. That’s .04947 Canadian cents per kwh.

    http://www.oeb.gov.on.ca/OEB/_Documents/EB-2004-0205/rpp-nci_wholesaleelectricypriceforecast_20081015.pdf

    The average price of retail electricity that will be paid in Ontario under the Regulated Price Plan for Nov 2008 to October 2009 is $0.06 kwh Canadian.

    http://www.oeb.gov.on.ca/OEB/_Documents/EB-2004-0205/rpp_price_report_20081015.pdf

  23. Mike Keller says:

    A word of caution on wind. Market prices for power are highly erratic and non-linear. The velocity of wind is also erratic, which causes the output of a wind plant to be really erratic. When these considerations are overlaid on one another, the revenue from a wind plant is pretty meager in most areas of the country. Bottom line is using simple averages for wind does not work. Less of a problem when predicting the revenue from more conventional power plants, however. Any type of new power plant remains a difficult business proposition in today’s environment.

    If nuclear power is to be viable from a business perspective, then the capital costs (and construction time frames) need to be significantly reduced. This suggests some form of more advanced type of nuclear plant than the earlier versions built in the 1970’s.

  24. Craig Severance says:

    Good discussion, guys, but I think you are all missing what I said:

    “If new nuclear costs 30 cents/kWh, but a different overall approach could generate (or avoid the need to generate) those same kWh’s for 10 or 15 cents/kWh, which is better for ratepayers? Which approach will best lessen the chance of severe rate increases?”

    I don’t think anyone picked up on the words “overall approach” or the words “(or avoid the need to generate)”.

    An overall approach STARTS with energy efficiency measures, which studies have consistently priced out (depending on the measure) from a negative cost, to an upper range of about 3 cents/kWH saved.

    Once you factor in truly serious energy efficiency measures, Red, I am sure you can get to the (rather high, if it is the overall approach I mention) range of perhaps 10 to 15 cents/kWh I mentioned purely as an example.

    Several commentators have asked for detailed studies of just HOW we can do this without nuclear — i.e. the full costs of a reliable electric grid moving forward if we use a mix of energy efficiency measures (DSM in utility jargon, for Demand Side Management), renewables, storage, and gas turbines. I fully agree, and unfortunately we have not seen enough in the public discussions at least, as to how this works.

    That is where we need to go from here (probably not on Joe’s strings, though, they are getting really long already), and as quickly as possible.

    Perhaps the new DOE could develop such studies and put them out there for all to see. Until we methodically put these options together with realistic numbere and a coordinated system approach, we will continue to just see the snippets of facts tossed back & forth. The nation deserves better, so we need to move as quickly as possible to sort out this new systems approach.

  25. David Lewis says:

    France generates 78% of its electricity with nuclear plants. The cost of wholesale electricity in France is 40 euros per MWhr, or $54 USD per MWhr, or $0.054 US cents per kwhr.

    http://business.timesonline.co.uk/tol/business/industry_sectors/utilities/article4888149.ece

    Here’s what a paper presented to the Australian Nuclear Forum stated re costs of new nuclear power:

    “The 1100MWe Westinghouse AP1000, for example, has a projected overnight capital cost of US$1200/kw, a construction time of 36 months, simplified licensing, a 60 year operating life, a capacity factor of 90% or more and generating costs of US 3.5 cents/kWh.”

    http://oznucforum.customer.netspace.net.au/TP2PMoore.pdf

    The stark difference between the paper you are discussing here and things like this leave me unable to know who to believe.

    The MIT study, The Future of Nuclear Power put things into a perspective that I do believe, i.e. :

    “Investments in commercial nuclear generating facilities will only be forthcoming if investors expect the cost of producing electricity using nuclear power will be lower than the risk adjusted costs associated with alternative electric generation technologies.”

    And so when I hear that there is increasing interest in building new nuclear facilities I find it difficult in the extreme to put any credence at all in someone who states the real cost is 25 – 30 cents a kwhr.

    No one will build them if that’s what they cost.

    The Economist recent Special Report on Energy quoted the Electric Power Research Institute and put new nuclear at 6.5 cents a kw/hr, less than coal which the Economist put at 5 cents without CCS, but cheaper than coal if a price is put on its carbon emissions. The MIT study is a bit dated, i.e. 2003, and it stated nuclear at 6.7 cents kw/hr with an overnight capital cost of $2000/kWe.

    [JR: Cost of existing power in France is irrelevant. Quote from an Australian pro-nuke group is hardly persuasive. Even Time mag put cost of new nukes at 15-20 cents/kWh, and Moody’s at over 15.]

  26. Bob Wallace says:

    Red – you’re right. That is the wholesale cost which is adjusted down for subsidies and up again for profits. It can’t be used as a cost of generation price.

    So let’s go back to industry figures which are averaging $-.075 and falling for new installations. To some extent that 7.5 cents is pulled up be early higher cost installations placed in less than optimal sites.

    All that considered, new nuclear has to both compete with seven cent wind and stay competitive for 3-4 decades with all introduced forms of power generation in order for investors to recoup their investment and delayed earnings.

