U.S. EIA Nuclear Power Outlook 2018, Vogtle
The U.S. Energy Information Administration (U.S. EIA) just released its Nuclear Power Outlook 2018. Here are a few quick comments to highlight some of the conclusions of this report particularly as they relate to Georgia and the Vogtle construction project. I’ll preface this with a recap of my position on Vogtle.
In November of 2017, I had the privilege of testifying to the Georgia Public Service Commission on matters pertaining to the construction of Vogtle Units 3&4. For those who may not know, this is the only nuclear power project currently under construction in the U.S. My testimony (Summary Statement) focused on the non-monetized benefits of nuclear power that support a decision to move forward with the construction of these reactors. These benefits being: 1) Energy diversity for the state of Georgia; 2) Energy policy resiliency; and 3) National security. Some who testified in opposition to continuing with the Vogtle project pointed to solar and natural gas as better options than nuclear. In the interest of brevity, I’ll only briefly comment here on the natural gas option, since it’s included in the U.S. EIA Nuclear Outlook.
In my testimony, I emphasized, among other things, that currently low-priced natural gas isn’t a sufficient basis on which to plan and project a state’s long-term energy portfolio. Georgia’s current generation mix for its total electric industry is 42.7% natural gas, 26.1% coal, 27.2% nuclear, 2.5% hydro and 1.7% utility-scale solar. This represents a substantial trend away from coal, which, in 2001, was 65% of the state’s portfolio while natural gas was 3% (Figure 1). The reason for this shift has been due to the better economics of natural gas via the innovation of fracking and the vision by policymakers that coal faces what are likely to be insurmountable challenges in the future. However, what should be accounted for is that natural gas, unlike the coal it is displacing, isn’t an on-site storable energy resource. Meaning, natural gas plants are dependent on upstream production that, in the case of Georgia, is outside the state. There is, then, a trade-off—as the state moves away from a high-carbon resource to a lower-carbon resource, it improves its carbon footprint and perhaps the power generation economics, but loses the advantage of an on-site storable resource. This isn’t fundamentally problematic unless Georgia becomes overly dependent on that flow-dependent resource. As coal is looking less and less likely as a viable option for the future (economically, environmentally, and politically), and since Georgia has made substantial investment in natural gas capacity, nuclear is the better option for its on-site storability features, its zero-carbon attributes and the long-term diversity it brings to the state’s energy portfolio. Just as resource availability made natural gas an economical option for today, those economics are certainly subject to price swings and economic shifts over the lifetime of a power plant, especially if it’s a nuclear power plant with a 60-plus year lifetime. These swings and shifts will be associated with market forces that put upward pressure on natural gas prices and potential carbon policy constraints that would add additional upward pressure. Again, this isn’t an anti-natural gas position. Rather, it’s a long-term diversification position. I presented this in my testimony, along with the critical national security implications associated with nuclear power.
This EIA report confirms that the outlook for U.S. nuclear power is sensitive to natural gas prices both as a market phenomenon and due to the possibility of future federal carbon policies, which I see as inevitable. It also points out that the structure of electricity markets need to be evaluated because “of the 60 nuclear plants operating in the U.S., 31 generate and sell electricity into deregulated (i.e., merchant) wholesale electricity markets where they compete with other generating capacity resources at the sub-regional level.” In my opinion, this is the elephant in the room for electricity markets as the energy portfolio in deregulated markets is dictated by market forces alone—forces that cannot detect energy diversity, the future political landscape that will impact energy policy, or the national security implications of nuclear power. Deregulated markets lack the signals to detect these critical factors, which is why, in my opinion, the regulated market model is preferred as it allows individuals to exercise wisdom, prudence and sound judgement as to the direction a state should take in the energy policy that will underpin its electric power sector, its economy, and its energy security. While merchant markets chase short-term marginal costs (which is what a merchant market should do), regulated markets have the flexibility to develop long-term integrated resource plans with a view toward stability, resilience and low rates—all of which are hallmarks for the state of Georgia and its regulated market structure.
The points I raise here are in no way intended to detract from, or minimize, a core issue facing the U.S. nuclear power industry today—that being, the high capital costs for new nuclear power construction projects. This is something that can only be impacted as the industry comes out of a 30-plus year political coma, regains its footing and pursues the design, development and deployment of advanced reactors—issues also pointed out in this EIA report. One more reason why the U.S. is long past the point of needing comprehensive energy policy that accounts for energy diversity, carbon reduction, grid reliability, and the national security implications of U.S. nuclear power.