Idea: financing large capital cost electricity projects without raising rates

Guest post by Dr Gene Preston. Gene has had a long career as a power system engineer, performing generation planning, transmission planning, and distribution planning for Austin Energy. He is currently doing transmission studies for wind developers. He wrote all his own modeling software including the current network model used to perform his consulting studies. His PhD dissertation was in power system reliability, a composite generation and transmission probabilistic model, and is posted on his web page.

Today utilities are faced with a seemingly impossible problem. Renewables are more costly than non-renewables. How is a utility to invest in wind, solar, and new nuclear without causing unacceptably high rates? Before I suggest a solution, we need to consider the role wind, solar, and nuclear will play in the power system of tomorrow.

Wind power will eventually be able to provide about 20% of our national energy. Its growth rate is only constrained by the transmission system and saturation within a region. By saturation, I mean that the hour-by-hour dispatch of a region can only accommodate a certain amount of wind, which is consistent with 20% of the energy being wind. If we try to push wind beyond that amount, we cause wear and tear on other generators and burn fossil fuel inefficiently. We could build a rather extensive transmission super highway interconnecting the different regions of the US in order to accommodate more than 20% wind. However, the impacted public usually opposes new power lines. Building a national transmission plan to accommodate large amounts of wind power will take decades and is neither politically nor economically advisable.

That leaves solar and nuclear to fill in the other 80% of the future energy requirement. Consider that the daily load pattern of a utility looks roughly like a sine wave on top of a constant load with the peak of the day occurring during sunlight hours. This suggests that the preferred amount of solar power would roughly match the sine wave component of the daily load pattern, while nuclear would provide the remaining base load energy requirement.

The new power system is best described from an individual homeowner’s perspective. Getting off the grid is not advisable because the homeowner’s batteries would be expensive and short lived. Rooftop solar will be nearly twice as costly as centralized tracking solar, and many customers are not able to install rooftop solar. The grid will be necessary for delivering power from large efficient centralized solar and nuclear projects.

How do we finance these high capital cost projects?

Since utilities do not want to generate rate increases with these investments, it is up to us customers to help finance these necessary (i.e. save the planet) future projects. The utility would offer a rate of fixed payments to cover the plant cost and then deduct the amount of energy due to the customer’s “investment(s)” from the customer’s monthly bill. For example, I could invest $8000 for 2 kW for my portion of a large scale solar plant and $8000 for 1.5 kW for my portion of a larger nuclear plant. This would provide an annual 16,000 kWh of nearly free energy for 30 years (3500 kWh/yr solar + 12500 kWh/yr nuclear). The utility would take on the tasks of metering, billing, and operating these large centralized plants. We customers provide the fixed payments to finance our kW amounts purchased. The utility would not need to raise any new capital to finance the solar and nuclear plants.

From the utility’s perspective, a centralized solar 300 MW plant at $4 per watt will cost 1.2 billion dollars and require about 80,000 homeowners to pay for half the cost. The other half would probably be paid for up front by businesses. If the $8000 cost seems high for 2 kW, keep in mind the energy cost is nearly free for the next 30 years.

A new 300 MW light water reactor nuclear plant at $6 per watt should cost about 1.8 billion dollars and require about 80,000 homeowners to pay for a little less than half the cost with the rest paid for up front by commercial and industrial customers seeking a stable base load power source (electronics and solar manufacturing companies need constant reliable power sources). If the $8000 cost seems high for 1.5 kW, keep in mind the nuclear energy cost is less than 2 cents per kWh and could continue for 60 years. Because the new solar and new nuclear plants can be located near load centers, new transmission can be minimized, unlike the transmission requirements for new wind power, which can be extensive for large amounts of wind in an area with few power lines.

What about the nuclear waste and nuclear security problems? The current light water reactor design requires that naturally occurring U235 be enriched from 0.7% to about 5%, depending on the specific design of the nuclear plant. During the operation of the LWR plant the percentage of the U235 decreases after a few years and the used fuel is removed and stored on the plant site. Note that the waste has nearly the same amount of uranium it had when it was shipped to the plant for initial loading. The problem with the waste is that it also contains other radioactive products that have long half-lives.

