Cost of Money for Nuclear Projects - Effect of $880 Million Financing Fee - 30% Increase in Electrical Power Price

I have been musing a bit this morning about the impact of the cost of money for nuclear projects in the United States compared to the cost of money for other energy investments. I have a spreadsheet model that I built based on the methodology described in Appendix 5.A — Calculation of the Levelized Cost of Electricity of the MIT Future of Nuclear Power study.

Though I do not know ALL of the required input numbers, I can make some educated guesses based on published information. I thought it might be a useful exercise to determine just how large an impact an $880 million credit subsidy cost would have on the economics of the Calvert Cliffs Unit 3 nuclear power plant project.

Here are the assumptions that I made, just in case someone wants to check my math or challenge the basis for the numbers I chose.

Model Variables

Overnight cost ($/kWe)	6500
construction time (years)	5
Total construction cost ($/kWe)	6126
Debt fraction of initial investment (%)	80
Equity fraction of initial investment (%)	20
Nominal cost of debt (%)	4
Nominal cost of equity (%)	10
Plant life (years)	40
Plant net capacity (Mwe)	1600
Capacity factor (%)	85
Marginal composite corporate income tax rate (%)	39
Heat rate (BTU/kWh)	10400
Unit cost of fuel ($/mmBTU) (not including disposal)	0.39
Nuclear waste fee (mills/Kwh)	1
real fuel escalation	0.5
Fixed O&M; ($/kWe/yr)	47
Variable O&M; (mills/kWh)	8
Incremental capital costs ($/kWe/yr)	20
Decommissioning cost ($million/Mwe capacity)	2000
Carbon emissions tax ($/tonne-C)	0
assumed rate of inflation (%)	2
Debt term	15
Assumed rate of electricity price inflation (%)	0.500
Depreciation schedule	15 year MARCS

Using all of those assumptions, I computed that the sales price for electricity required would be about 10.7 cents per kilowatt hour at the time that the plant started operating, assuming that the credit subsidy cost was zero. With a credit subsidy cost of $880 million, required to be paid at the beginning of the loan period when construction begins, the electricity price needed for exactly the same return on invested capital would increase to 13.85 cents per kilowatt hour. That represents a 30% price increase completely due to the cost of paying for loan insurance.

(Aside: These numbers are not levelized cost of electricity. They are the prices required to produce free cash flow providing a 10% return on invested capital in year 2 of the project. Due to the effects of depreciation on reported profits, the ROE based on after tax profits is lower during the first 15 years than the ROE based on free cash flow.

Once depreciation is complete and the loans are repaid, ROE on profit and free cash flow are equal to each other and increase to about 21% in the case of no CSC and a lower 17% (with 30% higher electricity prices) in the case where the CSC was imposed using the above assumptions. End Aside.)

I am not advocating that the CSC should be zero; I am trying to illustrate the effect of the proposed fee on the price of electricity.

Since Constellation Energy is not a regulated monopoly utility with a guaranteed customer base, the sales price of electricity cannot be fixed to provide a given rate of return. The company would have to compete in the open market to sell its product at whatever the going rate would be.

Like other companies that sell their products in unregulated markets, Constellation would have the option of accepting lower margins in order to maintain sales volume. However, Constellation, like any other company, has a limited amount of capital to invest and a limited amount of managerial attention that can be applied to capital investments. It is not hard to see why model results like this would cause the company's board of directors to determine that they have less risky investments available.

In a rank ordering of available investment opportunities, this particular project would have fallen quite far down on the list, especially after a long period of fruitless negotiation. The recent announcements by DOE and OMB officials that express surprise merely indicate a lack of ability to read the handwriting on the wall. It is hard to believe that anyone would fail to understand that the company did all they could - even to the extent of obtaining a hearing on the topic with pointed questioning by the Senate Energy and Natural Resources committee.

Please do not read this as uncritical defense of Constellation Energy. It is also not a political commentary. I will take the OMB evaluators at their word and assume that the structure of the project as a merchant power plant without a guaranteed power purchase agreement is responsible for the high level of project risk that led to the associated fee computation result.

The point is that the story helps to illustrate why many observers have come to the conclusion that electricity is too important to the functioning of modern societies to be left up to market forces. That is especially true when it takes so long to build the most promising types of new generating capacity. The short term nature of market trading does not contain the mechanisms required to support the long range planning and sustained effort required for a reliable electrical power grid.

For the past several years, the Maryland government has debated the issue of regulating electrical power production again. Perhaps it is time to recognize that the effort needs to move forward. Regulation would alleviate the concerns about the financial risk associated with market generators building very large projects that take a half a decade or more to construct and put into operation.

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Southern Company Video of Current Progress at Plant Vogtle Provides a Clue on What Maryland Will be Missing

If you happen to know anyone at the Maryland PIRG, NIRS, Counter Punch or other groups who are gloating about the recent Constellation Energy announcement that they are not interested in moving forward with building the Calvert Cliffs Unit 3 nuclear plant at the present time, show them this video from Southern Company's Plant Vogtle. Ask them to explain to the children of out of work construction specialists, welders, electronics technicians, and nuclear plant operators why they think that halting the investment was a good thing in our current economy.

