Some nuclear utilities, like Duke, also have major investments in coal-fired plants
The U.S. Environmental Protection Agency (EPA) uncorked its long expected policy statement that formally declares carbon dioxide and five other green house gases to be pollutants that are a threat to public health and the environment. The action comes in response to an April 2007 Supreme Court ruling related to pollution from cars and trucks. Government scientists have long been unanimous that these gases caused harm, but the Bush administration bottled up their findings and took no action.
According to the New York Times, EPA said the science supporting the proposed endangerment finding was “compelling and overwhelming.”
EPA administrator Lisa P. Jackson (left) said: “This finding confirms that greenhouse gas pollution is a serious problem now and for future generations.”
It is widely anticipated that the action by EPA on April 17 sets the stage for the Obama administration’s international diplomatic efforts aimed at the planned United nations Climate Change Conference (COP15) to be held next December. The U.S. never ratified the Kyoto treaty. It is now expected to fully engage on the global warming issue with all the speed and power of the Starship Enterprise moving at Warp 8.
The legislative battle in the U.S. could easily rival a collision of matter and anti-matter in Congress. While EPA issued the policy, Ms. Jackson told the NY Times that the Obama Administration would prefer not to tackle the issue directly with regulations, but rather wants Congress to address it through legislation that would implement programs consistently among the states. House Democrats called the EPA announcement a “game changer,” (Markey) but Senate Republicans were quick to label the policy a source of “expensive and cumbersome requirements on industry.” (Bond).
Duke Energy out in front on the nuclear energy option
While partisan claims flew back and forth in the press, the nuclear industry was already well on its way to assessing how carbon taxes and/or carbon cap & trade programs would impact the industry. A huge paradox is that some utilities could find themselves in a situation where they were trading with themselves.
A case in point is Duke Energy (NYSE:DUK). There CEO Jim Rogers (right) said last week the construction of new nuclear power plants would be “the only viable way” for the utility to meet increasing electricity demand. At the same time, Duke is facing rapidly rising costs for its proposed William States Lee III nuclear power plant in South Carolina.
Rogers told the Charlotte Observer on April 6 the costs of new coal-fired power plants, with carbon taxes in place, puts them out of reach in terms of cost. Duke is one of the nation’s largest producers of green house gases from fossil fuel power plants. The choice is clear. The utility must meet its customers’ growing needs for electricity with nuclear power plants.
“The only way we could do it is with nuclear,” Rogers said at the Charlotte Energy Summit. “The higher the price of carbon goes, the stronger the case for nuclear.”
He said a carbon policy without a nuclear energy technology response “is a hallucination.”
In a speech at the Arkansas Clinton School of Public Service on April 7, Rogers said the U.S. must set a cap-and-trade system for green house gas emissions as soon as possible in order to drive investments in emission free power plants, such as nuclear, and in the transmission and distribution networks to deliver electricity to customers. Duke currently has four million customers in North and South Carolina, Indiana, Ohio, and Kentucky. The last three are “big coal” states with significant mining interests who will not be happy with Rogers’ remarks.
Rogers also said that the U.S. could reduce green house gases by 80% by 2050, but only if the federal government sets a national policy, and regulates it. A state-by-state approach, Rogers, said, would create confusion as well as winners and losers among states.
More than anything else what Duke Energy’s CEO wants from the Obama Administration is certainty on carbon taxes and cap-and-trade programs. The longer it takes Congress to enact legislation, the longer the utility will have to wait to make new investments in energy generation plants. It cannot afford to bet wrong on how the legislation will turn out.
In addition to the obvious financial benefits for nuclear power plants from a cap-and-trade system, Rogers also wants the legislation to provide long-term incentives to upgrade power lines and to support energy conservation measures.
Rogers said new natural gas plants are not the answer labeling them the “crack cocaine of our industry.”
Future of William Lee nuclear plants depends on carbon policies
In December 2007 Duke Energy filed an application with the NRC for a COL for two Westinghouse AP1000 reactors with combined capacity of 2,234 MWe. Duke was among the nation’s “first movers” in filing the application being the 4th utility to do so. Significantly, Duke is relying on TVA’s application for two AP1000s at its Bellefonte site as a reference. A decision on Duke's license is expected from the NRC in 2012.
Duke also applied with the Public Utility Commissions of North and South Carolina to incur “nuclear generation pre-construction costs” of $70-160 million for the Lee plant. Both agencies approved the requests.
In November 2008 Duke raised the cost of the twin reactor project to $11 billion. It told the state regulatory agencies that while the firm has not put in place final EPC contracts with firm, fixed prices, the estimate is subject to change.
Significantly, one of the key factors is the outcome of climate change legislation that will be moving through Congress this year. Other factors are capital financing costs and whether loan guarantees will be available to cover 100% of the loans and 80% of the total costs.
Loan guarantees are a two-edge sword for carbon policies
Duke has applied for loan guaratnees but did not make public its inhouse assessment of the impact of a carbon tax or cap-and-trade program on the loan guarantees. It could be a two-edged sword. On one hand, offering the loan guarantees would lower financing costs for new nuclear power plants and the eventual cost of electricity from them once they enter revenue service. On the other hand. having loan guarantees available could impact a cap-and-trade program by reducing incentives for utilities to offer competitive swaps in response to offers from coal-fired plants. Perhaps even more problematic for a utility like Duke, it could find itself doing swaps with itself since it has both coal and nuclear plants.
It is still too early to predict how the EPA policy and eventual legislation from Congress will turn out. On balance, carbon taxes and cap-and-trade programs should benefit the nuclear industry because coal-fired plants will be looking for ways to reduce the financial impacts of federal policies.
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