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Why America's Clean Energy Plans Need To Embrace Nuclear Power

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By Elsie Hung and Kenneth B. Medlock III

The nuclear industry in the U.S. is struggling, which is not a good thing for the reliability of electricity generation or meeting nationwide carbon emissions targets. Unfortunately, environmental policies such as the Clean Power Plan (CPP) have not seized the opportunity presented by a growing public willingness to tackle climate change through adjusting the energy mix, a development that should prioritize nuclear as a zero carbon source of stable baseload power generation.

Currently, one-fifth of U.S. electricity is generated by nearly one hundred nuclear plants across the country. But, that percentage looks likely to fall. Eleven percent of U.S. nuclear fleet, accounting for more than 10 GW of capacity, is at risk of early retirement. In fact, integrated energy company Entergy announced that it would retire another nuclear plant in New York by 2017. It already decided to shutter the Pilgrim Nuclear Plant in Massachusetts by 2019.

Since nuclear power is a zero carbon source of electricity – and since cutting carbon emissions is becoming more important on national and global agendas – the pending decline in US nuclear power is an untimely development. Done correctly, nuclear power could play a major part in decarbonization of the power sector, not only in the US but abroad. Its potential, of course, will depend on the economic prospect of nuclear relative to other generation sources, such as natural gas and renewables.

Carbon reduction policies, like the CPP, are crucial, but a more holistic approach would provide adequate incentives to all low-carbon generation—including nuclear—instead of simply tilting the landscape towards wind and solar by subsidizing capital investment. To maintain a healthy, balanced market with proper pricing signals, a carbon tax rather than renewables subsidy should be strongly considered. Such a policy would still shift the competitive balance towards renewables and away from fossil fuels, but it would also broaden the playing field for other types of generation technologies to compete into a new market paradigm. Indeed, the current pathway too closely resembles the “all eggs in one basket” paradigm that we are taught to avoid very early on with our own investment portfolios.

The CPP’s main objective is a 32% nationwide reduction in carbon emissions by 2030 from the power sector relative to 2005 levels. The Environmental Protection Agency (EPA) determined the appropriate level of emissions reduction, or the Best System of Emission Reduction (BSER), for each state by evaluating the impact of shutting or optimizing coal plants and increasing natural gas and renewable generation capacity on the grid.

According to the rule, new nuclear capacity and upgrades to existing capacity can generate tradable credits to the facility owners for use in an interstate emissions trading program, if one is implemented. Depending on the price of tradable permits, an interstate emissions trading could incentivize investment in new nuclear capacity by improving the economics of nuclear relative to competing fossil-fueled power generation options. In the near term, the rule would most benefit the southeast where additional nuclear capacity is under construction. However, the CPP lacks sufficient incentives to keep the existing nuclear fleet fully operational, and it does not explicitly encourage new nuclear capacity development. Long term, nuclear capacity is important for maintaining power system reliability while meeting emissions reduction goals.

The average age of the U.S. nuclear fleet is 33 years, with more than half over 30 years old. The Tennessee Valley Authority’s Watts Bar 2 nuclear reactor, which has been under construction for decades, will become the first addition to US nuclear capacity in two decades when it comes online in the near future. Nuclear generation capacity provides economic advantages in the longer term. A typical 2 GW nuclear plant requires up to 10 years lead time for construction with investment costs in the billions. Once operational, however, it provides a very steady output of zero-carbon power at relatively low operating costs.

It is important to recognize the challenges that nuclear options face. For one, competitive wholesale electricity pricing in deregulated markets is not generally supportive of large fixed cost capacity additions, such as nuclear. In fact, the five plants currently under construction are located in regulated markets where they can earn a fixed rate of return. By contrast, a natural gas combined cycle (NGCC) power plant needs only 2 to 3 years to build and wind farm only a few months. Both have lower upfront costs than nuclear, although operating costs also play a role. Even then, the EIA indicates that new nuclear plants cost $95 per MWh, whereas $75 for NGCC and $74 for onshore wind. However, wind is intermittent and non-dispatchable, meaning its profitability is explicitly tied to when it is available, which may not coincide with peak demand. Other types of generation, such as nuclear and natural gas, are not tied to nature, and can be made available during peak demand periods, which in turn enhances their relative profitability.

In addition to being relatively high cost, nuclear power carries safety and environmental concerns that must be addressed. To begin, public worries over disposal of radioactive waste from nuclear power facilities requires a long term solution, as do safety concerns that were heightened since the 2011 Fukushima accident in Japan. Absent a full addressment of these issues, nuclear power will continue to be met with negative to lukewarm public opinion.

Another environmental issue is tied to the fact that nuclear power plants withdraw the largest amount of water for cooling among thermoelectric sources like coal and natural gas. So, in a world where the water-energy nexus is increasingly coming into policy focus, the water footprint of nuclear power must also be addressed.

Considering these points along with the relative carbon intensity of all generation options, expanded use of natural gas appears to be a very cost-effective option to reducing carbon emissions from the power sector. In addition, natural gas is very flexible as a dispatch option, meaning it can help balance a market effectively with greater renewable penetration. Expanding generation from renewables can make system planning more complex as without ability to cost-effectively store electricity at a commercial scale, there is a mismatch between the amount of power supplied by intermittent renewables and daily patterns of demand. Wind and solar simply are not reliable sources of electricity supply by themselves, so they require backup capacity to ensure reliable system load flow. This begets a need for significant redundancy in the generation mix so that natural gas plants are on standby to balance the system. This basically occurs because current policy is underestimating the value of the stability of nuclear power as a source of baseload electricity. When designing the future grid, reliability and the costs to provide it should be considered in addition to carbon intensity. This is important for sustaining long run economic activity in a lower carbon future.

Therefore, to reduce CO2 emissions while maintaining reliable power supply, a portfolio approach that includes nuclear power in conjunction with other low carbon generation is crucial. Keeping existing nuclear capacity in the mix not only provides a stable source of power but also mitigates carbon emissions. Extending the life of the existing nuclear fleet through relicensing and upgrading helps achieve this aim. This year, the Nuclear Regulatory Commission gave approval for operational lifetimes for 78 reactors to be extended by 20 years, thereby extending their life span to 60 years. The next round of relicensing starts in 2029, at a time when a large fraction of expected coal retirements will have already occurred. To facilitate stated goals for CO2 emissions reductions, policy must encourage upgrades to existing nuclear facilities, support new capacity expansion, and include more incentives for relicensing existing capacity.

Allowing nuclear power to fade from the US energy portfolio increases the likelihood of rising reliability costs and perhaps, in a worst case scenario, grid failure, particularly as policy pushes “energy transitions” and we strive to meet ever more stringent emissions targets after 2030. Perhaps now is the time to think about adopting a carbon tax because it equally recognizes the value of low-carbon generation sources, facilitates the use of market mechanisms, and directly internalizes the costs of carbon emissions without picking winners and losers.

Elsie Hung is the Research Associate for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Kenneth B. Medlock III is the Senior Director for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy