Beijing Review

Nuclear Assessment

In President Obama’s State of the Union address in January 2009, he called for the building of "a new generation of safe, clean nuclear power plants."  This was followed by his high-profile speech in Prague in April 2009, in which he noted the need “to harness the power of nuclear energy on behalf of our efforts to combat climate change.”  In December 2009 in Copenhagen, he pledged the United States will reduce carbon dioxide (CO2) emissions 17 percent from 2005 levels by 2020.

Building on these statements, the administration has made several decisions suggesting a new direction for the long moribund nuclear power industry. To accelerate the expansion of nuclear generation capacity, the President has increased loan guarantees for new nuclear reactors to $54 billion from the $18.5 billion authorized under the Energy Policy Act of 2005. In June 2009, the Department of Energy announced the first four companies eligible for the guarantees, and in February 2010 Southern Company received the first conditional commitment of $8.3 billion to build two 1,100 MW units by 2018. 

On nuclear spent fuel disposal, the President’s proposed 2011 budget cut funding for the long-term waste repository at Yucca Mountain in Nevada, after the government had spent 20 years planning and studying the site at an estimated cost of $9 billion.  On March 25, 2010, Secretary of Energy Steven Chu appointed a “Blue Ribbon Commission on America’s Nuclear Future” to study new policy options for spent fuel.   

Are these steps in the right direction to address America’s energy challenges?  Are they enough, and portend a nuclear “renaissance”?  The answers to these questions revolve around addressing four major challenges to significantly expanding nuclear power capacity: cost, safety and security, waste, and proliferation.  These issues are rooted in the industry’s experience in the 1970s and form the backdrop to what the future holds. 

The first commercial reactor became operational in 1957, coinciding with what is referred to as the “Golden Era” of the U.S. electric utility industry – a robust economy, rising electricity demand, declining costs and prices and growth in large generating units.  Through the early 1970s, orders for nuclear reactors increased dramatically; by 1970 the U.S. industry had 4.2 GW operating and 72 GW planned.

By the mid to late 1970s, however, several factors converged that would throw the U.S. nuclear industry into reverse. First, a dramatically worsening macroeconomic landscape wreaked financial havoc on the industry. The increase in energy prices as a result of the 1973-1974 oil shock reduced economic activity and savaged energy demand. With stagflation and interest rates at 20 percent, utilities cut back on ordering new capacity, especially large, expensive nuclear units. New nuclear capacity cost an average of $161/kW in the period 1968 to1971, but costs increased to $1,373/kW from 1979 to 1984.  Orders for new units plummeted after 1974 and none were ordered after 1978.   In the 1980s, declining gas and coal prices and the introduction of independent power producers further reduced the attractiveness and competitiveness of nuclear power.  Operable reactor units peaked in 1990 at 112 and, by 2000, 124 units had been canceled, 48 percent of all ordered units, according to the U.S. Energy Information Administration (EIA).  Eventually the industry was forced to write off nearly $100 billion in stranded assets. 

Specific safety events such as the fire at the Brown’s Ferry plant in March 1975, and culminating  in the accident at Three Mile Island in 1979, also fueled public skepticism of nuclear power and led environmental groups to campaign against the industry across the country.  Opposition to nuclear power was spurred further by proliferation concerns emanating from India’s explosion of a nuclear device in 1974, using uranium fuel derived from a research reactor.

In September of 2007, NRG Energy, Inc, submitted the first nuclear license application since 1979, and others followed. The NRC indicates that as of the end of 2009, it had received 17 license applications (for a total of 26 new nuclear units).

There are several factors driving this renewed interest.  First, U.S. electricity demand is expected to increase 27 percent by 2030, according to the EIA.  Second, there is growing concern over global climate change, especially energy-related CO2 emissions.  With the electricity sector accounting for 40 percent of total US energy-related CO2 emissions and coal-fired power plants representing 50% of total capacity, there is increasing concern over how simultaneously to meet electricity needs while reducing CO2 emissions.   Since there are no CO2 emissions from nuclear power generation -– and it is a proven, baseload source of power, accounting for 20 percent of total U.S. electricity production –- nuclear energy is seen as one of the most viable alternatives to address both climate concerns and increasing demand.  Moreover, given the recent economic downturn, re-invigorating the nuclear power industry is seen as a way to generate high paying jobs.  