I once heard an interesting description about the words used to describe economic conditions.

When someone in the next town loses their job, you might think that there is an economic slowdown. When your neighbor loses his job, you might call it a recession. When you lose your job, you might consider it a depression.

Based on conversations that I overheard yesterday in my new hometown of Lynchburg, VA, which is the home of Areva North America, the supplier of the reactor proposed at Calvert Cliffs, the nuclear industry slowdown has turned into a recession. (Translation - neighbors are losing their jobs.) Reassignments may start happening as early as the end of this month.

There might not be too much sympathy about this nuclear industry recession among people who have been experiencing the national recession for several years, but it will be difficult for the nuclear industry to do much to help if organized groups who seem to prefer burning vast quantities of natural gas keep doing everything they can do destroy our ability to build new facilities.

Hat tip to Jarret Adams at the Areva Blog for the link to the Southern Company video. 1,300 Workers Already On Site at U.S. Nuclear Plant Project

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Google Planning to Help West Virginia Coal Pretend to be Off-Shore Wind

There is an article in the October 12, 2010 issue of the New York Times titled Offshore Wind Power Line Wins Praise, and Backing. In that article, Matthew Wald describes an announcement by by Google and a New York financial firm named Good Energies indicating plans to build an undersea cable along the eastern seaboard of the United States.

The project backers describe their goal as enabling off-shore wind projects because the cable will serve as a gathering point that will allow easier connections for projects located in areas more than 3 miles off shore. The cable will run 15-20 mile off shore in a shallow trench. Having the cable already installed will ostensibly allow projects to connect up to that cable and then come on shore at just four identified sites in southern Virginia, Delaware, southern New Jersey and northern New Jersey.

The project is getting enthusiastic responses from Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission and Melinda Pierce, the deputy director for national campaigns for the Sierra Club.

Here are the paragraphs that caught my attention:

Yet even before any wind farms were built, the cable would channel existing supplies of electricity from southern Virginia, where it is cheap, to northern New Jersey, where it is costly, bypassing one of the most congested parts of the North American electric grid while lowering energy costs for northern customers.

Generating electricity from offshore wind is far more expensive than relying on coal, natural gas or even onshore wind. But energy experts anticipate a growing demand for the offshore turbines to meet state requirements for greater reliance on local renewable energy as a clean alternative to fossil fuels.

That immediately made me remember a conversation that I had with a Dominion Resources executive in the early 1990s while we were sailing off the coast of Delaware as volunteers for the Naval Academy command seamanship training squadron. We happened to be drifting along in the early evening without much to do. Dinner was over, the dishes were washed and the sea was almost calm enough for water skiing. Ron was describing his company's efforts to push electricity deregulation in Virginia. Dominion Resources wanted to be able to access the far more lucrative electricity markets in the PJM (Pennsylvania, New Jersey and Maryland) area.

At the time, electricity in Virginia, which was still under cost-of-service regulation, sold for about 4-5 cents per kilowatt hour. Exactly the same quantity of the same physical product sold for 12 cents in New Jersey - just a few hundred miles away. Ron was bemoaning the fact that state regulators would not allow Virginia generated power to be exported to other markets. He also described how the next step after deregulation would be building more transmission capacity so his company would be able to a move larger amount of coal and nuclear generated power into the more lucrative markets.

Of course, as we both knew and discussed at the time, building transmission lines is not easy, especially in heavily populated areas. I hope you can see why the NY Times story brought memories of that conversation flooding back to me. It gave me an ah-ha moment - the transmission difficulty issue could be finessed by moving the cable off-shore and getting it paid for with the help of federal money that was supposed to enable cleaner power that was not dependent on fossil fuel combustion.

Once an off-shore electric power cable is installed, how will anyone be able to tell if the electricity is coming from an off shore turbine or a coal fired power plant in southern Virginia that is getting its coal from a mine that was once a mountain? Since very few people ever venture out into off-shore waters, there will not even be any of the questioning folks who notice and complain when highly visible wind turbines are not spinning - as they are wont to do 60-80% of the time they exist.

Interestingly enough, one of the companies that pushed for electricity deregulation in Virginia has almost the same name as Google's partner in this project. Good Energy (which sounds very much like Good Energies) is a energy management consultant whose name almost made me think that there really was a multi-decade plan involved in the effort to site an off-shore transmission path.

Additional Reading

"Deal Journal" (a Wall Street Journal Blog) post dated October 12, 2010 - Google’s Wind Project Got Lift From Vail Ski Trip. (Note: Not surprisingly, "deal" fans seem to like the concept of making huge sums of money by building transmission lines off shore.)

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ExxonMobil Teaching Sports Fans About Hydraulic Fracturing

I am a college football fan and love spending time with my family gathered around the TV - or at live games at my alma mater. While watching the games, I sometimes cause family members to groan or roll their eyes when I comment on the commercials. Paying attention to commercials is also one of my hobbies - I do not just wait for the Super Bowl extravaganzas.