    Every one who writes their calculations down and makes them public says it can’t.

    The only people who say it can do so based on nothing but their say-so. Which is a very thin soup.

    David – it is my understanding that the 25-30 cent figure is 2019 dollars based on an assumed 3% rate of annual inflation. If you back that number up to 2009 dollars you get 19-23 cents which is in line with other projections such as the ones Moe mentioned and in addition those of MIT, Keystone and the nuclear industry itself.

  27. Rod Adams says:

    @Bob Wallace – the following statement reveals the depth of your misunderstanding of markets and technology:

    “All that considered, new nuclear has to both compete with seven cent wind and stay competitive for 3-4 decades with all introduced forms of power generation in order for investors to recoup their investment and delayed earnings.”

    There are many places in the world where the current market price of delivered, on demand electricity is well in excess of 10 cents per kilowatt hour and a substantial number of places where it is in excess of 25 cents per kilowatt hour.

    The product that large wind farms with multi MW turbines – the ones that approach the cost numbers that you keep quoting – is substantially different from the product that I expect moderate sized nuclear power plants to produce. The power plants that I used to operate and the ones that I intend to eventually build and operate produce exactly as much power as the customer needs, when and where he or she needs it (within capacity limits, of course).

    That power source can be installed in buildings about the size of a fire house in places like Alaska, islands, and remote areas of Alberta. (They have been installed in places like Greenland, Antarctica, Arlington, VA and the northern reaches of Wyoming. They have been operated on board ships in harbors in places like downtown Fort Lauderdale, New York City, San Francisco, San Diego, and Norfolk.)

    Today, many of the target markets for our products install large diesel engines as their selected power source. The decision makers recognize that intermittently available electricity is about as valuable as windfall from a backyard orange tree.

  28. Rod Adams says:

    Additional note: Please do not take my brief comment as saying that nuclear can only compete in niche markets. The product that large nuclear power plants provide is also substantially different in value to the customer than the product from massive wind farms. It also has less external environmental cost, from my point of view. I tend to think of multi-megawatt wind turbines as an extraordinary industrial intrusion into open spaces that have more important uses.

  29. Bob Wallace says:

    “@Bob Wallace – the following statement reveals the depth of your misunderstanding of markets and technology:

    (From my post…)
    “All that considered, new nuclear has to both compete with seven cent wind and stay competitive for 3-4 decades with all introduced forms of power generation in order for investors to recoup their investment and delayed earnings.””

    You know Rod, I’m just too stupid to understand what is wrong with my statement.

    Here’s what I know about markets: Purchasers buy the least expensive option that fills their needs. In a non-constrained market, which we basically have.

    Here’s what I know about technology: At this moment in time tremendous material and intellectual resources are being spent in the pursuit of cheaper renewable power sources. Some new sources have passed the prototype phase and are being installed at a fairly large scale. Output prices are decent and expected to fall.

    Now please explain how you can produce new nuclear for a cost at or less per kWh as the other players in the field.

    Also show us how nuclear will be able to drop its price in order to stay competitive as the prices of alternate generation techniques drop.

    And please give us the sort of detailed numbers that Severance did.

    Otherwise I’m going to think you’re blowing smoke.

  30. Red Craig says:

    It seems as though this debate has deteriorated into just a contest to see who can keep going longest. People seeking solid information gave up looking here long ago.

    Different analyses can yield widely different cost estimates, depending on assumptions and depending on what costs are included. It’s no good to compare a study that only estimates nuclear costs with one that only estimates wind costs. Mr. Severance agrees with this. Every study done to date that compares them on equal terms shows that they are about the same, or at least the difference isn’t big enough to brag about. Two examples can be seen at Costs. Nothing has changed that would alter this conclusion. So the difference between wind and nuclear is that wind doesn’t work most of the time.

  31. David Lewis says:

    The McKinsey study, “The carbon productivity challenge: curbing climate change and sustaining economic growth” shows ‘nuclear new-build” as cost effective compared to “distributed solar PV”, and “solar CSP”, as well as coal with CCS.

    See the chart on Joe Romm’s Climate Progress post “Must read McKinsey report shatters myths on cost of curbing climate change” at http://climateprogress.org/2008/06/27/must-read-mckinsey-report-shatters-myths-on-costs-of-curbing-climate-change/

  32. Cyril R. says:

    So the difference between wind and nuclear is that wind doesn’t work most of the time.

    More importantly, in the US wind projects give higher ROI than nuclear projects, so much more private money is available for continued exponential growth. Lightwaterreactors have a negative learning curve whereas wind has a decently positive learning curve, so it’s unlikely that the difference will be reversed without some major breakthroughs. I think gen3+ is a nonstarter but gen4 is interesting, although I don’t know the learning curves, because it’s too early to tell.

    Decarolis and Keith suggest future wind providing half of US electricity will cost around 6 cents/kWh.

    http://www.ucalgary.ca/~keith/papers/72.Decarolis.2005.Threshold.e.pdf