It was a very cordial discussion and afterward we all shook hands and posed for pictures. Yet, the differences were sharp.Yes they were. I was at the debate and right off the bat Mr. Severance was hitting zingers to the nuclear industry on costs. No doubt the industry had a large learning curve to overcome in the past. Yet look where we’re at today: 104 nuclear reactors generating 20% of the US’ electricity representing only 10% of the US’ total installed capacity while operating more than 90% of the time. No other source of energy does that.
Assumptions Matter
The main point of Mr. Severance’s presentation was, of course, to show the estimated enormous expense to build a new nuclear plant. Estimating the costs to build a new nuclear plant relies on a plethora of assumptions. And those assumptions always differ between sources. So when Mr. Severance or anyone else releases a study claiming that new nuclear is exorbitantly expensive, you always have to ask: what are the assumptions?
Construction Cost Indices
Well, there are quite a few questionable assumptions the Severance paper made that inflated the cost results, one of which I found earlier this year. During the debate a commenter found another exaggerated assumption which Severance defended in his post:
I was asked in the Q&A why there were such big differences in cost projections, and I answered "Optimism". For instance, Florida Power & LIght is projecting that nuclear construction costs (which rose an average of 15%/year from 2002-2007), will now only increase by 2.5%/year, which is less than recent Consumer Price Index inflation rates.If you’re unaware of what’s recently happened to construction costs for all power plants, then you should know that the costs for the materials and labor to build power plants has increased faster than normal for half of this decade. This phenomenon is documented by CERA’s Power Capital Cost Index which Mr. Severance is referring to in the parentheses in his paragraph above. But if you look at CERA’s graph, the estimated costs have moderated a bit over the past year and a half (this fact is not accounted for in Mr. Severance’s assumptions).
If we take a look at the Handy Whitman Electric index from 1990-2002, construction costs increased a little more than 3% per year. In the ‘80s, the index increased around 2.6% per year; in the ‘70s, it was about 3.6% per year. Yet, Mr. Severance’s paper assumes between 8-9% per year increase in construction costs (more than twice the average of the last three decades!).
Current Year versus Future Year Dollars
When presenting cost results, it is necessary to show to the year in which dollars are spent. In Mr. Severance’s presentation, the levelized “low” cost for nuclear comes in at 25 cents/kWh (slide 26, pdf). Yet, the year the paper’s dollars are in is 2018. If one were to deflate the numbers to 2008 dollars (which we’re used to seeing), the levelized “low” cost for nuclear is 18 cents/kWh (as shown in his slide 26). That number is still high. But for some reason, Mr. Severance and our nuclear critics still used the inflated 2018 numbers in their highlights to make it seem like nuclear is more expensive than it really is.
So I’ve shown a couple of examples of how Mr. Severance’s study is built on exaggerated assumptions and deceptions to make nuclear plants seem more expensive. Let’s take a look at how his numbers stack up against other sources.
Massachusetts Institute of Technology and Energy Information Administration
From Severance’s post:
Ms. Kass presented NEI's version of nuclear economics, citing the recently released 2009 Update to MIT's 2003 study "The Future of Nuclear Power". She did not mention the Update concludes nuclear is still not competitive with coal or natural gas, but did stress its very low cost estimates.The results of the two MIT studies have been spun so poorly by the anti-nuclear community that I have to ask if any of them ever read the studies. Here’s page 8 of the Updated MIT study (pdf):
With the risk premium and without a carbon emission charge, nuclear is more expensive than either coal (without sequestration) or natural gas (at 7$/MBTU). If this risk premium can be eliminated, nuclear life cycle cost decreases from 8.4¢ /kWe-h to 6.6 ¢/kWe-h and becomes competitive with coal and natural gas, even in the absence of carbon emission charge.Under a certain set of assumptions, nuclear is not competitive. But in the next sentence nuclear becomes competitive when one assumption on risk premiums is adjusted. Furthermore, if we add in carbon prices, nuclear looks even better. Yet, the nuclear critics like Mr. Severance cherry-pick the only sentence that fit their pre-conceived notions when two other scenarios are just as valid, if not more. Sounds familiar.
