Impacts of Energy Research and Development (S.1766 Sections 1211-1245, and Corresponding Sections of H.R.4) With Analysis of Price-Anderson Act and Hydroelectric Relicensing
Nuclear Energy (Subtitle D, Section 1241)
S. 1766 proposes R&D for nuclear energy in two main areas: core nuclear research programs, and supporting nuclear activities. Core research is related to extending lifetimes, increased reliability, and optimized operations, as well as new nuclear designs with higher efficiencies. Supporting nuclear activities are defined as research to produce medical isotopes, research to support future space and satellite missions, and maintaining a balanced nuclear R&D infrastructure. Total authorization for these activities in FY 2003 is $300 million, and over the period FY2003 to FY2006, the total authorized is $1.281 billion.
DOE’s Office of Nuclear Energy budgeted $5 million in 2001 for its Nuclear Energy Plant Optimization (NEPO) program. Both S.1766 and H.R.4 propose to continue this program, and increase its funding. The goal of the NEPO program is to ensure that current nuclear plants can continue to deliver adequate and affordable energy supplies up to and beyond their initial 40-year license period by resolving open issues related to plant aging and by applying new technologies to improve plant economics, reliability, and productivity. NEPO is carried out cooperatively by DOE and the nuclear industry with joint management and cost sharing. Through increased R&D for existing nuclear plants, NEPO aims to increase generation from current reactors and to increase their operating lives. Nuclear power plants achieved record power generation in 2000, with an average capacity factor of 88 percent, compared to less than 60 percent in the early 1980s. For the first 10 months of 2001, their average capacity factor reached 89 percent. The AEO2002 Reference Case assumes that current gains in productivity will be maintained through the short-term, and improved to a national average of 90 percent throughout the forecast. Much of the improvements have already been achieved through shortening outages for planned maintenance and refueling.
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Without license renewal a large number of existing plants will reach the end of their current operating licenses by 2020. However, the Nuclear Regulatory Commission has created a streamlined procedure for license renewal applicants, and a total of six units have already obtained a 20-year renewal to their original license. Applications for another 17 units are currently under review, and another 25 units have indicated the intention to apply over the next 3 years.56 While license renewal is a necessary step to operating beyond 40 years, it does not assure that they will continue to be economic generators throughout their extended lifetime. As nuclear units continue to age, components and structures age and material degradation may occur. Research will provide a better understanding of the potential aging problems, and the development of cost-effective aging management strategies. The AEO2002 Reference Case assumes that aging related costs of $50/kW/year will be incurred by nuclear operators each year after 30 years of operation, over and above normal operating and fuel costs. Retirements are then determined purely on an economic basis, comparing future operating costs of a nuclear plant to the cheapest available new technology. About ten percent of current nuclear capacity is projected to retire by 2020 (Figure 4, p. 26). The AEO2002 also includes cases based on alternative aging related cost assumptions for nuclear power plants, to address the uncertainties in this area. With no aging related costs, the High Nuclear Case projects only 5 percent of existing nuclear units would retire by 2020. However, with higher aging related costs (increasing from $50/kW/year after 30 years to $100/kW/year after 40 years in the Low Nuclear Case), an additional 9 units are projected to retire compared with the Reference Case.
S. 1766 also proposes increased funding for the DOE’s Nuclear Energy Research Initiative (NERI), which had a budget of $35 million in 2001. The NERI program sponsors new and innovative research and development to address issues affecting the future of nuclear energy. The primary objective is to develop advanced reactor and fuel cycle concepts to expand future use of nuclear energy, and advance the technology to maintain a competitive position in overseas markets and a future domestic market. In developing cost estimates for new generating technologies, EIA uses currently available technologies, because it is impossible to include all potential future designs, even though R&D is occurring for all technologies. EIA does include learning assumptions, which reduce the costs of a given technology based on the amount of penetration in the market, and includes a minimum level of cost reduction even without new construction. In the Reference Case, new nuclear capacity of the AP600 type is not economic through 2020, given the currently available technology. A sensitivity case was run that used cost goals from the Office of Nuclear Energy that were much lower than the Reference Case assumptions, and in that case one new nuclear unit was projected to be built by 2020.
