The Near Term Economic Picture for Commercial Nuclear Generation

Thomas B. Cochran.
April 2004

There are 103 operational commercial nuclear power plants in the United States today,
and a 104th is expected to resume operations in a few years.1 With only a few notable
exceptions they are typically operating very efficiently, that is, at high capacity factors, in
an increasingly competitive environment.2 These plants, by in large, compete favorably
with fossil-fueled (coal and natural gas) plants in terms of their respective forward costs
(operating and maintenance and fuel costs). For 2002, the average nuclear production
costs of 1.71 cents per kilowatt-hour (c/kWh) were just slightly less than those of coal
plants which were 1.85 cents/kWh.3
On the other hand, the last unit to enter commercial operation was TVA's Watts Bar Unit
1 in June 1996, and the last successful order for a U.S. commercial nuclear power plant
was in 1973. No energy generation company in the Unites States has been willing to
order and construct a new nuclear plant in more than thirty years, and none have taken
anything more than preliminary steps towards purchasing and constructing a new nuclear
plant today in the absence of a promise of huge Federal subsidies. This is not because of
public opposition; not for want of a licensed geologic repository for the disposal of spent
fuel; and not because of the proliferation risks associated with commercial nuclear power.
Rather, it is because new commercial nuclear power plants are uneconomical in the
United States.
Arguably the best and most current economic comparison of nuclear and fossil-fueled
plants is by Professor Paul L. Joskow in a recent interdisciplinary MIT study, "The Future
of Nuclear Power."4 As seen from the following table from the MIT Study, in the United
States today new nuclear plants are far from being competitive with new natural gas or
coal-fueled power plants. The levelized cost of electricity5 generated by a new nuclear
plant is estimated to be about 60 percent greater than the cost of electricity from a coal
plant or a gas-fueled plant assuming moderate gas prices.

Source: Table 1.3, The Future of Nuclear Power: An Interdisciplinary MIT Study, MIT
(2003).
As seen from the Table 5.1 from the MIT Study, reproduced on the next page, this
scenario would change if there were a significant tax on carbon emissions, or if an
equivalent economic penalty were imposed on fossil-fueled plants through a cap on
carbon dioxide (CO2) emissions or a requirement that CO2 be sequestered. Nuclear
would be competitive with coal if there were a carbon tax of about $100 per ton of carbon
($100/tC), and with moderately priced natural gas if the tax were about $200/tC.

Source: Table 5.1, The Future of Nuclear Power: An Interdisciplinary MIT Study, MIT
(2003).
Alternatively, without the introduction of a significant carbon tax (or capping carbon
emissions), in order for new commercial nuclear power generation to become competitive
with power generation from fossil plants, some unlikely combination of factors would
have to occur -- for example, a 25 percent reduction in nuclear plant construction costs
and sustained high gas prices could conceivably lead to a competitive comparison. The
nuclear industry has reached a similar conclusion.6 According to Exelon, the largest U.S.
nuclear operator with 17 nuclear plants, "Exelon preliminary analyses estimate that gas
prices consistently above $5 to $6/mmBTU [approx. $5 to $6/MCF] are needed for new
nuclear plants to be competitive."7 Exelon has also stated, "[t]he industry has informally
conveyed an acceptance window of $1000-$1200/kwe for capital cost, excluding
financing, for any new nuclear facility."8 This is well below the MIT Study's estimated
current overnight construction cost of $2000/kWe.9
Combinations of high gas prices and significantly lower capital costs could make nuclear
plants competitive with fossil fuel plants, but the bottom line is that in the current
economic climate, commercial nuclear generation is not even close to being competitive
with fossil-fueled plants and there is no easy path to a competitive market for new
nuclear plants. This conclusion is underscored further by the availability of abundant
energy efficiency and renewable energy resources, which are emerging as nuclear power's
most formidable rivals.

