When Should Nuclear Power Pay for Risk? Is Never Good For You?

April 25, 2014
Mike Jacobs
Senior Energy Analyst

In a secret negotiation result reported by Hannah Northey, E&E News, the nuclear industry passed along another risk to the U.S. public. An expected $300 million loan fee for building the new Vogtle nuclear plant, was negotiated down to zero by the plant owners. This was one of two nuclear power issues that came out of the shadows of secrecy and unaccounted costs this week.

Sour_Face

Sour subsidies do not a happy taxpayer make. Source: Duck Island Ale House

Nuclear power plants concentrate so much energy and expense in one place that they create unique risks. Unique risks for the owners, and for the public.

First, the cost to build a new nuclear plant is several billion dollars, with even the owners unable to predict the cost to the nearest billion. This means the owners borrowing the money have billions of reasons to want to shift the financial risks to the public.

The owners of the Vogtle nuclear plant under construction in Georgia are seeking $8 billion in loans from the U.S. for a pair of 1,100 MW nuclear plants with owners projecting the total capital cost of $14 B. We learned this week that the credit subsidy fee for them to borrow billions is zero.

When the Bush Administration expanded Federal loan programs to include nuclear power plants in 2005, the key determinants for the credit subsidy fee for these loans were set. Or so we thought.

The law enabling these loans protected the public from shifting the risks and costs of these loans. Yet so far, two owners of the Vogtle plant (out of a total of three utility groups in Georgia) have succeeded in their wrangling to avoid their obligation to pay for the risks that go along with these loans.

Is this a surprise?

Maybe that shouldn’t be such a surprise, though. There is a long list of unmet obligations and unenforced government requirements in the nuclear industry. UCS provides an annual report on the unfinished safety needs at commercial nuclear plants. The backlog over the years has grown to include security, fire protection, radiation releases, earthquake protection, flood protection, …etc.

From the very beginning of the industry, the private owners of nuclear plants have passed the risks of major accidents and long-term waste disposal to the American people. The loan subsidy fee was supposed to be different.

Another risk subsidized

Public risks for nuclear power take many shapes. Another risk carried by the public is the cost for maintaining electric generation reserves for the unpredictable sudden disconnection — “trips” — of a nuclear plant. When a nuclear plant trips off-line, the entire region suffers a sudden imbalance of supply and demand for electricity. With nuclear plants of 1,000 MW dropping off in an instant, the grid suffers immediately.

The costs to combat these events are just becoming clear. The Federal Energy Regulatory Commission, noting that Eastern U.S. ability to recover from nuclear unit trips has declined since the mid-1990’s, is beginning to ask who can provide the back-up for the largest power plants, and how should they be paid for this service. I participated in FERC’s technical conference on this very issue this week.

For decades, the risk from a nuclear plant’s sudden dropoff was met by all the other generators, by holding a few percent of their capability in reserve. As this was unpaid, and power plants faced increasing competition, that lost revenue became important to the plant owners. Now many plant owners have withdrawn this free service. Other decisions that modernized industrial equipment, or shifted manufacturing offshore, also reduced the grid’s resilience to these sudden losses caused by the largest generators.

And so…

Be sure that when someone says we need to give nuclear power a break that you ask them if we should also continue forgiving all the unpaid subsidies and uncorrected designs. We need to recognize all risks imposed by energy sources. When all the real risks are included, we just might find that we will want to be using efficiency and renewable energy at much higher levels than we are today.