Compete or suckle: Should troubled nuclear reactors be subsidized?

Will nuclear subsidies stifle competition? www.shutterstock.com

Today we offer two expert perspectives on subsidizing nuclear power. Here’s the argument against providing economic support.

Since the 1950s, U.S. nuclear power has commanded immense taxpayer and customer subsidy based on promises of economic and environmental benefits. Many of these promises are unfulfilled, but new ones take their place. More subsidies follow.

Today the nuclear industry claims that keeping all operating reactors running for many years, no matter how uneconomic they become, is essential in order to reach U.S. climate change targets.

Economics have always challenged U.S. reactors. After more than 100 construction cancellations and cost overruns costing up to US$5 billion apiece, Forbes Magazine in 1985 called nuclear power “the greatest managerial disaster in business history…only the blind, or the biased, can now think that most of the money [$265 billion by 1990] has been well spent.” U.S. Atomic Energy Commission (AEC) Chair Lewis Strauss’ 1954 promise that electric power would be “too cheap to meter” is today used to mock nuclear economics, not commend them.

As late as 1972 the AEC forecast that the United States would have 1,000 power reactors by the year 2000. Today we have 100 operating power reactors, down from a peak of 112 in 1990. Since 2012 U.S. power plant owners have retired five units and announced plans to close nine more. Four new reactors are likely to come on line. Without strenuous government intervention, almost all of the rest will close by midcentury. Because these recent closures have been abrupt and unplanned, the replacement power has come in substantial part from natural gas, causing a dismaying uptick in greenhouse gas emissions.

U.S. Nuclear Regulatory Commission

The nuclear industry, led by the forlornly named lobbying group Nuclear Matters, still obtains large subsidies for new reactor designs that cannot possibly compete at today’s prices. But its main function now is to save operating reactors from closure brought on by their own rising costs, by the absence of a U.S. policy on greenhouse gas emissions and by competition from less expensive natural gas, carbon-free renewables and more efficient energy use.

Only billions more dollars in subsidies and the retarding of rapid deployment of cheaper technologies can save these reactors. Only fresh claims of unique social benefit can justify such steps.

When I served on the U.S. Nuclear Regulatory Commission (NRC) from 1977 through 1982, the NRC issued more licenses than in any comparable period since. Arguments that the U.S. couldn’t avoid dependence on Middle Eastern oil and keep the lights on without a vast increase in nuclear power were standard fare then and throughout my 20 years chairing the New York and Maine utility regulatory commissions. In fact, we attained these goals without the additional reactors, a lesson to remember in the face of claims that all of today’s nuclear plants are needed to ward off climate change.

Nuclear power in competitive electricity markets

During nuclear power’s growth years in the 1960s and 1970s, almost all electric utility rate regulation was based on recovering the money necessary to build and run power plants and the accompanying infrastructure. But in the 1990s many states broke up the electric utility monopoly model.

Now a majority of U.S. power generation is sold in competitive markets. Companies profit by producing the cheapest electricity or providing services that avoid the need for electricity.

To justify their current subsidy demands, nuclear advocates assert three propositions. First, they contend that power markets undervalue nuclear plants because they do not compensate reactors for avoiding carbon emissions, or for other attributes such as diversifying the fuel supply or running more than 90 percent of the time.

Second, they assert that other low-carbon sources cannot fill the gap because the wind doesn’t always blow and the sun doesn’t always shine. So power grids will use fossil-fired generators for more hours if nuclear plants close.

Dry casks for storing irradiated nuclear fuel at the Diablo Canyon plant in Avila, California. The plant is scheduled to close within a decade, but taxpayers will pay to keep spent fuel stored on-site until a federal repository is ready to take it. U.S. Nuclear Regulatory Commission/Flickr, CC BY-NC-ND

Finally, nuclear power supporters argue that these intermittent sources receive substantial subsidies while nuclear energy does not, thereby enabling renewables to underbid nuclear even if their costs are higher.

