Author: WPPSS still has lessons for energy industry
By Annette Cary, Herald staff writer
The bond default of the Washington Public Power Supply System offers some still relevant cautionary lessons for the energy industry, said professor Daniel Pope ... Treat large, complex systems with caution. And be equally cautious in forecasting demand for power.
...But when BPA sold regional public utilities on the concept that two more nuclear reactors needed to be built or they would run out of electricity, it persuaded them to back the reactors without the net billing assurance, he said.
..."The complexity of building nuclear plants strikes me as an ongoing, as well as a historical, problem," Pope said.
..."I hope a reminder of what went wrong can help us all approach big issues with open minds and a measure of humility," Pope said. "The problems we face in energy policy are too serious, especially in an era of global warming, to fall back on answers that failed us a generation ago."...
http://www.tri-cityherald.com/2010/10/21/1218106/author-wppss-still-has-lessons.htmlThe author of the book has identified an assortment of reasons for the failure decades ago. Judging by it's positioning within the article, the root causes seen are both related to system complexity - the internal complexity of bringing a project of this scale into being and the external complexity of the variables involved in power demand.
These are the same fundamental economic issues that STILL face the nuclear industry 40 years and hundreds of billions of dollars later.
6 nuclear industry lies.
1. nuclear power is cheap;
2. learning and new standardized designs solve all past problems;
3. the waste problem is a non-problem, especially if we’d follow the lead of many other nations and “recycle” our spent fuel;
4. climate change makes a renaissance inevitable;
5. there are no other large low-carbon “baseload” alternatives;
6. there’s no particular reason to worry that a rapidly expanding global industry will put nuclear power and weapons technologies in highly unstable nations, often nations with ties to terrorist organizations."
Remember these questions?
1) Why are no turn key nuclear plants being built?
2) Why are all the planned projects in the US being abandoned, even when there are unprecedented levels of governmental support?
3) Why were no plants even being proposed for jurisdictions that do not have construction work in progress (CWIP) policies on the books to allow the builders to recoup cost overruns and the costs of abandoned projects?They are the ones that nuclear "environmentalists"
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=115x262189">would rather take a beating over than simply answer directly. That is because they capture the heart of the problem of complexity, costs, and the required transfer of risk to the public sector. The answers are below ordered 1,3,2 for clarity in the narrative.
1) Why are no turn key nuclear plants being built?No one builds turnkey reactors because they will destroy their company if they do. The complexity of the facility and the "deal" are so severe in a globally competitive environment that there are ALWAYS unexpected variables that WILL arise and bring a degree of chaos to the planned course of building. The cost is so large per project and the probability is so high that significant problems will arise that there simply are no
companies that can routinely take on the losses that are part and parcel of building nuclear power plants under turnkey contracts.
Since a turnkey project holds the vendor 100% responsible for those losses, it is not possible to find a vendor that will accept the existential threat to their existence that a turnkey project represents.
3) Why were no plants even being proposed for jurisdictions that do not have construction work in progress (CWIP) policies on the books to allow the builders to recoup cost overruns and the costs of abandoned projects?IN ALL CASES the risk will be transferred to the public in some fashion or another. Currently in the US the acronym CWIP covers one such method of transferring the risk to the public. When Bush offered loan guarantees for 50% of the construction costs to vendors, they were joyous, but little action actually followed.
Instead of the decline of 40% predicted by the nuclear industry and those academics who uncritically used data provided by nuclear vendors, what we saw instead were rapid and extremely large cost increases between 2003-2009 of 200-400%.
So we didn't see much enthusiasm actually begin to manifest itself until Obama upped the amount guaranteed to 80% (and added/enhanced a slew of other less central subsidies). However, the other 20% of debt simply could not be placed with investors if the proposed plants were unable to offer investors the protection of CWIP ratepayer based recovery of their money should construction costs rise further, construction schedules slip (with attendant huge increases in interest charges), or if the projects were totally abandoned as in the article above.
2) Why are all the planned projects in the US being abandoned, even when there are unprecedented levels of governmental support?
Derived from the sheer size and complexity of these projects is the INEVITABLE CONSEQUENCE that the financial payback period is going to require 40-60 years of reasonably accurate demand and price forecasting. Simply put, that is impossible.
Because the costs are rising and demand is unavoidably uncertain over such a time span even with guarantees regular investors (as opposed to investment by government-tied vendors such as France's EDF at Calvert Cliffs or Japans Mitsubishi at South Texas) do not want to be involved in projects that face such a probability of failure.
Related information:
CBO estimate on nuclear loan guaranteesFor this estimate, CBO assumes that the first nuclear plant built using a federal loan guarantee would have a capacity of 1,100 megawatts and have associated project costs of $2.5 billion. We expect that such a plant would be located at the site of an existing nuclear plant and would employ a reactor design certified by the NRC prior to construction. This plant would be the first to be licensed under the NRC’s new licensing procedures, which have been extensively revised over the past decade.
Based on current industry practices, CBO expects that any new nuclear construction project would be financed with 50 percent equity and 50 percent debt. The high equity participation reflects the current practice of purchasing energy assets using high equity stakes, 100 percent in some cases, used by companies likely to undertake a new nuclear construction project. Thus, we assume that the government loan guarantee would cover half the construction cost of a new plant, or $1.25 billion in 2011.
CBO considers the risk of default on such a loan guarantee to be very high—well above 50 percent. The key factor accounting for this risk is that we expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources. In addition, this project would have significant technical risk because it would be the first of a new generation of nuclear plants, as well as project delay and interruption risk due to licensing and regulatory proceedings.
Note the price - $2.5 billion was to be only for the first plant. Future plants were, according to the assumptions provided by the nuclear industry, expected to have
lower costs as economy of scale resulted in savings.
In fact, since the report was written (2003), the estimated cost has risen to an average of about $8 billion. You have to wonder what that does to the “risk ...that ... the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources”?
Does that risk diminish or increase when the price rises from $2.5 billion to $8 billion?