T F Nuclear Power as “Federal A Infrastructure” R D Nuclear Energy in an Unstable, Carbon Constrained World Peter Bradford Peter Bradford March 18, 2008
Don’t Call It a Renaissance Until They’ve Sh Shown You a Masterpiece Y M t i T F A R D
Possible Patterns of Future Nuclear P Power Development in the U.S. D l i h U S T • As an antidote to climate change As an antidote to climate change F • Holding its present 20% share A • Whatever “the market” decides Wh t “th k t” d id R D
Antidote to Climate Change I Antidote to Climate Change I T • U S share of a Pacala/Socolow wedge U.S. share of a Pacala/Socolow wedge F would be about 300GW by 2054. A – All existing plants replaced All existing plants replaced R – 300GW at 1.2GW per plant = 250 plants D – 250 plants at $5 billion apiece (2008 dollars) = 250 plants at $5 billion apiece (2008 dollars) = $1.25 trillion (U.S. trillion) – Plus enrichment and waste repositories. Plus enrichment and waste repositories
Antidote to Climate Change II Antidote to Climate Change II T • What would it take to make this happen? What would it take to make this happen? F – A sense that there was no realistic alternative, A preferably endorsed (or at least acquiesced preferably endorsed (or at least acquiesced R in) by some prominent environmentalists; – Putting costs in the federal budget so that Putting costs in the federal budget so that D customers don’t pay them directly; – Charging costs to customers before plants are g g p built in order to reduce the cost of capital by shifting risks off of investors.
Antidote to Climate Change III Antidote to Climate Change III T • Might the U.S. spend that much on nuclear Might the U.S. spend that much on nuclear F power (or set out to) even if better alternatives A were available? • To demonstrate this possibility, Henry asked to R review the history of U.S. experience with D irrigation and energy dam projects. – Conclusion of that review: Not only is the U.S. capable of irrational public infrastructure projects on a capable of irrational public infrastructure projects on a large scale, but they have lasting consequences.
Preconditions for Irrational Federal I f Infrastructure Exuberance E b T • Powerful federal agency on a mission Powerful federal agency on a mission F – Bureau of Reclamation/Department of Energy A • Strong congressional sponsorship; Strong congressional sponsorship; R • Sense of urgent national need; • Sense of strong job creation; Sense of strong job creation; D • Local support; • Willingness to override clear evidence of more • Willingness to override clear evidence of more efficient and less damaging alternatives
Reasons to underwrite nuclear, as told Reasons to underwrite nuclear, as told T • To Wall Street and NRC • To Congress To Congress F – Mature technology; – Unproven designs; A – Mature licensing – Untested licensing g process; process; R – Enhanced public – Vampire intervenors; D acceptance; acceptance; – Costs unforeseeable; C t f bl – Costs under control; – Alternatives – Alternatives inadequate but might inadequate but might inadequate temporarily get ruinously cheaper.
