Monday, February 27, 2012

Small modular reactors meet "Iowa stubborn"

The land of Iowa - home of hogs, corn, windmills, and... SMRs (i.e., small modular reactors). Or at the least, that last part may be true pending a proposal before the Iowa Legislature (HF 561) is passed, allowing for among other things, recovery of costs while construction is in progress on nuclear projects (known as "CWIP" or "construction work in progress" financing). Iowa's electricity market is a regulated market - which means rates are ultimately set by the Iowa Utilities Board.

Iowan electricity profile
As a former long-term resident of Iowa and still self-identified Midwesterner-in-exile, I have a keen interest in seeing where this one goes. Despite the characterization of the bill's opponents (which, by sheer coincidence, also seem to be almost identical to those who oppose nuclear energy writ large), Iowa's "abundant energy alternatives" generally consist of coal (about three-quarters of Iowa's electricity capacity), followed by wind (about 16%) and nuclear (about 8%, from the state's lone nuclear unit, Duane Arnold, north of Cedar Rapids), per 2010 EIA statistics, shown on the right.

Given the highly-touted wind resources of the Iowa (i.e., from the hundreds of windmills which dot the rolling plains of Iowa), wind makes up a significant share of Iowa's energy. However, given the sheer enormity of coal's share of Iowa's energy portfolio, it is difficult imagine wind displacing Iowa's heavy reliance upon coal for electricity, particularly when one looks at penetrations beyond 20%, where wind's intermittency begins impact grid stability (thus requiring changes to grid infrastructure in order to accommodate further wind generation). Instead, wind is appears serving the role of taking required load away from "peaking" sources like natural gas - one notices that contra the national trend, natural gas makes up a tiny share of Iowa's energy mix. Ultimately however, if Iowa is to become in any way serious about doing its part on carbon emissions, weaning itself off its dependence of coal (specifically, anthracite low-sulfur bituminous coal shipped by the trainload directly from Wyoming) is of paramount priority. Given its inherent intermittency, doing this with wind seems highly improbable, while few other sources appear ready to fill the gap here.

Enter the small modular reactor - in an attempt to obviate the issues of high up-front capital cost and large "step-wise" investments (i.e., traditional nuclear units start around 1 GWe), small modular reactors miniaturize nuclear reactors into a relatively small, self-contained unit - one which is manufactured off-site and produces power at a lower scale (typically on the order of 1/10 to 1/3 of a traditional unit). To wit - the concept of the "small modular" part of the SMR is that in many cases, such as in more conventional designs, the same fundamental designs as their larger cousins are employed (e.g., uranium fuel cooled by ordinary water) - simply scaled down into a smaller package which can be manufactured in a factory and shipped by truck or rail to the installation site. As a result, SMRs avoid the uncertainties due to construction delays while scaling down a nuclear investment into a more tractable size, one which allows for a more granular addition of nuclear capacity than the traditional gigawatt-scale traditional reactor.

Indeed, one of the reasons SMRs are appropriate for unique energy markets like Iowa is in their ability to be "right-sized" for the kinds of municipal utilities and electricity cooperatives that make up the Iowa market. Unlike large, multi-state utilities, most electricity retailers in Iowa are unlikely to be willing or able to support the large investment for a traditional unit, nor do they have the need for such large generating capacity. In as much, smaller, scalable units provide an alternative which affords the capacity of carbon-free baseload generation at low operating costs. Outside of the jaundiced view of nuclear which seems to color this discussion, this would seem to be boon to Iowa's energy producers an consumers.

Given these factors, the introduction of SMRs to Iowa as an alternative to coal should seem to be a no-brainer. Of course, as usual with anti-nuclear politics, it doesn't always seem to work this way; in a way of cutting off their nose to spite their face, many nuclear opponents will cast aside the issue of carbon constraints aside to attack nuclear on any and all fronts. Take this example from a left-wing community blog, "Blog for Iowa," where author Paul Deaton criticizes the CWIP proposal on the grounds that it might indeed do just what it's slated to do - attract the development of small modular reactors to serve Iowa's largely rural electricity markets. Deaton brings up many of the usual anti-nuclear arguments, however he turns his attention specifically to several criticisms of SMRs which on the face of it simply don't make much sense.

