The Nuclear Money Pit

"The failure of the US nuclear power program ranks as the largest managerial disaster in business history." - J. Cook Nuclear Follies. Forbes, 11th Feb, 1985

Fifty years ago, nuclear energy zealots proclaimed that nuclear power would be "too cheap to meter" and would revolutionize our modern world. They further stated that nuclear power could signal a new era of peace and prosperity for the world. President Eisenhower's "Atoms for Peace" program is a perfect example of the grand proclamations and rhetoric during the early nuclear age. However, we know now as was known then, that nuclear power is one of the most expensive energy sources and has never lived up to its promises. Because of its economic failures, nuclear power has been the most publicly subsidized energy source in history and has never been able to compete on the free market. Wall street still avoids nuclear power like the plague because of the simple truth that nuclear power could turn a $2 billion asset into a multi-billion dollar disaster in a matter of minutes.

Click on a link below to see more evidence of nuclear power's economic failures and massive government support:

• The early days
• Taxpayer subsidies
• The Price-Anderson Act
• Energy Bill of 2005

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The Early Days

Even as the "too cheap to meter" rhetoric was everywhere in the early 1950s, industry insiders were very worried about the rising costs. Dr. Arjun Makhijani of the Institute for Energy and Environmental Research (IEER) explains:

"Almost two decades ago, browsing through the stacks of a well-endowed library, I ran into a 1950 article written by a research engineer by the name of Ward Davidson from Consolidated Edison Company of New York. It was published in Atomics, a nuclear industry journal of the time. Updating an earlier 1947 opinion, he wrote that the technical problems facing nuclear power were even more daunting than he had imagined. For example, the materials requirements would be stringent, given the high temperatures and damage from high neutron fluxes. Testing of the alloys to ensure the quality and uniformity needed would be difficult. All this meant of course, that nuclear power would be quite expensive."¹

In fact, as early as 1948, the Atomic Energy Commission reported to Congress that “the cost of a nuclear-fuel power plant will be substantially greater than that of coal-burning plant of similar capacity.”²

Once you look beyond the early rhetoric, you see why nuclear power was being pushed so much. It was, in reality, a major propaganda tool to "nuclearize" the American public into becoming comfortable with the atom. Since nuclear weapons were becoming a major part of U.S. foreign policy and the public was becoming increasingly fearful of their destructive power, the U.S. government wanted to legitimize the increased production and testing of nuclear weapons. Their strategy to accomplish that was to portray the atom as a peaceful thing and a revolutionary development for humanity. They knew that the Soviet Union was also employing this strategy and feared they would fall behind. In September of 1953, Sterling Cole, the chairman of the Joint Committee on Atomic Energy in the U.S. Congress, wrote to a fellow congressman:

"It is possible that the relations of the United States with every other country in the world could be seriously damaged if Russia were to build an atomic power plant for peacetime use ahead of us. The possibility that Russia might actually demonstrate her 'peaceful' intentions in the field of atomic energy while we are still concentrating on atomic weapons could be a major blow to our position in the world."³

Clearly, it was well understood that nuclear power could play a major propaganda role in the early cold war. No industry or government insider actually believed in the rhetoric they espoused. This was best elaborated in an industry journal in 1948 by C.G. Suits, then Vice-President and Director of Research of General Electric:

"It is safe to say… that atomic power is not the means by which man will for the first time emancipate himself economically, whatever that may mean; or forever throw off his mantle of toil, whatever that may mean. Loud guffaws could be heard from some of the laboratories working on this problem if anyone should in an unfortunate moment refer to the atom as the means for throwing off man’s mantle of toil. It is certainly not that!...The economics of atomic power are not attractive at present, nor are they likely to be for a long time in the future. This is expensive power, not cheap power as the public has been led to believe."⁴

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Subsidies

Federal Energy Supply R&D Expenditures, 1948-1998⁵

The table above is a perfect illustration of nuclear power's near total reliance on public money over its lifetime. Due to its complexity and massive start-up capital costs, nuclear power needs this R & D assistance to survive and compete economically. Nuclear proponents sometimes argue that nuclear power is competitive with other energy sources. This is only true in the sense that nuclear power enjoys near total public support to keep costs down. The economic realities persist as a wall street investment firm reported in 2002, “without government participation, some risks and costs of new nuclear reactors may remain at unmanageable levels.”⁶ The government's economic lifeline was continued almost indefinitely when in 2005, an Energy Bill was passed that gave even more subsidies to the nuclear industry (See below).