On Saturday, October 9, I noticed a new addition to the line of commercials that ExxonMobil often airs about its investments in renewable or alternative forms energy. This one features an engineer talking about loving her job extracting natural gas from hard rock formations. The production value is quite evident; ExxonMobil does not do things on the cheap. I saw it aired at least a half a dozen times on at least two different networks on Saturday. ExxonMobil recently spent $41 Billion to purchase XTO, a domestic company that specializes in producing gas from hard rock formations.

If you want to see the video, please click on the link. It is never a good idea to even think about infringing on the copyright of commercials produced by the world's largest company.

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Cost Increasing Results of Accepting the Linear No Threshold (LNT) Assumption of Radiation Health Effects

On September 26, 2010, I posted an article titled Radiation Hormesis - A Profound Truth That Might Induce a Few More Converts to Support Nuclear Energy in which I described how Lawrence Solomon of Energy Probe had been convinced by science that the low levels of radiation associated with nuclear power plant operation and uranium mining are not high enough to cause negative health effects in humans. Charles Sanders wrote the book Radiation Hormesis and the Linear-No-Threshold Assumption that included enough peer reviewed science to convince a long time skeptic about nuclear energy.

I wrote to Mr. Solomon to find out if his organization was going to change its opinion about nuclear energy and start advocating for it, rather than against it. He told me that his organization's main issue with nuclear energy development was economic. He was not yet convinced that overturning the Linear No Threshold (LNT) dose assumption would make much difference in nuclear energy costs.

I have begun an effort to find sufficient references to convince him that the LNT is the source of a substantial portion of the costs associated with nuclear energy. Its application has increased both capital costs and operational costs. The LNT is the basis for regulations that assume that any radiation dose, no matter how low, is dangerous enough to avoid, even if avoidance costs substantial quantities of money. The term is ALARA - as low as reasonably achievable - and current regulators take a completely different view of "reasonable" than I do when it comes to cost.

I would love some assistance from knowledgeable readers in this effort to document the costs associated with the LNT.

Here is my first effort.

Larry: (You wrote: "Changes in regulation as a result of a rethink in LNT would make the economics less worse but probably not enough so to make current utility nuclear power generation technology economically viable.")

One of the many cost increasing effects of the LNT was the decades long effort by the nuclear industry to eliminate steel alloys that contain cobalt (one trade name that you can search for is Stellite). For reasons that are beyond my materials knowledge, these alloys are particularly good at resisting wear in high temperature environments and are widely used in key areas of wear surfaces on pumps, valves and turbines in many industrial applications. Early nuclear plant designers used them in reactor coolant pumps, coolant isolation valves, and in control rod drive mechanisms. Cobalt containing alloys were widely used in the turbines of boiling water reactors.

Unfortunately, cobalt-59 has a fairly high neutron cross section and can become activated to Co-60. Co-60 is a high energy gamma emitter with a 5.27 year half life. ALARA (as low as reasonably achievable) focused researchers determined that Co-60 was responsible for about 80% of the doses received by nuclear plant workers and initiated a campaign to eliminate its use in nuclear applications.

http://hps.ne.uiuc.edu/natcisoe/brookhaven/3196.pdf

The Electric Power Research Institute undertook a lengthy materials research program to find alloys that could perform the same functions but did not include cobalt.

http://bit.ly/a6sE3B (sorry for the use of the shortened URL, but it leads to a Google book search result that is way too long to include in an email.)

I can send you a PDF of a presentation about the cobalt reduction efforts undertaken at Brown's Ferry Unit 1 as part of its restart. Reading through that presentation can give you a feel for the amount of attention and cost associated with this effort. (Note: You can download this presentation from TVA Browns Ferry Unit 1.)

This effort to eliminate cobalt continues to add cost to nuclear plant design and construction because the replacement materials do not work as well, so they are not widely accepted by other industrial customers who do not have any worries about neutron absorption. This makes the components for nuclear plants even more "special" and custom than they otherwise would be. As anyone who has purchased a home or an automobile will know, special materials and custom design cost money.

The effort to eliminate cobalt also removes one of the best materials for permanent magnets - samarium-cobalt - and is requiring a continuing effort to find something that works almost as well.

The effort to eliminate cobalt containing materials is driven by the belief that even the smallest radiation doses have a negative effect and must be eliminated at all cost. It is also just one of many the cost increasing effects of the regulatory insistence on using the Linear No Threshold dose response assumption.

Rod Adams

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Loan Guarantee Foolishness by the Folks With Green Eyeshades

On Monday, October 4, 2010, the ANS Nuclear Cafe published a DC Perspective column discussing the complex topic of loan guarantees for new nuclear power plants. It is not exactly a page turning topic; understanding the nuances requires a good deal of research into legal language and an understanding of the way that decisions get made in a politically charged environment. (Disclosure: I wrote that article.)

Union Supporters of Calvert Cliff Unit 3

This morning, the Washington Post published an article titled Constellation Energy shelves plan for Calvert Cliffs reactor that demonstrates why an effort to better understand the loan guarantee program would have been worth more time and energy by people who want new nuclear plants to be built and operated in the United States in the near future. After many months of wrangling with the green eyeshade folks at the Office of Management and Budget who claim to believe it is their duty to protect American tax payers from risky ventures, Constellation Energy has walked away from the negotiating table. The analysts at that for profit company simply could not make the numbers work.