The Industry Response to Its Lack of Ability to Compete in the Power Generation
Marketplace
Faced with these marketplace realities, the commercial nuclear industry is pursuing
another alternative. The industry is pursuing, and is now beginning to receive, taxpayer
dollars to subsidize the difference in the cost of nuclear and fossil-fueled generated
electricity. Some of the largest and most successful energy companies are lined up at the
public trough for what the industry calls an "investment stimulus."
First, in 2001, the nuclear industry succeeded in getting the Bush Administration "to
support the expansion of nuclear power in the United States."10 Next, in early 2002, the
Secretary of Energy unveiled the Department's "Nuclear Power 2010 Program," "a joint
government/industry cost-shared effort to identify sites for new nuclear power plants,
develop advanced nuclear plant technologies, and demonstrate new regulatory processes
leading to a private sector decision by 2005 to order new nuclear power plants for
deployment in the United States in the 2010 timeframe."11
As part of the Nuclear Power 2010 program, three nuclear generation companies have
applied to the NRC for Early Site Permits for new nuclear plants -- Exelon Generation,
Dominion Energy and Entergy Nuclear. The early sites permits would be for sites at the
Exelon site near Clinton, Illinois; the Dominion Mineral plant at North Anna, Virginia;
and the Entergy Grand Gulf Nuclear Station in Port Gibson, Mississippi. The federal
government is paying one-half the cost of developing each of these companies' early site
permit application. The permits, once obtained from the Nuclear Regulatory Commission
(NRC), will be good for 20 years and can be renewed for an additional 20 years.
Notably, these three corporations are among the largest and most successful electricity
generation companies, with combined revenues of $37.1 billion in 2003.12 While quick to
grab the taxpayer-supported nuclear pork, none have committed to construct new nuclear
plants at any of the sites. And why should they. As I explain below, much more taxpayer
support is potentially on the table. The companies recognize that if they make no
commitment to build a new plant, the Administration would continue to feed them with
an ever-increasing sum of taxpayer-supported largesse.
Two weeks ago, two consortia of nuclear companies, including Exelon, Entergy and
Dominion, announced they are seeking DOE funds "to demonstrate the licensing
process," a euphemism for having the taxpayers pay half the cost of getting a combined
construction and operation license from the NRC.13 Again, there will be no commitment
to build a plant because the companies know that DOE and the nuclear boosters in the
Congress are preparing an even larger nuclear golden egg.
In April 2003, Senator Pete Domenici introduced his Energy bill, S.14, which contained a
$6.8 billion tax subsidy to the energy companies for 6,000 megawatts of new nuclear
generating capacity (approximately six plants).14 In other words, proponents of the
Energy bill are prepared to provide multi-billion dollar energy companies about $1 billion
in subsidies for each new nuclear plant they build. This bill was filibustered in November
2003, and failed to pass. This year Senator Domenici has reintroduced the bill without the
subsidy, but if the new bill, S.2095 passes the Senate, the House may reintroduce the
nuclear plant tax subsidy.15 In any case, the handwriting is on the wall. The nuclear
industry is looking for huge taxpayer subsidies to jump-start nuclear power plant
construction and create the artificial impression that the industry is competitive -- and its
allies in the Congress are prepared to provide the necessary support.
While having done a fine job of comparing the economics of nuclear v fossil-fueled
plants, the MIT Study calls for of a similar array of taxpayer subsidies, but with a
somewhat smaller production tax credit to offset the higher risk premium associated with
borrowing money for construction costs of a few plants. In addition to endorsing the cost
sharing arrangements under DOE's Nuclear Power 2010 program, the MIT Study calls for
"a production tax credit for up to $200/kWe [i.e., $200 per kilowatt of electric power] of
the plants construction tax credit" for ten so-called "first mover" plants.16 This last
proposed subsidy is pegged to the 1.7 cent per kilowatt-hour production tax credit for
wind energy, and alone represents an additional $2 billion worth of subsidies for nuclear
power plants to be constructed in the United States.17
These proposed subsidies are unjustified in my view, promoting both negative economic
and environmental consequences relative to substantially more benign renewable energy
generating technologies. It makes no sense to take huge sums of taxpayer dollars from
small businesses and working stiffs in the west and give those sums to large, highly
profitable energy companies in the east to subsidize uneconomical power plants.
Moreover, by any standard nuclear power is a mature industry that has already benefited
from tens of billions of dollars in government subsidies over many decades. The
commercial nuclear power industry should sink or swim of its own accord in the free
market without additional taxpayer assistance. In the end, if the government subsidized
six more nuclear plants, we will have 110 nuclear plants instead of 104 nuclear plants.
This will not make nuclear power competitive or solve any of the nation's pressing long-
term energy needs or the global warming problem.