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The Price-Anderson Act: Billion Dollar Bailout

The Price-Anderson Act, enacted in 1957 as a temporary, 10-year measure to support the fledgling nuclear industry, limits the amount of primary insurance that nuclear operators must carry to $300 million and caps the total liability of nuclear operators in the event of a serious accident or attack to $10.5 billion. The act further states that if the damages rose higher than $10.5 billion, the federal government (taxpayers) would foot the bill. The $10.5 billion limit is a ridiculously low number especially when you consider that Sandia National Laboratory estimates that a major reactor accident (like Chernobyl) could cost upwards of $600 billion (2004 dollars).⁷ The total costs of course does not calculate the terrible human and environmental catastrophe that would result from a Chernobyl like accident that occurred near a major city. Furthermore, this act is tantamount to a subsidy for nuclear plant operators as it limits the insurance costs they must pay. The Stanford Institute for Economic Policy Research estimates that the act is a savings to reactor operators of up to $237 million annually.⁸

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The 2005 Energy Bill

On August 8, 2005, President Bush signed an energy bill that included over $13 billion in tax breaks and subsidies, as well as other incentives, for the nuclear industry. Here’s a rundown of some of the giveaways to the mature, wealthy industry included in the bill:⁹

Expansion of Current Programs

Limited Liability: The Price-Anderson Act, as mentioned above, limits the amount of primary insurance that nuclear operators must carry. It was reauthorized through 2025 and extends this subsidy to the proposed new generation of nuclear power plants. The nuclear industry claims that the new designs are “inherently safe.” Inherently safe should mean inherently insurable; therefore, nuclear operators should be able to privately insure them.

License Application Costs: The Nuclear Power 2010 program was extended. It promotes the building of new nuclear power plants by 2010 by paying for half of the cost to apply for license applications. Through this program, which has received more than $120 million since FY2001, Exelon, Entergy, and Dominion have received funding for three pending Early Site Permit applications to site new reactors in Illinois, Mississippi, and Virginia, respectively. If the nuclear industry believed that the next generation of nuclear plants is a good investment, they would be fully capable of financing both the plants and the research themselves.

Research and Development: The Department of Energy’s Generation IV program provides funding for up to half the cost of the development of new reactor designs. This program has already received more than $92 million since FY2001. The research and development costs for a single design are estimated to range from $610 million to $1 billion, depending on the type of reactor.¹⁰ The nuclear power industry has been given more taxpayer dollars for research and development than all other energy sectors combined. The 2005 energy legislation authorizes another $2.9 billion for nuclear R&D and licensing.

Other Subsidies for New Plants

Taxpayer-financed New Plant Construction: The bill authorizes another $1.25 billion for a nuclear plant in Idaho to co-generate hydrogen fuel. While hydrogen may one day fuel our cars, using nuclear power to create the hydrogen fails to meet clean energy goals by creating thousands of tons of high-level radioactive waste.

“Risk Insurance”: The energy bill authorizes $2 billion in “risk insurance” to pay the industry for any delays in construction and operation licensing for 6 new reactors, including delays due to the NRC or litigation. Not only is this a waste of taxpayer dollars, it will put pressure on the NRC to rush its review of applications, shortchanging the public of its opportunity to participate in the process and jeopardizing public safety.

Production Tax Credits: In order to attempt to make new nuclear power plants appear competitive with other sources of energy, the bill authorizes tax credits for the electricity produced by these reactors. According to the Energy Information Administration, a 1.8-cent tax credit for each kilowatt-hour of nuclear-generated electricity from new reactors during the first 8 years of operation will cost $5.7 billion in revenue losses to the U.S. Treasury through 2025.¹¹

Loan Guarantees and Power Purchase Agreements: To mitigate the high capital costs of building new reactors, the bill authorizes the federal government to provide unlimited loan guarantees for 80% of the cost of new reactors. This will allow the industry to borrow at government treasury bond rates, rather than at rates typically paid by a large utility making a risky investment. The risk of loan default is estimated to be “well above 50 percent.”¹² The Congressional Research Service estimated that the taxpayer liability for loan guarantees covering up to 50% of the cost of building six new reactors would be $6 billion.¹³

Shutdown Subsidies: The bill changes the rules for funds that are to be used to clean up closed nuclear plant sites, costing taxpayers $1.3 billion.

References:

^{1 Arjun Makhijani, Institute for Energy and Environmental Research, p. 3, Science for Democratic Action, . Volume 14, Number 2 (August 2006)}

^{2 Atomic Energy Commission, “Report to the U.S. Congress, No. 4,” Washington, DC, 1948.}

^{3 Sterling Cole, Letter to Congressman John Phillips, May 20, 1953, with cover note from AEC secretary Roy Snapp, July 9, 1953. DOE Archives, Box 1290, Folder 2.}

^{4 Nucleonics (Vol. 8 No. 2, February 1951)}

^{5 Data from Energy Efficiency: Budget, Oil Conservation, and Electricity Conservation Issues, CRS Issue Brief for Congress, Fred Sissine, Order Code IB10020, Updated September 22, 2004.}

^{6 July 2002 Business Case for New Nuclear Power Plant. The report was prepared by Scully Capital Services, Inc., a Washington-based investment banking and financial services firm. http://www.nuclear.gov/home/bc/businesscase.html}

<sup>7 Calculation of Reactor Accident Consequences (CRAC-2), Sandia National Laboratory, November 1, 1982.

8 Rothwell, Geoffrey S (January 2002). Does the US subsidize nuclear power insurance? (PDF). Stanford Institute for Economic Policy Research.</sup>

^{9 This section was borrowed from Public Citizen's "Nuclear's Fatal Flaws: Cost" fact-sheet, available here http://www.citizen.org/cmep/energy_enviro_nuclear/
nuclear_power_plants/articles.cfm?ID=13449}