Raghu Says It All...

Raghuram Rajan pulls off Godwin's Law like a champ at the Ideas conference in Goa on the 20th of February.  Extra, extra, read all about it "Democracy, Inclusion, and Prosperity".  My opinion to follow soon.

Fracking, Nuclear Power, and the Environment

Last October I visited the 605-megawatt Vermont Yankee nuclear power plant in Vernon while driving through New England and taking in the fall colors.  It was a nostalgic visit.  Several years earlier, I had worked on a study to determine contingency plans for the failure of Vermont Yankee, and in a few months, Vermont Yankee was going to become one of the early casualties of America's aging fleet of nuclear stations.  Perhaps the retirement of a small power station in the far corner of the northeast is not newsworthy, but in my opinion the shutdown of Vermont Yankee is a harbinger of a new era of the U.S. energy landscape.  The “nuclear free” story has deeper consequences than many recognize, however, as well as a more complex impact on the environment.  

The United States is the world’s largest producer of nuclear power, accounting for more than 30% of global nuclear electricity production.  Domestically, nuclear energy represents about 20% of the generation mix, but with the planned early retirements of nuclear stations, and new constructions under threat, by 2020 that contribution may shrink.  In the late 1990s changes in government policies helped pave the way for significant growth in nuclear capacity; however, lower natural gas prices since 2009 have put the economic viability of some existing reactors and proposed projects in doubt.  Oil and gas prices are at historical lows, and with shale and fracking promising to keep costs down, nuclear technology is no longer an attractive option for power.  Though the cost of nuclear fuel is considerably low, increasing safety and security concerns are pushing up the building and operating cost of nuclear production beyond gas-powered combined-cycle and coal units.  Today, the competitive advantage of a new nuclear power plant is questionable.  The five nuclear plants presently under construction have been stuck in financial and regulatory nightmares since 2009. Furthermore, the indelible memory of Three Mile Island and Chernobyl, coupled with the recent Fukushima disaster in Japan, is killing the dream of an American nuclear renaissance. 

In Japan, nuclear still has a competitive advantage over gas-fired plants since natural gas prices in Japan are considerably higher than the U.S.  This is why Japanese power companies are trying to restart their nuclear power stations after the automatic reaction of shutting down all fifty nuclear units in Japan after the Fukushima disaster in March 2011.  

In contrast, Germany is retiring its entire nuclear fleet in an attempt to move to safer and cleaner renewable power but in the process caused coal prices to increase dramatically and create a spike in energy prices.  Additionally, even though wind and solar provide clean energy, the capital requirements and maintenance costs of renewable power, particularly offshore wind and solar, is significantly higher than for nuclear technology, making gas units a more attractive replacement for nuclear in the United States.

What do these factors mean for the U.S. energy landscape?  Power prices are low; the lights still come on when we flip the switch, so why should we care if a few nuclear power plants are retiring?  First, a recovering U.S. economy is driving up energy demand and sparking a series of new gas-powered plant constructions since gas prices are so low.  Second, some industry experts are concerned that the increasing shale gas production through fracking, which has helped keep oil and gas prices low, is unsustainable.  If gas prices increase in the near future, overall energy prices will increase, adversely affecting the weakly recovering industrial sector.  More than a long-term increase in power prices, however, retiring nuclear power generation has a concerning yet ignored underlying environmental story.  

Industry analysts estimate that the early retirement of the 2000-megawatt San Onofre (SONGS) reactor complex north of San Diego will increase California’s greenhouse gas emissions by up to 6 million tons per year, which is almost a 12% increase of emissions from the electricity generation sector in California.  Energy expert Geoffrey Styles comments: “While accounting for only 3% of the state’s [California] 2011 generating capacity from all sources, the SONGS reactors typically contributed around 8% of the state’s annual electricity generation, due to their high utilization rates. That’s a large slice of low-emission power to remove from the energy mix in a state that is committed to reduce its emissions to below 1990 levels.”  With aggressive targets to reduce greenhouse gases, the loss of existing U.S. nuclear capacity, which has negligible emissions, is a major setback, particularly since renewable energy cannot completely offset the energy generation gap.  California is not the only state that faces this challenge.  The retirement of the Indian Point nuclear station in New York will have a similar effect.  Moreover, the primary economic driver (gas prices) that is making nuclear power financially unfeasible is also contributing to the most amount of environmental damage—“fracking.”  

Fracking is the primary reason for the plummeting gas price in the United States, which is now a quarter of the price in Europe, and shale gas accounts for more than a quarter of total gas production in the United States.  Hydraulic fracking is the process of stimulating liquid and gaseous wells through injecting high-pressure super-heated chemical solutions into shale deposits—a controversial process, as signified by New York state's  banning of it.  Apart from the potential environmental damage, there are health hazards such as methane leaking from fracking wells into the water table causing the phenomenon of “flammable water.”  Although a recent MIT report found that “only a handful of the 20,000 wells drilled in the previous decade had caused contamination,” the question remains: is cheap gas worth the risks associated with fracking?  While some pro-frackers argue that fracking is technically a “green” technology since gas has lower greenhouse gas emissions than coal, gas is still “dirtier” than nuclear technology.

In addition, decommissioning a nuclear power station is a regulatory challenge and expensive.  Entergy Corp., which owns the Vermont Yankee power station, estimates that cooling the reactor and permanently shutting down the plant will require ten years and about $1.5 billion.  Consumers will pay a large part of this cost through higher electricity rates.

In a deregulated energy market, where economics is the key driver for determining the resource mix, policy plays an important role in encouraging or discouraging forms of production, by taxation or credits.  Under present policy, low cost gas-powered units will replace the forced nuclear retirements— not an optimal outcome from an environmental perspective.  It is imperative that policy makers understand the long-term impact of these nuclear retirements when refusing nuclear license renewal and considering new plants.  Nuclear opponents cheer the net loss of nuclear power and may consider the replacement of nuclear with renewable technology as progress.  However, if fossil fuels, rather than renewables, replace nuclear, it seems more like a step backward.  A reasonable alternative might be a staggered long-term nuclear retirement strategy coupled with policies to promote renewable power through higher production credits or introducing often-discussed carbon taxes.  Although this is not a perfect solution, it should prevent fossil fuels from completely replacing nuclear and setting back achieving emission targets by several years.