nuclear-news

State subsidies for nuclear power in USA are simply not necessary

State Nuclear Subsidies Not Needed, Forbes, Adam Millsap-19 Apr 19 
Natural gas has become the dominant source of electricity generation in the United States and this is creating some financial issues for the nuclear industry. Since 2010, several nuclear plants around the country have closed and economic conditions, particularly low natural gas prices, are often citedas a factor. Officials from companies that own and operate struggling plants are seeking government assistance to stay afloat, but state lawmakers should be skeptical.

The decline in the price of natural gas since 2008, shown in the figure below, [on original] has made it difficult for some nuclear plants to compete. Prior to 2008, some thought a nuclear renaissance was on the horizon. Now this seems unlikely.

Nuclear power is characterized by the initial high costs of plant construction followed by relatively low operating costs. When alternative energy sources—such as coal, oil, solar, etc.—are expensive, it can make economic sense to bear the high costs of nuclear plant construction. But when other prices are low, as with today’s abundant natural gas and increasingly competitive wind and solar power, it’s harder to justify new plant construction.

Not only are economic conditions working against new nuclear plants, but they are also unfavorable to many existing plants. Unsurprisingly, officials from the companies that own and operate the struggling plants want some government help. A recent report in Pennsylvania’s York Dispatch shows that Exelon Corp.—the owner of some of the struggling plants—significantly increased its lobbying spending in Pennsylvania in 2018 compared to the previous five election cycles. Spending increased from an average of just over $646,000 from 2008 to 2016 to nearly $1.8 million in 2018.

There is some evidence that the lobbying is working. …..

Subsidies work by taxing one group and giving the revenue to another. In the Pennsylvania and Ohio bills, the funding for the subsidy is raised via higher electricity rates on consumers.

Supporters of both bills argue that nuclear is a vital source of clean energy and that without legislation nuclear plants will continue to shut down. But despite competition from natural gas and renewables, it’s not clear that the nuclear industry as a whole is in deep financial trouble. According to a recent analysis, all but one of Pennsylvania’s five nuclear plants are covering their costs. Since there is no financial stress requirement in the Pennsylvania bill, profitable plants in the state will benefit just as much as the current unprofitable one—Three Mile Island Unit 1.

More broadly, a recent State of the Market Report for PJM, which is the regional transmission organization that coordinates the movement of wholesale electricity in Pennsylvania, Ohio, and other nearby states, also casts doubt on the general unprofitability of nuclear power. The report projects that only three of 18 nuclear plants in the region—Three Mile Island along with Davis-Besse and Perry in Ohio—won’t be able to cover their costs for at least one year between 2019 to 2021. ……

 it’s not clear that subsidizing inefficient nuclear plants is the most economical way to address climate change , since subsides have problems of their own……

subsidies to nuclear plants are also likely to crowd out new, more efficient electricity plants. Total electricity generation in the United States has declined slightly since 2010 despite economic growth in the form of real GDP per capita, as shown below. [on original]

In a world of declining or even stable electricity use, the profit motive for investing in new capacity is weakened if new plants are not allowed to out-compete less efficient plants for market share. So as long as less efficient nuclear plants are meeting consumer demand, newer plants powered by natural gas, wind, solar, or some other source will have a difficult time finding a market.

Stu Bressler, senior vice president of operations and markets for PJM Interconnection, recently said essentially this when he told Ohio lawmakersthat subsidizing less competitive plants “…could prevent the building of more efficient and cost effective plants, including cleaner technologies like solar and wind.”

Finally, just because a subsidy has the potential to improve economic efficiency doesn’t mean it will. A subsidy that is too small will not generate enough of the good or service. A subsidy that is too large can generate too much, leading to more inefficiency than no subsidy at all. The bureaucratic costs of estimating the correct subsidy, implementing it, and administering it must also be considered. If these costs outweigh the potential gains in efficiency from the subsidy, then the economy would be better off without it.

It doesn’t appear that Ohio or Pennsylvania lawmakers have rigorously estimated the appropriate subsidy or accounted for the costs of implementing and administering one in their proposals. Without such analysis, it’s unlikely that the proposed nuclear subsidies will lead to an improvement in consumer welfare. Instead, these subsidies will likely do more harm than good, as they seem to be primarily designed to help a few unprofitable nuclear plants rather than carefully thought out pieces of a broader, market-based energy plan.

Adam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and an Affiliated Scholar at the Mercatus Center at George Mason University. https://www.forbes.com/sites/adammillsap/2019/04/19/state-nuclear-subsidies-not-needed/#e532f23111dc

April 20, 2019 - Posted by Christina Macpherson | politics, USA