# Presentation: 392109

## “If Not Gas, Then ...”The Role of Nuclear Power in a Diversified Electricity Supply Portfolio

- 27 M**ARCH** 2006

## Outline

- From EPAct 1992 to EPAct 2005:  Lessons learned
- Nuclear power and the Energy Policy Act of 2005
- New nuclear plant construction:  Current status and prospects

## The Bottom Line

- The lesson of the last 15 years in U.S. electricity policy:
- Diversified fuel and technology portfolio is highly desirable, if not essential
- All fuels and technologies (nuclear, coal, natural gas, renewables, efficiency) have a legitimate role
- The challenge for the next 15 years and beyond:
- Preserving/restoring diversified portfolio
- Defining appropriate roles for the various fuels and technologies

## From EPAct 1992 to EPAct 2005:  Generating Capacity Online (1993-2005)

*Source: Global Energy Decisions*

*Megawatts*

## The “Dash to Gas” Since ’92:  Why?

- U.S. entered the 1990s heavy on baseload
- Needed mid-merit, peaking capacity
- At $2-2.50/million Btu, natural gas was inexpensive
- No recognition of supply constraints
- But mostly, gas-fired generating capacity represented lowest investment risk at a time of punishing business uncertainty
- Industry structure
- Market design

## The Last 15 Years:  Investment in Electric Infrastructure Collapsed

- With industry restructuring, significant investment, but only “churning” existing assets
- Investment in new coal and nuclear generating capacity all but disappeared, even though they represent ...

| New Generating Capacity:  1992-2005 |  |
| --- | --- |
| Coal | 8,044 MW |
| Gas | 288,576 MW |
| Nuclear | 2,485 MW |
| Oil | 4,933 MW |
| Renewables | 9,983 MW |
| Hydro | 2,629 MW |
| Other | 223 MW |

- 70 percent of U.S. electricity supply
- Greatest forward price stability
- Something wrong with this picture

## The “Graying” of the Infrastructure:Age of Generating Capacity

**< 10**

**10-20**

**20-30**

**30-40**

**40-50**

**50-60**

**60-70**

- Approx. 240 GW (25% of installed capacity) 30-40 years old
- Approx. 110 GW (10% of installed capacity) 40-50 years old

**Plant Age**

## The Gas-Fired Boom and Bust

- Massive build of gas-fired capacity:  Unsustainable pressure on gas supply and price
- Periods of punishing volatility

- Damage to other industries (chemicals, steel, plastics, etc.)
- New gas-fired combined cycle capacity running today at 35% capacity factor

**U.S. Natural Gas Spot Prices**
*(dollars per thousand cubic feet)*

## The Challenge Today:  Addressing the Energy Investment Crisis

- Resurrecting coal and nuclear investment
**Coal:**  4 GW under construction, 70 GW in development
**Nuclear:** 20 GW in development
- Resurrecting investment in electric and gas transmission:
**Electric:**  Steady decline since late-1970s ($4.0-4.5 billion/year); bottomed out through 1990s ($2.5 billion/year); now turning around
**Gas:**  Averaged $2.8 billion/year 2000-2002; should increase to $8 billion/year (NPC study)
- Developing workable approaches to ensure resource adequacy

## What Is Driving the InterestIn New Nuclear Construction?

**What Is Driving the Interest****In New Nuclear Construction**?

- Growing need for baseload generation
- Reserve margins down in 2005 for first time in a decade
- Increasing environmental constraints and compliance costs, potential controls on carbon emissions
- Chronic volatility in natural gas prices

**New Supply:  15 GW**

**Peak Demand Growth:  33.5 GW**
**Retirements:  10.1 GW**
**Mothballed:  1.8 GW**

***U.S. Electricity Supply:  2004 - 2005***

## Near-Term Need for New Capacity

*Source:* Cambridge Energy Research Associates and EV Power ®, Global Energy Decisions, Inc.
*Notes:* (1) Required reserve margin assumed to be 18 percent in New England, New York, PJM, WECC, and FRCC; otherwise it is 15 percent; (2) Includes only known scheduled retirements.

| Projected Excess Capacity by NERC Region, 2005–12, Including Power Plants Under Construction
(megawatts) |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
| Region | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
| New England | 1,933 | 1,241 | 535 | 0 | 0 | 0 |
| New York | 1,099 | 0 | 0 | 0 | 0 | 0 |
| MAAC | 0 | 0 | 0 | 0 | 0 | 0 |
| ECAR | 10,876 | 8,759 | 6,998 | 4,827 | 2,251 | 0 |
| MAIN | 5,809 | 5,715 | 5,061 | 4,431 | 3,660 | 2,246 |
| MAPP-US | 2,267 | 1,319 | 906 | 205 | 0 | 0 |
| VACAR | 0 | 0 | 0 | 0 | 0 | 0 |
| Southern | 3,079 | 1,762 | 1,173 | 0 | 0 | 0 |
| TVA | 2,190 | 1,318 | 427 | 0 | 0 | 0 |
| Entergy | 16,134 | 15,111 | 14,500 | 14,458 | 13,788 | 13,105 |
| FRCC | 2,086 | 862 | 0 | 0 | 0 | 0 |
| SPP | 5,681 | 4,759 | 3,825 | 2,879 | 1,836 | 792 |
| ERCOT | 6,665 | 5,242 | 3,783 | 1,995 | 468 | 0 |
| WECC-US | 14,191 | 9,808 | 7,521 | 4,469 | 1,238 | 0 |
| US Total | 72,010 | 55,897 | 44,729 | 33,265 | 23,241 | 16,143 |

