Hooked on Subsidies

Why conservatives should join the left's campaign against nuclear power.

When it comes to politics, we don't often find ourselves in agreement with Bonnie Raitt or Graham Nash. But now that they are campaigning against new nuclear plants, they're our friends. Raitt, Nash, the Indigo Girls and other vocal rockers are attacking a provision in pending Senate legislation that would award what they call "massively expensive loan guarantees--potentially a virtual blank check from taxpayers" for nuclear power plant construction.

Even without the new legislation there's plenty of federal money being doled out. In September NRG Energy, an energy wholesaler in Princeton, N.J., applied to the Nuclear Regulatory Commission for a license to build and operate a two-reactor nuclear plant near Bay City, Tex. The NRC is expecting 19 similar applications in the next 18 months. If approved, they will be eligible for loan guarantees under the Energy Policy Act of 2005.

Pro-nuclear groups herald the coming flood of applications as proof that nuclear energy makes economic sense. Nonsense. The only reason investors are interested: government handouts. Absent those subsidies, investor interest would be zero.

A cold-blooded examination of the industry's numbers bears this out. Tufts economist Gilbert Metcalf concludes that the total cost of juice from a new nuclear plant today is 4.31 cents per kilowatt-hour. That's far more than electricity from a conventional coal-fired plant (3.53 cents) or "clean coal" plant (3.55 cents). When he takes away everyone's tax subsidies, however, Metcalf finds that nuclear power is even less competitive (5.94 cents per kwh versus 3.79 cents and 4.37 cents, respectively).

Nuclear energy investments are riskier than investments in coal- or gas-fired electricity. High upfront costs and long construction times mean investors have to wait years to get their money back. The problem here is not just the cost per watt, several times that of a gas plant, but the fact that nuclear plants are big. Result: The upfront capital investment can be 10 to 15 times as great as for a small gas-fired turbine.

A nuclear plant's costs are not only higher but more uncertain. Investors have to worry that completion will take place late--or never (witness the abandonment of the reactor at Shoreham, N.Y.). Accordingly, nuclear power would have to be substantially cheaper than coal- or gas-fired power to get orders in a free market.

So why does NRG want to build a nuclear plant in Texas? Two factors are in play. First, the license costs a relatively small amount compared with the cost of construction. Second, the federal government would guarantee up to 100% of the $6.5 billion to $8.5 billion NRG might borrow from capital markets (as long as it doesn't exceed 80% of the project cost). Without such guarantee no investor would lend significant amounts of capital to NRG.

How do France (and India, China and Russia) build cost-effective nuclear power plants? They don't. Governmental officials in those countries, not private investors, decide what is built. Nuclear power appeals to state planners, not market actors.

The only nuclear plant built in a liberalized-energy economy in the last decade was one ordered in Finland in 2004. The Finnish plant was built on 60-year purchase contracts signed by electricity buyers, by a firm (the French Areva (other-otc: ARVCF.PK - news - people )) that scarcely seems to be making good money on the deal.

What, then, should government do to overcome nuclear's economic problems? Absolutely nothing. There is no more to the right-wing case for nuclear subsidies than there is to the left-wing case for solar energy subsidies.

If the permitting process is broken, then by all means fix it. If plant safety regulations are excessive, then by all means reform them. If greenhouse gas emissions prove to be a problem, then impose a reasonable carbon tax across the board. But once those tasks are complete, the role for government ends.

source:  forbes

Nuclear innovations — will they lure cleantech capital?

Nuclear power is a bit of a land mine in the field of clean technology. Mention it in any given room of environmentalists, and opinions will explode. Some say nuclear’s terminally unsafe. Others say it’s the only true cleantech solution.

Detractors have kept nuclear innovation limited for years. However, increasing demand for non-emitting, high-output electricity generation has put nuclear back on the front burner. And projects like Hyperion Power Generation are showing that new ideas are potentially ripe for investment.

Despite the nuclear market’s many regulatory restraints, Hyperion expects to be able to privatize technology developed at Los Alamos National Laboratory, in its home state of New Mexico. The company hopes to build and sell thousands of what it calls nuclear “batteries” — essentially small, self-contained reactors that produce about 27 megawatts of electricity for a period of several years.

The idea behind Hyperion’s generators is that small towns or villages could install a unit to handle all their local power needs. The technology could especially find demand in remote locations like oil fields or the developing world, where many localities are not yet on the grid.

The company says the material it uses, uranium hydride, is stable and simpler to dispose of than nuclear waste from large-scale reactors. However, critics will point out that, as in Soviet-era lighthouses, under-funded local authorities may simply neglect to remove small nuclear installations once their effective life is done.

Hyperion is not the only company with ideas for small-scale nuclear projects. Another, Adams Atomic Engines, claims to be able to build reactors ranging from 1 megawatt to 50 megawatts. And Toshiba has proposed building a tiny reactor called the 4S to power Galena, Alaska.

Separately, companies like Unistar and AREVA are also making efforts to innovate in nuclear energy, fielding new designs like the so-called evolutionary power reactor. The EPR is a design for a typical commercial reactor capable of producing thousands of megawatts, but with gains in safety and efficiency.

By developing improved nuclear technology, these companies hope to convince more localities that might otherwise build new coal- or gas-fired plants to build nuclear reactors instead.

Governments and utilities may not take much convincing. Dozens of new plants are already being built worldwide, and uranium prices are over ten times as high as they were a few years ago, with demand running ahead of production.

While the main investors in reactors will of necessity be organizations with plenty of capital — banks, large energy companies and government — new innovations ranging from heightened efficiency to safe disposal leave some room for venture investment.

Hyperion, for example, is backed by a little-known firm called Purple Mountain Ventures. And Venrock Capital’s own Ray Rothrock has written a contributor piece for VentureBeat advocating nuclear investment.

We’ll be interested to see whether nuclear’s potential for non-emitting electricity generation outweighs the concerns of its critics. Heard of an interesting technology? Let us know.