However, after a few decades this material is not as dangerous as most people think. The nuclear waste can be handled safely wearing gloves. It’s just too toxic to ingest. We need to insure it doesn’t get into our water and air. Since the total amount of nuclear waste is about a million times smaller in volume that the toxic waste from coal plants, the storage of nuclear waste is not a very large environmental problem at this time. However, we do need a long-range plan for using or disposing of this material.

Fortunately there are many plans on the drawing boards around the world for turning nuclear waste back into nuclear fuel so that uranium mining may not be needed for hundreds of years. The US developed IFR process that was partially tested in the 1990s should be able to burn up all the U235 and U238 and highly radioactive heavy metals so that after a couple of hundred years, little radioactive waste will remain. The University of Texas has a plan for a fission-fusion reactor that will also burn up nuclear waste. This is a small physical plant that could prove to be low cost and efficiently dispose of the nuclear waste. And then there is India, which is planning to power up a fleet of thorium reactors. These reactors could use the US supply of highly radioactive heavy metals as their starter material. The IFR and thorium reactor byproducts are not suitable for bomb making without extensive further processing. So what we consider as toxic waste now has future economic value if we can patiently wait for those uses to be developed.

So what about security? Modern nuclear plant designs incorporate multiple fail-safe levels so that even the stupidest nuclear plant operator could not cause a meltdown (China Syndrome). The reactor materials are not suitable for bomb making. The danger of nuclear proliferation will require a worldwide monitoring and enforcement program.


Postscript: How does this relate to Australia? Gene said the following to me:

Barry, if you cannot get the Australian government or utilities interested in investing in nuclear power in Australia, I suggest that you try to get a rate structure set up that allows solar, and wind, and nuclear power sources to “invest” in their favorite energy sources through a special rate structure.  That rate needs to separate the capital costs from the fuel costs.  Then, depending on the amount of kW the customer has committed to, there are fixed costs in the bill paying for the capital costs, and there are fuel and O&M costs in the bill.  Once you have customers signing up for the nuclear rates, then you have a basis for building a plant that matches the customer’s nuclear interests.  Give each individual person in Australia an opportunity to buy the power source of their choice.  Wouldn’t you like to have this ability yourself?

My objective is to try to give individuals an opportunity to buy whatever kind of power they choose by providing an obligation to make payments toward the capacity of that kind of generation source.  I hope we can get our solar friends as allies to get this implemented.  In this way we are not in conflict with them but join them as partners.  Of course we will choose nuclear and they will choose solar, but that is ok…

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  1. The natural allies of wind and solar are gas and coal. Their weaknesses complement each other as part of an overall marketing strategy (wind and solar are expensive and incapable of providing baseload, but are low emission, while doal and gas are high emission but sheap and baseload-capable). The strategy is a marketing strategy only, because mixing the two approaches emphasises the weaknesses of each and fiminishes the strengths of each.

    Nuclear is cheap, low-emission and baseload capable. It has nothing to gain by partnering with with solar or wind. It might concievably partner with gas on a temporary basis to take advantage of natgas peaking economies untill nuclear tech overtakes this function economically itself.

  2. Lets try that again…

    The natural allies of wind and solar are gas and coal. Their weaknesses complement each other as part of an overall marketing strategy (wind and solar are expensive and incapable of providing baseload, but are low emission, while coal and gas are high emission but cheap and baseload-capable). The strategy is a marketing strategy only, because mixing the two approaches emphasises the weaknesses of each and diminishes the strengths of each.

    Nuclear is cheap, low-emission and baseload capable. It has nothing to gain by partnering with with solar or wind. It might concievably partner with gas on a temporary basis to take advantage of natgas peaking economies until nuclear tech overtakes this function economically itself.

    Types out 100 times… I will always check for typos before I hit Post Comment…

  3. I am forced to agree with Finrod. Moreover the choice of generation that is appropriate for a given area shouldn’t be decided by a popularity contest, but by sound technical and economic logic, not the whims of a constituency that can be swayed by propaganda.

  4. If we assume: low risk, low profit, then I would be expecting much greater returns before risking my own capital if I were to invest in solar + storage given the lack of market information available for the lifetime of operation. Nuclear on the other hand has a good lot of world wide experience from which to base an investment decision.

    Thus if a rational investor is given the option of both at the same expected rate of return, then they would chose Nuclear (ideology may prevent them from doing so) or CCS for arguments sake.