The people at OMB and DOE have expressed surprise that the company would not take the offer and are trying to lay the blame for the lost opportunity on the company. Here is a quote from the article:

Constellation Energy has shelved its proposal to build a new reactor at its Calvert Cliffs nuclear power plant, Obama administration officials said Friday, even though the administration had decided to award the project a $7.5 billion loan guarantee.

Senior administration officials said Constellation's decision was "a surprise," but a Constellation Energy spokesman Larry McDonnell said that the administration's loan guarantee terms were "unworkable" and that Constellation had told the Energy Department "we can't move forward."

The article concludes by describing a more successfully concluded loan guarantee effort.

Separately, administration officials said they had approved a $1.06 billion loan guarantee for an Oregon wind farm, the world's largest, after project developers waged a vigorous lobbying campaign to bring the year-long application process to a conclusion.

"We're gratified that this lengthy process has come to an end, and we look forward to closing the transaction shortly," said John McNamara, chief financial officer of Caithness Energy, the project developer.

The wind project, known as Shepherds Flat, will provide 400 jobs, 845 megawatts of power and avoid emissions of 1.2 million tons of carbon annually.

I added the following comment to the thread associated with the article.

Just in case anyone wonders why the wind farm project accepted its loan guarantee while Constellation refused, the key is in understanding the terms and conditions.

For a project that would have produced 4,000 jobs for 4-5 years in Maryland, the companies involved were being told that they had to PAY the US government a non refundable fee of $880 MILLION dollars in order to BORROW $7.5 billion for a project where they would have to invest at least 20% of the project cost as their own equity, thus giving them at least $2.0 billion in reasons to make sure the project succeeded.

In contrast, the wind farm, which will produce 400 jobs for a relatively short period during construction, was able to obtain a $1.06 billion dollar loan with NO CREDIT SUBSIDY COST at all. The ARRA has provided all of the money required for the credit subsidy cost for politically defined "renewable" energy via a change in section 1705 of the Energy Policy Act. In addition, section 1603 of the ARRA provides a CASH GRANT in lieu of a production tax credit of 30% of the cost of the project via a check within 6 months after the project closes. The wind project thus gets a $1.06 billion loan with no closing cost and the sponsors have no equity in the project at all since they get their 20% down payment back with a 50% kicker less than a year after the project starts.

We live in VERY strange times.

Rod Adams, Publisher, Atomic Insights

The space in that comment thread is limited, so I wanted to add a few more numbers for consideration. Assuming that the loan guarantee for the wind project is limited to 80% of the project cost - the maximum allowed by the Energy Policy Act, the total project will cost at least $1.325 billion. The 30% cash grant in lieu of a production tax credit will cost the federal government almost $400 million.

That project will employ 400 people for perhaps 2 years, leading to a direct cost per job of $500,000 per year.

The power plant cost is $1600 per kilowatt capacity using a technology that has an average capacity factor of less than 30% in the United States.

In contrast, the Calvert Cliffs project would have had to pay the government $880 million to employ an average of 4,000 people for a construction project that would last for 4-5 years. It would also repay the $7.5 billion loan at an interest rate higher than the government's cost of funds.

After the construction project was complete, the plant would have employed 400-500 highly paid operators, engineers and security personnel for 60-80 years - two to three generations. The total project cost, assuming an 80% loan guarantee, would have been $9.4 billion and produced 1600 Mwe using an emission free technology that has an average capacity factor of 90% in the United States.

Update: (Posted on October 9, 2010 at 0841) The comment thread at the Washington Post continues. One of the commenters tried to lay all of the blame at the feet of the current administration. I responded to that comment with the following:

Re: "The issue also is the Obama administration tabling support for nuclear energy and then always playing games to support special interests."

Not that the current Administration has solved the problem, but the rules that OMB created to calculate the credit subsidy cost were issued in 2007 and the law establishing the loan guarantee program as a way to share the risk of financing very large, capital intensive nuclear plant projects was signed into law in August of 2005.

The Republican administration had more than 4 years to make the program work - they did not award a single loan guarantee.

Nuclear energy takes market share from coal, oil and natural gas. Unlike unreliable wind generators in Oregon that will actually be supplementing hydro power most of the time, reliable nuclear plants replace a need to burn (and buy) fossil fuels. A 1600 MWe nuclear plant like Calvert Cliffs Unit 3 eliminates the need to burn more than 300 million cubic feet of natural gas every day!

Nuclear plants threaten the business interests of politically powerful people that have been financially supporting both Republican and Democratic administrations for more than 100 years.

My belief is that OMB is full of establishment bankers who know exactly where their post government financial interests lie.

