Why Nuclear Powers Failure in the Marketplace is Irreversible
(Fortunately for Nonproliferation and Climate Protection)
Rocky Mountain Institute
Transcription of a presentation to the Nuclear Control Institutes 20th Anniversary Conference, Nuclear Power and the Spread of Nuclear Weapons: Can We Have One Without the Other?, Washington, DC, April 9, 2001.
Nuclear power has been, for a decade or two, dying a rather lingering death of an incurable attack of market forces. Nuclear salesmen are scouring the world, struggling to get a single order, while combined-cycle gas, wind, photovoltaics, and efficiency are struggling with more orders than they can handle. And the competitors are starting to pull ahead quite remarkably.
World renewables, far from being under one percent as Richard Rhodes suggests, are by any standard industry database up around 20 percent if you count traditional biofuels, or around 9 percent if you dont. In this country, nuclear has essentially the same primary energy output in a normal hydro year as renewables, produces almost twice the kilowatt-hours from the same generating capacity.
But if you look at the growth rates in global capacity, its a very different story: nuclear one percent, in the 90s photovoltaic 17, wind 24. You may say thats from a small base, but interestingly enough in the past few years more gigawatts have been added from wind than there were nuclear starts each year in the 90s. Thats actual gigawatts, not percentages. And the reasons for that are not hard to find.
Im going to do the basic Economics 101 in a little different format than busbar electricity, because what were interested in is delivered electricity, where we can actually use it, and therefore you have to add an average delivery cost that these days in the U.S. is about 2.7 cents a kilowatt hour for remote sources. That varies from roughly one for industrial or roughly 4 or 5 for residential, so traditional nuclear technology delivers at about 10 or 15 cents or more, of which 4 to 7-plus is delivered short-run marginal cost of operation, leaving out major repairs. If you had a pebble bed [modular nuclear reactor, or PBMR] at 3.2 cents busbar it would deliver therefore at about 6 cents. Coal, about 6 or 8 cents delivered. Now lets compare a few things.
Combined-cycle gas a couple of years ago, with constant price 30-year gas contracts, was 5 or 6 cents delivered, and its temporarily blipped up a little because of a shortage of turbines because theyre so popular. The remote wind installed a couple of years ago delivered at 6 or 7 cents. The next generation being ordered now is about 5. But then all of these have to compete with on-site resources that avoid the delivery cost. Photovoltaics, the most expensive currently, but already getting competitive when integrated into building design and their real costs dropped 43 percent in the 90s and is continuing right down the experience curve that Bob Williams and others have documented.
Then there are a couple of options that give a thermal credit, less than a cent to 5 cents delivered for micro-turbine tri-generation at 90-odd percent system efficiency, again with constant price gas. With industrial co‑generation, it is the same---less than 1 to 2 cents net of thermal credit, and end-use efficiency ranging from negative to about a cent for most programs. I have no idea where Dick (Rhodes) got his numbers on that, but it cant have been from any of the standard literature.
So we have at least three abundant resources: efficient end use, efficiently used gas (especially when thermally integrated), and wind power---any of which and all of which easily beat new nuclear plants, and many of which actually beat just the operating cost of old ones. So its not surprising that these are very popular in the market and, indeed, gas turns out to be a rather ubiquitous and abundant resource with a couple of hundred years worth of resource known. The claim that renewables are in decline and fall is readily contradicted by reading any of the industry literature. You have only to look at the current issue of the European edition of Fortune Magazine, for example, on how renewables are the fastest growing source in Europe, and the case is even stronger in developing countries.
Now, any one of these three options would make nuclear power unnecessary and uneconomic. There are more that are not quite as big that I havent mentioned that are collectively important. Fuel cells and photovoltaics will raise that three to four or five, and the argument is sealed by distributed benefits which increase economic value an order of magnitude for decentralized sources, as Ill mention later.
Now, Ive been asked to talk mainly about end-use efficiency, the cheapest of these options, which we have been told (by Rhodes) contributes only marginally to U.S. energy supplies. Well, again, we must be reading different data. Actually, if you look back at that Foreign Affairs graph of 25 years ago, you will find that U.S. energy intensity is already down 40 percent from the projections governments and industry made at the time. And yes, Dick, youre quite right, renewables are lagging---because that projection specifically assumed a supportive, and not a largely hostile, policy environment. But its, I think, often not noted how big the efficiency resource is. Over the past quarter century, efficient end use has become the nations largest energy supply. Its over five times as big as domestic oil output in this country, over twice oil imports, over 12 times Persian Gulf oil imports, the fastest-growing source, and its at least two-thirds due to technical efficiency. In fact, weve doubled our oil productivity in the past quarter century and yet barely scratched the surface of the efficiency thats available and worth buying.
