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Nuclear Energy Less Risky Than Natural Gas

Mark Halper recently published a piece on SmartPlanet.com titled Nuclear power cheaper than gas. He cited an article from InvestorIntel.com written by Canon Bryan titled Nuclear versus Natural Gas. That article was based on a report from a private consultancy named Energy Path Corporation. The Energy Path report is titled “Will Low Natural Gas Prices Eliminate the Nuclear Option in the US?”

People who get most of their electricity-related economic analysis from the current executives at companies like Exelon, EDF, Dominion, Duke Energy, or SCE would be shocked to learn that nuclear power plants produce electricity for approximately the same long term cost as natural gas fired combined cycle gas turbine power plants. On a fair comparison basis, the above observers reported that the natural gas option creates “significantly higher long-term investment risk”.

For me, the conclusion is nothing new; on a 60-year, levelized cost of power generation basis, my models show that nuclear power plants often produce cheaper electricity than natural gas depending on small variations in the input assumptions. That’s true even if there is cost assigned to the greenhouse gas emissions that are an inherent feature of burning methane gas (CH4). Nuclear plants produce electricity with smaller financial variations because fuel costs are low and rarely change.

One of the major reasons that nuclear plants are not flying off of the shelves is that rate-regulated utilities do not pay the cost of buying fuel. They have convinced public service commissions that establish their rates that they have no control over variable fuel costs; as a result, the money that they pay for fuel is considered to be a direct “pass through” to customers.

Power Price

Power producer gas prices

About every six months the average fuel cost per unit of power delivered gets calculated. In most regulated states, the public service commission — or equivalent agency — automatically adjusts rates up or down depending on the market conditions.

This situation protects rate-regulated utilities from a serious financial risk and may be considered to be a good thing because it helps utilities to ensure that they can meet their obligation to provide reliable power. Unfortunately, the fuel cost adjustment policy removes the biggest cost advantage that nuclear energy has in the power plant technology decision process. Since greenhouse gases and other, more dangerous, pollutants can be dumped into the atmosphere at little or not cost under current rules, there are few financial reasons for utility companies to prefer nuclear energy.

If a regulated utility is run by financial specialists who do not embrace the inherent responsibilities of running a service business with an obligation to provide the best possible product at the lowest possible price to their customers, the company will ALWAYS take the easy route. They will build a simple, lightly-regulated power plant that burns natural gas (methane) because it can be built cheaply and on schedule. They do not worry about the unpredictable behavior of natural gas prices because THEY DON’T HAVE TO PAY FOR THE GAS.

Building new nuclear plants is not easy. That is especially true in a country that has virtually forgotten how to do it. It is made even more difficult because there are plenty of well funded and carefully organized opponents that would prefer for utilities to buy gas (perhaps because they SELL gas), purchase wind turbines (perhaps because they SELL wind turbines), subsidize solar panels (perhaps because they install solar panels), or invest in “smart grid” technology (perhaps because they see the potential for revenue increases from the sales of the necessary equipment).

Fortunately, there are a few rate-regulated utilities that are run by devoted engineers or service-oriented leaders. They are not dominated by financial specialists who cannot see past their green eyeshades. Those companies (Southern Company, TVA, and SCANA) have accepted the responsibility of providing the best possible service to their customers over the long term.

Each one of them have done the math and run the models, including the cost of fuel, even if they are legally allowed to pass that cost on to their customers. Their analysis has been thoroughly reviewed by regulatory authorities. The companies and their regulators have concluded that their investment will protect customers from the risk of rapidly rising monthly bills during the 60 (or longer) life of the power plants.

With the support of equally far-sighted elected leaders in their state governments, they are building new nuclear plants. They are doing us all a great service by helping recover the necessary skills in project management, welding, construction, engineering, licensing, electrical wiring, and mechanical equipment.

Nuclear electricity plant construction projects are not cheap or easy, but leaders often accomplish tasks that others are not willing to tackle. After all, if building nuclear energy infrastructure was a little easier, perhaps more companies would be doing it. That would not please the coal, natural gas and oil interests that have such a tight grip on our global economy and on the political process. The analysts that I heard on a recent ExxonMobil earnings call would almost certainly be asking even harder questions about the value of the company’s investments in domestic natural gas production.

The post Nuclear less risky than natural gas – for customers appeared first on Atomic Insights.

Discussions

Robert Bernal's picture
Robert Bernal on Aug 4, 2013 7:06 pm GMT

Invoke fear. Kill it. Pass more enviro regs. Anything to keep cheap, clean and (almost) unlimited power out of the hands of the masses.

We have the tech, just not the plotical will. Instead we have been polarized on these (and a million other) issues to divide the masses so that it is now impossible to achieve clean energy. Thousands of GW’s of MSR (or meltdown proof similar) should have already been built in a “free society”. If there was to be any REAL dangers, then we could have already built thousands of GW’s of the next best thing (with no radiation fears even)… Concentrated Solar thermal Power.

Michael Berndtson's picture
Michael Berndtson on Aug 5, 2013 5:17 pm GMT

I’m confused. Duke is shutting down construction of a nuke plant in Florida due to cost. Florida rate payers fronted upfront costs so Duke and E&C contractors will get paid. How is nuclear power not getting molycuddled throughout development and now delivery? Here’s the article from Bloomberg Businessweek 8/5/13: 

http://www.businessweek.com/articles/2013-08-05/duke-kills-florida-nuclear-project-keeps-customers-money#r=hpt-ls

The company said Thursday that it will halt construction on two reactors planned for Levy County, north of Tampa, after their estimated date of completion had stretched into 2024 at a projected cost of some $24 billion. Duke inherited the project as part of its purchase of Progress Energy last year, which made it the nation’s largest power utility. Duke’s decision also calls into question whether another large utility in the state,Florida Power and Light (NEE), will proceed with two new reactors it plans near Homestead, south of Miami.

