CBO: Incentives could make nuclear power competitive, but cost uncertainties cloud picture
May 6th, 2008A Congressional Budget Office (CBO) study (pdf, 945kb) of market influences affecting the cost-effectiveness of nuclear power found that carbon dioxide charges levied at fossil fuel plants, coupled with incentives for nuclear capacity, would enhance the economic viability of nuclear power generation. The CBO study was undertaken to assess “the commercial viability of advanced nuclear technology as a means of meeting future demand for electricity by comparing the costs of producing electricity from different sources under varying circumstances.”
The CBO report said that its “reappraisal of nuclear power is motivated in large part by the expectation that market-based approaches to limit greenhouse-gas emissions could be put in place in the near future. Several options currently being considered by the Congress—including ‘cap-and-trade’ programs—would impose a price on emissions of carbon dioxide, the most common greenhouse gas. If implemented, such limits would encourage the use of nuclear technology by increasing the cost of generating electricity with conventional fossil-fuel technologies.”
In addition, “[c]urrent energy policy, especially as established and expanded under the Energy Policy Act of 2005 (EPAct), provides incentives for building additional capacity to generate electricity using innovative fossil-fuel technologies and an advanced generation of nuclear reactor designs that are intended to decrease costs and improve safety. Among the provisions of EPAct that specifically apply to newly built nuclear power plants are funding for research and development; investment incentives, such as loan guarantees and insurance against regulatory delays; and production incentives, including a tax credit. Since the enactment of EPAct, about a dozen utilities have announced their intention to license about 30 nuclear plants,” the report said.
The study found that “[c]arbon 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, even without EPAct incentives.” Carbon dioxide charges at that level would also “probably make nuclear generation competitive with existing coal power plants and could lead utilities in a position to do so to build new nuclear plants that would eventually replace existing coal power plants.”
Even in the absence of carbon dioxide charges, “EPAct incentives would probably make nuclear generation a competitive technology for limited additions to base-load capacity,” according to the report. “However, because some of those incentives are backed by a fixed amount of funding, they would be diluted as the number of nuclear projects increased; consequently, CBO anticipates that only a few of the 30 plants currently being proposed would be built if utilities did not expect carbon dioxide charges to be imposed.”
Uncertainty about long-range costs, including the costs of fuel, construction, and financing, will influence decisions about building new plants, the report said. “The commercial viability of nuclear capacity depends both on generators’ perceptions of future market conditions at the point they consider committing to the construction of a plant—which might not occur for a few years—and the return that investors would require if confronted with carbon dioxide charges. An array of factors—recent volatility in natural gas prices and construction costs, nuclear power’s history of construction cost overruns, and uncertainty about future policy on carbon dioxide emissions—suggests that a wide range of costs are plausible for each of the base-load technologies. Those ranges in costs for new power plants demonstrate that each technology faces considerable uncertainty.”