The last golden age of energy efficiency was 1979 to 1986, when the economy grew 20 percent while primary energy consumption fell 5 percent. That led to the 1986 price crash, which we will be repeating later this decade on current policy, and a period of stagnation for a decade. California, by the way, saved over 10 gigawatts by the early 90s before their attention wandered. But something funny has happened the last few years.
Starting in 1996, the U.S. has nearly regained the speed of savings that we had from 1979 to 1986. Weve been cutting energy intensity on average 3.1 percent a year, 1996 through 2000, despite record low and falling energy prices through 1999. Some of this may actually be due to structural change, but its mostly, again, technical gains and end-use efficiency driven by many things other than energy price, and the savings are getting bigger and cheaper.
Of course, electrical savings are the most lucrative kind because each cent per kilowatt hour is equivalent in heat content to oil at 17 bucks a barrel. In fact, since 1995 electric intensity has been steadily falling in this country, in the past three years at an average rate of 1.6 percent a year, which had not happened before. And yet there is a vast unbought efficiency potential, enough to save upwards of three-quarters of electricity use in this country at less than short-run marginal cost, so thats a resource about four times the present nuclear output and much cheaper than its operating cost. Theres about a two-meter bookshelf on this subject available if you want to know how to do it. Theres also now a good understanding of the 60 or 80 market failures in buying efficiency and how to turn each one into a business opportunity partly to capture side benefits that are often worth an order of magnitude more than the energy savings themselves.
Efficiency can also work very quickly, as it did in Southern California in the early to mid 80s, when the ten-year-ahead forecast peak demand was being cut by 8 and a half percent per year, at about 1 percent of the long-run marginal cost of supply. There are other interesting examples. One of the more piquant is in 1990, when PG&E signed up a quarter of new commercial construction in its territory for design improvements in three months and said, Well, that was too easy, lets raise the target next year, so they did and they got all of it in the first nine days of January. That was with old delivery methods. New ones are even better. They make markets in megawatts so they maximize competition. And the reason, of course, that people tend to do end use efficiency, at least when theyre not too severely penalized for doing it, as they are in 49 states by utility regulation at the moment, is that its extremely cost-effective.
We are told by the Rhodes and Beller article that it remains stubbornly uncompetitive. Again, I dont know where that comes from. There is a vast literature thats quite sophisticated and well evaluated and rigorously measured which shows also that the costs and savings are accurately predictable and predicted. The average cost historically for all U.S. electric efficiency to the utilities that induced it was about 2 cents a kilowatt hour. It was substantially lower than that in good programs, particularly those emphasizing the business sectors, because savings there tend to cost less than insulating houses.
So, for example, a review of over 200 programs by 58 utilities found dozens of programs costing .4 to 1.1 cent per kilowatt-hour saved in 88, and many of those around a half cent or less per kilowatt hour with transaction costs on the order of one percent of the tariff. Of course, those historic costs are with old technologies and old delivery methods. We now have much better technologies, many in volume production at competitive prices, better delivery methods, better marketing, a lot better insight into the alchemy of market failures and to business opportunities, much better customer awareness and eagerness, and continuing innovation thats expanding the technical potential for efficiency faster than its used up.
But the headline I want to add to this discussion is a breakthrough in design integration. In the old days, say 14 years ago, one could do this sort of analysis. This is the supply curve of retrofittable U.S. electric efficiency, showing you could save about three-quarters of U.S. electricity at an average 1986 cost of 0.6 cents a kilowatt hour. This is based on the measured cost and performance of over 1,000 technologies analyzed to the length of some thousands of pages with many footnotes per furlong, and yet every term is now known to be conservative in both price and quantity as regards the technologies, but that leaves out the biggest improvement thats happened in the last 14 years, namely weve discovered how to escape from the diminishing returns idea that the more savings you buy the more steeply the marginal costs rises until you hit the wall on cost-effectiveness and you have to stop.