Rod Adams
Publisher, Atomic Insights

Additional Reading

Constellation Energy Press Release on Market Watch

Constellation Energy Letter to DOE

Dan Yurman at Idaho Samizdat offers additional details about Constellation's decision announcement at Constellation Walks Away from Calvert

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Small Reactors, Safety Culture, Safe Design, and Lessons Learned From SL-1

The United States has been operating small nuclear power plants continuously since the early 1950s. These reactors have been used for research and development, power generation, and ship propulsion. There have been tens of thousands of people associated with the design, development, manufacture and operation of these smaller reactors.

The enterprise has accumulated an admirable safety and reliability record and is the basis for some of the optimism associated with the development of small modular reactors that can produce power in volumes that would be uneconomical if produced in the far larger nuclear plants that became the standard during a period when coal, oil and natural gas were extremely cheap. When nuclear power plant sizes ramped up from 60 MWe at Shippingport to the 1000 MWe class that became the standard, an abundance of fossil fuels were widely available in the US for well under 50 cents per million BTU. For comparison, current fuel prices range as high as $14 per million BTU. (Bulk residual oil that contains 135000 BTUs per gallon and sells for $80 per barrel costs $14.00 per million BTU.)

In the days of very cheap fossil fuels - those are in the past, by the way - and little concern about air pollution, nuclear plant designers decided to aim for "economy of scale" in order to compete. That decision was also influenced by the natural corporate tendency of GE and Westinghouse to emphasize their core competencies. At the time, those competencies included the industrial capacity to construct some of the largest turbines and pressure vessels in the world.

There ARE certain economies of scale that give companies that can build the specialized components required for very large systems a leg up on the competition - especially when they focus on a customer base like regulated utilities that like very large projects because of their access to cheap and patient capital.

Aside: Some day, I am going to put together the story of how General Electric pushed the American Locomotive Company (ALCO) out of the business of producing both locomotives and nuclear power plants as a way to increase its market dominance, but I need to make a trip to a library in New York where some of the archives are still on paper. End Aside.

The world has changed a great deal since those days in the 1960s and 1970s when American industrial giants dominated the nuclear energy scene, when fossil fuels were really cheap, when people ignored the environmental consequences of rapid fossil fuel consumption, and when designs were done using pencils, compasses, T-squares and slide rules. For one thing, our industrial might has been outsourced and our large steel forging capacity is in mothballs or has been sent overseas. The enormous turbine manufacturing facilities that once employed thousands in upstate New York are largely empty or destroyed.

A number of companies have determined that American nuclear opportunity now lies in the direction of smaller, simpler, more sophisticated designs that can make use of the economy of small. On this scale, designers and operators can take advantage of the natural safety features that come from having cores where the surface area to volume ratios are small enough to allow easier cooling - even from natural forces like the following:

• the driving head that can be generated by differences in water temperature
• the heat content capability of large pools of liquid metal
• the ability of molten salts to accept very high temperatures without boiling
• the ability of graphite and silicon carbide to resist damage at temperatures that will not be reached in an acceptably sized core that has some natural gas flow after shutdown

I am not at all surprised that there are naysayers who think that smaller nuclear power plants are a bad idea. After all, there are still some large industrial giants out there who can build the very large plants and think they can put together the very large project finance teams that are required for multi-billion dollar units. The supporters of very large systems do not really want their customers thinking that they might want to dip their toes in the water by going small first.

There is still a market for the extra large systems, though it looks to me like the market in the US is quite limited. We have a relatively well built out electrical power infrastructure, we have risk averse corporate leaders, and we have relatively small electric power producers. The relatively small size of our electrical generating corporations is due to our historical aversion to consolidation and "trusts" in an industry where monopolies seem to be a natural consequence of development.

There is also sniping against smaller nuclear power plants from organizations that have never met a nuclear reactor that they like. Arjun Makhijani, the nuclear fusion specialist who rarely misses any opportunity to spread FUD (fear, uncertainty and doubt) about the use of nuclear energy, has gotten together with the Physicians for Social Responsibility (the group initially formed by Helen Caldicott) to release a "study" claiming that small nuclear power plants are "no panacea" for the issues that they claim make nuclear energy a bad investment.

Not surprisingly, that study makes some bold assumptions and assertions. It asserts that there really is a waste issue, despite the fact that no one has ever been harmed by exposure to used nuclear fuel and despite the fact that storing the leftovers from reactor operation does not require much space and despite the fact that the stored leftovers represent a tremendous energy legacy for future generations.

If you really are worried about "the waste issue" associated with current nuclear power plants, then I suppose you will agree with the IEER/PSR study. I cannot deny its correct assertion that smaller nuclear plant operators will have similar responsibilities - and opportunities - associated with managing nuclear fuel left overs. I just do not believe that it is really a fatal blow when compared to the waste issues of the fossil fuel competitors.

Some of the other assertions that the study makes are simply red herrings. It implies that small nuclear plants cannot afford a secondary containment - that is simply not true. Even the small nuclear plants that the US has been operating for many years at sea have adequate secondary containments that form a barrier to fission product release. Containments do not have to be enormous concrete structures with thick walls of tensioned steel bars. Even if they are, they are not all that expensive. I fully expect that any small reactor licensed to operate in the US or in any market where we have much influence will have an adequate secondary containment system/

The IEEr/PSR study points to the failure of the South African PBMR project as evidence that SMRs are fatally flawed. The PBMR project failed for a number of reasons, but none of them included the fact that the reactor output was too small to be competitive. Similar sized pebble bed reactors are under construction in China today and will likely find a niche in the market as coal furnace replacements for some of their very new steam power plants.