    This post ties in well with comments made by Barry and Peter Seligman at the recent TCASE event. For $$ spent on PV cells via the government rebate we could have produced ~7 times that amount of energy via a large scale plant. On this basis, it would seem practical to consider the idea that collaboration of effort could produce a greater outcome than the previous policy. Pooling together shares and allowing a payback via the market price of energy generated is one way to achieve this and may have provided an even greater incentive to purchase a share. Like a publically listed company, one could choose to reinvest dividends or collect. Allowing for growth in the venture.

    This will probably require a mandatory renewable target to survive which is what we currently have in Australia.

  5. If Ross Garnaut could blog he would probably say all we need is a CO2 cap and let energy supply wannabes fight it out between themselves. Many would agree but it seems politicians are incapable of keeping it that simple. They have to make a dog’s breakfast out of it with RECs, FiTs, offsets, MRETs and solar multipliers. The whole thing would be a lot simpler if we just had a CO2 cap with transferable shares. I suggest we should auction then allow trade in primary CO2 permits but with none of these other side shows.

    Suppose I want to smelt aluminium in 2011 but the overall CO2 allowance has been cut 10% relative to some base year. I want the cheapest possible electricity from Origin, TRU or Aurora Energy. Those resellers have to find me the best deal which could be a combination of coal, gas, wind, hydro or solar thermal. Forget about quotas like the RET. If some unsubsidised wind or solar helps then I’ll take it.

    I think we should do this and see what happens. All new installations should get equal help for say 5 years. The help could be loan guarantees, capex grants, red tape removal, maybe even a low level feed-in tariff for just 5 years. The technologies will include as yet unproven wave, geothermal and CCS. Nothing is to be disallowed including nuclear.

    As it is 60c FiT for residential PV, 20% renewables targets, $50/Mwh RECs and nuclear prohibition have tilted the playing field. Make just one stipulation, namely CO2 reduction and let the market sort it out.

  6. Sorry,but I don’t see much point in going down this particular dual lane carriageway.
    Solar can’t provide base load power without expensive back up and storage.Nuclear can so why worry about solar on that scale.We haven’t got the resources for this sort of game.

    “Getting off the grid is not advisable” – given the political situation,which is simply utter incompetence leavened by corruption,I think getting off the grid is a wise move if affordable.Maybe one or two overseas holdays less in some cases.

    I have had a 5.3 kw solar PV system for the last year.I had a backup with 2 x 150 amp/hour batteries installed initially.I am now having another 6 of these batteries installed so I can go off grid if necessary.I am also having a connection installed so I can charge the batteries if there is prolonged cloudy weather using a petrol generator I have had for years.With some experience of deep cycle batteries in an off road vehicle I don’t see the life span as being a big problem.
    There is very litle change out of $50,000 for this setup.I can afford this on a limited income as I don’t piss money against the wall on mindless entertainments. I regard electricity as essential for anything resembling a decent life.I also know what it is to do without.

    I am in no hurry to go off grid as this would kill the feed in tarriff.However,I suspect that feed in tarriffs wil be reduced to to the point of irrelevance in the not too distant future as the rising power bills begin to wake the sheep.

    Beware of angry sheep.

  7. How about considering the huge amount of money in superannuation/pension/retirement funds as potential source of capital for energy investment. It would be an investment in the future in more ways than one.

    I’d guess that there is well over a trillion dollars in Australian super funds. The long term nature of investment in eg nuclear may be well suited to a portion of pension portfolios.

    This has the advantage of not taking any extra money out of peoples pockets in an immediate sense.

    No doubt there are many ways to structure any such investment – debt, equity etc. It might even be possible to legislate for some fraction of super contributions to go into low emission energy. To be realistic, it’s going to need something on this sort of scale to get the emissions cuts needed.

    Of course this would be predicated on government getting it’s act together with carbon price and energy policy.

  8. We all have our opinions don’t we. All I was suggesting is that a rate structure be set up so we can pursue whatever future energy supply we have faith in. This allows us to be in control of the future rather than our government and/or local power company. Here are some specific comments:

    Partnering with gas and coal doesn’t solve the looming climate change problem. We will need some gas generation here in the US to maintain grid reliability, but that is not the long range solution. I would place my bets that there is going to be a future nuclear plant designed for load following.