Nuclear power producers want government-mandated long-term contracts or other mechanisms that require customers to buy power from their troubled units at prices far higher than they would pay otherwise.

Providing such open-ended support will negate several major energy trends that currently benefit customers and the environment. First, power markets have been working reliably and effectively. A large variety of cheaper, more efficient technologies for producing and saving energy, as well as managing the grid more cheaply and cleanly, have been developed. Energy storage, which can enhance the round-the-clock capability of some renewables is progressing faster than had been expected, and is now being bid into several power markets – notably the market serving Pennsylvania, New Jersey and Maryland.

Long-term subsidies for uneconomic nuclear plants also will crowd out penetration of these markets by energy efficiency and renewables. This is the path New York state has taken by committing at least $7.6 billion in above-market payments to three of its six plants to assure that they operate through 2029.

Nuclear power vs. other carbon-free fuels

While power markets do indeed undervalue low-carbon fuels, all of the other premises underlying the nuclear industry approach are flawed. In California and in Nebraska, utilities plan to replace nuclear plants that are closing early for economic reasons almost entirely with electricity from carbon-free sources. Such transitions are achievable in most systems as long as the shutdowns are planned in advance to be carbon-free.

In California these replacement resources, which include renewables, storage, transmission enhancements and energy efficiency measures, will for the most part be procured through competitive processes. Indeed, any state where a utility threatens to close a plant can run an auction to ascertain whether there are sufficient low-carbon resources available to replace the unit within a particular time frame. Only then will regulators know whether, how much and for how long they should support the nuclear units.

If New York had taken this approach, each of the struggling nuclear units could have bid to provide power in such an auction. They might well have succeeded for the immediate future, but some or all would probably not have won after that.

Local opposition to the Vermont Yankee nuclear plant after its original license expired in 2012. The plant obtained a license extension, but the owner decided to close it in 2014 based on economic factors. (Click for larger image) James Ennis/Flickr, CC BY-NC

Closing the noncompetitive plants would be a clear benefit to the New York economy. This is why a large coalition of big customers, alternative energy providers and environmental groups opposed the long-term subsidy plan.

The industry’s final argument – that renewables are subsidized and nuclear is not – ignores overwhelming history. All carbon-free energy sources together have not received remotely as much government support as has flowed to nuclear power.

Nuclear energy’s essential components – reactors and enriched uranium fuel – were developed at taxpayer expense. Private utilities were paid to build nuclear reactors in the 1950s and early ‘60’s, and received subsidized fuel. According to a study by the Union of Concerned Scientists, total subsidies paid and offered to nuclear plants between 1960 and 2024 generally exceed the value of the power that they produced.

The U.S. government has also pledged to dispose of nuclear power’s most hazardous wastes – a promise that has never been made to any other industry. By 2020 taxpayers will have paid some $21 billion to store those wastes at power plant sites.

Furthermore, under the 1957 Price-Anderson Act, each plant owner’s accident liability is limited to some $300 million per year, even though the Fukushima disaster showed that nuclear accident costs can exceed $100 billion. If private companies that own U.S. nuclear power plants had been responsible for accident liability, they would not have built reactors. The same is almost certainly true of responsibility for spent fuel disposal.

Finally, as part of the transition to competition in the 1990s, state governments were persuaded to make customers pay off some $70 billion in excessive nuclear costs. Today the same nuclear power providers are asking to be rescued from the same market forces for a second time.

Christopher Crane, the president and CEO of Exelon, which owns the nation’s largest nuclear fleet, preaches temperance from a bar stool when he disparages renewable energy subsidies by asserting, “I’ve talked for years about the unintended consequences of policies that incentivize technologies versus outcomes.” However, he’s right about unintended and unfortunate consequences. We should not rely further on the unfulfilled prophesies that nuclear lobbyists have deployed so expensively for so long. It’s time to take Crane at his word by using our power markets, adjusted to price greenhouse gas emissions, to prioritize our low carbon outcome over his technology.

For a contrasting view, see this article by Penn State University nuclear engineering professor Arthur Motta.