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Levy nuclear plant more costly than a natural gas facility

Clockwise: Peter Bradford used to be on the Nuclear Regulatory Commission. He says profits drive nuclear plants. The PSC’s Eduardo Balbis says fluctuating natural gas prices make nuclear a necessary option. Agriculture Commissioner Adam Putnam is a proponent of building nuclear plants, but in the past has ignored the up-front costs. The PSC’s Lisa Edgar has said nuclear plants save “maybe even billions.” R. Alexander “Alex” Glenn says Duke Energy’s plan is an “all of the above” approach to the future.

Times files

Clockwise: Peter Bradford used to be on the Nuclear Regulatory Commission. He says profits drive nuclear plants. The PSC’s Eduardo Balbis says fluctuating natural gas prices make nuclear a necessary option. Agriculture Commissioner Adam Putnam is a proponent of building nuclear plants, but in the past has ignored the up-front costs. The PSC’s Lisa Edgar has said nuclear plants save “maybe even billions.” R. Alexander “Alex” Glenn says Duke Energy’s plan is an “all of the above” approach to the future.

In the long run, nuclear power is cheap.

This, for many of Florida's top decisionmakers, is the Truth. Lawmakers have cast aside their worship of the free market — which long ago lost trust in building nuclear plants — and skewed state law to favor construction of new reactors.

Lisa Edgar is a believer. As a member of the Public Service Commission, she is one of five votes that green-light new nuclear plants, including Duke Energy’s Levy County project. The law that favors nuclear plants, Edgar said last month, could save Florida consumers "millions and millions, and maybe even billions" of dollars.

State officials repeat the nuclear-saves-money gospel so often, the Tampa Bay Times set out to see if the premise is true. The analysis compared the cost of the Levy nuclear plant to a natural gas facility, using a set of assumptions that, if anything, favors nuclear.

A new truth emerged:

Natural gas would be cheaper. Cheaper by billions of dollars. Cheaper even over 60 years and under any likely scenario.

What building a new nuclear plant does really well, the analysis showed, is fatten a utility's bottom line. Duke Energy would pocket as much as 10 times the profit from the Levy project as it would from a natural gas facility.

And yet, the myth about the Levy plant being cheaper lives on.

• • •

The lifetime cost of a new power plant breaks down into three basic categories: construction, operations/maintenance, and fuel.

The proposed Levy plant can't compete against natural gas on the first two. Nuclear plants are much more expensive to build and to operate and maintain. And the Times found the lower cost of fueling a nuclear plant doesn't come close to making up the difference.

In its analysis, the Times used estimates and assumptions Duke Energy filed with the Public Service Commission last year, including a projected 60-year lifespan for the Levy plant. The analysis included the cost of replacing the gas plant after 30 years, since it would last only about half as long as a nuclear plant.

So, what would it cost to build, operate and fuel Levy and the equivalent natural gas facility for six decades?

Levy nuclear: $13.9 billion

Natural gas: $10.9 billion

The federal government's projections for natural gas prices are lower than Duke Energy's. Plug in those numbers and natural gas' cost advantage widens:

Levy nuclear: $13.9 billion

Natural gas: $8.1 billion

What about the cost of pollution?

Nuclear plants produce no carbon emissions, while natural gas plants do. Right now there is little political will in the United States to tax carbon emissions or force utilities to build natural gas plants that capture carbon. But even accounting for those types of financial penalties, a natural gas facility would be less expensive in the long run than the Levy nuclear project.

The Times analysis included the extra cost of building a natural gas plant that captured 90 percent of the carbon emissions, and taxed the rest at $25 a ton. The results:

Levy nuclear: $13.9 billion

Natural gas: $10.1 billion to $12.6 billion, depending on the cost of fuel.

The Times gave Duke Energy, which bought Progress Energy last year, a written rundown of the data and assumptions used in its analysis. The utility did not dispute the findings. In fact, it also found nuclear to be significantly more expensive than a natural gas facility. That finding is buried in written testimony from a Duke executive, among tens of thousands of documents filed with state regulators.

(The sharp-eyed reader will wonder why the Times analysis finds a total 60-year cost for the Levy plant that is much lower than the oft-cited $24.7 billion figure just to build it. This has to do with how a dollar today is not worth the same as a dollar 60 years from now, and a lot of dense accounting including inflation, depreciation and discounting. An explanation of how the analysis was done accompanies this story.)

Duke spokesman Sterling Ivey wrote in a statement that natural gas prices will likely remain volatile and an over-reliance on "any one fuel is unlikely to be a good strategy for producing stable electricity prices or supply over the long term."

"New nuclear generation can provide a valuable long term option against the price volatility of natural gas," Ivey wrote, "and should be a component of Florida's balanced energy portfolio in order to reliably secure Florida's energy future.''