    I did not suggest we invest in wind because I do agree that its variable nature is disruptive to the operation of the network and wastes the natural gas fuel. However, with that said, I am in favor of others having the right to invest in wind power and we will try to make it work as best we can in the interconnected grid.

    Battery storage economics are terrible. Do the cost calculations for storing one day’s energy and you will see that the capital cost is many times that of any of the different power sources. Use $1 per watt for the equipment and $0.5 to $1 per watt-hour for the batteries.

  9. All I was suggesting is that a rate structure be set up so we can pursue whatever future energy supply we have faith in. This allows us to be in control of the future rather than our government and/or local power company.

    Yes Dr. Preston, I’m sure your heart is in the right place. Power to the People, and Libertarianism Forever. Has it occured to you, though, that climate change denialists are going to feel a bit miffed if such a system is implemented, and they don’t get their opportunity to garner community support for their new coal-fired power plants (CCS not even considered as a comforting myth)? A new coal plant will be cheaper than either the nuclear option or the ‘renewables’ option. And that industry has a LOT of cash to throw around to drum up support.

  10. An interesting way to raise capital. Rather resembles a security. If the government made a capital guarantee on the generating plant, the risk would be removed, and the guaranteed income would more resemble an annuity. The security could then be bought and sold on the basis of the length of its remaining period, which you propose as 30 years.

    However the income is not in $/a, but in kWh/a. That doesn’t sound very negotiable. Who or what would buy your access annual credits?

    I think you would have to separate the technologies too, so that the lifetime could resemble the lifetime of the plant it is based on. Nuclear securities would justify a lifetime of 60 years, whereas wind securities may be only eight years or so. Either way, a government capital guarantee would make them “blue chip”.

  11. It has always been my view that large LWRs represent an obsolete, expensive technology, and that a modest investment in advanced nuclear technology, in particular MSR technology, will yield very large energy related cost savings.

    Compared to most LWRs (with the possible exception of the AR-1000) the MSR requires far less material input, and fewer parts per unit of energy output. This means most likely that less labor is required to build them. In addition MSRs operate with higher thermal efficiency, than LWRs. High thermal efficience means that there is no economy of scales performance advantage for large LWRs. Thus small factory constructed MSRs, will preform with greater efficiency than large LWRs.

    Small reactors can be manufactured in factories, and transported to generation sites, at lower labor costs, than onsite manufacture. The more labor can be transfered to the factory, the lower the manufacturing costs. Hence the best route to rapid nuclear manufacture and low nuclear cost would be to factory manufacture small MSRs.

    While, the IFR has accomplished important technological advances, it is not technologically superior to MSR technology and in particular the LFTR. IFR advocates have yet to demonstrate that the the IFR can match MSR/LFTR potential for cost lowering, although they claim a lower cost for IFRs than for LWRs.

    MSRs have the potential of operating in load following and backup/reserve roles. In fact MSRs might well be the lowest cost, most reliable potential backup for renewables. However, the performance, cost and reliability of MSRs would render renewables obsolete and unnecessary.

  12. Yes,Gene,most of us do have opinions.The opinions have varying degrees of validity,including yours,but I am not knocking your article in general.
    I’m not sure that we in Australia are going to have the luxury of choice in regard to electricity generation methods.i have no idea what the situation is in the US in that regard.

    Battery storage economics may well be terrible as are the economics of many other things we habitually do.However,man does not live by economics(whatever that means) alone.

    In areas remote from the grid, solar PV with battery storage and generator backup is the only alternative to living without electricity.That is the Australian situation.So the electricity is costly but what are the costs of doing without?
    Simple calculations won’t reveal this.

    I don’t live remote from the grid however I am taking out a bit of insurance for the trouble I see ahead.Maybe insurance isn’t economic either.

    As for differentiating between wind and solar I don’t think this is valid as far as the effects these generators have on the grid.They are both equally disruptive.
    This is just one of the areas where the Beyond Zero Emissions pipedream meets hard reality.

  13. John Newlands,while I agree that we have a dogs breakfast at the moment I doubt whether going down the road that you propose will be any improvement.
    The history of degegulation in Australia doesn’t inspire much confidence I’m afraid.Far too many gamers of the system for selfish and greedy reasons.

