Looking At The Brackets: New Nuclear Plants Are Odds-On Favorite To Lose In First Round
I just finished filling out my March Madness brackets (for recreational purposes only, I assure you), so I think we also should start a pool on when the next utility will ask its state regulators for permission to build a new, large-scale nuclear power plant? If we did, should ‘never’ be one of the options?
Anyone willing to put their money on Georgia Power? The company actually had gotten state approval to do some preliminary work at a possible site for two new reactors In Stewart County on the border with Alabama. But earlier this month the utility told regulators it was suspending work on the expansion plans at least until its 2019 integrated resource plan is filed.
How about Florida Power & Light? The company’s planned two-unit expansion at Turkey Point has been on the books since 2008, when FPL was optimistically forecasting the new reactors would be up and running by 2018 and 2020, before subsequently pushing the start-up back first to 2022 and 2023 and now to 2027 and 2028. But last year the company told Florida regulators that while it still intended to secure its NRC license for the facility (which is expected sometime this year), it didn’t intend to do anything else until 2020.
Finally, how about Dominion Resources, which has been pushing for years to add a third unit to its North Anna site in Louisa County, Va. The proposed reactor, a 1,470 MW design developed by GE and Hitachi known as the ESBWR (Economic Simplified Boiling Water Reactor), is a first-of-its-kind unit with an estimated capital cost of almost $15 billion and an all-in cost of about $20 billion. Despite its enthusiasm for the project, even Dominion acknowledged in its 2016 IRP that the reactor was only economic in one scenario—full implementation of the former Obama administration’s soon-to-be defunct Clean Power Plan.
The problems for these companies, and any others considering such a step, go well beyond the well-documented, and still far-from-over cost overruns and delays that have plagued the four new reactors currently under construction in Georgia and South Carolina. The real issue is that the technology—one with high capital costs requiring a long time of steady state operation to get into the black—doesn’t mesh with the nation’s rapidly evolving electric power system. Committing to a nuclear plant constrains you for at least 40 years, and perhaps for as long as 80 years; and while you are still committed, everything else is changing.
The key change in the last 10 years has been the revolution in natural gas supply made possible by fracking and horizontal drilling. In turn, that has driven natural gas prices down to levels thought impossible just a decade ago—with no reason to think sharp increases are anywhere in the future.
During the review process for Georgia Power’s Vogtle 3&4 plants, the company and other witnesses presented forecasts from the Energy Information Administration (as well as its own, but more on that in a minute) that look almost laughable today. Take a look at the chart below—prices never drop below $6 per million British thermal units and spend most of the forecast period well above $10 per mmBtu. Now that forecast was in nominal dollars, but even an inflation-adjusted view (see the second chart) has the prices well above $6 per mmBtu for the duration. Compare that to EIA’s 2017 forecast (the third chart), which keeps gas prices below $6 per mmBtu (in 2016 dollars) through 2050.
This radically different outlook for natural gas prices is crucial—since at current levels the Vogtle plants may never make it into the black. In his 2008 testimony during the Vogtle 3&4 certification process before the Georgia Public Service Commission, Philip Hayet, testifying for the commission’s public interest advocacy staff, warned repeatedly that under a low natural gas price outlook the economics of the Vogtle expansion didn’t make sense.
The most telling portion of his testimony follows below. As you can see, portions of his testimony have been redacted (those sections with XXXXX), which was done at Georgia Power’s request. This is a frustrating process for an outside observer since it prevents a complete evaluation of the material for no apparent reason. It is as if state secrets were involved and letting everyone know would somehow compromise the company; instead of, as I would argue, improving the decision-making process by broadly disseminating all available information. That aside, it is fairly easy to fill in the blanks through a careful reading of the testimony, as I have suggested below, particularly when you consider the two paragraphs together.
“In Figure 11 [also redacted, as are all of the graphics with Georgia Power information in them], the one case that is uneconomic over the entire study period is XXXXXXX XXXXXXXXXXX [low natural gas prices and no carbon dioxide tax/fee]. In that potential future outcome, the nuclear unit will have been a XXXX [I will let you fill in your preferred adjective here, but clearly he means the reactors would have been a bad economic decision]; however, nobody in the utility industry believes that this case is feasible, as there is a great expectation that there will be XXXXX [a CO2 tax/fee] of some form. In the highly unlikely event that XXXXXXXX [no fees/taxes] are imposed, there would most likely be significant gas fired generation built. That in and of itself would be the cause of driving up natural gas prices.
“Excluding the low fuel, no CO2 scenario, which I discussed above, each of the other cases appear uneconomic for some time period before turning up and moving into positive territory.”
I added the emphasis above, since that is clearly where we are today—and could be for the life of the new Vogtle reactors. I cannot say what the ‘low natural gas price’ was that Georgia Power used in its analysis, but remember that at the time prices were never expected to drop below $6 per mmBtu, and notice that even though Georgia Power’s data is redacted, the chart itself starts at $6 per mmBtu and moves up from there. Clearly if its forecasts were below that level the y axis would have had a different starting point.