Antidote to Climate Change IV – “P li “Policy Enhanced Investing” E h d I i ” T • Engage the taxpayer and customer as an ally and g g p y y F investor in the future of nuclear industry. • Redirect discussions of nuclear subsidies or A uncompetitive new generation to more favorable topics uncompetitive new generation to more favorable topics R such as the low operating costs of existing power plants. D • Shift as many technical, financial, procedural, and Shift t h i l fi i l d l d environmental risks as possible onto external parties. • Distribute as little of the return to risk-sharing partners g p as possible. (Dan Kammen – Earthtrack)
Holding the 20% share I (Paul Joskow MIT) Holding the 20% share I (Paul Joskow, MIT) T F A R D
Holding the 20% share II Holding the 20% share II T • What would it take? What would it take? F – At 1.5% growth, about 200GW by 2054 A – 200GW at 1.2GW per plant = 166 plants 200GW at 1 2GW per plant = 166 plants R – 166 plants at $5 billion apiece = $830 billion D – Plus enrichment and waste repository(ies) Plus enrichment and waste repository(ies)
Recent Federal Nuclear Support Recent Federal Nuclear Support T • 1.8 cent/kwh production tax credit 1.8 cent/kwh production tax credit F • Accident liability limit renewal A • Delay insurance ( 7 8¢/kWh for 1 st tier) • Delay insurance (.7-.8¢/kWh for 1 st tier) R • All this plus licensing cost sharing and the evisceration of public involvement; evisceration of public involvement; D • Funding for GNEP; – $750 million over last 6 years, $300 million $750 million over last 6 years $300 million more requested in next fiscal year • $18.5 billion for loan guarantees. • $18 5 billion for loan guarantees
Loan guarantees distort credit markets g (Weidenbaum et al) T • Federal credit programs merely shift funds from one borrower to another. They do not increase the funds available to the economy. another They do not increase the funds available to the economy F • Who gets squeezed out? New and small businesses, school districts and smaller local governments and individuals, private A mortgage borrowers not under the federal umbrella. The unsubsidized borrowers wind up paying higher interest rates. b idi d b i d i hi h i t t t R • Federal credit programs put the government in the position of holding assets of questionable quality or limited use, making it difficult to recover the original value of the loans in the case of g D default, and complicating the process of liquidating the agency. • Loan guarantees undermine a basic function of credit markets, i.e. distinguishing credit risks and assigning appropriate risk premiums; • • In stressed credit environment guarantees could exacerbate In stressed credit environment guarantees could exacerbate weakening of dollar and inflationary concerns
Loan guarantees distort power markets k T • To investors nuclear power will be less risky and p y F will promise higher returns (because the equity owners will need to put up less capital). A • To regulators and to market operators nuclear To regulators and to market operators, nuclear power will seem less expensive because risks R have been shifted to taxpayers D • Loan guarantees hide the true cost from L t hid th t t f consumers and thereby encourage wasteful consumption practices p p • Thus both public and private investment will be disproportionately shifted toward nuclear power
“Nuclear can’t be taken away from the table” table T F A R D
The Loan Guarantee Cost Overrun The Loan Guarantee Cost Overrun T • In 2005, Congress believed that the EPAct g F support package (including $4 billion for loan guarantees) would be enough to allow a few A “first mover” nuclear units to demonstrate the new designs and the new licensing process R • Now, Congress is told that unless the industry D gets far more, the nuclear renaissance will be gets far more the "nuclear renaissance" will be stillborn because "there is not going to be any financing." The Hill, May 24, 2007 – This jump in two years from $4 billion to $50 billion or Thi j i t f $4 billi t $50 billi more is the greatest nuclear cost escalation in history, and no one has even broken ground yet.
Are the Default Risks Real? Are the Default Risks Real? T • In the 1990s, nuclear power was the largest beneficiary p g y F of a rescue that Moody’s estimated at “between $50 billion and $300 billion” and necessary to avoid A bankruptcy for several major utilities. p y j – These were the “stranded cost” surcharges that accompanied R electric restructuring and charged the unrecoverable costs of nuclear power to the customers D – Loan guarantees would charge the next rescue to the taxpayers instead of the customers, and would do so before the fact. – At $50 billion, the stranded cost rescue would have amounted to $500 million per plant, so a one time loan guarantee fee would $500 million per plant so a one time loan guarantee fee would have had to exceed 15% (assuming debt of $3 billion/plant) to be revenue neutral. • Exelon recently proposed “7 to 8 percent”. y p p p
Are the Default Risks Real? Are the Default Risks Real? T • Fifty-one nuclear plants have shut down for a Fifty one nuclear plants have shut down for a F year or longer; A • As many U.S. plants were canceled as y p completed, some after billions spent; R – Much maligned “old” NRC licensing process licensed D more plants (200+) than next four countries combined. No rejections. • Some cost overruns bankrupted N-plant builders • Some cost overruns bankrupted N plant builders in the 1970’s/1980’s; several others nearly did so. so.
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