Nuclear Energy: A Strategic Element of the Energy, Environmental, and Economic Agenda
October 8, 2008
DoC/DoE Nuclear Energy Summit
Washington, DC
Admiral Frank L. (Skip) Bowman, USN (Retired)
President and Chief Executive Officer
Nuclear Energy Institute
My thanks to Secretary Gutierrez and Secretary Bodman for organizing this summit. The Departments of Commerce and Energy have been instrumental in leading our nation toward greater energy security … in formulating policies that attempt to strike an appropriate balance among energy, environmental and economic imperatives … and in recognizing the strategic importance of nuclear energy as part of the portfolio necessary to address these challenges.
My remarks today, then, will focus on our efforts to build the new nuclear power plants so necessary to maintain reliable electricity supply, reduce carbon emissions, and provide price stability in our electricity markets while creating jobs and manufacturing opportunities, thus helping to meet those energy, environmental, and economic imperatives.
This is an appropriate time to take stock, as we approach the end of this Administration and the 110th Congress. So I want to review where we stand, how far we have come in the last several years since the President signed the Energy Policy Act of 2005, but also, how far we have to go. Industry, the federal government and state governments have made remarkable progress. That said, we have much left to do and, in fact, our major challenges may lie ahead of us.
Before I turn to new nuclear plants, let me say a few words about the 104 operating plants that provide 20 percent of America’s electricity supply. After all, they are the platform from which we are launching the nuclear resurgence, and it is a solid platform indeed.
Performance is outstanding. The fleet last year operated at almost 92 percent of full-time rated power, the highest capacity factor ever.
Output was an all-time record, over 800 billion kilowatt-hours – mostly the result of the industry’s record-high capacity factor, but also due to more capacity available, both because of power uprates and the restart of Browns Ferry Unit 1 last May.
Our production cost last year was $17.60 per megawatt-hour (or 1.76 cents per kilowatt-hour) – cheaper than coal and one-quarter the cost of gas-fired generation.
Well before passage of the 2005 energy legislation, many electric power companies were considering construction of new nuclear power plants in the United States. That consideration was driven by the fundamentals of the electric power business. The need for new baseload generating capacity was unmistakable. Several regional markets in the United States were already approaching unacceptable capacity reserve margins.
The electric sector’s increased dependence on natural gas had exposed customers to unacceptable price volatility and the companies to political and regulatory stress as they sought to recover higher fuel costs. And uncertainty over future controls on carbon emissions had cast a cloud over coal-fired generation.
Those fundamentals have not changed. If anything, the need for new nuclear generating capacity has grown more acute in the three years since the President signed the Energy Policy Act of 2005.
In that time, we have made steady, sustained progress toward new nuclear plant development.
The Nuclear Regulatory Commission has finalized its new Part 52,
one-step, licensing procedures, and has received sixteen applications for construction/operating licenses for 25 new reactors over the past year.
The NRC has certified two advanced reactor designs. Two more were submitted for certification last year. One was submitted this year.
We’ve seen a steady drumbeat of announcements from companies ordering long lead-time components like pressure vessels and steam generators.
At least three project sponsors have reached agreement with their vendor and construction firm on the terms and conditions of engineering-procurement-construction contracts – a big step in the direction of nailing down a solid cost estimate and producing a credible project cost.
A number of states – including Florida, Louisiana, North Carolina, South Carolina, Texas, Virginia and Mississippi – have passed legislation or implemented regulations to provide incentives, or greater assurance of investment recovery, to companies that build new nuclear plants.
The Florida Public Service Commission has reached a formal determination that there is a need for the four new reactors proposed by Florida Power and Light and Progress Energy at Turkey Point and the Levy County site.
We see unmistakable evidence of new life in the nuclear supply chain, partly in response to the real prospect of new nuclear plant construction in America, partly in response to the global nuclear construction cycle now underway. Consider:
* Thirty new N-stamps since September 2007, bringing the total to 258.
* Alstom investing over $200 million in a turbine manufacturing facility in Chattanooga – and creating 350 new jobs in the process.
* Holtec doubling the size of its fabrication and manufacturing facility for nuclear components in Turtle Creek, Pennsylvania, adding 500 jobs over the next five years to the 70 already in place.
* Curtiss-Wright building a new facility in Allegheny County, Pennsylvania, and Shaw and Westinghouse building a new construction facility in Louisiana.
* In addition, several nuclear navy suppliers, led by Babcock and Wilcox, are investigating their re-entry into the commercial supply business.
This Administration has played a key role in stimulating this new growth, thanks to activities supported by the U.S. Departments of Commerce, Energy and State to promote the civilian nuclear sector. Just last week, 14 of NEI’s member companies participated in a trade promotion event in conjunction with the International Atomic Energy Agency’s General Assembly in Vienna. Secretary Gutierrez has called for an industry advisory committee and an interagency working group to support the promotion of U.S. civilian nuclear exports. I personally thank you, Mr. Secretary, for your leadership in this area.
We’re also addressing our workforce challenge – working with the federal government, state governments, universities and community colleges, high schools, labor unions, utilities, other trade associations and professional organizations.
We’re promoting nuclear energy careers and employment opportunities among young people and encouraging our experienced workforce to stay on longer. At the university level, enrollment in undergraduate nuclear engineering programs has tripled in the last several years.
And we’re seeing record levels of public support. Our latest tracking poll shows a record-high 74 percent of Americans favor nuclear energy, with only 24 percent opposed. That favorability mark is 11 percentage points higher, and the unfavorability level nine percentage points lower, than was the case just five months ago. The new survey also found that 69 percent of Americans believe the United States should definitely build more nuclear power plants in the future – a 10 percentage point gain from April. Three-fourths of respondents say they would find it acceptable to add a new reactor at the nearest existing nuclear power plant site – a nine-point jump from April’s result.
