Carbon Plan’s Price Controls May Hurt Nuclear, Barclays Says

[jpak]

http://www.businessweek.com/news/2010-05-13/carbon-plan-s-price-controls-may-hurt-nuclear-barclays-says.html

May 13 (Bloomberg) -- Measures to prevent price spikes in a proposed U.S. carbon market may hold back construction of new nuclear-power plants and thwart the development of technologies that capture emissions from coal-fired plants, London-based Barclays Plc said.

Senators John Kerry and Joseph Lieberman unveiled legislation yesterday that aims to cut the emissions that scientists have linked to climate change 17 percent from their 2005 levels by 2020. Power plants and factories would be regulated by a cap-and-trade program in which companies buy and sell a declining number of carbon dioxide allowances.

Kerry, a Massachusetts Democrat, and Lieberman, a Connecticut independent, have proposed a minimum price of $12 an allowance and a maximum of $25 in 2013. The “price collar” for allowances, which each represent one metric ton of carbon dioxide, would rise over time.

“When you’re looking to make some pretty big reductions in your carbon emissions, there needs to be the promise of fairly good carbon prices,” Trevor Sikorski, director of carbon market research at Barclays Capital, said today on a conference call with reporters.

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[Statistical]

1. Anyone know how fast carbon costs are allowed to rise?

$12 per ton of CO2 and polluters getting 90% of allowances for free is simply too low for utilities to make any change.

$12 per ton works out to about 1.2 cents per kWh for coal and about half that for natural gas.
However polluters get 85% to 90% of carbon allowances for free in 2013 so they are only paying 10% of that out of pocket. Thus average "carbon premium" for using coal ends up being about 0.1 cents per kWh and natural gas 0.05 cents per kWh.

While finally having some price on carbon is good unless the free allowance % drops rapidly and price of carbon rises substantially it will simply be business as usual which means burning more and more fossil fuels every year.

MIT estimate is that $50 per ton and 0% free allowance (polluters must buy 100% of credits) is sufficient for migration from high carbon sources to low carbon sources. $12 per ton @ 90% free is $1.2 per ton effective. That's roughly only 2% of what is needed.

[bananas]

3. John Rowe estimates $75-80 per ton needed for new nuclear

http://www.exeloncorp.com/assets/newsroom/speeches/docs/speech_Rowe_EconomicClub_Nov52009.pdf

Prepared Remarks for John Rowe
Curbing Climate Change
Economic Club of Chicago
Red Lacquer Room, Palmer House Hilton
Thursday, November 5, 2009

<snip>

The most economic items are improvements in energy efficiency and nuclear uprates – capacity expansions at our existing plants.
As you move up the cost curve, the options become more expensive.
A new gas plant is economic at carbon prices of $25-$45 dollars per metric ton, depending on its location.
A new nuclear plant would be economic only at $75-$80 dollars per ton.

<snip>

Of course, a nuclear uprate is just another efficiency method.

He was also on NPR, you can hear him with your own ears on the archived audio; he also points out that this is very much a partisan issue:

http://marketplace.publicradio.org/display/web/2009/11/09/pm-corner-office-rowe-full-transcript/

Monday, November 9, 2009
John Rowe: Full interview transcript
Exelon CEO John Rowe

CONVERSATIONS FROM THE CORNER OFFICE: Exelon Corporation CEO John Rowe.

<snip>

You can mandate we do this with wind; that's $50 to $80 a ton. You can mandate we do it with new nuclear plants if you come from a different perspective; we think that's about $75 a ton. You can mandate solar; that's $3 to $700 a ton.

<snip>

Rowe: Well I think that it is, but again, our analysis say that at least for the next decade, a new nuclear plant is not an attractive market base solution.

Ryssdal: Is that just because it is expensive?

Rowe: It's expensive, yes.

<snip>

I think we are going to see the cap and trade that the "D's" want with some additional support for nuclear that the "R's" want and a tighter collar on how much it can cost in the early years to make the conservative D's and the R's more happy.

<snip>

A decade from now, renewables will be even cheaper, further reducing any justification for nuclear.

[Statistical]

4. I notice you ignored his estimate of $50 to $80 for wind.

"You can mandate we do this with wind; that's $50 to $80 a ton. You can mandate we do it with new nuclear plants if you come from a different perspective; we think that's about $75 a ton. You can mandate solar; that's $3 to $700 a ton."

So you are anti all low carbon technologies right?

The simple truth is high carbon = cheap internalized costs.
Low carbon = high internalized cost.

A artificially low price of carbon ($1.20 per ton) simply make coal slightly more expensive but still cheaper than the alternatives.
As a result utilities will continue to burn coal.

I mean there is a REASON we produce 50% of our power from coal. Utilities don't do it just to fuck up the planet on purpose. They do it because it is insanely cheap. This is the exact same reason that the emerging markets have a coal plant boom right now. They look at $ per kWh and nothing, I mean nothing comes close to coal.

A puny $1.20 per ton carbon tax won't change that.

