January 15, 2007

Investment in generation is heavy, but important needs remain

Kennedy Maize

Nuclear: Changing pros and cons

Last year featured a lot of optimism about the prospects for a new generation of nuclear plants in the U.S. Yet no American utility has ordered a new reactor for 30 years, and every order since 1974 has been cancelled.

Why the optimism? The U.S. Nuclear Regulatory Commission (NRC) approved new, advanced reactor designs and streamlined its cumbersome two-step licensing process. Congress put substantial goodies into EPAct for the nuclear family of utilities and reactor vendors: production tax credits worth about $3 billion, insurance against regulatory delay, and loan guarantees.

Concerns about global warming also helped and have made even some environmentalists more sanguine about nuclear power (even if they're unhappy about the absence of a solution to the waste problem). Nuclear is the baseload generation technology that does not generate greenhouse gases. Anyone serious about global warming has to at least give nukes another look.

So why aren't new plants jumping off the shelf? Three years ago, MIT professors John Deutch and Ernest Moniz, both veterans of the Clinton administration (Deutch was also a highly ranked DOE official in the Carter administration), organized an interdisciplinary study of "The Future of Nuclear Power."

The Deutch-Moniz report said, "The nuclear option should be retained precisely because it is an important carbon-free source of power." But the report identified four major obstacles to a nuclear revival, at least in the U.S. Those are: "high relative costs; perceived adverse safety, environmental, and health effects; potential security risks stemming from proliferation; and unresolved challenges in long-term management of nuclear wastes."

All are daunting, but the cost issue seems to be uppermost in the minds of anyone in the private sector who's considering stepping onto the long regulatory path to building a nuclear plant. My prediction is that 2007 will not see any significant movement toward new nuclear plants, although there are rumors that both Constellation Energy and Dominion are contemplating filing combined construction and operating license (COL) applications at the NRC this year.

Financing challenges. Last summer, The New York Times' veteran energy reporter Matt Wald looked at nuclear plants as part of a series of stories examining the prospects for various energy technologies. He focused on two utility executives, both of whom run companies with nuclear plants.

One was Mayo Shattuck III, CEO of Baltimore-based Constellation Energy, an enthusiastic member of the NuStart Energy consortium. NuStart's members include nuclear utilities and the reactor vendors General Electric and Westinghouse. NuSTART is investing its own and taxpayer money (through the DOE) to test whether the NRC's new COL process will work.

Shattuck told Wald that his company hopes to apply for a COL by the end of 2007. At the time of the interview, Constellation was working with the French-German reactor vendor AREVA for a new European pressurized water reactor (PWR) design at the existing Calvert Cliffs two-unit plant in Maryland. But that was before Constellation's merger with FPL Group (another NuStart member) collapsed.

Now, NuStart says it does not expect to apply for a COL, which would be for the GE or Westinghouse advanced reactors, until 2008. My sources tell me that NuStart and the DOE are wrangling about additional government funding, with the consortium saying it needs $120 million, versus the $80 million approved by the government.

Then Wald talked to William P. Hecht, CEO of PPL Corp. in Allentown, Pa., which owns two operating nuclear units. Hecht doesn't think the business case for a new nuke can be made today. In fact, he said he wouldn't build any big plant without the assurance of a power-purchase agreement that could be taken to project financiers. "I'm not going to build any large generation unhedged," Hecht said. "If you build 1,000 megawatts, how are you going to find someone to buy it 10 years after it is finished?"

We're talking big money here. Most estimates of the capital cost of a new, 1,000-MW nuke run from $2 billion to $4 billion. On top of that, the NRC-approved GE and Westinghouse advanced reactors have not yet been built, so a construction project could face significant risks. According to MIT's Ernie Moniz, "There is no question that the up-front costs associated with making nuclear power competitive are higher than those associated with fossil fuels." Dan Reicher—a former DOE assistant secretary for energy efficiency and renewables in the Clinton administration, a lawyer for the Natural Resources Defense Council, and now president of New Energy Capital—said, "There is some interest [in nuclear power] on Wall Street, but I would not consider it deep and broad."

Waste, security still concerns. Another issue that clouds the future of U.S. nuclear power is spent fuel. Specifically, Yucca Mountain in Nevada seems to many observers no closer to actually storing waste from commercial reactors than it was when Congress passed the 1982 Energy Policy Act.

Today, after years of delay and nasty political wrangling, the DOE says the earliest it can expect to open Yucca Mountain is 2017. It has yet to file an application for a license to the NRC. Many in the industry believe 2017 is wildly optimistic, particularly now that Sen. Harry Reid (D-Nev.), a dedicated opponent of the project, is the Senate majority leader. An official at Entergy told me, "We aren't counting on Yucca to ever open, so we are planning for on-site storage at all our reactors."

Another bugaboo is plant security, an issue that wasn't even on the radar prior to 9/11. There's no doubt that nuclear power plants are among the most secure, most robust industrial facilities that could be a target of a terrorist attack. But anti-nuke groups have been assailing the NRC on the issue, and the agency has taken note. In early November, the NRC told its staff to study whether the new reactor designs, including the three it has already approved—the GE advanced boiling water reactor, the Westinghouse AP-1000 and AP-600 PWRs, and the AREVA design—are vulnerable to attack by a terrorist crashing a jetliner into them. Some industry experts believe the AREVA plant is less vulnerable to attack than the U.S. designs.

This issue has divided the NRC. Commissioner Gregory Jacko, regarded as less sympathetic to the nuclear industry than the other commissioners, has been pushing for NRC action that would order reactor vendors to design new plants to withstand an airplane attack before the NRC allows concrete to be poured. The other four commissioners don't agree, so the commission has ordered a staff study.

Nuclear politics. What happens in Washington doesn't stay in Washington, and that's particularly true for nuclear power. The November 2006 elections could hardly have been more unfavorable for the nuclear industry's lobbying efforts. The Nuclear Energy Institute (NEI), the industrywide lobby, made a big bet that Karl Rove's plan for a "permanent Republican majority" would work. At the behest of then-Senate Energy and Natural Resources Committee Chairman Pete Domenici (R-N.M.), the NEI hired retired Admiral Skip Bowman, a Republican, to head the institute and Alex Flint, a former Domenici staffer, as head lobbyist.

In the 110th Congress, both the House and Senate will be run by Democrats. Domenici will be in the minority. In the House, Rep. John Dingell, a frequent political thorn in the side of the nuclear industry, will chair the House Energy and Commerce Committee, where he ran the show from the early 1980s to 1994. During that time, he forced the Tennessee Valley Authority to shut down its entire nuclear fleet for years. Rep. Edward Markey (D-Mass.), the nuclear industry's worst political nightmare, likely will chair a committee that will subject the NRC, the DOE, and the nuclear industry to oversight scrutiny they haven't seen in a dozen years.

Washington energy consultant Roger Gale, a former DOE official in the Reagan and first Bush administrations, surveys electric utility officials yearly for their views of the future. He says those who responded to his latest survey (more than 100) predicted that a new nuke will be ordered soon, but they don't expect "a future where nuclear generation represents a larger share of generation."