Research and development of new nuclear designs is being undertaken by private industry as well. For example, the pebble bed modular reactor (PBMR) is a 110 MW graphite-moderated, helium-cooled reactor that is planned for construction in South Africa. The joint venture is led by Eskom, the state-run utility in South Africa, and includes British Nuclear Fuels and Exelon, the largest U.S. nuclear utility. Exelon is in the early stages of applying with the U.S. Nuclear Regulatory Commission for a license for the PBMR design.
Overall, nuclear power currently accounts for 20 percent of electricity generation in the United States. It produces reliable electricity generation with no greenhouse gas emissions. In 2000, nuclear generation displaced roughly 180 million metric tons of carbon, 3.8 million tons of sulfur dioxide and 2.3 million tons of nitrogen oxide, assuming the displaced capacity was based on average fossil fuel generation. In evaluating the future impact on emissions, the replacement fuel for retiring nuclear plants is of key importance. Given technology costs and fuel prices expected over the next 20 years, they would likely be replaced by natural gas-fired, combined-cycle plants with relatively low emission rates, compared to coal plants. In the AEO2002, carbon emissions varied from 3 million tons lower to 6 million tons higher in the high and low nuclear life extension cases, relative to the Reference Case. Greater shifts in nuclear generation, either decreasing through increased retirements, or increasing through new construction, could have a bigger impact on future emissions.
Conclusions Related to R&D Provisions
In the past, research and development programs have helped to develop more efficient and advanced technologies at lower cost than might otherwise occur, and to reduce the costs and improve the operating characteristics of existing technologies. In addition to scientific R&D, there have been a number of information programs, voluntary programs, partnerships, and similar initiatives to encourage the penetration and adoption of improved technologies, some of which--fuel cells, turbine generators, seismic imaging and directional drilling, and coal bed methane production--appear to have achieved success. Together, these initiatives have contributed to improvements in energy production and efficiency, air quality, energy security, international competitiveness, quality of life, and a reduction of carbon emissions and other pollutants.
EIA incorporates the impacts of ongoing research, development, and deployment programs into its Reference Case, assuming support for these activities at historical levels. Therefore, changes in the funding levels of these programs or the rate of diffusion of R&D could alter projections of future energy consumption and emissions. In fact, the AEO2002 High Technology Case, incorporating more optimistic assumptions regarding R&D applications, projects an average annual growth in delivered energy consumption that is about 0.3 percent lower over the period 2000-2020 compared to the Reference Case.57
While recognizing the success of past and current research, development, and deployment programs, it is difficult to establish a quantitative relationship between levels of funding and specific improvements in the characteristics, availability, and adoption of energy technologies. By its nature, research and development is highly uncertain. Seemingly plausible avenues of research may not achieve success, though genuine breakthroughs remain possible. Further, if all technologies were to penetrate at the same rate, the relative dynamics of market performance would remain similar.
Some of the R&D goals of S.1766 seem feasible, if not already in evidence: while not deployed, vehicle fuel economies described in Section 1211 have already been demonstrated, and distributed generation technology, though not of the targeted efficiency, is already sited. Many existing nuclear generation units have demonstrated capacity factors that exceed the goals in Section 1241. Some of the program areas state goals which are both reasonable and possible given the progress of current technology, prevailing market conditions, and R&D funding levels. Many other goals, however, seem highly unlikely for a variety of reasons: dramatic cost reductions of hydrogen production, solar thermal technologies, and biofuels production would have to be realized before these technologies, absent national portfolio standards, would achieve much penetration. In addition, the relative success of individual programs could have a large impact on the success of others. For example, if programs targeted at renewable fuels were extremely successful, it might prove difficult for programs targeted at fossil fuels to have much market impact.