## Energy Legislation ProvidesInvestment Stimulus for New Plants

- Federal loan guarantees
- Covers up to 80% of project cost
- Allows more highly leveraged capital structure
- Reduces project cost
- Production tax credits
- $18/MWh for up to 6,000 MW
- Worth up to $125 million in tax credits per year for 8 years for 1,000 MW of capacity

## Investment Stimulus OffsetsHigher Cost of First New Plants

**Assumes 15% cost of equity, 8% cost of debt and a 50/50 debt/equity structure.*
***Assumes 15% cost of equity, 6% cost of debt and an 80/20 debt/equity structure.*
*Source: NEI analysis of first-year operating costs using EIA data*

**Investment Stimulus Offsets****Higher Cost of First New Plants**

**Estimated Electricity Costs for New Generating Capacity**

## Containing the Perceived RiskOf First New Nuclear Plants

- New licensing process reduces risk of delay
- Project developers will have regulatory approvals before significant capital spent
- Federal standby support
- Provides $2 billion of risk coverage for first six plants
- Covers delays resulting from licensing or litigation

## Substantial Flexibility in Structuring, Financing New Nuclear Projects

- Regulated companies:
- in cost-of-service states, companies will build new nuclear plants as rate-base projects
- conservative capital structure (50/50 debt/equity)
- Substantial investment protection:  Reasonable assurance that all costs prudently incurred recovered through electric rates
- Unregulated generating companies:
- merchant projects, highly leveraged (80/20 debt/equity)
- financing supported by long-term power purchase agreements and federal loan guarantees

## Status of New Plant Licensing

| Company | Design | Units | Date for Filing COL Application |
| --- | --- | --- | --- |
| Dominion | ESBWR | 1 | 2007 |
| NuStart Energy (TVA) | AP1000 | 2 | 2007 |
| NuStart Energy (Entergy) | ESBWR | 1 | 2007/2008 |
| Entergy | ESBWR | 1 | 2008 |
| Southern Co. | AP1000 | 1-2 | 2008 |
| Progress Energy | AP1000 | 2-4 | 2007 |
| South Carolina Electric & Gas | AP1000 | 1-2 | 2007 |
| Duke Energy | AP1000 | 2 | 2008 |
| UniStar Nuclear | U.S. EPR | 1-4 | 2008 |

## Roadmap to Commercial Operation

**Building a new nuclear plant is not a one-step process or decision:  It is a sequence of 3 successive decisions**

**Years (estimates)**

**1**

**2**

**3**

**First Decision: To file an application for a COL**

**Second Decision: Long-lead procurement ****of major components and commodities**

**Third Decision: Proceed ****with construction**

## Nuclear Plant Build Rates

| CERA ($2,000 - $2,350/kW) | 2020 |
| --- | --- |
| Shades of Green | 9GW |
| World in Turmoil | 0 |
| Technology Enhanced | 18 GW |
| Rearview Mirror | 7 GW |

## How Much Nuclear Power Do We Need?

- Electricity demand in 2030 will be 45% greater than today
- To maintain current electric fuel supply mix would mean building:

**Nuclear reactors (1,000 MW)**

**Renewables (100 MW)**

**Natural gas plants (400 MW)**

**Coal-fired plants (600 MW)**

**50**

**93**

**279**

**261**

*Source: 2006 Annual Energy Outlook, Energy Information Administration*

## Looking Ahead:  What’s the Next Big Thing? 

- On the verge of a major build cycle in the U.S.:
- 75 GW of new coal-fired capacity
- 20 GW of new nuclear capacity
- 10-15 new LNG regasification terminals
- Gas pipeline from Alaska, plus significant expansion of lower-48 pipeline network
- And other critical infrastructure (roads, bridges, cities)
- And around the world (China, India, etc.)

## Materials, Manufacturing:  The Next Big Thing? 

- To support a major build cycle takes:
- Commodities (structural and specialty steels, concrete, etc.)
- Pipe, compressors, valves, tubing, vessels, steam generators, pumps, steam turbines, reactor vessels, forgings, etc.

- Has anyone done a global inventory of capacity available to support new build cycle across entire energy sector?
- Example:  Only one supplier (Japan Steel Works) worldwide for ultra-large ring forgings used to fabricate reactor pressure vessels

**24’ Diameter x 13’ High:  127 Tons**