Nuclear Industry in Decline?:

New Article Raises Questions

Ed Kee, owner and principal consultant at Nuclear Economics Consulting Group (NECG) and an Affiliated Expert with NERA Economic Consulting, just published a pair of rather depressing forecasts about the future of nuclear power:  an article in Nuclear Engineering International entitled, "US Nuclear Industry in Decline," and a piece in the World Nuclear Association's World Nuclear News entitled, "Can nuclear succeed in liberalized power markets?"

In both, he lays out rather clearly and starkly what many of us have been seeing for a long time--just as nuclear power was beginning to make a comeback in a number of countries, it has been hit by a trend toward liberalizing electricity generation and distribution markets. 

While it looks good on paper to make electricity generation and distribution more market oriented, it has had a number of unexpected consequences.  Basically, the primary organizing principle of a liberalized market is that it minimizes short-term market prices, whereas traditional regulated markets minimize long-term electricity costs to users.

This pressure has been exacerbated by a couple of simultaneous trends--the subsidies for renewable energy sources in many places, and the sudden low price of natural gas.  As a result, we have all been left scratching our heads in disbelief when we hear about negative spot prices on local electricity markets.

This in turn is putting pressure on utilities to shut nuclear power plants.  We have already seen some closures in the US in the last couple of years due to the economics of power generation in their regions.  Numerous forecasts point to several other plants that may be at risk for a similar reason.

It seems particularly criminal to lose an existing asset to economic considerations.  The investment in it has been made, so replacing it with anything comes at a cost, and since most of the replacements envisioned in the near term are natural gas plants, the new plants will produce more carbon emissions than the nuclear power plants they replace.  And despite new natural gas finds and methods of extraction (i.e., fracking), history teaches us that the price of oil and gas is very volatile and subject to sudden large fluctuations.  We ignore that history at our peril.

I found the titles of the two articles interesting--one asks a question about whether nuclear power can succeed in liberalized markets, while the other seems to suggest that the conclusion is negative.  Nevertheless, the articles suggest several options that are being, or could be, tried:  allowing extended, but temporary, shutdown and mothballing of nuclear power plants during periods of low electricity prices (he mentions the Bruce plants in Canada); some way of externalizing carbon emissions (he mentions the US Environmental Protection Agency's proposed rule and the flaws in the measures proposed); power purchase agreements; contracts for difference; and other models that improve the revenue certainty within a deregulated marketplace.

Although I'm sure that some will say that undercuts the intent of deregulation, I would take a different view.  Every institutional measure we impose has multiple ramifications, and often, unequal and unfair impacts on different segments of society or different commercial enterprises.  What we usually end up doing in such cases is going back and making "backfits" to fix the problems. 

It appears that we need such backfits to assure that liberalized electricity markets don't end up costing us more--much more--in the long term than we are saving in the short term.  Ed has laid out a number of options, but aside from the few places he mentions (all outside the US), I am not clear on what may be under active consideration elsewhere.  I hope these two articles spur some action.  

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Global Nuclear Power Developments:

A Perspective from Ed Kee

About a week ago, I attended a very interesting ANS DC Section dinner presentation by Ed Kee, Vice President, NERA Consulting, on global nuclear energy developments and prospects. Ed has been making presentations of this type all over the world, and particularly in Asia. I thought it might be useful to highlight a few of the points Ed made that really struck me.

As we all know, most of the action these days is taking place in Asia, with China leading the way. (In fact, "China leads the way" was the subtitle of his talk.) Ed pointed to some good reasons why, namely the fact that their nuclear enterprise is a government enterprise and that they are building in multiples. He noted that government control yields much greater certainty than a free market does, and that the government has deeper pockets than private enterprise when it comes to making investments that do not pay back for years. Furthermore, the fact that the Chinese are building a number of similar reactors allows them to reap the benefits of economies of scale.

He contrasts this situation with the case of the United States, with an increasingly merchant plant approach to providing electricity and lower demand growth, and to developing countries, which generally need only one or two reactors. In addition to the fact that the current numbers of planned and proposed reactors in China are much greater than the number in the US, he notes that the prospects for the planned reactors in China are probably firmer than the prospects for those in the US.

He also provided a look at the export market. Here again, he notes that government-controlled programs often are able to offer better prices than corporations. He pointed particularly to the potential attractiveness of the Russian "build-own-operate" model. He also saw increasing competition from Korea, and possibly from China, in the future.

For developing countries, one interesting observation Ed offered is that most countries interested in nuclear power see reactors as more than a source of electricity. They also want some local content and local industrial development, and to become a part of the global nuclear supply chain.

For the future, he sees that most of the action will come from government-run programs, such as in China and Russia. He paints a bleaker picture for merchant plant projects, seeing them as subject to both project risks (first-of-a-kind risks, cost overruns, etc.) and long-term market risks (changes in demand, future carbon taxes and/or requirements for renewables, etc.), and believes that new merchant power plants will require some form of government assistance, such as the loan guarantee program in the US.

Among the comments I heard from other attendees on the way out were the thoughts that it was difficult to argue with much of what Ed had presented, but that it was not an optimistic picture as far as the US is concerned. The caveat, of course, is what will happen with loan guarantees, and in the longer run, carbon taxes. And in my mind, a lot depends on what happens with the first round of projects now underway.

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New Reactor Designs:

Comparative Assessments

With the proliferation of possible new reactor design concepts bombarding us recently, it is encouraging to see some efforts starting that can help us compare the claims of the competing ideas on similar grounds. The first such effort to come to my attention is a recent article in IEEE Spectrum. Amusingly, the article is titled "Reactors Redux" in the hard copy of the journal, and "Nuclear Reactor Renaissance" on the Internet.

Perhaps I've missed some other comparative assessments, but most of what I have seen to date are claims by the proponents of each individual technology. If I have seen independent analyses at all, they have been targeted toward a particular technology, and did not provide a sense of where that technology stood with respect to others. Since some of the new design concepts are very different from current operating nuclear power plants, it is really helpful to have assessments that compare technologies on more or less equal terms.

The IEEE Spectrum article is at least a start in the right direction. Unfortunately, it doesn't go as far as I would have liked. And quite a few other people share that view, judging by the comments. A more serious flaw, in my view, is that the article does not provide a clear rationale for why they picked the designs they picked. Did they judge these to be the best of the crop? Were these the ones for which they had the most information? It makes a difference. The comments help in identifying some of the other potential options.

One could also argue that this article does not do an in-depth assessment of every one of the technologies. Clearly, it would not be sufficient to make a decision among the options, but that was not its purpose. It does help the reader understand in general terms some of the major issues associated with each technology, including the very important issue of its status of development.

I am aware that there are now other such efforts underway, and the coming months should provide us more and better comparisons between competing technologies. In particular, I know that Ed Kee of NERA Economic Consulting is presently starting a study that should greatly exceed the scope of the IEEE Spectrum article--covering more designs and more issues at greater depth. That study should be a great contribution to the dialogue. There will hopefully also be other articles in general technical publications in the future.

Until then, this article at least starts to put things in perspective for those of us with insufficient time or energy to have probed the details for ourselves.

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