For example, Deaton argues that the modularity of SMRs are self-defating in nature:
When proponents of SMR technology talk about it in public, what they say doesn’t make sense. On the one hand they talk about the efficiency and flexibility of modular reactor technology. On the other hand, they talk about the need for centrally located “baseload” power where economies of scale are important to keeping the cost per kilowatt hour low. What this means to consumers is that while a single town or large-scale user may be able to have their own nuclear reactor on-site, if this were done, the cost of the ancillary charges would be much higher per kilowatt hour because efficiencies of scale would be lost. Installing SMRs only makes sense, from a cost standpoint, if they are constructed in clusters as the Nu-Scale and Babcock and Wilcox designs are intended.
Unfortunately, much of this betrays a fundamental misunderstanding of the issues at hand. For one, part of the cost advantages of SMRs is that so-called "energy parks" can be developed in staged fashion - in other words, installing one or two units at first in order to allow cost recovery, then installing more units later, "scaling up" the energy production without having to attempt to swallow the entire capital cost in one fell bite, thus avoiding both the high borrowing cost and financial risk of the large, single-unit traditional equivalents. Further, each SMR is still generally on the order of 100-300 MWe - again, about 1/10 to 1/3 the size of a traditional nuclear facility. For comparison - the average wind turbine puts out less than 10 MWe at rated capacity - so how precisely is it that SMRs fail the same test which one can infer our author has no problem with when it comes to other energy sources?

Finally, this argument ignores one of the chief advantages of SMRs, in that they can be manufactured almost entirely along an industrial process line within a single facility - eliminating the need to build on-site with its attendant construction costs and delays while affording efficiencies of scale at the actual manufacturing process (along with the respective enhancements to quality control that can come with it). Thus, where SMRs push on nuclear's chief weaknesses - high up-front capital costs and financial risk due to construction - are factors entirely unconnected to the points Deaton brings up.

Deaton goes further, arguing in several places that SMRs are too "under-developed" to make them viable for energy markets, arguing:
While the paradigm of SMRs fits into the hyperbole of the recent discussion, the reality is that no SMR design has been approved by the Nuclear Regulatory Commission. Nor is approval imminent, with talk of the earliest likely approval of SMR design being ten years from now.
The purpose of a TVA SMR would be to further the NRC design approval process and develop field data about SMR design efficacy. Without government subsidy of this kind, the SMRs seem unlikely to move forward in the United States in the near future.
Of course, this argument ignores the inherent problem - the issue is not that SMRs aren't ready for primetime, but rather that the NRC lacks the will or capacity to make such regulatory analysis. How this is the fault of the industry or specifically SMR manufacturers remains to be seen. Absent the NRC's dithering, it remains to be seen why such a "subsidy" as he terms it would even be necessary. Again, the problem here is not that the so-called "subsidy" is necessary but that some degree of expedience on the part of the NRC (one Deaton is silent on) is warranted. Assigning the blame to the technology for bureaucratic inaction is thus a non-sequitur.

Finally, Deaton assails nuclear as a non-starter in a free market for energy, arguing that it should succeed or fail on its own financial merits. All fine, again - although somewhat odd, given both that Iowa is a regulated electricity market and other sources like wind are given particularly favorable treatment in said energy market. Given the leftist orientation of the blog, one is left to doubt we'll be hearing calls for a deregulated Iowa electricity market or an elimination of similar subsidies for wind and other politically favored sources, so one is left to question the sincerity of this particular rhetorical strategy. Indeed, nuclear seems to be the unique case in which your average nuclear opponent begins to act as if they would fit in at a Tea Party rally - with such situational preference for laissez-faire disappearing once the topic changes to energy mandates and subsidies writ large.

Likewise, when it comes to anti-nuclear politics, some rather specious claims tend to be made. For example, this one - that CWIP financing would mean, "An average ratepayer who paid $67 a month in 2009 would pay an estimated $135 a month" - are repeated entirely uncritically. Going to the data, Iowans pay an average of 10.34 cents/kWh - comfortably below the average of 11.88 cents/kWh. For a monthly bill to jump from $67 to $135 per month would require a rise of the cost of electricity to 20.83 cents/kWh - a rather difficult claim to sustain in the absence of compelling evidence.

