Challenges with Nuclear Power - Where's the money?

After consulting several nuclear power companies, I am intrigued when so many people sound so enthusiasatic about nuclear power. Am I not seeing something that others are able to see? The skeptic and the cynic in me keeps pricking - how it is possible to make a business case for nuclear power. The industry is heavily regulated, frequently politicized, grossly terrorized, and overly demonized. End result is large sums of money flow into the hands of influential PR firms and lobbyists to do damage control and damage prevention. The once categorized “too cheap to meter”, nuclear energy has not seen a new plant built in 3 decades. This of course does not undermine the fact that operational efficiencies have increased tremendously with existing plants - with fewer outage times and refueling time. Generation capacity has increased even though no new plants have come up. Pretty remarkable! But how real do we see its future? The proponents will tell, “It has never been better than now in the last 30 years.” That’s a true statement. But is this good enough to carry the day to make a case for new nuclear power a reality? Is Wall Street ready? In other words, many are saying inside closed doors - Baby! Show me the money!

Here are the barriers and some of the measures being taken to overcome these barriers:

Issue 1: Delay, high cost, and financial risk.

Step taken: Replace two-step review process that required separate federal permits for construction and operation of plants with pre-approved designs. NRC now reviews a combined construction and operating license (COL) application which, if approved, reduces the risk that a completed plant may face costly delays in getting an operating license after construction is complete.

Challenge: Federal approvals are not enough. State regulatory commissions will also have to sign off on plans to build new plants. Risks still remain.

Issue 2: Building the Financial Case

Step Taken: Providing carbon tax credits. Because nuclear plants emit virtually no carbon into the atmosphere, that would give them a huge economic advantage over plants that burn fossil fuels. That financial edge could be $12 per megawatt less than the cost of electricity generated by plants that burn fossil fuels

Challenge: Washington needs to levy “Carbon tax” of any new plant built in the next few years. .

Issue 3: Long lead times

Step Taken: Nothing major. Usual process improvement practices.

Challenge: At best, the first plants won’t come online before 2013-14 and will cost an estimated $4 billion each. Before ground is broken for the first new plant, the power industry will have to convince state regulators and investors that the numbers add up. To do that, they face several important hurdles.

Issue 4: Getting Financing

Step: Most of these projects are expected to be financed by bonds - just the way roads and railroads are. To help reassure investors that the bonds are a safe investment and has limited credit risk, Congress has provided loan guarantees for 80 percent of the financing for the first several projects to win NRC approval. Typically, these projects would have 80:20 debt equity ratio. But federal officials in charge of loan guarantees have interpreted the law to mean that those guarantees apply only to the debt portion of the financing package.

Challenge:Using that math, the loan guarantee — 80 percent of 80 percent — will only cover about two-thirds of the total cost. Where will the rest come from? If risk costs are factored in, Cost of Equity may be prohibitively high.

I will keep posting views relevant to this topic as we go along.

Challenges with Renewbles

What are the broad problems that relate to renewables?

Problem 1: Does it help in reducing environment emissions or provide environmental benefits?

Problem 2: Does it help in saving costs? Is it in Gernation, Transmission, or Distribution system ?

Problem 3: Does it help in increasing reliability? Is it in Gernation, Transmission, or Distribution system ?

Problem 4: Who are the stakeholders and what are their stakes?

Problem 5: What are incentives and who gets them?

How real are the renewables?

There is so much buzz with renewable energy that it is almost choking. My goal is to be realistic. But even at the risk of sounding a cynic amidst all the hoopla, I would draw myself to look at many aspects of this issue. The foremost task is to scope out the problem in its multiple dimensions and then to attack it one at a time.

Let’s look at the American markets. Why PVs are not taking off as it should be? What are the major barriers? How dow we overcome this?

The answer is simple in a way. It is all about the money. As we speak, the price of electricity from PV is pretty high compared to buying it from the utility which typically generates from a mix of coal, gas, and nuclear resources. In US, the costs from PV are prohibitively high compared with the conventional generation. According to EIA data published by US DOE, the average cost of electricity in US is around 8 to 10 cents per kWh. This is way lower compared with cost of electricity produced by PV which is around 31 cents per kWh even with all subsidies and incentives are taken into account. This make is 3 to 4 times more expensive. Remove the subsdies, you are looking at a much higher number.

So where do we go from here. There are two ways to look at. First, the cost of PV has to come down. Second, account for the costs of externalities into cost of conventional electricity. Meaning, we need to make a cost estimate of the degradation of the environment, the long wires that simply destroy the aesthetics, the opportunity costs of right of way, and other subtle impacts of conventional generation. So what is realistic? Costing of externalities is certaintly not - at least in the near term. Therefore, main focus should be on how to bring the costs down.

Another way to look at these issues – which will be rather un-populist, is to increase the cost of energy in US and make it float according to what the rest of the world pay. Take gas or oil, we pay lesser than rest of the world and if we are brought to par, we will be paying more from “potatoes” to the electrons we consume. But no party can run for office with that in their agenda.

Well, these are the options. Let’s track down as we get along the issues and emergence of something innovative. Who knows - with the Democrats in congress and activist environmentalist getting more attention, regulations can change. Maybe, a better deal with renewables is in the offing.

Alternate Energy

Although this whole area of of alternate energy and renewable energy is buzzing with excitement - I am not able to shrug off my skeptcism. I am still not see that the world's large turbine generator sets roaring with steam dumped from a 80 meter high boiler fading away into a technical museum any time soon. Nor can I visualize the skylines filled with windmills or domes of nuclear reactors. I don't see the numbers of demand and supply adding up. Let's say how many windmills will you need to supply New York?

Coal plants and gas plants may not be going away soon. I would urge on holding on to the coal stocks! However, renewable energy is not the same pipe dream like the "paperless office". It is a necessity. So, at least, we need to get started with all seriousness and leverage the benefits of renewable energy that will be in peaceful coexistence with the conventional generators. In other words - Hybrid power generation mix.