It is now known instead how to design components into systems so that the cost comes down again and very large savings cost less than small savings, typically by achieving multiple benefits from single expenditures. Thats why, for example, an industrial client of ours recently cut the pumping energy in a standard industrial pumping loop, supposedly optimized to start with, by 92 percent -- a twelve-fold reduction -- with lower construction cost and better performance in every way. This is not rocket science. This is good Victorian engineering rediscovered. All you have to do is use fat, short, straight pipes instead of skinny, long, crooked pipes. You optimize the pipe run and the pumping system as a system for multiple benefits, not components for single benefits, and you lay out the pipes first, then the equipment, so theyre short and straight instead of long and crooked.
Now, if you apply this thinking to buildings, here are some of the empirical results you get. Ive harvested now 27 banana crops in a climate that can go to minus 44C in the Rockies without a heating system, because I dont need one and its cheaper up front not to have it; that is, the super insulation and super windows and so on cost less up front than the heating system would have cost to install. Weve done the same trick up to 46C, comfort without air-conditioning in an PG&E experiment; again, lower construction cost, better comfort. I also have a five-buck a month household electric bill, or I did before I made it with solar. For 4,000 square feet thats a 90 percent household electric saving, 10 month payback with 1983 technology; that includes a 99 percent saving on water and space heating energy.
A new Bangkok house was built a few years ago, 90 percent less air-conditioning energy, better comfort, no extra cost. In big office buildings, the savings are a factor typically 4 to 10, compared with normal practice, with several percent lower capital cost, which you take largely out of the mechanical budget, faster construction, better human to market performance. We showed a client how to retrofit a large Chicago Kirkenwall office tower to save three-quarters of its energy use at no more cost than the normal 20-year renovation that saves nothing, but it would work a lot better. Our record so far retrofitting an air-conditioning system in a California office to achieve a 97 percent reduction in energy with, again, better comfort and good cost-effectiveness.
And a few industrial examples. There are 35 things you can do to motor systems, which use three-fifths of the worlds electricity, which save typically about half the electricity with a one or two hundred percent after-tax return on investment. The reason its so cheap is you do seven things and get 28 for free. Similar ROIs have been empirically shown lately for retrofitting ship fab, HVAC systems, 50-odd percent savings, which is partly why the eighth biggest ship maker in the world is targeting zero net carbon emissions by 2010 and DuPont is planning to boost its energy productivity at least 6 percent a year in this decade, all in the name of shareholder value. Dow Louisiana didnt even need techniques like that to get over 200 percent ROI retrofitting 110 million bucks a year worth of simple energy savings.
Now, what about the generation side because, yeah, well need to get the remaining electricity from somewhere. Well, it turns out in the United States, for example, three-quarters of households have average loads not exceeding 2.4 kilowatts, and three-quarters of commercial customers have average loads not exceeding 10 kilowatts, which makes one wonder why hundreds or thousands of megawatts in one place is thought to make sense. Distributed generation has actually taken over the market rather quietly. There are still large combined cycle gas plants in the hundreds of megawatts range being ordered, but they're already obsolete on the margin.
And let me first mention how quick distributed generation can be. In the mid-80s, California was being offered private generation averaging 12 megawatts per unit in mostly renewable at a rate equivalent to a quarter of peak load per year, and there were similarly impressive small power commitments in the Northeast. By 1998, 38 percent of Californias net electric generation was renewable, 56 in May, 11 in the U.S.
Now, the land and materials needs for renewables are quite modest. Denmark is now one-sixth wind powered. Theyre on target for 50 percent in or before 2030. They have not had a land use issue and they dont expect to, and the intermittence problem was solved a long time ago.
Twenty percent of U.S. electricity, according to Pacific Northwest Lab, could be made by modern wind turbines occupying 5 percent of four Montana counties. Richard Rhodess numbers on this are off by a factor roughly 12, and the same is true for photovoltaics (PVs), where the total annual electric use of the U.S. could come from ordinary PVs occupying half of about a hundred by hundred mile square. Of course, actual installations wouldnt be centralized like that, theyd be spread out, sharing land use with other uses, and the photovoltaics would generally be on buildings, especially integrated with buildings. Energy paybacks are empirically months to a few years for these technologies. Robert Williams reminded me last night that he actually worked out in 1985 something I worked out again recently, that the materials intensity is low enough (because you use the materials over and over, not once) that a kilogram of silicon in a thin film photovoltaic can actually produce more electricity than a kilogram of uranium in a light-water reactor.