There has been another worry about small nuclear plants expressed by people who are simply naturally worried about things. They point to the only fatal fission reactor accident in any US nuclear energy facility - the SL-1 tragedy that occurred in the wee hours of the morning hours January 3, 1961.

Most nuclear industry insiders dismiss that event as not being related to "commercial" nuclear power, and they are correct. The SL-1 was an electrical power generation system designed to supply electricity and heat to remote radar stations that were designed to be part of the Defense Early Warning (DEW) line. Its relevance to the small reactor discussion is the fact that it was a tiny power plant with an expected customer - remote radar sites - that is not unlike some of the customers that Grizz Deal talks about when he is describing the 25 MWe Hyperion Power Module.

Aside from the fact that the SL-1 could only produce a few hundred kilowatts compared to the 25,000 kilowatts that the HPM will be able to generate, it is important to understand the other contributing factors that led up to the fatal explosion that impaled one operator in the reactor building ceiling and killed the other two operators with a fatal dose of radiation. (Please visit the July 1996 issue of Atomic Insights for a series of explanatory articles.)

Here is how I responded in a recent discussion thread on LinkedIn when someone made a comment implying that the accident was the result of a "love triangle", and demonstrates just how easily a single person can cause damage in a small nuclear power facility. (That theory, by the way, has been floating around for nearly 50 years.)

Mark - I have studied the SL-1 accident in detail. I give little credence to the theory of the love triangle as the cause of the accident. From what I learned, the reactor designers and operators at a management level allowed a little plant to become less and less important in their daily decision making. Due to some design decisions - aluminum cladding, poison strips tack welded to the exterior of fuel rods in places where they could interfere with control rod motion, a very high reactivity central control rod, and a maintenance procedure that required control rods to be separated from their drive mechanisms and then reconnected with a VERY sketchy procedure, the plant was set up for problems.

The managers combined that carelessness in design with a culture that allowed operational casualness to the point where operators were routinely "getting it done" or "making it work" when the plant gave warning signs - like frequently sticking rods - that all was not well. The not particularly well trained operational staff started acting more like "git 'er done" mechanics and put in "procedures" like exercising rods before operation to give them a better chance of working later. (That process was essentially rubbing off "crud" that had accumulated to make the rods sticky, but the operators did not understand that at least some of the "crud" was boron coming off of those tack welded and corroding poison strips I mentioned earlier.)

Finally, the culture allowed for some extremely light manning - just three people on an evening maintenance shift doing a procedure that a better trained crew with adequate supervision would have recognized as hazardous.

The specific act that most likely resulted in the accident occurred when one of the operators did what the "git 'er done" folks had decided worked to prevent sticky rods - he "exercised" the central rod while it was still disconnected from its speed limiting drive mechanism. If all had been in a better initial condition, that would not have been such a tragic decision.

The operator most likely figured it would be quicker to move the rod by hand. It was a pretty small rod, weighing less than 100 pounds and needing just 20.7 inches of movement from full in to full out. He stood over the rod, braced himself and pulled. He might have even intended to pull slowly, but he probably had to use more force than expected because of the stickiness. When it broke free, it moved very quickly, adding both permanent and transient reactivity to a cold core.

(Of course, he might have been more careful if he had not been experiencing some of the personal life issues that you mentioned, but there is no evidence of a desire to break the plant or take anyone's life.)

The core went critical and then supercritical, boiled off the water in the channel, ejected the rod completely and made at least one large penetration in the top of the core when the rod left and impaled the operator.

The real lessons are several. Correcting any one of the problem areas would have reduced the probabilities enough to break the chain of events that resulted in the tragedy.

Nuclear energy plants are safe if designed and operated with care. There is no need for perfection - if we needed perfection to prevent accidents there is NO WAY that we could have accumulated the safety record we have established over a 60 year history.

After all, there are a lot of machines and a lot of humans working 24 hours per day in the industry. Murphy happens, but there is a corollary to the law. As we all know, Murphy says "if something bad CAN happen, it probably WILL happen." Here is my corollary "If something really bad happens only once or twice in 6 decades, then it most likely will only happen once or twice for the next 6 decades." Compared to the accident rates of the competition, I find that to be an acceptable outcome. That is why I work in the industry.

I am a big fan of smaller nuclear power plants that can compete in markets that are currently unable to take advantage of atomic fission energy. There is no reason to force islands, ships, remote areas, mines, locomotives, or small towns to limit their energy sources to diesel engines, combustion gas turbines, or small coal plants - with possible supplements from unreliable and land consuming sources like wind and solar.

SMRs have a place in the market. With attention to detail and factory production techniques, they can eventually capture a substantial share. As anyone who reads Atomic Insights knows, I recognize that the competitive nature of the energy business makes SMRs targets for the establishment fuel and power business. You will hear plenty of negatives about SMRs, but please consider that at least some of those negatives will be coming from people who sell power systems that will have a harder time competing when small nuclear fission systems are available as a real option that can be installed with on a predictable cost and schedule.