    Ultimately the governments are going to have accept their responsibility as representatives of the citizens,pick some winner/s and just get on with it.
    Time is awasting.

  14. I gather climate change minister Greg Combet is still in Cancun, Mexico as we speak. Whatever he signs over there I believe he has no intention of creating any grief for his mates back home in the coal industry. Nor will the public put up with higher power bills. Therefore I think there is no way $20-$30 carbon taxes will come in without loopholes you could drive a coal train through.

    I think we’ll need a crisis for anything to happen. That could be $3 a litre petrol, 30c a kwh day rate electricity (without carbon taxes) and $6 loaves of bread. All within the next decade. It would be great if when that happened that modular NPP could be bought off the shelf for $5 a watt and take just 3 years to connect.

  15. To Roger Clifton, yes the agreement would need to be project specific and a transferable assett, so that the “investment” can be transferred to another person or even an heir.

    To Podargus, of course someone not on the grid would have to use batteries. Did Australia have a rural electrification program like the US did beginning in the 1930′s to get remote farms connected to the grid?

    Whether new rates are offered in Australia or not entirely depends on how many people demand them. It has little to do with whether solar or nuclear or wind or coal is the best source of poiwer. It has everything to do with customer choice and meeting the customer’s needs and wishes.

  16. The problem with winter oversized PV and a battery bank is that you might get by while society around you disintegrates. For example you could ride your solar charged electric scooter to the store to get a can of baked beans, except when you get there the shelves are empty. The rest of society has to function adequately as well. Therefore there is an imperative to keep some core activities going like reasonable food, thermal comfort and mobility. Somewhat akin to resting metabolism in animals but for a whole society. I suspect some forms of rationing will be coming.

    Hardline Greens seem to think we should all power down though I notice those people seem to travel a lot. I guess they offset. Interesting to see there are numbers of survivalists like Podargus and my neighbours who are pro-nuclear. They take the pain twice, first spending $50k on PV and batteries then putting up with reduced electricity consumption.

  17. John,I don’t think of myself as a survivalist. I have no idea what the future holds but I am in no doubt that there will be a lot of strife given the apparent inability of our leadership to take timely and realistic action. As you say,a crisis is likely needed in order for meaningful change to occur,unfortunately.That doesn’t say much for human sapience.

    My solar PV system is quite adequate for my needs without any change in my usage.I was brought up in the bush during the 50s and 60s by parents who had been young farmers/contractors during the Depression years.I guess I have frugality in my blood lines.

    If society disintegrates around me while my lights are still working I will cross that bridge when I come to it.No sense in worrying about the unknown beyond taking prudent precautions using presently available knowledge and resources.

    I don’t know whether the public will put up with higher power bills.The usual way of getting this sort of thing past Trev and Sharon Beerslab is to do the rises in small increments to escape notice.Coles and Woolworrths are masters of this art.

    To Gene Preston – yes, there have been rural power schemes extending the grid to fairly remote areas, using single wire earth return systems.I have wondered about the economics of this compared to subsidizing solar PV more extensively.
    However there are immense swathes of Australia which will never see a power line.The stations,outposts and settlements are too small and too remote for this to be possible.At present many of these places are dependent on diesel generators.The cost of running these is not likely to decrease.

  18. Dr Preston, very interesting article. A few questions:
    - Customers buy x kW of capacity up front. Presumably, they also pay y cents/kWH for their actual consumption at a rate set to cover operating costs once the plant is running, yes?

    - “I could invest $8000 for 2 kW for my portion of a large scale solar plant and $8000 for 1.5 kW for my portion of a larger nuclear plant.” Your proposed amount for solar power looks far too cheap, unless the 2kW refers to a derated ~20% capacity factor value rather than nameplate noon-summer capacity. In this case too, you would have to limit subscribers to 20% of the nameplate value otherwise you will not, on average, be able to guarantee them supply. The other 80% of the capital cost would have to be met in other ways (unless, of course, you up the $/kW rate by a factor of 5 or so).


  19. John Newlands, nice comments and an important concept. It makes you wonder why anyone on the grid would choose to get off.