Let the marketplace work to address the problems we face and price energy at its
full societal cost by internalizing the cost of environmental pollution.
Assuming you believe in economic efficiency and a free market, you should be
advocating a reduction in subsidies to energy companies for production of electricity by
nuclear and fossil-fueled plants. Moreover, to level the playing field and allow all new
innovations to compete, you should be advocating internalizing the environmental costs
of these technologies. Therefore, you should support a cap on CO2 emissions to limit
global warming or accomplish the same by placing a tax on carbon emissions. Global
warming is real. It will affect western states in negative ways that we do not fully
comprehend, and severe damage may occur sooner than you think. You should work to
remove the anticompetitive advantages that poorly-controlled, inefficient, incumbent
coal-fired power plants presently enjoy over newer, cleaner, and more efficient coal-fired
plants. The country's oldest and dirtiest coal-fired plants continue to get away with
pollution-boosting refurbishments that extend their dirty lives and impede the market
entry of more efficient, cleaner coal power technologies such as integrated gasification
combined cycle. You should devote resources to enforcing the Clean Air Act's new source
review requirements, and resist the federal EPA's efforts to weaken those requirements.
Finally, you should work to halt the significant damage to western aquifers from coal and
uranium mining companies. I don't need to tell this group that water is the West's most
scarce and most precious resource. Not one aquifer that has suffered the introduction of
uranium solution mining has had its water quality restored to pre-mining status. Severe
damage to pristine aquifers and drinking water sources from mining endangers the public
health of communities and harms the long economic prospects of the American West.
The innate problems facing the nuclear industry have not been solved.
When a commercial nuclear generating station irradiates a nuclear fuel rod, nuclear
power production does not result in significant greenhouse gas emissions and during
normal operations the radioactivity emissions produce far fewer health effects than
emissions from coal-fueled plants. Despite this one favorable comparison, nuclear power
generation has its own set of unique problems -- proliferation, reactor safety, and disposal
of the nuclear waste. These problems need to be solved before expanding our
commitment to nuclear power.
1. The "once-through" fuel cycle is the only viable security and economic option.
There are serious proliferation risks associated with uranium enrichment and the use of
plutonium as a fuel. Currently these are not significant problems in domestic fuel cycle
activities, but they are serious problem at the global level, particularly in developing
nations with nuclear programs (e.g., our serious security concerns with the domestic
nuclear programs of Iran and Pakistan).
Indeed, terrorism is generally regarded as highest security concern of the United States. If
we are going to reduce the risk of nuclear terrorism at home and abroad, we must halt the
commercial use of nuclear weapon-usable materials such as highly enriched uranium and
plutonium. The MIT Study found that reprocessing and recycling plutonium -- which
creates weapon-usable material and some of the most radioactive waste in the world -- is
also is uneconomic and likely to remain so for decades to come. Separating more
weapon-usable material at a tremendous economic loss simply makes no sense. We are
not running out of low-cost uranium and reprocessing offers no nuclear waste
management benefits. For existing commercial nuclear generators (and for any new
facilities built in other countries), we should stick to the so-called "once through" fuel
cycle, with direct disposal of spent fuel, and strongly encourage other countries to do
likewise.
The use of highly enriched uranium fuel is largely confined to about 100 research and test
reactors around the world and a few hundred naval reactors in the United States, Russia
the United Kingdom and France. There is simply no reason to continue to fuel research
and test reactors with weapon-usable highly enriched uranium. IAEA Director General
Mohamed ElBaradei, on March 18th said that the U.S. government is working on an
"action plan" to get countries worldwide to stop using highly enriched uranium, which
can be the raw material for nuclear weapons. The effort to shift research reactors to low