Disclosure: I work for Babcock&Wilcox; on the B&W; mPower^TM small modular reactor project. I earn my current salary working in the field of developing smaller nuclear power systems. My words and thoughts about the general technology are my own; I do not represent the company where I work in public discussions. I have been writing about my support for small modular reactors for almost two decades.

Update: Atomic Energy Commission video describing the accident and its aftermath.

SL-1 The Accident: Phases I and II

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Is the Energy Market a Zero Sum Game Where Various Sources "Go Negative" in Order to Capture Market Share from Competitors?

During the past few days, I have spent several hours watching videos recorded during the Rocky Mountain Energy Epicenter 2010. That conference was jointly sponsored by the Colorado Oil and Gas Association and the Rocky Mountain Association of Geologists. The videos have fascinated me; they provide support for my theory that activism and legislative efforts to hamstring various energy sources can be best understood by viewing them as battles over market share.

I never did find a really good "smoking gun" example in which someone described their battles against nuclear power plants as a way to sell more natural gas. Colorado does not have any operating nuclear power plants - perhaps that explains why that particular elephant in the room was never mentioned during the several hours of conference proceedings available on the web.

I found an excellent example of one company's decision to fight coal fired power plants in at least five different states as part of its natural gas marketing strategy. Thomas L. Price, the Senior Vice President for Corporate Development & Government Relations for Chesapeake Energy described that strategy. Here are excerpts from his talk.

This is an exceptional opportunity for us to talk about the benefits of partnerships. We have actually been involved in a number of these effort to try to stop the expansion of coal plants around the country. We began actually about four years ago in Texas where we developed a campaign called "Coal is Filthy." It was a real subtle and very much appreciated campaign in Appalachia and Wyoming. (Audience chuckles)
. . .
We were able in Texas to stop the building of more than a dozen new coal plants and we got involved in Oklahoma and rolled out a program called "Know your power." Again, it was pretty much Chesapeake and an alliance that we put together there. We did the same in Kansas and stopped a plant from being expanded. We got involved in Arkansas and then we saw that, thank goodness, we had an opportunity to come to Colorado and there were already existing partnerships that had been developed and all we had to do was provide a little bit of financial support and some of the various SWAT team members that we have as a part of our group.

We've got about 125 rigs active across the country. It's been said before, but the demand side of the equation is extremely important right now. I mean this really is a zero sum game. I think that there are certainly a number of very progressive utilities out there that recognize the challenges that they are facing not only from climate change but also the Transport Rule, the Clean Air Act and various others.
. . .
When I developed this department many years ago, we decided that we were going to get out early and try to be as proactive as possible. I've got about a hundred people in the department now. What they do is get out in advance and meet with people who are stakeholders in communities. Talk with them and engage try to understand what their concerns are.

During the same panel discussion, I heard about the long term coalition building efforts that resulted in a successful two week press in which the state legislature debated and passed the Colorado Clean Air - Clean Jobs Bill. Martha Rudolph, the Executive Director of the Colorado Department of Public Health and Environment proudly described the efforts and the stern task masters that put the groups together and told them they could not leave until they came up with an agreement.

Some people have accused me of being "conspiracy theorist" when I describe how powerful people work together to get things accomplished that suit their interests; please watch the video and listen to Ms. Rudolph. She does a much better job that I do in making it clear how movers and shakers get things done in closed door meetings. (Ms. Rudolph's talk starts just a few minutes after the introduction; she is the first speaker. )

Unfortunately, I have failed in my attempt to clip the specific sections of the video out so that I could share them with you without you having to watch the entire session. Here is the link to the
Colorado Clean Air - Clean Jobs Act Panel.

If you have lots of free time, I highly recommend a visit to the Energy Epicenter 2010 web site where you can also find a video of a luncheon speech by Robert F. Kennedy, Jr. and a strategy talk by former Senator Tim Wirth, who was following up on a similar talk provided at last year's COGA conference.

If you click on the links and do not find any videos, I apologize. If that happens, I hope it means that someone figured out that there were some people who were using the inside views as a way to understand what is really happening in the current push to convince Americans that there is an abundance of natural gas and that it really is clean enough.

Update: (posted at 8:44 pm on October 5, 2010) One of my favorite commenters asked a great question. She was confused by the nature of the politics in the discussion because she knows that Colorado also has a coal mining industry. Interestingly enough, there was an audience comment at the very end of the panel discussion that brought up that very point. Here is a quote from that audience participant.

My name is Craig Meis. I am a Mesa County Commissioner, also Club 20 Board of Directors.

I want to provide just a touch of a west slope perspective to the conversation because I appreciate the conversation that you are having here. One of the things that you've talked about is whether it (the Colorado Clean Air - Clean Jobs Act) is transferable or how it relates to other areas and how it might move. I hope that one of the lessons learned through this process which could be gained here today is by expanding the tent. What Ms. Rudolph talked about. From the standpoint of especially those of us in Western Colorado, I have to say would have very much liked to have been a part of that tent discussion.

