The Obama Administration announcement regarding the EPA’s Clean Power Act governing carbon pollution from electric production utilities is being both lauded and derided. I believe it will likely face a vigorous fight in court, as many state governors and public utilities in coal dominant states have already lined-up against.
The Clean Power Act seeks at 32% reduction in carbon based generation by 2030. While the new goal appears to be aggressive, and its target is clearly coal, the act comes at a time when utilities are retiring or repowering older, smaller, dirtier and less efficient coal-fired plants. The US Energy Information Association (EIA) measured the change in US generation from 2005 to 2015 and found a decrease of nearly 16% in use of coal, with natural gas and wind power offsetting coal’s decline.
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The increase in natural gas reserves from fracking and new discovery has stabilized the price, which has been historically volatile, though it is still a carbon based fuel, and the final Act dropped earlier language that natural gas would be viewed by EPA as a “bridge” from coal to non-carbon based fuels.While it appears coal is on an inexorable decline, the question is what is likely to benefit:
- Wind power has benefitted from tax credits that offset generally high cost per MW, though due to its reliability and regional nature, wind is not a candidate as a baseload fuel.
- Solar has received many headlines (both good and bad) and its growth is impressive, but it cannot realistically be considered a baseload fuel until battery storage allows for night time generation.
- Other renewables (hydro, biofuels, etc) are likely to max out
The nuclear industry could be the greatest beneficiary of the Clean Air Act. During the last ten years, the nuclear industry has made more headlines for plant closures, decommissioning of inviable plants, cost and schedule overruns in the building of the new, third generation plants and plant uprates, and ongoing uncertainty regarding nuclear waste storage. The Clean Power Act provides certain built-in advantages for nuclear that could foster renewed discussion of a renaissance:
- Nuclear is a proven baseload fuel that is carbon free
- The Clean Power Act made new nuclear units under construction and upgrades to existing facilities an alternative source for carbon credits.
- The Clean Power Act has provided utilities with a specific value for the price of carbon emission that can now be monetized. Such a value has been the great unknown for examining the benefits of nuclear in comparison to fossil plants, as those planning new nuclear plants have had to guess at the expected carbon tax that had not yet been assessed.
However, for the nuclear industry to rebound, it must address the following:
- New build projects have experienced significant cost and schedule overruns in the U.S. and Europe – developing a full understanding of these overruns is critical for utilities to commit to new nuclear construction.
- Uprate projects of existing nuclear plants have been beset cost and schedule overruns as well, and these projects have been impacted by poor upfront planning and understanding scope;
- Small modular reactors are promising, though previously unproven.
- Decommissioning of existing plants that have reached their end of life needs to be properly executed so that the public has confidence in the industry.
- Life extension to 80 year licenses needs to be pursued though with proper attention to garnering the public’s confidence.
Each of these can be aided through understanding of lessons learned and full analysis of the causes of these past and current problems in order to restore public and investor confidence in nuclear. This is a critical time and decisions regarding nuclear must inject the appropriate prudence in the process.
While it is too early to know the exact implications of the ruling, we continue to stay apprised of the Act and will monitor its impact for our industry and clients.