    Podargus, I understand your situation, being in the bush. The native eskimos in Galena Alaska are a good study case. Wind and solar are not feasible for them. Currently they burn oil to generate electric power. Toshiba has proposed the 4S mini nuclear plant for them as a lower cost source of power, but that has yet to be approved by the US NRC. The other day I saw a map of proposed mini nuclear power generators as dots all over northern Canada in small villages that are too remote to be interconnected with power lines. Also Hawaii and all islands are also electrical islands that need power. Interestingly wind generators are not wanted on Hawaii because it spoils the view of their islands. The few wind generators built on Hawaii in the 80s stand there as rusting monuments. Hawaii has their solar power glasses on of course but that isnt working. I once suggested to one of their engineers that they need to look into the Toshiba 4S plant, but got no reply to my email. Another option would be for them to burn coal, delivered from Australia of course :) I guess the image of Hawaii burning coal doesn’t appeal to them either because they would have to dispose of the ash somewhere, and dumping it in the ocean would not be good PR for their tourism trade. So after thinking of all the opetions, the best power source solution for Hawaii is a mini nuclear plant.

    Turnages, yes on the kW and kWh. The power and energy components are separated and paid for as separate entities. This is important, i.e. not lumping the kW costs into the kWh. This is where the business folks and economists have gone down the wrong path. Concerning the investing customer’s bill, their portion of the kWh generated by their power source is accounted for on their monthly bill. They make the kW payment separately from the kWh.

  20. Thanks Gene Preston for catalysing this debate. if the “price” for starting nuclear power in Australia is co-developing it with solar or wind as you suggest, then I’m all for it.

    We can always later quietly mothball the inefficient partner once the dust has settled.

    Would this cost us twice as much? Probably, but what is the cost of doing nothing?

    I’m interested in these mini NP’s you talk about. Can someone enlighten me?

  21. There is quite a bit of interest on small nuclear plants
    The US DOE is interested in building smaller and modular nuclear plants
    I hope these links work in Australia. Let me know if they don’t and I will post specific links.

  22. Gene,I think the reason why people would want to get off the grid in Australia is because of the mess that the electricity industry is in.This mess ranges from an unsustainable reliance on coal (and recently,gas) through underinvestment on grid maintenance to a privatized retail sector which is virtually criminal in the way it operates.

    The political scene at present doesn’t inspire any confidence that these issues will be addressed in any realistic way.

    Personally,I am happy to stay on the grid while the numbers stack up.If that stack collapses I am out of there.

    Thanks for the links on the Toshiba 4S.There would be many applications for this sort of reactor in Australia but I don’t expect to see any here soon.
    I hope I’m wrong.

  23. This touches on an interesting ethical point. All the electricity retailers in Australia obtained hefty price rises about the time the ETS was under discussion. It had nothing to do with carbon pricing but they argued for future transmission needs, storm damage, you name it. Anyway they got the rises. Note that some electricity retailers are government owned or I presume take a hefty royalty from a private operator. Those same state govts run the pricing tribunals.

    I’m suggesting the round of price hikes was improper or borderline corrupt. The state govts got the tribunals to approve price hikes to protect their revenue. It was a pre-emptive strike before carbon pricing arrived. Those price hikes no doubt motivated many people to get PV to quarantine themselves against future increases. There’s always a catch; for example in cloudy Tassie they bumped up the daily grid connection fee so you have to ‘donate’ 4-5 kwh a day to cover it.

    So there may be a spectrum of ethical types among electricity resellers. Enron Corporation in the US was a bad’un and perhaps Electricitie de France is more benevolent. Australian power companies and their State govt minders sit somewhere in the middle. I’d like the Federal ACCC to look into it.