Another clip from your link

Rowe: Right. There is $18.5 billion of federal loan guarantee money set aside. The government has picked four candidates to get those loan guarantees. Those candidates do not at the present time include us, those four. It's a very, I think productive program because it at least gets a few new nuclear plants started; but the $18.5 billion . . . if you think of a new nuclear plant, a single unit is costing somewhere between $4 and $6 billion depending on its size. A two unit station is $10 to $12 billion. As you can see, $18.5 billion doesn't cover an immense number of plants. We think that both in economics and in social policy, in the 20's and 30's this nation is going to need a lot of new nuclear plants. But with natural gas as cheap as it is, the new nuclear plant is a very expensive solution. Not as expensive as solar but substantially as expensive as wind.

The other issue is we have a massive amount of natural gas capacity. Not as much as number suggest (because a lot of that is cold reserves) but still a lot. Even if coal prices rise and carbon takes makes coal marginally more expensive natural gas is looking really cheap at current low prices.

A natural gas PLANT costs next to nothing so capacity for natural gas can be expanded rather rapidly. Traditionally natural gas prices have been much higher but shale gas could change that.

We could simply see a weak carbon tax just move some energy from coal to natural gas.

[joshcryer]

6. Typical from their ilk.

Thanks again for disseminating the text and finding the truth.

[bananas]

7. Nice catch - wind is cheaper than nuclear

There are lots of reasons not to use nuclear energy, cost is one of them.
As renewables scale up, they get even cheaper.
Renewable Portfolio Standards are one way of driving up the scale, carbon caps and taxes are other ways, China's policy of requiring renewable energy to be used first is another.
Low-carbon energy sources are currently more expensive than coal,
so we have to use a combination of low-cost technologies to keep the total cost down.
See my sigline:

http://journals.democraticunderground.com/bananas/826

The full solution to global warming, from Climate Progress
Posted by bananas in Environment/Energy
Tue Mar 31st 2009, 11:20 AM

How the world can (and will) stabilize at 350 to 450 ppm: The full global warming solution (updated)

<snip>

Stabilizing at 450 ppm has a net cost near zero.

<snip>

[FBaggins]

8. On just the generating side? At small penetration percentages? Sure.

But if you're going to rely on wind for FAR higher generation percentages, then you have to account for other expenses that make it less competitive (which is not to say that it shouldn't be much more than is now in the mix). Once you start having to include massive storage solutions and far more significant transmission expenses, the price gets less attractive.

As renewables scale up, they get even cheaper.

On a per unit basis? Sure... most things do. If/when nuclear scales up, it gets much cheaper too. But as above, that's not the whole story. A dramatic scale-up of wind increases the expenses I've already discussed... while a dramatic ramp up in nucelar avoids all of those expenses but replaces them with policy issues (what to do with the waste) that people seem unwilling to deal with.

China's policy of requiring renewable energy to be used first is another.

I continue to be confused at the use of this argument. How can we use this point as evidence for the "more nuclear isn't needed" position when the people who made the policy are expanding nuclear more aggressively than anywhere else in the world?

[bananas]

9. Nuclear has a negative learning curve

First, it was pointed out in the Keystone report that nuclear doen't really benefit from nth-unit scaling.
Second, a quick look at that Bandwagon Market graph kristopher posted shows how nuclear costs actually increase with time.
Third, as the technology improves, it gets more expensive. France is considering going back to its Generation II designs because it's Generation III designs are so much more expensive. According to the MIT report, reprocessing and Generation IV reactors are going to be even more expensive. But if you want to scale up to the thousands of reactors needed to replace all fossil fuels, you have to use these more expensive reactors and fuel cycles.
Fourth, the cost estimates for waste storage keep increasing, and are potentially unbounded since we still don't have a solution.

China does everything more aggressively than anywhere else in the world. The US built a hundred reactors before we realized it was a mistake, China might build several hundred before they realize it's a mistake. Hopefully they'll come to their senses before then.

[joshcryer]

14. Come to their senses and build more what? Coal?

[bananas]

16. No, build more efficiency and renewables.

[kristopher]

5. A well known effect relates to perceptions of those being regulated.

Companies are risk-averse. The current status of carbon pricing is the end of an era and everyone knows it in their gut, the only question is when the change to a new noncarbon era actually becomes an inevitable reality. Once that perception is a reality, the risk aversion behavior takes over and the trend is to anticipate the ultimate destination that the regulatory regime aims at.

Since nuclear power is a very bad financial risk for investors unless ALL risks are transferred to the public sector and since the willingness/ability of the government to transfer that risk is limited to probably a dozen or fewer new reactors, is unlikely nuclear will benefit from this behavior in anything like the way that renewables and energy efficiency will.

Therefore the results of the policy will far exceed what would be predicted by an analysis of the direct and immediate changes in costs to power producers.

[FBaggins]

2. There's no question that it could hurt.

But it hurts every other clean power source as well.

There's no way around the fact that if you're talking about the cheapest way to get massive amounts of power... you're talking about coal... but you're also talking about massive amoounts of polution.

The less we do to account for GHG and polution, the more coal we'll get.

[kristopher]

10. $25 a ton doesn't even begin to help nuclear...

[FBaggins]

11. Nor wind

Beyond a certain point.

[kristopher]

12. Soon wind isn't going to need it; nuclear is trending UP.

[FBaggins]

13. Wind will always need it.

In one form or another.

[kristopher]

15. Nope

Cooper cost graph



Sachs Solar Cost thru 2020


Cooper A Multi-dimensional View of Alternatives