[FoRK] why the nuclear energy industry is dying

Eugen Leitl eugen at leitl.org
Tue Jun 18 07:19:40 PDT 2013


(this analysis dwells only in economical aspects, not EROEI 
total lifecycle or issues of massive scaling up of capacity 
under energy hunger conditions and hence not subject of ROI 
considerations as we know them -- still, economics dominates
decisions today, including long-term R&D investment and 
ability to scale up deployment on short notice, negatively 
so)

http://qz.com/94817/the-real-reason-to-fight-nuclear-power-has-nothing-to-do-with-health-risks/?oref=dbamerica

The real reason to fight nuclear power has nothing to do with health risks

By Chris Nelder	 June 17, 2013

Chris Nelder is an energy analyst, consultant and speaker who has written
about energy and investing for more than a decade.
 
The economic case for building nuclear power plants is weak. AP
Photo/Valentina Petrova
 
Nuclear proponents are launching a full-court press for fresh investment in
the technology. The release of the new film Pandora’s Promise, another
editorial from ardent nuclear champions Michael Shellenberger and Ted
Nordhaus of the Breakthrough Institute, and Paul Blustein’s recent piece in
Quartz, “Everything you thought you knew about the risks of nuclear energy is
wrong,” are part of an effort to put a new shine on a technology that once
offered, but failed to deliver, electricity “too cheap to meter.”

All of these actors are purportedly motivated to support nuclear power on
climate grounds, emphasizing the technology’s extraordinarily small physical
footprint, its ability to generate massive amounts of electricity, and its
lack of carbon emissions (after the plants are built). And they are probably
right that the risks of radiation have been historically overblown as “junk
science” wormed its way into popular culture. But the anti-nuclear crowd (and
I, too, used to count myself among them) is probably right for the wrong
reasons.

Missing from the entire debate about nuclear is the most important fact of
all: Nuclear is dying due to poor economics, and the debate is already over
as far as the market is concerned.

Shellenberger and Nordhaus have backed up their arguments with junk
accounting on nuclear energy’s costs. This is where the discussion must
depart from mere boosterism and descend into the deep, dark world of energy
economics—a subject that Blustein did not even address.

The generally accepted way to compare the cost of various power generation
technologies is a levelized cost of energy (LCOE) analysis. There are valid
questions about this approach, which serious energy analysts continue to
wrangle over. But for mere mortals and policy advocates, LCOE will have to
do. There isn’t a better alternative.

As the Energy Information Administration (EIA) explained in the LCOE analysis
section of the Annual Energy Outlook 2013:

[LCOE] represents the per-kilowatthour cost (in real dollars) of building and
operating a generating plant over an assumed financial life and duty cycle.
Key inputs to calculating levelized costs include overnight capital costs,
fuel costs, fixed and variable operations and maintenance (O&M) costs,
financing costs, and an assumed utilization rate for each plant type. The
importance of the factors varies among the technologies. For technologies
such as solar and wind generation that have no fuel costs and relatively
small O&M costs, the levelized cost changes in rough proportion to the
estimated overnight capital cost of generation capacity. For technologies
with significant fuel cost, both fuel cost and overnight cost estimates
significantly affect the levelized cost. The availability of various
incentives, including state or federal tax credits, can also impact the
calculation of levelized cost. …As with any projection, there is uncertainty
about all of these factors and their values can vary regionally and across
time as technologies evolve and fuel prices change.

Anyone who really wants to understand the costs of power generation should
read that report, as it explains the many factors, assumptions and
uncertainties that a good LCOE analysis entails.

In the EIA’s analysis, which leaves out all incentives, the average cost of
“advanced nuclear” or “next-generation nuclear” plants entering service in
2018—long lead times associated with these technologies will make it
difficult to open any early—would be $108.40 per megawatt-hour (MWh),
equivalent to $0.1084 per kilowatt-hour (kWh), in 2011 dollars. This seems in
the right ballpark, as the estimated cost of power from the new nuclear plant
under construction in the Kaliningrad region of Russia is around $0.10/kWh, a
German lawmaker said in April.

For reference, the 2012 average retail price of electricity in the US was
$0.1153/kWh. So the cost of new advanced nuclear power would be just barely
below the retail price of electricity—power sold to you and me at home.
(Commercial, industrial, and transportation customers all buy power for less
than the LCOE cost for advanced nuclear power.)

In other words, it would be very difficult for a utility to make money
selling power generated by advanced nuclear plants, if they had to shoulder
the entire cost themselves. But they don’t.