Now, the distributed benefits described in a book we have coming out later this year called, Small is Profitable, really change the game. Theres a hundred-odd hidden benefits of making electrical resources the right size for the job that typically increase economic value by an order of magnitude. The biggest are in financial economics, the next biggest in electrical engineering, then there are a lot of miscellaneous effects and Im not counting externalities. This means that actually photovoltaics are cost-effective right now if their benefits are properly counted.
But theres another game changer that will flower in this decade, and it comes from transportation technology. Id like to call it to your attention because it can have a huge effect on distributed generation. A little company I chair has recently developed a concept car illustrating what can be done with ultra-light, ultra-low drag hybrid electric design. This happens to be a Ford Explorer or Lexus RX300 equivalent, very roomy and capable, five-seater than can haul half a ton up a 44 percent grade, but it can also, being made of carbon fiber, run into a wall head-on at 35 miles an hour with no damage to the passenger compartment, or run into a Ford Explorer head-on, each at 30-miles an hour and still save you from serious injury; 0 to 60 in just over 8 seconds, 99 miles a gallon equivalent -- quintuple efficiency, 330 miles on 7-1/2 pounds of safely-stored direct hydrogen, running a fuel cell, because -- the car is so efficient it can cruise 55 miles an hour on the energy that the Lexus uses just for its air-conditioner. No emission except hot water (maybe a coffee machine in the dashboard?), very sporty, extremely reliable, flexible, software-dominated, 200,000 mile warranty, doesnt dent, rust, or fatigue, bounces off stuff at 6 miles an hour with no damage, and it can be mid-volume produced at a competitive cost with a tenth the normal amount of capital assembly effort and space, parts and ultimately product cycle time. Why do I mention this in the context of electricity? Well, because its not just a Nega-OPEC that also decouples driving from climate and smog and gets us out of the Iron Age, but when its parked, which is about 96 percent of the time, you can plug it in as a distributed generator. A full U.S. fleet of 150 million suchlike vehicles would have a generating capacity of 3 to 6 terawatts. Running on neat hydrogen, the fuel cells can readily be built to run for decades extremely reliably, silently, cleanly. Well, thats about 5 to 10 times as much generating capacity as all the utilities now own, so it doesnt take many people liking the value proposition of earning back up to half the lease cost of your car by selling electricity at the real-time price when its parked, to put the coal and nuclear plants out of business. This is all happening rather quickly, partly because I put the work in the public domain in 1993 and got everyone fighting over it.
If you go to the Rocky Mountain Institute web site youll find a paper, of which I have a few copies with me, called Strategy for the Hydrogen Transition, which explains how to get to a hydrogen economy profitably at each step, starting now. It is a climate-safe hydrogen economy. It does not, by the way, find any economic room for nuclear power -- sorry about that. Its a noncompetitive way to make hydrogen, and fuel cells put it out of business even faster.
And developing countries are going in exactly the same direction when they realize what their opportunities are. One of the more interesting examples is China, which has more than doubled its energy productivity and is making further improvements. Of course, developing countries are about a third as energy efficient as OECD to start with. Theyve cut their coal output by a third in the past five years, soon by half, to boost development in public health. The very rapid shift is underway there to efficiency, gas, renewables. Theyre very interested in hydrogen, as well, and have announced a nuclear-ordering moratorium of at least five years.
Generically, countries in the south, the developing world, are saving energy and carbon at least as fast as the north in percentage and maybe in absolute terms. Theyre doing it for development, not for environment in general, but thats okay. And the capital saving they can get by saving electricity in particular, rather than expanding its supply, is three or four orders of magnitude---huge leverage for development in a world where a quarter of development capital goes to the power sector.
I had in my title a notion that the commercial collapse of nuclear power in favor of cheaper alternatives is good for both nonproliferation and protecting the climate, so heres why. If we suppose pessimistically that saving a kilowatt hour costs as much as 3 cents, while generating a new nuclear kilowatt costs optimistically as little as 6 cents, delivered -- that would be a really cheap pebble bed -- then each 6 cents you spent on such a nuclear kilowatt hour could have bought two efficiency kilowatt hours instead. Therefore, by buying the costlier instead of the cheaper option first, you generated an additional kilowatt-hour from, say, coal that would have been avoided if youd bought the cheapest things first. So unless nuclear is the cheapest way of all to meet energy service needs buying it will actually make climate change worse. That is, the order of economic priority is also the order of environmental priority, and whether nuclear can beat coal doesnt matter because neither of them can beat other CO2-free options. It is quite true, as Dick (Rhodes) says, that if fossil fuels had to pay for containing their emissions theyd cost more, but this would competitively benefit not nuclear power so much as there are still cheaper, faster, and more attractive alternatives, like efficiency and renewables.