None of this of course is to say that Iowa's specific legislation is perfect - a legitimate criticism can be made that processes such as CWIP financing should be carefully balanced to avoid totally offloading risk onto consumers and undercutting incentives to avoid cost and schedule overruns. Ultimately, these kinds of discussions only go on in regulated electricity markets - where producers are generally guaranteed a fixed rate of return on investment, becoming moot in deregulated ("merchant") electricity markets, where in fact electricity prices are set by the market. The key point to take away however is that in regulated markets at least, it's a matter of pay now or pay more later when it comes to energy investments. Carefully structured, allowing for cost recovery mechanisms while construction is in progress can ultimately lower the total amount  retail electricity customers ultimately pay.

*For those who don't get the title, a viewing of "The Music Man" is highly recommended - if only to give you a feel for an Iowa which is not about corn, livestock, or hyped-up fabulism of Iowa as a methamphetamine-fueled wasteland. Really, it's quite nice.

Updated 2/28: An anonymous commenter noticed the statistics I'd had were for total U.S. production, rather than Iowa - a tremendous goof which has now been fixed.

Tuesday, February 21, 2012

The other thing Vogtle has revived: Nuclear hysteria

Kitchen sink
They say no one likes a buzzkill, but almost as if on queue, the NRC's announcement of its issue of the first combined operating license (COL) in over three decades has drawn out the usual suspects committed to reassuring us that this both simultaneously meaningless (read, "The Nuclear Renaissance is still dead!") and yet somehow at the same time, an imminent danger. Call it the nuclear equivalent of the "double-tap" - anti-nuclear activists will throw out everything (kitchen sinks included) as an effort to kill off an apparently "moribund" comeback of nuclear energy. The Vogtle announcement seems to have put this process into overdrive.

One probably needs to learn to develop thick skin when working in this field, but sometimes the arguments get obnoxious enough to be called out on their own. Take for example a recent facts-optional anti-nuclear jeremiad published over at The Energy Collective (Disclosure: On occasion my posts are syndicated over there), entitled, "Rethinking the Nuclear Renaissance." The piece is essentially a warmed-over serving of recycled arguments (one can suppose at least that part of it makes it "green"), made somehow new and interesting by the fact that there has been some incremental forward motion on reactor construction in the United States. (But never fear, readers - as our intrepid author assures us, "...only 5 reactors including the two in Georgia that are likely to be completed in the next decade," and yet another of those was one which started in the 70's [Watts Barr] and never completed.)

At this point already one may wish to don their wading boots, because at the risk of falling into the classic XCKD trap, we're about to go debunking.

Sunday, February 12, 2012

The end of natural gas price volatility?

We hear it all the time - natural gas prices are volatile. Here are graphs for natural gas prices and crude oil prices over time that I uploaded to Wikipedia a while ago to illustrate this exact point.

Natural Gas

Crude Oil

But firstly, we need to make some distinctions. The matter of daily and monthly volatility is, indeed, different than the longer term volatility. I disadvantaged oil a little in the graphs above by giving a larger time frame. The take-away is pretty clear, the prices just behave differently. NG is much more "spikey". In other words, NG has more short-term volatility. There really isn't a clear case that long-term volatility is greater for either I think, but these are very different animals with oil being a much more global market.

Conoco Phillips recently put up a great video on youtube making the point that NG has been volatile in the past due to reasons mostly having little to do with the nature of production (instead, the nature of the use), and that the volatility will be less in the future given recent developments. Here is the video:

Because these are such important points that get to the core of the issue, I want to list them. I'm going to tackle the 2 arguments I mentioned above.