Not included in the LCOE analysis is the cost of decommissioning nuclear
plants, which is often externalized and pushed onto ratepayers through
surcharges on their utility bills, or the cost of managing nuclear waste for
decades, which is generally pushed onto taxpayers through the Department of
Energy budget. And these are not trivial costs: Edison International
estimates that decommissioning its San Onofre Nuclear Generating Station near
San Diego, which it permanently retired last week, will cost around $3
billion. So the LCOE analysis actually understates the true, all-in cost of
nuclear power.

But the complexity doesn’t end there. As EIA explains, the true cost of power
generation can vary substantially based on a number of other factors specific
to where the plant is located, including the utilization rate (which depends
on the demand character and the existing resource mix where the plant is
located), the existing mix of resources in the area, the capacity value (how
much of the time the plant will run) on the local grid, and the portfolio
diversification needs (the specific mix of generation technologies) of the
local utility.

Recognizing these factors, EIA suggests a minimum cost for advanced nuclear
of $104.40, an average of $108.40, and a maximum of $115.30/MWh.

Solar photovoltaics (PV) in 2018 would range from a minimum of $112.50, to an
average of $144.30, to a maximum of $224.40/MWh.

Wind energy would range from a minimum of $73.50, to an average of $86.60, to
a maximum of $99.80/MWh.

The Breakthrough Institute points to this same EIA analysis as proof that
“solar costs substantially more than new nuclear construction,” which is
correct if one only looks at the average prices. But it’s more complicated
than that.

The EIA has historically overestimated the cost of renewables, and
underestimated the cost of conventional fuels. The new 50-MW Macho Springs
solar plant under construction by First Solar in New Mexico is will deliver
power for $50.79/MWh under its Power Purchase Agreement (PPA), and other US
solar projects have come in this year in the range of $70 to $90/MWh.

By those recent numbers, the cost of US solar PV is already as little as half
that of advanced nuclear generation in 2018. Further, we should bear in mind
that the cost of solar and wind is still falling, while the cost of nuclear
keeps rising.

Comparing the cost of one power generation source to another can get much
more complex still, including the crucial matter of commodity and
construction costs between now and 2018—a subject fraught with uncertainty
all on its own—and future policy decisions.

The BTI’s duff maths

The Breakthrough Institute elects to ignore all of this real-world complexity
and offer its own extremely distorted way of comparing power generation
costs.

In its most recent analysis, “Cost of German Solar Is Four Times Finnish
Nuclear”, BTI compares the retail cost of German solar, which includes
significant feed-in tariff incentives, to the capital cost of building a new
nuclear plant in Finland, as estimated by its developer, plus the EIA’s
estimate for the fixed and variable costs of nuclear power. There are
numerous glaring problems with this approach, but I’ll name just the obvious
ones.

It adds up the cost of all installed German solar PV from 2000-2011, a period
in which the price of solar fell dramatically, and a fact that Shellenberger
and Nordhaus even recognized. Thus it is weighted to the much higher costs of
the past decade, rather than current costs, let alone the cost of PV in 2016
when the Finnish nuclear plant isexpected to enter service. An analysis based
on the actual, unsubsidized cost of German solar PV in 2016 would find that
it is below the cost of new nuclear power, not four times as expensive. Even
the subsidized cost would be lower. As Craig Morris pointed out last week in
Renewables International, the lowest solar PV feed-in tariff ($0.13/kWh) on
Germany’s sliding scale is already below the cost of EDF’s proposed new
nuclear plant in the UK ($0.15/kWh), and one year from now, Germany’s highest
solar feed-in tariff will be too, at $0.13/kWh.

It’s based on the post-incentive cost of German solar, not the cost of the
technology. At $0.1125/kWh in the EIA’s LCOE analysis, the minimum cost of
solar (which is well above recent US solar PPA contracts), without
incentives, is below the anticipated cost of EDF’s nuclear plant in the UK.

It uses the developer’s latest cost estimate for Finland’s Olkiluoto 3
reactor, which Shellenberger and Nordhaus note is seven years behind schedule
and nearly three times over its initial budget. Developer cost estimates
should always be viewed with skepticism; an analysis by the Congressional
Budget Office, cited in a 2009 analysis by the Union of Concerned Scientists,
found that utility estimates for nuclear plant costs are usually around
one-half the estimates of independent analysts and Wall Street. In my
experience, the estimates of the latter group are usually close to the mark.
Until the final costs are known, the estimates BTI cites for nuclear plants
under construction in France and China are no more credible.

The PPA costs cited above for current PV installations in Germany and the US
are rock-solid, contractually guaranteed prices, with no externalities. BTI
is citing squishy estimates for the “overnight capital cost” (without
factoring in interest rates) for a nuclear plant that won’t even be completed
until 2016. Which set of estimates would you consider more credible?