  24. Thanks Gene,
    Your current work for wind developers surprises me somewhat. I think wind’s future is gradually being limited if moves around the world are any indication. In fact several countries, Spain, UK, US,[ Your last comment verifies this] Germany,France,Ontario have become disillusioned with the renewables, especially wind and are reducing subsidies etc to them. Rate rises to consumers have upset the troops no end. And now, the biggest wind power country on the planet, Denmark has, or is about to, close down five of its wind farm manufacturing plants with a loss of 3000 jobs. I guess for those of us who have already started developing them, we’ll have to finish current build programmes BUT we should put a stop to further growth after that. It’s a hell of a worry for us in South Australia where our ill advised, irresponsible government is building them as fast as they can. We’ll finish up like Denmark the way we’re going.
    Quokka, your idea of super/ pension funds to finance nuclear build is a good one but my now 10 year old idea of developing a world nuclear waste repository here in South Australia,which according to Access Economics will generate $2.5 billion yearly in taxes and royalties from user countries would also be a good place for Australia to start developing and financing the full nuclear fuel cycle. Gene, you probably know this but here in SA we have the world’s biggest single uranium deposit at Olympic Dam and west of that we have demonstrably, the world’s best nuclear waste disposal site [Officer Basin -my older brother wrote and mapped the geology of the OB 35 years ago. He was consultant to Pangea Resources who were looking at it's suitability for waste disposal on behalf of the IAEA]. You also know that so far we’re not allowed to debate going nuclear here in Australia. Happily, that situation is going to change, and sooner rather than later, I think/hope.Thankfully Barry has been doing a sterling job in educating the people about the role nuclear MUST play in the future of Australia’s energy supply. The rest of us need to get behind Barry and try our best to convince politicians that nuclear is the way to go. Keep on writing to them guys. They’ll get the message eventually. I’ve just written to Gillard with copies to Combet, Ferguson, Swan,Paul Howes [AWU seretary] urging her to get nuclear on the ALP energy agenda at next year’s national convention. I was cheeky enough to suggest that she get me to be “keynote ” speaker and to put the case for a nuclear Australia to the delegates. I did it three years ago but they turned me down. Apparently, only delegates get to speak at the convention. But, I’m having another go at them. I told Gillard that as a former member of the ALP and 5 times candidate and tireless worker for the party that I had something important to say and that the party should hear it. Wish me luck guys.

  25. If it is possible to agree on an objective funstion to be (nearly) minimized, then a rational power grid revision schme can be computed rapidly enough to provide a solution.

    Such solutions often have rathr surprising aqnd non-intuitive asspects, so opinions about solutions are distinctly less helpful than helping to settle what the objective function is to be, together with the constraints which must be satisifed.

  26. Terry and David, thanks for your comments which are excellent. My wind studies have been intermittent, sometimes I am swamped and sometimes go for a few weeks between studies. A few years ago ERCOT was rapidly adding new wind and I was doing a lot of studies. Then the amount of wind used up the transmission capacity and wind power additons in ERCOT slowed to a crawl. The wind developers were out there, but there was just no way they could make their projects work because there was too much transmission congestion. Then I began getting requests for transmission requests across the US from various new developers as well as doing studies for lending companies worried that other studies might have missed something, so they wanted me to run a final check looking for problems that others had overlooked. And sometimes I did uncover constraints that had been overlooked. The eastern grid of the US is a very large network so some of my consulting competitors were not set up to run studies in the other areas of the US and this generated even more business for me since I could easily modify my program to use the larger data sets. The other consultants leased the larger PSSE model which was expensive so they had an overhead cost I did not have, thus making my studies lower in cost than theirs. So business has been good and continues to be good.

    Just this last week the US government appears that it has dropped its wind subsidies. Now I may not have much business in wind if the economics are no longer favorable for building wind. it will be interesting watching what happens in the US market for new wind. It might come to a grinding halt. Certainly the economics will be harmed with the change in the tax law. I am retired so these studies are optional for me, sort of a hobby. I don’t need the income, but it helps. You can always find a way to spend the extra cash ha ha. Maybe I will use my wind studies income to buy into solar and nuclear power if I can get the local utility to offer the rate I am seeking. I have something to say about optimization, but let me do that in the next posting.

  27. David, the future generation problem is not one that can be solved with an optimization. There is too much uncertainty in the future of coal, nuclear, solar, gas, and the oil supply as well as uncertainty in climate change and GHG legislation that would greatly affect the outcome of the optimized solution. Basically the world’s best optimization software would have junk assumptions going in and therefore produce garbage results coming out, i.e. GIGO.

    There is another problem with treating this problem strictly as one of economics. We use levelized costs and present value comparisons. But what is the present value of events happening beyond 2040? Even if we put the long range future in the economic model, the present value discount would reduce its current impact to such a small level that catastrophic events out there in the future show up as small costs today. The present value economic are too short an outlook and are misleading us into making bad decisions today. And there is one more aspect to the this that is not captured by conventional optimizations.