enriched uranium fuel, begun during the Carter Administration, is moving too slowly; and
with regard to naval reactors, there has been no progress whatsoever due to opposition by
the U.S. Navy.
2. Safety of commercial nuclear generation, despite what you may hear, is still a
concern. Fortunately, there has not been a catastrophic nuclear accident in the United
States, and no partial core meltdown accident since Three Mile Island in March 1979.
The risk of a catastrophic accident is widely viewed to be lower today than it was two
decades ago. However, in March of 2002, a 6-inch deep boric acid-created hole was
discovered in the reactor vessel head at the FirstEnergy's Davis-Besse nuclear generating
station in Oak Harbor, Ohio. Only the outer layer of stainless steel, roughly one-half inch
thick, remained as part of the reactor's pressure boundary, when the softball-size hole was
discovered -- thus avoiding a loss-of-coolant accident that potentially could have turned
catastrophic. The complacency of the company, which ignored earlier warning signs, and
the NRC regulators in allowing such a situation is inexcusable and raises legitimate
questions about the continued safe operation of these aging plants.
In the future, for existing plants, the aging of equipment lessens safety, while our
increased knowledge base should continue to improve safety. Ultimately, the safety of a
nuclear power plants rests on the ability to sustain a robust safety culture among the plant
work force. Whether this can be sustained at 100 or more nuclear plans for decades to
come remains to be seen.
3. Nuclear waste disposal must be based on a geologically adequate site, not on
standards designed to ensure any site selected is licensed. Finally, there is the problem
of nuclear waste disposal. The United States government has put all its eggs in the
proposed Yucca Mountain basket. When this site was first selected, it looked far more
promising in terms of its ability to geologically isolate the nuclear waste than it does now.
To address the growing observation that the proposed site cannot geologically isolate the
waste, as seen in the attached figure, the Environmental Protection Agency (EPA)
gerrymandered the zone of compliance for environmental laws -- what is called the
"controlled area" -- around the Yucca Mountain site to allow for the site to be licensed,
rather than protect the public health and environment for generations to come. In simple
terms, the controlled area is the boundary beyond which the radiation dose to individuals
living nearby must not exceed acceptable levels as the spent fuel canisters corrode away
and radioactivity leaks from the site tens of thousand of years into the future. In the
direction that radioactivity is projected to leak from the site, the EPA extended the
controlled area from five kilometers (km) to 18 km (from 3 mi to 11 mi). Placement of
the controlled area boundary any closer than 11 miles from the site would, in short, mean
that future radiation doses might be too high for the site to be licensed. EPA now admits
that the site will leak. And placement of an environmental compliance boundary far
enough away to allow for licensing essentially creates a radioactive septic field rather
than the "geologic isolation" contemplated by the Congress in the Nuclear Waste Policy
Act.
Also betraying the geological inadequacies of the site, EPA applies its site-boundary
dose-limit criteria at 10,000 years from now, even though the projected peak doses occur
many tens of thousands of years later. This regulatory strategy of gerrymandering the site
boundary and ignoring doses after 10,000 years is unjust, morally bankrupt and should be
opposed and rejected. The Nuclear Waste Policy Act calls for the siting of more than one
geologic repository for spent nuclear fuel and high-level radioactive waste. If the first
repository sited is done so on grossly inadequate standards, a terrible precedent will have
been set for all future repository sites (which may very well be in the West despite the
region's comparative lack of nuclear generating capacity).
In sum, my advice to strengthen the state economies and the wonderful natural
environment of the West, you should:
• oppose continued and massive taxpayer subsidies to mature energy technologies,
including nuclear power;

• internalize the environmental cost of nuclear, and fossil-fueled plants by

supporting a cap on CO2 emissions, and tightening regulatory controls on aquifer
polluting coal and uranium mines and uranium mills; and

• call for a repeal of the inadequate EPA regulatory standards for the Yucca
Mountain site.