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Subsidizing Unprofitable Nuclear Plants Not Solution for Grid Reliability, Security, and Carbon Emissions

New analysis shows energy efficiency as best option for cheaper power, increased grid resilience, carbon emissions reductions, and for preserving competitive markets

July 20, 2017, Basalt, Colorado – New analysis from Amory B. Lovins debunks the notion that highly unprofitable, economically distressed nuclear plants should be further subsi­dized to meet financial, security, reliability and climate goals. The analysis, which will appear shortly in The Electricity Journal, shows that closing costly-to-run nuclear plants and reinvesting their saved operating costs in energy efficiency provides cheaper elec­tricity, increases grid reliability and security, reduces more carbon, and preserves (not distorts) market integrity—all without subsidies.

Lovins’s analysis contrasts sharply with Secretary of Energy Rick Perry’s asser­tions that nation­al security requires favoring coal and nuclear plants. Lovins shows that all 14 “magical proper­ties” claimed to merit paying more for such plants (or even mandating them) are imaginary, including “large-scale” generation, dispatchability, loadshape value, having “fuel on hand,” price deflation, volatile fuel prices, jobs, and supporting America’s nuclear weapons capability. Lovins espe­cially debunks national-security and grid-reliability claims by showing that coal and nuclear plants actually have unique and serious vulnerabilities (as his authoritative Pentagon analysis Brittle Power: Energy Strategy for National Security first explained in 1981).

But the most striking finding of his article, entitled “Do coal and nuclear generation deserve above-market prices?” is that prolonging the operation of uneco­nomic nuclear plants does not help protect the climate. This has been the main rationale, most recently in Illinois, for new multi-billion-dollar long-term nuclear subsidies to continue operating nuclear plants that failed in free-market auctions.

I believe the claimed climate benefits of subsidizing nuclear plants are illusory, because of climate opportunity costs: avoiding and properly reinvesting nuclear operating costs could save even more carbon,” says Lovins. He goes on to explain: Buying a carbon abatement that does not save the most carbon per dollar results in emitting more carbon than necessary.

The costliest 25% of the U.S. nuclear fleet averages 6.2 cents per kWh just to run and keep in repair, making it uncompetitive with efficiency, most renewables, and gas power. Yet utilities pay an average of just 2–3 cents per kWh to buy more-efficient use for their customers. Thus closing such uneconomic nuclear plants and buying the equivalent efficiency instead (as state regula­tors could require) would deliver 2–3 kWh of efficiency for each nuclear kWh no longer genera­ted. One of those saved kWh would replace the energy generated by the nuclear plant, while the other 1–2 saved kWh could displace power generated by burning coal or natural gas.

Reinvesting those nuclear plants’ avoided operating costs into efficiency can significantly cut carbon dioxide emissions. In fact, closing distressed nuclear plants can indirectly save more CO2 than closing an average-cost coal plant, as long as the nuclear plants’ larger operating costs are reinvested in efficiency that displaces more fossil-fueled electricity. Keeping old reactors running because they emit no carbon overlooks how best to deploy their money.

Proponents of nuclear subsidies argue they are justified because the market fails to value their low-carbon energy. In fact, these subsidies are creating grave market failures.

“Around-market subsidies…distort pool-wide prices, crowd out competitors, discourage new entrants, destroy competitive price discovery, reduce transparency, reward undue influence, introduce bias, pick winners, and invite corruption,” says Lovins.

A price on carbon, on the other hand, is an effective way to reward low-carbon energy and retain market competition, especially between nuclear and renewables—the real target of nuclear subsidies, as renew­ables often beat both nuclear and gas generation.

Moreover, large power stations like nuclear and coal, often called “baseload” plants, are not necessary for a reliable and resilient grid, as Secretary Perry has claimed. On the contrary, they’re actually becoming a liability to operating an efficient, affordable, resilient, and flexible grid, because they’re so big and inflexible. This has been clearly stated by former FERC Chair­man Jon Wellinghoff, National Grid CEO Steve Holliday, and General Electric, confirmed by de­tailed analyses by the Department of Energy and U.S. grid operators nationwide, and demon­strat­ed by Eur­o­pean utilities. PG&E’s multi-stakeholder plan to phase out its well-running Diablo Canyon nuclear plant and replace it with cheaper efficiency, re­new­ables, and other carbon-free resources confirms this modern way to improve the grid while saving both carbon and money.

Modern renewables and demand-side resources are rapidly diversifying U.S. electricity from vulnerability towards resilience. Retaining obsolete and less resilient technologies for the sake of diversification would advance this goal in name but contradict it in prac­tical effect,” Lovins states.

Distributed generators largely or wholly bypass grid failure—the source of nearly all US power outages. Interconnected microgrids that exchange power with the larger grid but can isolate themselves and keep running throughout a grid malfunction are espe­cially resilient. That’s the Pentagon’s strategy for resiliently powering America’s military bases.

Despite the overwhelming evidence and several studies from his own Department and its Labor­a­tories, Secretary Perry has ordered a staff study, expected shortly, to confirm his desire to keep costly coal and nuclear plants running, but finding credible support won’t be easy,” comments Lovins, because virtually all authoritative reviews found the opposite. Lovins does agree with Secretary Perry that energy subsidies should be phased out—but all, not just some.

For press inquiries, contact Nick Steel at nsteel@rmi.org.

About Amory Lovins

Physicist Amory Lovins, Chief Scientist at Rocky Mountain Institute, has advised major firms (including many utilities) and governments for over 40 years, taught at 10 universities, and written 31 books and more than 600 papers. Time named him one of the world’s 100 most influential people, and Foreign Policy, one of the top 100 global thinkers. Public Utilities Fortnightly praised his analysis as “solid” and “prescient” and called him the most influential person in the electricity industry since 1990; Power Engineering International found his foresight the most accurate over the past 20 years. Rocky Mountain Institute, which he cofounded in 1982, is an independent, nonprofit, market-oriented think-and-do tank that helps create a clean, prosperous, secure, low-carbon future. RMI engages businesses (including the electricity industry), communities, institutions, and entrepreneurs to accelerate the adoption of market-based solutions that cost-effectively shift from fossil fuels to efficiency and renewables. RMI has offices in Basalt and Boulder, Colorado; New York City; Washington, D.C.; and Beijing.

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