Why Natural Gas is Volatile in the first place:
  • It's a commodity and all commodities have price volatility
  • It is a margin fuel for power production (because it has the highest variable cost)
  • Once before, the long-term price of NG made a major move upward after much investment into NG power plants that left decision makers regretting that and leaving them skeptical of NG commitment in the future
Why it will be less volatile in the future:
  • We have more storage than in the past
  • We can bring in LNG (liquified natural gas, a way to import the commodity) to up to 25% of our demand
  • Shale gas is like a manufacturing process, and it's something you can ramp up very rapidly
  • The on-shore production is not subject to weather related disruptions, like hurricanes which have historically been the reasons for major disruptions
  • The abundance of resources and diversity of supply makes long-term price much more stable and confident
  • (non-reason) States could change the rules to not disadvantage hedging of NG price risk in their utility boards
The core argument is that utilities could rely on NG more if the rules would take down some of the barriers that prevent making hedging bets. I agree with most points here, but I agree with some of them less. My main beef doesn't have to do with the business structure of shale gas development, but more so what the current NG market is telling us, and what that implies for the future.

I was happy to see that The Oil Drum (TOD) was quick to comment on the current dip in NG prices, disproving everything they can about the future history of NG production. Most organizations don't share this view. As I've pointed out before, the EIA AEO 2012 paints a picture of continuously increasing NG production. NG is increasing in production second only to non-hydro renewable power sources. I prefer to agree with TOD and the EIA at the same time - believing that the main difference is the price set-point. The EIA projection, however, I think is a little dubious with their price assumption.
With increased production, average annual wellhead prices for natural gas remain below $5 per thousand cubic feet (2010 dollars) through 2023 in the AEO2012 Reference case.
This just doesn't make sense to me. I'll give you the price claim, but not the price claim at the same time as the increasing production claim. Those are mutually exclusive. But to get back to the point of the video - diversity of sources should offer a hedge to prevent the drastic volatility we've seen throughout the last decade. Equilibrium price and volatility are two very different things, and I have no reason to contest the flexibility (as opposed to the economics) of NG supply.

My claims
The market is going to have to figure out what it wants. I believe this is a fairly elastic market on both the production and consumption side. By all means, we should take realistic assumptions when considering the next infrastructure steps to take. Claiming that we need a low price NG market for our chemical industry global competitiveness doesn't make a lot of sense to me when presented at the same time as NG as an alternative to transportation fuels. Commuter vehicles can outbid the chemical industry most of the time.

There's a bit of a larger choice afoot. Nationally, we can embark on pro-export or pro-consumption policies. We can take the pain in a different place in order to make our industries more competitive. We just can't have everything all at the same time.

Other connections

This post was written after reading the THE CRANBERRY EFFECT: GAIN WITHOUT THE PAIN, on the RTI director's blog, which explains why I brought up several parts of the subject matter in the first place.

I should also mention what the NG environment today means for nuclear. Well, I tend to think that less price volatility (even from a competitor) isn't going to hurt anyone. The market for nuclear power depends on the need for bulk power. The better buffer that exists to smooth out the prices on shorter term scales, the easier nuclear, as well as renewables, can market themselves as bulk power providers, and by that I mean baseload and variable with respect to supply. More productive uses of NG in other industries would push utilities to add more nuclear as well as wind in order to displace more of the NG purchases and further specialize NG for peak times.

Also, another related perspective to read is Role of nuclear energy in creating smarter US grid networks.

Wednesday, February 8, 2012

Rent-seeking and Greenwashing: The Case of Sierra Club and Natural Gas

Recently, the Sierra Club was outed for accepting massive amounts of bribes donations from Chesapeake Energy (a major natural gas producer heavily involved in hydraulic fracturing, or "fracking") along with others to the tune of over $25 million, money used to fund Sierra Club's "Beyond Coal" campaign. As a part of the same campaign, Sierra flogged natural gas as a "bridge fuel" to an renewable energy-powered future (however implausible). In response, current Sierra Club head Micheal Brune posted a hand-wringing essay about just how hard it was to accept piles and piles of cash from the natural gas industry, why it really was all in the service of a higher good, and finally why they have decided to refuse future, yet larger donations from the same industry. To use his words:
It's time to stop thinking of natural gas as a "kinder, gentler" energy source. What's more, we do not have an effective regulatory system in this country to address the risks that gas drilling poses on our health and communities.
In other words, "We got caught with our hands in the cookie jar, so now we need to make good."