Provisions Related to Renewal of the Price-Anderson Act
The Price-Anderson Act, first passed in 1957 as an Amendment to the Atomic Energy Act of 1954, and renewed three times since, will expire on August 1, 2002. The goals of the Price-Anderson Act were to ensure that adequate funds would be available to the public to satisfy liability claims in a nuclear accident, and to permit private sector participation in nuclear energy by removing the threat of potentially enormous liability in the event of such an accident. Each operator of a nuclear reactor is required to purchase the maximum liability insurance available from private insurers (currently $200 million), which serves as the primary insurance layer. Additionally, each operator may be required to pay into a pool up to $88 million, if needed to cover damages in excess of the primary insurance coverage. If coverage beyond the current $200 million primary layer is needed, all reactors are retrospectively assessed, not just the site where the accident occurred. Today, the total protection available in the event of a nuclear accident is over $9 billion. The nuclear industry is not responsible for any claims above the maximum liability set by the Act, although responding organizations may petition Congress for additional disaster relief. The Price-Anderson Act covers all currently licensed reactors throughout their lifetimes. However, any new units will not be covered after August 1, 2002, unless Congress approves a renewal of the Act. The Act also covers transportation of fuel to a reactor site, and transportation of nuclear waste removed from reactors.
The Act is essentially a subsidy to investors in nuclear power, because it limits the liability of the industry in the event of a nuclear accident, and the cost of the insurance required under the Act is much less than would be required by the insurance market for full coverage. EIA does not explicitly model this subsidy in NEMS or the costs of liability coverage for electricity generators, so we cannot quantify how much of a difference it would make to new nuclear investment if the Act were not renewed. However, the nuclear industry is actively lobbying for renewal, and it is widely perceived that no new nuclear plants would be built in the United States without the cap on liability provided by the Price-Anderson Act.58
S.1766 only extends the Price-Anderson Act for Department of Energy contractors, and not for private licencees. The extension for DOE contractors would cover, for example, future contracts for transporting nuclear waste to the Yucca Mountain storage facility. The lack of extension for civilian reactors means that existing reactors would remain covered, but any new nuclear capacity would be required to obtain full liability insurance at market rates. Although the proposed bill, S.1766, includes R&D provisions to stimulate new nuclear development, it does not provide potential investors the additional benefit of the Price-Anderson liability cap. Similarly, H.R. 4 includes proposals for increased R&D for nuclear power, but no mention of the Price-Anderson Act at all. A
separate bill, H.R. 2983, the Price-Anderson Reauthorization Act of 2001, does specifically address renewal of the Act and nuclear safety issues. H.R. 2983 reauthorizes Price-Anderson for 15 years, until August 1, 2017. It also raises the liability amounts, and requires that they be adjusted for inflation every five years. Another important change is that small, modular reactors are treated as a single reactor under this proposal. Groups of modular reactors, of 100 to 300 MW each, that are located at the same site will be counted as one unit (up to 1,300 MW total) for liability insurance purposes. Without this provision, there would be a disadvantage to the modular designs, such as the pebble bed reactor under development in South Africa, because they would be required to purchase the maximum liability insurance for each individual module. For example, six 100 megawatt modules would be required to obtain six times the insurance of one 600 megawatt light water reactor.
EIA’s AEO2002 reference case indicates that new nuclear power is not economically competitive with other electricity generating technologies through 2020. Although renewal of the Price-Anderson provisions would be beneficial, and probably necessary, to new nuclear power investment, it is not likely to be the primary factor in determining what types of new electricity generating capacity should be built in this time period. Passage of H.R. 2983, by itself, is not expected to result in new nuclear capacity, and therefore would not change future energy supply, demand, emissions or prices from current Reference Case projections.
Provisions Related to Hydroelectric Relicensing
Non-Federal hydroelectric facilities – such as privately or municipally-owned – are Federally-licensed by the Federal Energy Regulatory Commission (FERC) under the Federal Water Power Act of 1920 and successor acts, for periods up to 50 years. Federally-owned hydroelectric facilities – such as those of the U.S. Army Corps of Engineers, the U.S. Department of the Interior’s Bureau of Reclamation, and the Tennessee Valley Authority – are exempt from the FERC licensing process. Overall, roughly half of U.S. hydroelectric generation (about 150 billion kilowatthours a year in 1999 and 2000) is provided by about 1000 licensed, non-Federal hydroelectric facilities.