Finally, this will all be helpful to nonproliferation as well. I believe out on the table is a paper we did 20-odd years ago with Lenny Ross, which may have been the first rat-proof description of what an effective and internally consistent nonproliferation regime requires---namely, the commercial collapse of nuclear power, which is a very convenient route to bombs, although not technically ideal in the sense the cabinetmakers would rather have teak than pine, but you can make a perfectly good cabinet out of pine, and its convenient because its innocent-looking, socially approved in many circles, and heavily subsidized.
But a second condition required is the rise of clearly better and cheaper energy options. Of course, Dick (Rhodes) correctly says the end of the Cold War and bipolar hegemony, and trying to bully the world by having bombs. Well, those three conditions were a bit much for most readers to assume 21 years ago, but now theyve all happened, so their logic which is still I think correct merits revisiting. It says that in a world without nuclear power, all the ingredients needed for do-it-yourself bomb kits by any of the known methods would no longer be ordinary items of commerce, so theyd be harder to get, more conspicuous to try to get, and politically costlier for all parties to be caught trying to get, because their civilian cover would be removed. The ambiguity would be removed, and that smokes out proliferators and their suppliers and enables you to focus intelligence resources on a lot fewer transactions.
It doesnt, of course, make proliferation impossible, but it would make it a lot harder and, in most of the cases of practical interest, prohibitively difficult. Because those wanting energy for development would have to explain why is it theyre choosing the costliest way to get there. It cant be just for energy and economic reasons.
There are essential political conditions to making all this work. We have to go to the central purpose of the NPT bargain, namely, ensuring fair access to affordable energy for development but not specifically nuclear energy, now that there are better solutions. The nuclear part was of course negotiated by nuclear experts in a nuclear context, but if we actually get energy experts involved rather than nuclear experts, we will end up with a much broader portfolio of answers that make a lot more sense for an economy in development. Weve never done that in the nonproliferation history. Its time we did, as this discussion also illustrates. And I think we then educate and set the example on why bombs make one less secure and bespeak national immaturity, we can bring in the role of ritual and symbolism, try seriously to kick the habit, get together for meetings of Bombaholics Anonymous at Hiroshima every year, have deep cuts, and I think build a new security triad based on conflict prevention or avoidance, conflict resolution and nonprovocative defense. Then we will actually get where were trying to get to.
In conclusion, somebody said that nuclear is a fit technology for a wise, farseeing, and incorruptible people. I think the enormous devotion of talent, work, hope, and investment to this technology really deserve better. Its one of the great tragedies of our time and it is still distorting our choices.
One of its basic lessons is any technology that is shielded long enough from political and market accountability can make really big mistakes, and the best legacy from this tragedy would be not to make the same mistake all over again. Market discipline is a good substitute, at least a good start. It has drawn the right conclusion. Trying to ignore or reverse or delay that verdict has a huge opportunity cost, and I think it is time to design an orderly terminal phase and accept market realities.
Also, I think well find that the neighbors are more likely to accept nuclear waste if it isnt an open-ended commitment to unlimited quantities but how to deal responsibly with what weve already made and were not going to make more. The nuclear religion that doesnt allow us to accept that a terminal phase is underway is, of course, the main barrier to public acceptance, but I think we have an opportunity, especially in nonproliferation, to turn this commercial collapse and the rise of better energy alternatives into the long-awaited missing step toward effective non-proliferation.
 Amory Lovins, Energy Strategy: The Road Not Taken?, Foreign Affairs, October 1976.
 Richard Rhodes and Denis Beller, The Need for Nuclear Power, Presented to the Nuclear Control Institutes 20th Anniversary Conference, Nuclear Power and the Spread of Nuclear Weapons: Can We Have One Without the Other?, Washington, DC, April 9, 2001. http://www.nci.org/conf/rhodes/index.htm