We appreciate that front range has air quality issues to address. I hope that front range also appreciates that we have 10% unemployment on the Western Slope. We fully support clean air, clean environment, clean jobs.

We also like to HAVE jobs. Needless to say northwest Colorado is blessed with abundant natural resources being coal, being natural gas, being uranium, many others. Water, we can all talk about water here as well. But we would hope that future discussion would expand that tent to include these local areas which are blessed with both of these natural resources.

And I have to tell you, I think the bottom line is that we could have achieved the same outcome without making a mortal enemy out of a brother in the coal industry as well as those of us in local government in these areas that are not going to have to try to deal with some of the potential job layoffs as a result.

Moderator: Thanks for the comment.

(Otherwise, nervous silence from the panel.)

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Don Gillispie, CEO of Alternative Energy Holdings, Inc. challenges Mark Cooper's assertion that solar is cheaper than nuclear

Don Gillispie, the CEO of Alternative Energy Holdings, Inc., is an aggressive businessman who is bootstrapping a "penny stock" company on a quest to build two large, 1700 MWe nuclear power plants in Payette County Idaho. His company is also working on developing partnerships that can produce desalination plants that produce clean water using atomic fission energy as the heat source.

Though there are some nuclear industry observers who view AEHI and Don Gillispie's plans with legitimate skepticism because they believe he is unrealistic in his evaluation of the difficulty of building a nuclear powerhouse company from scratch, there is little doubt that Gillispie has several decades worth of nuclear energy experience and is investing real money into his ventures. He has gathered a management team with some impressive credentials and his company's stock performance during the past year has indicated that there are at least some investors who believe in his vision. (Disclosure: I am a stockholder who has been pleased with the company's recent performance.)

AEHI Stock Price Nov 2009-Oct 2010

Gillispie is obviously a man who has a vested interest in nuclear energy. That is an attribute that makes his opinions on nuclear cost compared to other alternatives worth some consideration since he has chosen to bet his money and reputation on the validity of his evaluations. He might end up being wrong, but there are good reasons to believe that he has done the numbers to his own satisfaction.

In a recent press release that was picked up by MarketWatch.com, Gillispie took aim at the same Mark Cooper generated pronouncements on the cost comparisons between unreliable forms of energy like solar or wind and nuclear that I have attacked here on Atomic Insights. (See, for example, Gullible Reporting by New York Times on the Cost of Solar Electricity Versus Nuclear Electricity or Positive Lessons Extracted From Cooper's Paper on French Nuclear Experience)

Here is a quote from the AEHI press release:

Most importantly, the price of nuclear plants is far lower than critics like Cooper estimate. "My company is on track to build not one, but two, large plants in Idaho for $9 - $10 billion," Gillispie says. Reasons for the lower price tag include competition as new suppliers enter the market, which is lowering the capital cost, and the fact that key components are being built in Asia, where manufacturing costs are lower.

"The power from these new plants would cost 4-5 cents per kWh and based on today's market, the carbon credits it creates could be sold for hundreds of millions of dollars as well," says Gillispie, "This makes nuclear competitive with coal, with a decided clean-air advantage, since coal is the single biggest contributor of global warming in the world not to mention heavy metals like mercury and other lung damaging particles. And the price of nuclear power alone makes it a huge bargain over wind and solar. Further, we must have baseload electricity, which means large, highly reliable sources of power that renewables can't deliver and if we don't build clean low cost nuclear plants it will be more of the same; pollution from toxic coal plants that are already being planned because of the current nuclear plant delays."

It would be nice if other leaders in the nuclear industry would speak out in favor of nuclear energy as aggressively as Gillispie has. That might be economically difficult for them, however, since AEHI is one of the only "pure plays" that is focused primarily on nuclear energy. Unlike other "nuclear" industry stalwarts, AEHI does not have major investments in established sources of power that would become less profitable in a competitive market where nuclear energy facilities deliver on Gillispie's promise of abundant, reliable, clean power.

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Advanced Liquid Metal Reactor Actinide Recycle System - Solving Nuclear Waste Through Reuse and Recycle

The Energy Policy Act of 1992 included language directing research and development of the Advanced Liquid Metal Reactor (ALMR) with Actinide Recycle System. The above video is an explanatory (some might use the word "promotional") production that explains the program and its goals from the perspective of the mid 1990s.

As many nuclear energy insiders know, the Integral Fast Reactor (IFR) demonstration was part of the ALMR program. That program was cancelled by the Clinton Administration when its energy program decision makers decided to zero out all research on advanced nuclear energy systems. The reactor design that the video describes - the PRISM - is still on GE's drawing board. It still has its advocates. Jack Fuller, Chairman of the Board, GE Hitachi Nuclear Energy presented the reactor design and described its history to the Blue Ribbon Commission on America's Energy Future.

This video provides more evidence of an energy opportunity that America has not been pursuing. Knowing just how important an abundant, clean, reliable energy source can be to a country's prosperity, one has to wonder why there was so much opposition to the concept during the 1990s and why that opposition still exists today.

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