Nonetheless, the lingering historical challenges described above remain and could stall, or at least, reduce the role that nuclear energy plays in the future U.S. energy mix.   First, nuclear plants are expensive to build and many see the capital costs in construction continuing to rise.  Recent estimates by Paul Joskow at MIT conservatively place the overnight capital cost for construction of a new nuclear plant at $4,000 per kW in 2007 dollars (some estimates are higher, including from Moody’s in 2007 putting the cost between $5,000 - $6,000/kW).     This compares with $2,300/kW for a coal plant, and $850/kW for a combined cycle gas turbine plant. 

Loan guarantees can provide some help in addressing up front capital costs, but given the high cost of each plant, this approach has its limitations.  A better policy would be the establishment of a price on carbon.  In Joskow’s analysis, carbon prices in the range of $25-50/metric ton of CO2 will be required to make nuclear cost competitive with coal and natural gas, with competitiveness varying with the different fossil price scenarios in addition to any CO2 charge.

Second, with the decision not to use Yucca Mountain the US needs a long-term nuclear waste strategy.   The de facto policy will continue to be the once through fuel cycle and to store spent fuel in dry casks on-site where it is produced.  But if there is an expansion in nuclear power generation and, correspondingly in volumes of spent fuel, this solution will not suffice.  One solution is to expand the New Mexico Waste Isolation Pilot Plant for military waste to accept civilian nuclear spent fuel.  This repository is capable of handling the waste and has been geologically stable for 250 million years.  Moreover, in abandoning Yucca Mountain, the Government’s legal obligation to take possession of the waste, as well as what will happen to the $22 billion levied on nuclear energy ratepayers to help pay for the cost of the repository, needs to be addressed. 

Security issues will also have an impact on the degree to which a nuclear renaissance occurs.  In a scenario with expanded nuclear power capacity, there will be increased production, movement, and storage of nuclear materials, and thus a corresponding need to ensure the safety and security of facilities, equipment, and modes of transportation from sabotage, theft, and terrorism.  The first nuclear security summit convened by President Obama this month in Washington was important in taking the first small but necessary steps to address the security of nuclear materials. 

Recent developments highlight how safety concerns continue to pose major challenges for the U.S. nuclear industry. In February the Vermont state senate voted to block a license extension for the Vermont Yankee nuclear plant, citing a tritium leak, incorrect testimony from plant owners, and the 2007 collapse of a cooling tower as major reasons for the decision. This was followed in early April by a New York state decision that the water cooling system at two units at the Indian Point nuclear plant violates the federal Clean Water Act and rectification of these issues will be a condition for the relicensing of both units in 2013 and 2016 respectively.

While the licensing and regulatory process for building nuclear plants has been streamlined since the 1970s and 1980s in an effort to reduce costs and delays, as well as to improve safety –- for example, with the implementation of combined construction and operating licenses, issuance of early site permits, and certifications of standard reactor designs – challenges still remain.  The decline in nuclear construction in the United States since the late 1970s has led to current shortages in suppliers, some material inputs, and skilled personnel.  

Finally, in a world of expanding nuclear power capacity there are increasing concerns over nuclear proliferation --the acquisition, production or diversion of nuclear material for weapons purposes.  The examples of North Korea and Iran remind everyone of the continued and enhanced vigilance required to ensure nuclear non-proliferation. 

All of this illustrates that the question of nuclear energy policy is being re-framed – correctly in our view – as part of a larger picture.   Nuclear power’s role has to be viewed as part of a comprehensive policy approach that addresses the main challenges of nuclear energy – cost, waste, safety and security, and proliferation – as well as meet energy demand and climate change goals; and all this while relying on market-based solutions to the greatest extent possible. This is a formidable challenge, but the only way that a nuclear “renaissance” can occur.