• • •

The assumption that the Levy project will save customers money only holds up if its believers ignore the massive initial price tag of building a nuclear plant, the Times analysis found. The faithful in Tallahassee do just that.

Adam Putnam, who as head of the Department of Agriculture and Consumer Services is the state's point man on energy matters, told Florida Trend last July that "nuclear in the long haul is the cheapest."

And there’s Edgar, the PSC commissioner, who told a Senate committee last month that the state law that supports the construction of nuclear plants including Levy would save customers millions and maybe billions of dollars “over the course of the project.”

Cindy Muir, a spokeswoman for the PSC, said commissioners would not comment for this article because the Levy project is part of ongoing decisions.

Pro-nuclear groups often frame the debate in a similar way as Edgar and others in Tallahassee. For instance, the CASEnergy Coalition asserted that ". . . once the plants are built, they operate at low production costs for decades.''

Even Duke Energy has made similar claims.

"When our new nuclear reactors are in service, they will generate an estimated savings of more than $1 billion annually for our customers," said former Duke Energy executive Jeff Lyash.

But that's a fantasy world where — poof — a free nuclear reactor magically appears. For the Levy project, the price of poof is $24.7 billion.

That's almost five times more than the original 2006 estimate of about $5 billion. Just in the last year, another $1 billion was added to the price tag. That's all before the plant produces a single kilowatt of power.

Why so high?

Any nuclear plant must hold up to hurricanes and earthquakes, human error and terrorist attacks. It takes expensive technology, tricky engineering, tons of steel and concrete, and inspections and then more inspections. The specters of Three-Mile Island, Chernobyl and the more-recent Fukushima meltdown hang over the entire process.

For Levy, the construction price tag is even higher. Duke Energy is too far behind to bring the plant online sometime in 2016, as it had hoped. So financing charges keep accruing and some reactor components will likely never get used. Regulators also have deferred some costs for years, not wanting to hit customers with too many charges all at once. The delays cause the totals to grow.

The $24.7 billion price tag would make Levy the most expensive nuclear plant ever built. A natural gas facility of comparable output to Levy would cost just $2.5 billion.

Put another way, construction combined with Duke Energy's profit, taxes and bond payments for Levy made up more than two-thirds of the plant's total costs over its 60-year lifespan, according to the Times analysis. The same expenses for the equivalent natural gas facility totaled 13.5 percent.

Even Putnam now acknowledges a need to "manage the extraordinary up front cost" of nuclear.

• • •

Construction costs aren't the only place on the financial ledger where the Truth breaks down. Operating and maintaining the Levy plant also would be far more expensive than for a natural gas facility.

The reason: the workforce. A nuclear plant is more complicated, more specialized, and the consequences of something going wrong are more dire. There are backups to the backups to the backups to the backups. Levy would require about 600 workers to operate — engineers to keep it running, specialists to handle the waste, security to keep it safe.

A natural gas plant employs about 50 people, and they generally aren't paid as well.

Operations and maintenance accounted for about 11 percent of Levy's total cost over 60 years, the Times analysis found. For natural gas, it was about 5 percent.

Levy nuclear: $1.5 billion (of the $13.9 billion total)

Natural gas: $500 million (of the $10.9 billion total)

Nuclear industry officials call this a plus. It creates jobs, they say.

Of course, utility customers would have to pay all those workers.

• • •

Fuel is one place where the Levy nuclear project has a decisive cost advantage over an equivalent natural gas plant. But the mythology about nuclear extends even there.

Take, as an example, Adam Putnam's response to the Times analysis.

''It is my hope," he said, "that our nuclear projects will get back on track because they are long-term, zero-fuel-cost technologies that also have zero emissions.''

He's right about zero emissions. But zero fuel costs?

It's true that the uranium used to fuel a nuclear plant is cheaper than natural gas. But it is by no means free, as the Times analysis shows.

Fuel makes up 12 percent of Levy's total 60-year cost, the Times found. For natural gas, it's 82 percent. So in terms of dollars, the cost of fuel breaks down like this:

Levy nuclear: $1.2 billion

Natural gas: $6.4 billion to $8.9 billion

Another example of the belief that Levy is cheaper: State Public Service Commissioner Eduardo Balbis argued last year that natural gas prices would have to remain below $5 per thousand cubic feet over the next 30 years for a natural gas facility to prove more beneficial than building the Levy County plant.

"If history is any indicator, I would find that to be unlikely," Balbis said last November at a PSC hearing.

Balbis' assertion, the Times found, wasn't even close.

Some quick background: In 2008, its most expensive year, natural gas averaged $9.11, according to the U.S. Energy Information Administration.