Many expiring FERC hydroelectric licenses are now subject to relicensing. However, because of increased environmental and water use issues, the FERC-managed relicensing process has become long, complex, costly, and contentious. Water is a multipurpose resource, needed for urban water supply, industry, agriculture, transportation, environmental priorities, fishing, recreation, and other purposes in addition to energy needs. Water’s use is significantly affected by multiple Federal, tribal, State, and local government interests. Critical Federal interests alone include the U.S. Department of the Army Corps of Engineers, the Bureau of Reclamation, the U.S. Fish and Wildlife Service, the U.S. Forest Service, the National Park Service, the National Marine Fisheries Service, the Bureau of Indian Affairs, and the Federal power marketing administrations (such as the Bonneville Power Administration). State and local agencies also play a role in relicense approvals.
FERC must balance these competing interests during relicensing, a process that requires coordination and is time consuming. According to the National Hydropower Association, relicensing typically takes eight to ten years, and results in changes in hydro facilities’ structures, operations, and water use. Relicensed facilities often face additional costs in changing the amounts or timing of water storage and water use, and in adding structures to preserve fish species, to maintain appropriate water temperatures and oxygen levels, and to provide fishways to facilitate passage up and down stream.
Both S.1766 (Sections 301 – 308) and H.R.4 (Section 401) contain provisions that touch upon the relicensing process, mainly to increase interagency coordination with the FERC and to acquire additional information. S. 1766 provisions falling into this category include:
Section 302 Charges for Tribal Lands. Requires that licenses shall not be issued for projects on Indian lands until annual charges have been fixed.
Section 303 Disposition of Hydroelectric Charges. Redirects some annual license charges away from the general treasury to protection of water resources
Section 304 Annual Licenses. Requires the Commission to explain issuing annual licenses and indicate whether additional annual licenses are expected.
Section 305 Enforcement. Requires FERC to monitor and investigate the conditions of each hydroelectric licensing compliance order.
Section 306 Establishment of Hydroelectric Relicensing Procedures. Requires the Commission, together with the resource agencies (Secretaries of Agriculture, Interior and Commerce), to issue coordinated regulations governing the hydroelectric re-licensing process.
Section 307 Relicensing Study. Requires the Commission together with the resource agencies (Secretaries of Agriculture, Interior and Commerce) to prepare a study of all new licensing projects since January 1, 1994.
Section 308 Data Collection Procedures. Requires the Commission together with the resource agencies (Secretaries of Agriculture, Interior and Commerce) to develop data collection procedures to ensure that accurate information concerning the time and cost to parties of the hydroelectric licensing process are collected and maintained.
While these provisions might simplify or speed up the relicensing process, it is unlikely that they would noticeably increase U.S. hydroelectric capacity overall.
Other provisions, such as sections 401 of HR.4 and 301 of S. 1766, could impact hydroelectric capacity. These sections allow license applicants to propose less costly compliance alternatives to mandatory conditions imposed by other Federal agencies, in particular those to modify water use or to construct and operate fishways.
The impacts of section 401 in H.R. 4 and section 301in S. 1766 are difficult to quantify, especially until the study, procedures, and data collection called for in Sections 306, 307 and 308 of S. 1766 are complete. The proposals may speed up the re-licensing process for some U.S. hydroelectric facilities, and the opportunity to offer less costly alternative fishway compliance actions could help preserve or slightly increase output and profitability at some facilities. Though the results of the proposed studies could yield cost-effective improvements in the future, none of the hydroelectric provisions in HR.4 and S.1766 is likely, either alone or in concert with the other proposed changes, to significantly increase overall U.S. hydroelectric capacity or generation in the near future. Altogether about two-thirds of all U.S. hydroelectric capacity is unaffected by the proposed changes, either because it is Federal capacity not subject to licensing or because current FERC licenses do not expire for at least the next ten years. Most significantly, none of the proposals materially changes either the overall conditions or the costs of relicensing projects, and coordination requirements are not relaxed. Proposed fishway alternatives do not have to be accepted, and relicensed projects for which alternatives are accepted are still required to fully meet new fishway and other requirements. As a result, while the S.1766 and H.R.4 proposals can be expected to increase information about licensed projects and be helpful in the disposition of some charges by not materially changing either the process or the costs of relicensing, neither proposal materially changes prospects for future U.S. hydroelectric capacity.