Nuclear Energy Less Risky Than Natural Gas
- Aug 4, 2013 7:00 pm GMT
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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.
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.
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