Monday, May 05, 2008

CBO Report On Nuclear Power’s Role In Generating Electricity

May 2: The Congressional Budget Office (CBO) released a 46-page report entitled, Nuclear Power’s Role In Generating Electricity. At the request of the Chairman and Ranking Member of the Senate Committee on Energy and Natural Resources, CBO assessed the competitiveness of nuclear power when compared with other sources of new capacity to generate electricity, focusing on the possible effects of constraints on carbon dioxide emissions and the impact of EPAct incentives.

The report indicates that concerns about the adequacy of electricity supply and the impact of greenhouse-gas emissions on the environment have prompted policymakers to reevaluate the role that nuclear power might play in the future in meeting the nation’s demand for electricity. The Energy Policy Act of 2005 (EPAct) offers incentives for expanding utilities’ capacity to generate electricity using innovative fossil fuel technologies and a new generation of nuclear reactors that are designed to decrease costs and enhance safety. In addition, policymakers are considering various proposals that would impose charges on entities that emit carbon dioxide, the most common greenhouse gas. Such policies could further encourage the use of nuclear power, which emits no such gases, by increasing the cost of generating electricity with competing fossil-fuel technologies.

To assess the competitiveness of advanced nuclear technology in comparison with other base-load options, the Congressional Budget Office estimated the levelized cost of alternatives under a reference scenario reflecting the agency’s best judgment about future market conditions and the policy environment before the enactment of the Energy Policy Act of 2005, and under alternatives that consider the effects of both carbon dioxide charges and EPAct incentives. To calculate those costs, CBO adopted base-case assumptions about an array of technical and economic choices confronting investors in new electricity-generating capacity.

The results section of the report indicates, "under the provisions of the Energy Policy Act of 2005, it is probable that at least a few nuclear power plants will be built over the next decade, most likely in markets where electricity usage and the corresponding demand for additional base-load capacity are expected to grow significantly. Ultimately, however, the longer-term competitiveness of nuclear technology as a source of electricity is likely to depend on policymakers’ decisions regarding carbon dioxide constraints. If such constraints are implemented, nuclear power will probably enjoy a cost advantage over conventional fossil-fuel alternatives as a source of electricity-generating capacity.

Today, even the anticipation that carbon dioxide emissions will be priced is a factor being weighed in investors’ decisions about new base-load capacity. Those conclusions are tentative, though, because the electricity industry faces numerous uncertainties. If expectations related to future market conditions -- especially those pertaining to construction costs or fuel prices-- shift before investors commit to the construction of new base-load capacity, the prospects for new nuclear capacity could change dramatically.

While the report does not make recommendations, it indicates that carbon dioxide charges of about $45 per metric ton would probably make nuclear generation competitive with conventional fossil fuel technologies as a source of new capacity and could lead utilities to build new nuclear plants that would eventually replace existing coal power plants. At charges below that threshold, conventional gas technology would probably be a more economic source of baseload capacity than coal technology. Below about $5 per metric ton, conventional coal technology would probably be the lowest cost source of new capacity.

The report notes however, that even if carbon dioxide charges over $45 per metric ton were implemented, it would take decades for sufficient nuclear capacity to be put in place before most utilities could consider substituting new nuclear capacity for existing coal plants. Replacing the 300,000 megawatts of existing coal capacity would require hundreds of new nuclear plants. The capacity of the industry that builds nuclear plants and its suppliers of components is currently constrained and unlikely to expand rapidly enough for even tens of plants to be built in the next decade.

Access the complete report (
click here). Access a brief CBO blog summary of the study by the director (click here). Access a description of the Methodology Behind the Levelized Cost Analysis (click here). [*Energy]

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