To wit: is it wrong for environmental groups to accept funds from competitor energy sources? In itself, no - where Sierra crossed a serious ethical boundary was in their refusal to make their clear conflict-of-interest known. In accepting money from natural gas and then using that money directly in service of the interests of that industry (i.e., campaigning against coal), Sierra had exposed itself to a tremendous conflict of interest in its advocacy - one which they deliberately chose not to disclose. They, along with their patron, had a direct economic interest in their lobbying campaign.

[An aside: Notably, when market-oriented groups like Cato accept money from the petrochemical industry, they are assailed as shills for "secretive oil billionaires" - despite the fact that their pre-existing libertarian agenda does not directly favor - or disfavor - any one specific industry. It will likely be a cold day in Hell before the same standard is ever applied to groups like Sierra.]

But perhaps the bigger issue is how the whole case exposes simply how pervasive the notion of rent-seeking is within the energy market as a whole. In this context, "rent" is not used in the meaning of say, a landlord, but rather in the economist's jargon, where these types of "rents" are wealth created through exploitation of the political system - think locking out competitors and the creation of cartels which drive up prices from their normal equilibrium. (Conservative Washington Post columnist Charles Lane also recently devoted a column exclusively to this topic.)
Captain Renault
Captain Renault is shocked, shocked to find that
rent-seeking is going on in energy markets.

What the Sierra Club case shows is just how rife the intersection of environmental politics and energy is with rent-seeking behavior. The only mystifying feature is how shocked anyone seems to be - almost like Captain Renault in Casablanca, who was, "shocked, shocked to find that gambling is going on here." Anyone who has paid attention to these issues (and in particular, I will give the nod to Rod Adams) knows this kind of behavior has been going on for some time.

For Chesapeake, funding Sierra's "Beyond Coal" campaign was a no-brainer in terms of economic self-interest: not only did they have a chance to kneecap a direct energy competitor (coal); equally as important they purchased vital environmental credibility - in essence, "greenwashing" their behavior. As a special bonus, they were able to accomplish all of this via proxy - it wasn't the natural gas industry attacking their logical competitors, it was a disconnected third party with ostensibly pure economic motives.

In a certain sense, such activities can be viewed as the direct parallel of conventional lobbying, along with its corresponding perspectives. Taking Sierra strictly at their word, Chesapeake's activities are simply like those of psychological conditioning through positive reinforcement - rewarding and promoting behaviors which so happen to benefit their interests, the same way individuals and industries might support candidates whose actions and beliefs correspond with their own interests. The other perspective of course is that Sierra and others become beholden to their donors, altering their message and focus to keep the money coming - something which Sierra's Brune takes great pains to attempt to dispel, particularly by refusing future funds from Chesapeake in rather pharisaic fashion.

Yet at the heart of this is what has fundamentally begun to go awry with American capitalism - it has become, in essence, "political capitalism" (aka, "Crony Capitalism") particularly when it comes to energy. Resources otherwise devoted to research and development of more abundant resources are instead poured into games of political influence-peddling, a game in which the winners reap privilege and favor from regulators, all to the detriment of consumers.

Meanwhile, funneling money into environmental lobbying organizations has been fundamentally dual-purpose - for one, "buying off" groups in a mafioso-like protection racket as well as hiring them on as mercenary lobbyists to rig the regulatory regime in their favor. This raises obvious problems across the political spectrum - unlike the way Rod Adams characterizes the issue as market advocates as blithely dismissing the matter as, "This is what you get when you play with fire," political capitalism - particularly in energy markets - should be worrying to anyone with a vested stake in environmental and energy security issues.