How do Severance’s and MIT’s results stack up to each other? Well, Mr. Severance’s “low” levelized cost comes to 18 cents/kWh in 2008 dollars whereas MIT comes to 6.6-8.4 cents/kWh in 2007 dollars. Quite a large discrepancy even after accounting for the one year difference in dollar years.
Not only did Mrs. Kass cite MIT’s results during the debate, she also cited the Energy Information Administration’s cost results that we posted a couple of weeks back. Recent data from the EIA on the levelized cost of electricity shows that “advanced nuclear” comes behind only conventional coal and gas with no carbon sequestration (same conclusion as MIT).
How do Severance’s results stack up against EIA’s? EIA found nuclear at 10.7 cents/kWh in ’07 dollars compared to Severance at 18 cents/kWh in ’08 dollars. Still quite a big discrepancy.
So who’s the outlier?
With a few additional touches in red, below is slide 22 from Mr. Severance’s presentation at the debate:
If you take a close look at the graph, you can see that Severance’s nuclear cost number stacks up almost 5 cents/kWh (or $50/MWh) higher than the next most expensive result from nine other studies. In statistics, a case can be made to eliminate the outliers. But the decision is “ultimately a subjective exercise.” So should we eliminate the outlier? I think so.Subsidies
From Severance:
By definition – if coming to Washington for subsidies you’re not competitive – slide 2.Well, according to this logic, I guess no energy industry is competitive then because all of them receive subsidies in one form or another.
On slide 23, Severance asked the nuclear industry: “when can we stop the subsidies?” Right above that question he showed the years when the tax credits for wind (2013), other renewables (2014) and solar (2017) are set to expire. I was stunned when he singled out the nuclear industry for asking for endless subsidies because I remember this chart from AWEA showing what happens when the wind industry no longer receives the production tax credit (pdf). Yet the PTC for wind always came back the following year and has been in existence since 1992. So does Mr. Severance ask the same question to the renewable folks?
Furthermore, if Mr. Severance is so concerned about subsidies, he may be interested to know how much loan guarantee volume has been recently issued to other technologies:
Graph based on combined totals from H.R. 1 American Recovery and Reinvestment Act of 2009 and H.R. 1105 Omnibus Appropriations for fiscal year 2009.If anyone is interested in reading why loan guarantees are necessary and good for everyone overall, I highly recommend this page from NEI.
Wrap Up
From Severance:
The nuclear industry is always saying in effect, "Next time we'll get it right."A refusal to face facts? I guess Mr. Severance hasn’t kept up with how the nuclear industry has changed from the first go-around of new plants. Here’s our table eloquently explaining the differences:
For Congress to accept this argument, with no nuclear vendor willing to stand behind the optimistic cost projections, would be more than optimism. It would constitute "Ostrichism" -- a refusal to face facts --about an industry that has never achieved its economic promises.
So which construction cost numbers should we believe in? An accountant’s who based his calculations on one overnight cost number from Florida Power & Light and then inflated the total construction costs every way possible? Or EIA and MIT (who are not interested in anything but pure math), and three state public service commissions (who approved construction of their state utility's plans for new nuke plants). Or how about FPL? FPL is the largest generator of renewable electricity and has already received the approval to build two new nukes from their public utility commission. Hmm, tough decision.Check out this link if you would like to vote for or against Mr. Severance’s argument. So far, the votes aren’t looking good for his paper...
Update 7/29/09 9:45 AM: I left a comment on Mr. Severance's blog post yesterday morning pointing him here and so far the comment hasn't been published. Maybe he's on vacation...
Update 7/30/09 12:10 PM: I guess he was on vacation and we should expect a response later. Looking forward to it.
Update 8/5/09 9:00 AM: If you haven't seen his comment yet, Mr. Severance responded to our post. After reviewing his response, there are quite a few new inaccuracies that need to be addressed. Stay tuned for a post next week.
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