Overview

Since 2014, nuclear power companies and supportive policymakers have begun promoting new forms of subsidies to benefit existing nuclear power stations in the United States. Thus far, such proposals have only been adopted in one state (New York), and legal and regulatory challenges have resulted in only one nuclear reactor receiving temporary financial support to date.

A new long-term, statewide subsidy policy recently adopted in New York, to be implemented beginning in April 2017, is now being touted as a national model. The total cost of the 12-year subsidy New York is offering to Ginna and three other reactors is substantial: an estimated $7.6 billion–more than three times as much as the subsidies for new renewable energy sources ($2.44 billion by 2030) under the state’s new 50%-by-2030 renewable energy  standard.

A recent draft report by the U.S. Department of Energy recommends providing new and increased subsidies and incentives to promote the longevity of existing reactors and deployment of new reactors; the DOE report recommends subsidies amounting to $27/MWh, very close to those under the New York model.

According to this analysis, a national subsidy program based on New York’s would carry a significant cost to consumers and/or taxpayers: over $280 billion by 2030. According to a recent report by Bloomberg, over half of existing nuclear power in the U.S. (56% of total generation) is projected to be unprofitable by 2020. If only unprofitable reactors were subsidized through such a program, the cost would still be quite large: $160 billion by 2030. We provide these estimates to inform discussion of nuclear energy policy proposals in the coming months, as state and federal policymakers consider how to respond to the declining economics of nuclear power. The energy status quo is changing rapidly, between aging energy infrastructure, dramatic advances in renewable energy and new technologies, the need to rapidly reduce greenhouse gas emissions, and problems of energy affordability and consumer cost burdens. Decisions about how to deal with nuclear power must be made in context of these broader changes, as well as in consideration of the economic and environmental impacts of subsidizing aging reactors and other legacy energy infrastructure.

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History

Since 2014, the industry has advanced several talking points to support its pleas for new subsidies. Two of these have provided a basis for considered policy making: grid reliability, that is, sufficient electricity supply and/or voltage support to avoid power shortages or blackouts; carbon dioxide emissions levels, through the assumption that the electricity provided by nuclear power plants that close down would be replaced by electricity from fossil fuel power plants. These claims about the roles nuclear can or must play are often inaccurate, and experience has shown that both reliability and emissions targets can be met in different ways.

The industry has also proffered political talking points, claiming that nuclear is being disadvantaged by a lack of government support, particularly relative to renewable energy sources. These considerations are worth addressing, to put the plea for new subsidies in the proper context. One the one hand, it is untrue that existing nuclear power stations are un-subsidized. Nearly all reactors were heavily subsidized by state and federal policies, from research and development, to favorable cost-recovery treatment by state utility commissions, to the aforementioned $130 billion bailout of stranded nuclear construction debts in the 1990s.

The new proposed subsidies are for these same reactors, nearly half of which were sold or transferred effectively debt-free to merchant power generators between 1998 and 2004. On the other hand, the industry benefits from several major federal and state policies that reduce or eliminate reactor owners’ liability for environmental impacts, including nuclear accident insurance, nuclear waste management and disposal, reactor decommissioning and site cleanup, uranium mine and processing waste, and water consumption. A comprehensive study of nuclear power subsidies in 2011 concluded that the cost of financial supports to the industry has frequently exceeded the value of the electricity nuclear power plants produce.

In addition, the claim that renewable energy sources enjoy subsidies not offered to nuclear power is simply unfounded. The federal production tax credit (PTC) and investment tax credit (ITC) that support new wind, solar, and other generation sources have also been available to new nuclear reactors since 2005. Most existing reactors also benefited from similar ITCs available at the time they were built. However, while the economics and performance of wind and solar have been favorable and improved dramatically over the last ten years, the opposite has been true of new nuclear reactors. As a result, not a single new reactor has been brought online in the eleven years since the nuclear PTC was created, so the industry has thus far failed to cash in on a subsidy very much on the same scale as that offered to new renewable energy sources ($18/MWh, or up to $750 million/year for the first 6,000 MW of new reactors).

It is important to remember that, while the merits of energy subsidies may be debated, the purpose of the federal tax subsidies is to encourage technological innovation and deployment of commercially viable energy sources, and that all of those incentives phase out over time. If new nuclear generation were commercially viable, the industry would have been able to build reactors to begin replacing older, uneconomical units with the incentives the federal government has offered. However, providing new, long-term or open-ended subsidies to existing nuclear reactors does nothing to advance innovation and technological development, nor to ensure that the U.S. meets its long-term emissions reduction
obligations.

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Now

Conclusion Nuclear subsidy costs would be incurred without, on their own, reducing carbon emissions. Maintaining existing reactors’ operation, in itself, does not reduce GHG emissions, as EPA determined in promulgating the Clean Power Plan. It would only hedge against possible increases in emissions, if fossil fuel generation were to increase due to reactor closures. There is, however, an opportunity cost to subsidizing aging nuclear power plants: diverting scarce consumer energy dollars from possible investment in new, zero-carbon energy resources; and making utilities and regulators support legacy infrastructure, rather than modernize the grid. The New York projections show conventional renew-
able energy subsidies are at least four times as effective at mitigating CO2 emissions in the medium-term as nuclear subsidies based on the Social Cost of Carbon, and twice as cost-effective in the short-term.

This suggests that renewable energy could be developed to replace or phase-out nuclear generation at much lower cost than nuclear could be subsidized based on the SCC. This is consistent with the EPA’s determination in issuing the Clean Power Plan regulation, which concluded that incentives for existing reactors were unwarranted to meet CO2 reduction goals. Instead of creating a national program that locks energy policies, planning and investment into supporting aging nuclear infrastructure, state and federal governments should take a flexible and adaptive approach that is focused, on the one hand, on reducing GHG emissions as quickly as possible; and, on the other hand, driving modernization and innovation in our energy system through expanding clean energy industries. Within that context, regulators should be empowered to address reactor closures through proactive planning:

• Evaluate known and potential reactor closure dates to determine their impact on GHG reduction goals.

• Monitor industry trends and plant-specific developments to anticipate economic and operational contingencies that may lead to previously unanticipated reactor closures.

• Study alternatives to subsidizing reactors for meeting GHG goals, such as incremental investments in renewables, efficiency, and/or related infrastructure to keep emissions reductions on target when reactors close.

• If enough nuclear capacity could be lost to compromise emissions reductions or would require the development of fossil fuel infrastructure to meet near-term energy supply and reliability needs, determine how much nuclear generation is needed in order to stay on track, for how long, and at what cost relative to zero-carbon alternatives.

• Create proactive plans to replace or phase out nuclear, in concert with emissions reduction and re-
newable energy goals, and grid modernization initiatives. In this way, reactor closures may be treated similarly to reliability impacts of generator retirements, which involve a similar process:

• Independent evaluation of the likelihood and scale of grid impacts resulting from the plant closure.
• Evaluation of the availability, cost-effectiveness, and timeframe for alternatives, through resource
planning, market-based processes, or procurement through open, competitive bidding.
• Time-limited economic support for the incumbent generator only until more cost-effective alternatives
can be identified and implemented.