By any measure, this is astonishing progress in just three short years. And yes, the trends are in the right direction. But …
But we are still in the early days. Licensing, financing and building the next generation of nuclear plants will not be easy. We must not misjudge the challenges still facing companies developing new nuclear projects, and we must be realistic about the challenges facing America’s electric sector.
We all know that a portfolio of technologies and energy sources is essential to address U.S. environmental imperatives and to provide adequate supplies of electricity. Although each technology has its own set of challenges, the largest single challenge cross-cutting the entire electric sector is financing.
Sufficient financing is essential – to conduct research, development and demonstration of new and evolving technologies like carbon capture and sequestration, renewables, and nuclear fuel reprocessing in the portfolio; and to enable large-scale, rapid deployment of mature technologies like nuclear.
We must create mechanisms to support substantial increases in our investment in energy research, development and demonstration. The Electric Power Research Institute has estimated that the United States must increase investment in energy research, development and demonstration by $1.4 billion annually between now and 2030 to develop and demonstrate the technology portfolio necessary to bring electric sector carbon emissions back to 1990 levels.
We must create new financing platforms to support rapid deployment of new, more efficient, low- and zero-carbon technologies. The electric sector faces staggering investment requirements – at least $1.5 trillion between today and about 2025 on new generating capacity, transmission and distribution, and environmental controls. This is more than the book value of today’s entire electric infrastructure.
New baseload power plants are capital-intensive – in 2008 dollars, $3-4 billion for 600-megawatt-scale coal-fired power plants, $6-8 billion for average 1200 megawatt new nuclear plants. The U.S. electric power sector consists of many relatively small companies that do not have the size or financial strength to finance power projects of this scale on their own, in the numbers required. These projects require financing support – loan guarantees from the federal government or assurance of investment recovery from state governments, or both. Government-backed financing support was required a year ago, when the subprime crisis hit. It was required in 2005 when the Energy Policy Act passed.
Financing support was required in 2000, when we first started thinking through how to finance nuclear new build. The current financial crisis only emphasizes the need for loan guarantees. We could not finance these plants in the numbers required even if financial markets were completely stable in the absence of loan guarantees.
Equally importantly, all serious modeling shows a substantial reduction in the cost of electricity to the consumer with loan guarantees.
The loan guarantee program authorized by the 2005 Energy Policy Act was an important step in the right direction, but only a small step.
Implementation of the program is a continuing challenge, partly because the Department of Energy was not created to manage a project finance operation and therefore is not well-equipped to do so despite Secretary Bodman’s strong leadership in this regard ... and partly because of unrealistic limits imposed by Congress and the Administration – $38.5 billion in total loan guarantee authority for all clean technologies does not represent a sufficient response to the $1.5 trillion investment necessary to rebuild America’s critical electric power infrastructure … and $18.5B for new nuclear plants is simply not equal to the task before us.
If we needed proof of this, we received it last week. The Department of Energy announced that it had received loan guarantee applications from 17 companies for 21 new reactors – nearly 29,000 megawatts of carbon-free generating capacity … moving in the direction called for by virtually all studies addressing the conundrum of increasing baseload requirements and reducing GHG emissions. DOE reports that the applications represent an aggregate loan volume of $122 billion. The existing loan volume of $18.5 billion for nuclear power projects is plainly and pathetically inadequate.
Earlier this year, Senator Pete Domenici proposed creation of a Clean Energy Bank, a government corporation equipped with $100 billion in loan guarantee authority. This new institution would be modeled on the Export-Import Bank and the Overseas Private Investment Corporation, and is designed to ensure that capital flows to critical infrastructure deployment in the electric sector. Senator Jeff Bingaman has also proposed creation of a new federal institution to finance deployment of “breakthrough” energy technologies to accelerate the time between technology demonstration and widespread deployment.
Both concepts have merit. They reflect a recognition that the tools available to accomplish the work ahead of us – tools that we inherited from the 20th century – are simply not adequate to the task of rebuilding and de-carbonizing America’s energy infrastructure. We must create new, 21st century tools and capabilities tailored to a 21st century challenge.
Many of you are aware that the French and Japanese export credit agencies are keenly interested in participating in financing new nuclear plants in the United States, and are in active discussions with some of our companies. Terribly ironic if U.S. companies turn to Japanese and French governments to partner in the U.S. nuclear renaissance.
As we look forward to 2009, the challenge for the new Congress and the new Administration is to structure and implement an integrated energy, environmental, and economic policy agenda that can attract broad-based bipartisan support and will, in a single stroke, address three major imperatives:
* First, ensuring reliable supplies of baseload electricity in an ever-growing demand environment;
* Second, meeting this demand by demonstrating and deploying the low- and zero-carbon technologies necessary to reduce electric sector carbon emissions;
* And third, providing price stability in our electricity markets, creating jobs through construction of new electric infrastructure, rebuilding the U.S. manufacturing base for power plant equipment and components, and thus generating economic wealth and U.S. GDP growth.
Investment in technology is at the heart of this energy, environmental and economic agenda. Meeting these investment needs will require a partnership between the private sector and the public sector, combining all the financing capabilities and tools available to the private sector, the federal government and state governments. Government-sponsored financing will determine whether or not we succeed. The necessary financing tools and techniques do not currently exist. We must create them.
This is a huge opportunity for our nation. Let’s not let it slip through our fingers. Thank you.