Today, thanks to America's widespread adoption of a technology commonly known as fracking, the country can tap at least a 100-year supply of natural gas. The price is currently about $4.

Based on projections from Duke Energy and the federal government, the Times' natural gas figures start at a low of $5.63 and through inflation reach a high of $32.10. That's eight times what they are today and far above even the historic highs.

In other words, the price of natural gas could be above $5 for every one of 60 years and the Levy nuclear plant would still be much more expensive.

• • •

So who benefits from the high cost of the Levy project? Here's one way of looking at it.

Duke Energy would pocket $4 billion in today's money over the life of the Levy County nuclear plant.

For a natural gas plant: $369 million.

Why such a big difference? Most simply, utilities make more money on an expensive plant than they do on a less costly one.

In addition, a state law passed in 2006 allows Duke Energy to collect a large chunk of its profit in advance of the nuclear plant coming online, a benefit not offered for building natural gas facilities. Duke already has made $150 million on Levy but has yet to commit to building it.

The Florida Legislature recently passed and sent to the governor a revision to the advance fee law that would slightly reduce Duke Energy' profit on Levy. The Times analysis did not account for that change.

"It's all about profit and not about customer well-being," said Peter Bradford, a former member of the U.S. Nuclear Regulatory Commission. "That's what's really going on here."

Duke Energy, and many state leaders, have argued that the law is the only way to get nuclear plants built, which helps diversify the state' energy sources.

"We're taking steps to maintain nuclear for the future of our state," R. Alexander "Alex" Glenn, president of Duke's Florida operations told the House energy committee in March. "Right now, we need an 'all of the above' approach."

Diversity in any system is a good thing, "but there's no point in overpaying for it," said Bradford, who approved 21 nuclear plants while a federal regulator. The financial realities of nuclear plants changed long ago, he said.

Including nuclear in an "all of the above" strategy "has become kind of a last refuge of scoundrels," Bradford said. "If we're talking about world hunger we don't talk about an all of the above strategy. We don't say, 'Lets fight world hunger with caviar.' "

Ivan Penn can be reached at (727) 892-2332 or ipenn@tampabay.com.



The Times analysis

Over two months, the Tampa Bay Times compared the long-term costs of the proposed Levy County nuclear project to a natural gas plant. The Times reviewed hundreds of pages of documents from many sources, including Duke Energy, the state Public Service Commission, Office of Public Counsel, the CASEnergy Coalition, the Nuclear Energy Institute, and the U.S. Energy Information Administration.

Here's how the analysis was done:

• The Times used the basic assumptions and projections that Duke Energy Florida (formerly Progress Energy Florida) filed with the state for power plant construction, operations and maintenance, fuel, inflation, taxes and the utility's cut of funds used during construction.

• The analysis assumed a 92 percent capacity factor for the 2,200 megawatt Levy nuclear plant, which is at the high end of the historic range, and an 81 percent capacity factor for the 2,500 megawatt natural gas facility, which is at the low end of capacity when compared to several newly built plants around the country. Both the nuclear and natural gas plants would produce almost exactly the same amount of electricity each year – about 8.87 million megawatts for each of the two units at the nuclear and gas plants.

• A 60-year lifespan was assumed for the Levy nuclear plant. Gas plants generally have a shorter life, so the analysis included the cost of retiring the gas facility after 30 years and building a new one.

• Duke Energy has said that Levy's first nuclear reactor would come online in 2024 and that the second would come online in 2025. The Times used those start dates for the nuclear plant and the natural gas facility.

• The Times used Duke's projected fuel price in 2024 of $7.63 per thousand cubic feet. Based on Duke's projections, the Times then inflated the price to a high of $24.29 at the end of 60 years.

In another part of the analysis, the Times started fuel at the EIA's 2024 estimate of $5.63. Based on EIA's projections, the Times inflated the price to $32.10.

• The Times brought the seven-decade period of the analysis into 2009 dollars, the year Duke Energy began charging customers in advance for the proposed reactors. The accounting calculation, referred to as the Net Present Value, is necessary to get a more accurate comparison of the two types of power plants. This calculation reduced the lifetime cost of the Levy plant to $13.9 billion. The idea is that a dollar is worth more today than in future years. For instance, a loaf of bread 20 years ago would run about $1 whereas today that same loaf would cost $3.

• The analysis used an escalating carbon tax that started at $25 a ton. The cost of a system to capture 90 percent of the natural gas plant's carbon also was added along with a tax on the remaining emissions.

$4B

Duke Energy's profit from

building the Levy nuclear plant

$369M

Duke Energy's profit if it built an equivalent natural gas facility

Levy nuclear plant more costly than a natural gas facility 05/11/13 [Last modified: Tuesday, February 11, 2014 9:29am]
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