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August 29, 2017

The Wrong Way to Save Nuclear Power

August 29, 2017
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Earlier this month, Jeremy Carl and David Fedor of Stanford University’s Hoover Institution, released a book showcasing the dire state of America’s nuclear energy industry. Keeping the Lights on at America’s Nuclear Power Plants highlights the problems facing the beleaguered power source and offers a range of proposals to save America’s nuclear reactors. And while some of their proposals would make meaningful headway toward transforming nuclear power into a viable power source, others would merely make the nuclear energy industry dependent on government largesse and raise costs on consumers in the process.

As I discussed in my previous article, the authors support reforming the federal government’s expensive licensing restrictions which make it harder for newer and cheaper reactors to reach the market. In particular, they call for ending the Nuclear Regulatory Commission’s requirement that nuclear developers complete a decade-long application before any approvals are made. In its place, they support shifting the NRC’s licensing process towards a “test-then-license” system in which the commission would grant companies faster step-by-step approval as they wade through the process.

Streamlining the NRC’s process would undoubtedly make it easier for nuclear developers to bring their reactors online while lowering costs for consumers. Unfortunately, Carl and Fedor’s other recommendations appear to be geared less towards delivering cheaper energy to consumers and more towards erecting artificial protections for the nuclear industry. In their section on policy and regulatory options, the authors encourage state government agencies to use their monopoly utility regimes to force residents to use nuclear power:

“State regulatory commissions could choose to encourage nuclear power generation by developing various mechanisms to direct more ratepayer money towards it. In most regulated states with monopoly utilities, such bodies already have broad discretion to do so,” the authors said.

In addition to regulatory preferences, Carl and Fedor also call on the federal government to explicitly subsidize nuclear power plants. Specifically, they suggest the federal government establish public-private “partnerships” with nuclear companies and use taxpayer dollars to underwrite long-term contracts with utilities.

Experience shows taxpayer subsidies don’t spur development of new nuclear plants. Beginning with the Price-Anderson Nuclear Industries Indemnity Act of 1957, supporting nuclear power became a priority for government planners. The act mandates every nuclear power plant to purchase $325 million in commercial liability insurance as well as contribute to an insurance pool to cover serious accidents and damage. If the costs of a nuclear accident ever exceed the value of these insurance funds, Price-Anderson obligates taxpayers to pay the remaining costs of cleanup. This artificially reduces the costs nuclear reactors owners must pay to insure their facilities.

Since then, federal support for nuclear has only increased. The 2005 Energy Policy Act established tax credits to subsidize nuclear power plants, providing these companies $18 for every megawatt-hour of energy they produce for the first eight years of operation. Then in 2008, the federal government began offering generous loan guarantees for nuclear developers to build new plants. These loan guarantees can cover 80 percent of a project’s costs and up to $18.5 billion in loans.

Yet, despite these enormous regulatory advantages and taxpayer-funded subsidies, nuclear energy still struggles to survive. Since 2012, nuclear plant owners have closed or announced the closure of 14 reactors over 11 plant sites. South Carolina Electric & Gas and the state-owned power company Santee Cooper recently ceased construction on a $9 billion project to build two new reactors in Fairfield County.

In a press release announcing the closures, Santee Cooper explained why nuclear reactors close. When the company filed its initial application to begin construction in 2008, natural gas prices were three times higher and didn’t pose a viable threat to nuclear. Those days are over. Innovations in hydraulic fracturing technologies have unlocked millions of cubic feet of previously unrecoverable natural gas reserves and increased production by 50 percent. As a result, the cost of generating electricity from natural gas has fallen to $2.34 per kilowatt, far below the cost of nuclear power.

As Santee Cooper’s closure demonstrates, expanding corporate welfare won’t save the nuclear industry from inexpensive natural gas and certainly won’t lower costs for consumers. Instead, policymakers should follow recommendations laid out in the Department of Energy’s recently released review of America’s power grid. The report proposes government agencies streamline the licensing and permitting process in order to accelerate the development of lower cost nuclear power plants.

Nuclear can indeed thrive, but advocates should focus on making nuclear energy more competitive by unwinding burdensome regulations, rather than forcing taxpayers to subsidize high cost nuclear reactors drowning in government mandates.

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  • What_Was_I_Thinking

    While these thought processes are likely necessary, I consider will this make sense in 20 or 60 years. I think if the word “nuclear” was changed to whale in this analysis, very similar articles and smoke filled discussion would be remarkable similar circa 1895. It seems that most global changes, industrial and technical revolutions were born via innovations and discovery more than regulation.

    January 10, 1901, Spindletop ended whaling. However the British would continue until the beginning of WW1. There are 1000’s of lab’s, universities and capital inflows into energy efficiency, storage, advanced energy materials, generation, distribution as well as the aggregation of all of these through digital technology.

    Or we can continue to baffle at why whaling just can’t seem to get a fair shot at coming back? When will today’s equivalent of the British realize there is no value contribution in the whaling industry without radical technology improvements?

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