“Consumers should rejoice that the fleecing will end by one of the companies in this long and unfortunate chapter in Florida energy history, where utilities have conspired with legislators and the Public Service Commission to take advantage of Florida consumers,” said Stephen Smith, executive director of Southern Alliance for Clean Energy, an organization that has criticized plans for nuclear power plants in several states. The group held a conference call Friday to discuss the project’s end. “The bad news about all of this is clearly that consumers have paid literally billions of dollars for a facility that they are going to get no value from.”

The primary reason for those huge sums? Lawmakers in at least three states have allowed utilities to recoup their engineering and planning costs from customers years before any construction begins on new plants. Florida legislators passed the first such law in 2006, followed by Georgia and South Carolina. A lawsuit over the Florida measure went to the state Supreme Court, which ruled it constitutional. Multiple efforts to repeal the law have failed.

 

 

Michael Keller's picture
Michael Keller on Aug 5, 2013 9:01 pm GMT

The reason that US utilities are not flocking to build nuclear is that the plant’s cost too much to build, making them unable to compete with natural gas. Not that hard to figure out.

Nor are the natural gas and coal “evil empires” conspiring to do in nuclear power. To the extent “economics” can conspire, then I suppose economics is the bad guy.

In the US, nuclear power is a dated and obsolete technology that must move well beyond its current form or go the way of the horse and carriage. Other parts of the world with no cheap energy supplies of their own face a completely different situation.

Robert Bernal's picture
Robert Bernal on Aug 5, 2013 9:26 pm GMT

Speaking of excess regulations causing excess CO2!

I know its not really a conspiracy, unless the politics of fear (excess regulations, fines, permits, etc) could be construed as such. Thus the actual physical costs of converting a fuel with a million times the density of coal should be about the same as burning coal. Meaning that the higher technology required to split the atom safely, should be somewhat balanced by the much cheaper costs of nuclear fuel per unit of power. Add in the regulations and the costs go up how many times?

“It is dated” is appropiately applied to burning dead plants and animals, as well. I believe we all should learn the basics of how to move nuclear past its inherently dangerous, water cooled, solid fuel, dinosaur self. Modularize molten fuels reactors (and fastrack the research and development). Energy education needs to become realized as another important part of being a responsible person (just as with voting).

Joey Ortiz's picture
Joey Ortiz on Aug 6, 2013 7:16 am GMT

Take for example Votgle 3 & 4, 2500 Megawatt combined capacity, 95% capacity factor, 10 cents per kilowatt-hour sales, 60-year generating life, 14 billion dollars.

 

60 years * .95 * 2500 MW = oh my god…1074 megatons TNT!!! (1.25*10^12 kwh)
10 cents per kilowatt hour….yes 125 billion dollars!!! woo hoo!!

Seems like the 14 billion was pretty insignificant given the incredible output.

Oh wait, there are other costs associated with regulation, some not. Why do they need 1000 additional highly-skilled workers to run these reactors? Whats with all the ad-hoc expensive upgrades? And why is nobody appreciative of the low carbon power (where’s the carbon tax??)? What costs are associated with the 40% of the public that is terrified by the utterance of the word “nuclear”?

 

George Stevens's picture
George Stevens on Aug 6, 2013 2:49 pm GMT

“Energy education needs to become realized as another important part of being a responsible person (just as with voting)”

Absolutely agree. The general public is completely clueless as things stand, and poor energy policy decisions are a common result.

George Stevens's picture
George Stevens on Aug 6, 2013 3:00 pm GMT

If the high cost of building the plant is less than the value of long-term natural gas volatility hedging, then you have a case for nuclear energy and a reason to collect capital from rate-payers.

As for why Duke does not have to return the funds now that they have chosen not to construct the plant, I am not sure. I doubt this much money was spent just for the early planning stages, so it seems completely unfair that it can be pocketed.

That whole mess reflects badly upon the utility involved but its not an indictment of nuclear energy as a viable long-term investment. Natural gas will increase in price with time and nuclear will become increasingly more appealing. We are just at the low point of the nuke viability now with natural gas at an all-time low. And as Rod pointed out above, the cost of the fuel for coal and gas plants falls entirely on the consumer, so the utility doesn’t have as much incentive to hedge against volatility as the consumer does.

William Hughes-Games's picture
William Hughes-Games on Aug 9, 2013 5:27 am GMT

Since the nuclear industry hasn’t yet worked out what to do with spent fuel rods not to mention the radioactive machinery that has to be disposed of at the end of the life of a nuclear power reactor, I assume that this cost has not been included in the costing of nuclear power.  In addition, despite the rarity of Fukushimas, they do happen and I assume a proportional cost for these eventualities has not been included.  If I was to see that fuel rods were successfully handled and decomissioning as well and if these costs were included when costing nuclear power, I would be more convinced that Nuclear is a good idea.

Marcus Pun's picture
Marcus Pun on Sep 2, 2013 9:53 pm GMT

You forgot the cost to the taxpayers of the Price-Anderson Nuclear Industries Indemnity Act.

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