And unfortunately, no one's hands are really clean when it comes to this one. The fossil fuel industry continues to profit handsomely from uncaptured externalities in their products - everything from the carbon dioxide they are allowed to freely spew into the air to the pollutants which come out the flue of every coal plant - especially egregious when one examines how existing coal plants have been grandfathered in to more stringent environmental regulations. And indeed, the natural gas industry has proven expert at playing ahead of the curve on this one, when it comes to both paying off environmental organizations to promote natural gas as a "bridge fuel" as well as positioning themselves as the "clean(er)" source of energy. Those with slightly longer attention spans might remember fossil fuel magnate T. Boone Pickens' implausible wind corridor plan - in reality, a plan to reap tremendous benefits by hawking natural gas - something he just so happened to have a large vested interest in.

Nor coal has been a shirking violet, both with their "America's Power" campaign as well as their steadfast opposition to any carbon pricing scheme.

And indeed, it goes without saying that renewable sources have their heads deepest in the trough, both in advocating for political mandates for producers to buy their products (renewable portfolio standards) as well as demanding outrageous subsidies (electricity feed-in tariffs and above-market energy price contracts) in order to keep an otherwise unsustainable business plan afloat.

Finally, an area where I at times am forced to part ways with my nuclear advocacy colleagues - yes, nuclear too is at times guilty of the same behavior (if to a lesser extent), particularly in the face of high-stakes "energy policy" legislation. The counter-argument many nuclear advocates make is that nuclear is uniquely hamstrung as an energy source by federal regulations - which is indeed true. Nuclear plants requires years of licensing approval before construction can even take place and must maintain a record of safety and waste stewardship unheard of in any other energy sector. But in my mind, the answer is not more special pleading with the government to offset these requirements, but to simply level the playing field - let the same standards apply across the board and then we'll see how "cost-competitive" other conventional energy sources are. (Don't hold your breath for Congress to move on that one.)

Much like the Game of Thrones, in the game of political capitalism, you win or you die. (And either way, consumers lose.) But the only surprise in this debacle is in how long it has taken anyone to notice that game has already long been in motion.

Monday, February 6, 2012

What's your alternative?

As I've gotten older, a particular strategy for more illuminating and constructive discussions and debates I have found when someone expresses deeply held hostility or opposition to an idea is, "So what's your alternative?" Not only does this serve as a test of the seriousness of the individual opponent, but it also has the effect of turning the focus of the discussion from being one solely focused upon defending one idea to evaluating the relative merits of multiple ideas in context.

This of course has particular relevance to many aspects (and objections) to the nuclear fuel cycle, especially when it comes to the most serious objections, such as what to do with spent nuclear fuel. For example, a nascent tactic of anti-nuclear activists has been to insist that no solution exists for waste, something which both demonstrably false (e.g., deep geologic disposal - think WIPP or Yucca Mountain, or even deep borehole disposal - is both technically sound and readily achievable, despite being in my opinion wasteful; in addition, strategies such as reprocessing remain immediately viable and advanced reactor concepts and technologies, including thorium-based concepts - think LFTR - are clearly on the horizon) in addition to being entirely myopic.

To wit - if the waste problem is unsolvable, not even shutting down every reactor tomorrow will rectify this, while solving the above problem makes the objection moot. In as much, a good test for the seriousness of the objector's environmental (or other) principles is in whether they are interested in solving the problem or finding a new objection.

The above can be couched as example of the alternative hypothesis strategy in action. If geologic disposal is out of the question, what is your proposed alternative? If reprocessing in unpalatable, what do you propose to do instead? The purpose here is manifold - in addition to testing the seriousness of the objector themselves, the focus is now placed upon the search for a satisfactory solution rather than assuming a defensive posture.

And of course, this applies more broadly as well. Inevitably, there is the objection that nuclear is "too risky." Despite my obvious disagreement, what is your proposed alternative? More natural gas turbines - taking with it both the direct risk to safety as well as the overall increase in greenhouse gasses? A panoply of intermittent energy sources like wind and solar with their attendant infrastructure requirements, high costs, and requirements for backup given their rather limited scale and availability factors? It may well be that no common agreement can be found, given the emphasis different individuals will place upon specific factors (economics, risk, environmental impact, etc.). But putting the problem into the context of evaluating proposals like nuclear energy not in the context of a perfect (and perfectly fictional) alternative but against the very real alternatives available (with all of their attendant limitations) can provide an extremely clarifying aspect to the discussion.