Over the years I have spent many, many hours reviewing the cost estimates for
new nuclear plants. Every time I’ve gone down that rabbit hole I have reached
a point where I threw up my hands and quit because the data quality is so
poor. Since no nuclear plants have been built on schedule in recent years,
there are no reliable real-world cost data to establish a baseline. When you
explore the various components of an estimate, you quickly find yourself in a
regression of footnotes to previous papers which lead you back to estimates
made a decade or more ago, before the cost of all commodities exploded in the
second half of the 2000s.

In short: Cost estimates for new nuclear plants are not credible. I have yet
to find a single one that stood up to close scrutiny. And as far as I am
aware, no nuclear plant has ever been built for close to its original cost
estimate.

With numerous, highly transparent LCOE analyses available from EIA, NREL, and
other agencies, why does the BTI ignore them in favor of their own, partial
analysis, based on a developer’s cost estimate?

They appear to have begun with the predetermination that nuclear power is the
only solution to everything, and then rounded up a highly selective,
distorted, and outright wrong pile of evidence to make their case.

Nuclear’s long goodbye

The simple fact is that, at least in the US, the nuclear industry is dying a
slow death. The announced closure of four major facilities in 2013 alone
amount to 4,246 megawatts of nuclear capacity—enough to power 2.7 million
homes for a year—that are being retired.

Even while the nuclear industry is able to externalize its costs for
insurance (which are federally limited), loan guarantees (which are federally
backstopped), decommissioning (which is pushed onto ratepayers) and waste
handling (which is pushed onto taxpayers), it still lost. If it had to stand
on its own and pay its full insurance costs like every other energy source,
we could never build another nuclear plant in America, because no private
investors would be willing to take that kind of risk. It’s hard to imagine
how the economics could be more tilted in nuclear’s favor (although I’m sure
its proponents have ideas on that).

The reason nuclear is dying is economics, not tribalism, as Shellenberger and
Nordhaus claim. The UCS study found that if the EIA’s National Energy
Modeling System were updated using 2009 utility cost estimates for building
new nuclear plants, instead of EIA’s old over-optimistic projections, nuclear
plants would not be the most economical way to add new capacity. The
economics have shifted even farther away from nuclear since then.

Meanwhile, outside the fantasy world inhabited by the BTI, the real energy
market has moved on. The US installed 13,200 megawatts of wind capacity in
2012, according to Bloomberg New Energy Finance.

In 2010, the combined generation of the four nuclear plants now headed for
retirement, would have been just over 30 million MWh if all four were
operating normally (one plant, the Crystal River plant in Florida, was not).
Using a weighted average of the EIA’s onshore and offshore capacity factors
for wind (36%), the wind capacity installed in the US last year will generate
41.6 million MWh per year.

In other words, the US installed enough wind last year to replace 138% of the
nuclear generation shuttered this year.

The US nuclear fleet is shrinking, while wind and solar are posting
double-digit, exponential growth rates. What part of this do Shellenberger
and Nordhaus not understand?

To be sure, there are other important considerations from a policy
standpoint. Insurance costs for nuclear power are probably inflated, due to
exaggerated fears about radiation. But nuclear advocates aren’t arguing that
underwriting rules should be updated. Yes, the utility industry will need to
update the century-old hub-and-spoke architecture of the grid to accommodate
high levels of variable and distributed renewable power, but that needed to
be done anyway. Yes, there are important questions to be addressed about
dispatchability—the degree to which the power generator can be fired up at
will, as needed—voltage regulation, service level guarantees, and the
evolution of utility business models and regulatory environment, which I have
written a series of articles about (see here, here, here, and here).

But it is simply wrong to claim that solar PV is four times as expensive as
nuclear power, in Germany, Finland, or anywhere else. BTI’s entire
argument—including its repeated insistence that we should emphasize
innovation over deployment of renewables—is bizarre, and detached from
reality.

These are the facts: Renewables have taken the lead in new power generation
in America, comprising nearly half of all new generating capacity installed
in the United States in 2012. In the first quarter of this year, nearly half
the new capacity installed was solar. With its poor economics, enormous
complexity, overly-large capital requirements, too-long lead times, and
overall risk, US nuclear power is headed for contraction, not resurgence.
Ultimately, I think the same will be true globally.

I share BTI’s passion for creating a low-carbon future to address the threat
of climate change. But false accounting isn’t the way to go about it. We
should lean hard on solutions that work today, like renewables, demand
response, microgrids, and advanced grid management technologies.

There may come a day when next-generation nuclear reactors can prove their
economic viability in the real world and not just on paper. But until they do
so—and especially while the old generation of nuclear power is dying—it makes
no sense to promote nuclear power.

You can follow Chris on Twitter at @nelderini. We welcome your comments at
ideas at qz.com. 


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