    If I were to purchase more capacity in solar and nuclear than I can possibly consume myself, and pay for that capital cost up front, and then have some excess energy I can sell on the market, I will be able to out bid any competitor using fossil fuels. If everyone did what I want to do, natural gas plants would no longer be attractive financially and they would be driven off the market. The same thing would happen to coal in Australia. Our solar and nuclear will outbid the coal plants in the market. Therefore my purchased and up front financing give me tremendous marketing power I would not have otherwise. Now consider what would happen if the solar and nuclear plants were placed on the market so that their capital costs must be covered by kWh sales. Well their energy cost would be so high they would never be constructed. They could not compete in the market and natural gas plants would dominate the market. Looking at the ERCOT market that is exactly what is happening. We are even considering retireing coal plants and building new gas plants. All this is because there is a mind set that the capital costs have to be covered by energy sales. Baloney. I can pay for a plant out of pocket with up front case and then when I put it on line I can bid energy prices that are always just under the cost of my competitor. And why would I want to make that investment? Well I would make it so that I lock in my long range personal cost of electricity. Just for the reasons we have been talking about on this blog. If I buy my own capacity I shield myself from future rate hikes. I have marketing power. When my other friends who have also bought capacity join with me as a union of investors we also have tremendous political power on a par with the coal and oil companies. Thats why I am interested in investing. It has little to do with optimization of the system.

  28. Dr Preston, you wrote:
    “The problem with the waste is that it also contains other radioactive products that have long half-lives.
    However, after a few decades this material is not as dangerous as most people think. The nuclear waste can be handled safely wearing gloves. It’s just too toxic to ingest. ”

    Have you a reference for this? You must admit that, if this is the case, it’s a rather telling fact which could bear being spread about a bit more. How many decades are we talking about, what sort of gloves, etc?

  29. The issue of radiotoxicity of nuclear reactor waste hinges on the concept of “halflife.” Basically the more intensely a radioactive substance radiates, the shorter the time it can do so. Therefore a material with a halflife of 12 days is going to produce a lot more radiation than material with a halflive of 120,000 years (per unit mass) A kilogram of the former would kill you outright just walking up to it, the later could be handled (we are assuming solids here) without protective clothing with almost no risk of harm.

    The whole notion that nuclear waste is “dangerous for hundreds of thousands of years” is fundamentally misleading. Nuclear waste contains a combination of many radioactive materials with a wide range of halflives, ranging from a fraction of a second to millions of years. The short-lived materials radiate very intensely but for a short period of time (they are safely dissipated at the power plant long before they are ever put into long-term storage). The long-lived materials such as uranium and plutonium, on the other hand, radiate for a very long time but at an extremely low level — so low that their danger is essentially chemical. The materials with intermediate halflives on the order of a few decades are the most problematic, but even they are easily manageable.

  30. Gene Preston, on 12 December 2010 at 12:27 AM — Interesting, but I think you are describing an objective function; one which doesn’t agree with standard rational decision theory economics, Since I have serious doubts about conventional econmics [not based on physics], alternatives are always of interest.

    Anyway, you might find some of the articles in
    Castronuovo (ed.),
    Optimization Advances in Electric Power Systems
    Nova cience Publ. Co., 2010
    of interest. Amongst othr matters, it became clear to me that the next day auction markets for power generation fail to completely satisfy the constraints on grids, so various actions on the part of the regulating authority are required.

  31. DV82XL, on 12 December 2010 at 9:44 AM — Plutonium oxide is sufficently radioactive to produce lung and bone cancers rather rapidly. This is known from various accidents while manipulating plutonium, mostly dunring the 1940s and maybe 1950s.

    As I understand it, it is the various trans-actinides, which while in low cfoncentrations, remain hazardous for a long time. The advantage of various fast reactor cycles is that essentially all of such are fissioned, leaving only short half life radioactives.

  32. David B. Benson – The issue with this material is its state, rather than its radioactivity per se. The separation of Pu, and its fabrication into pits for nuclear weapons, exposed workers to liquid compounds and fine particulate, and indeed in these forms Pu is a hazard, but then again so is cadmium which is use lavishly for corrosion control in aviation. In both industries poor industrial hygiene, that was endemic to the Forties and Fifties, made many ill.

    However that does not speak to the dangers of used nuclear fuel, which is solid, the more active isotopes stabilized in the fuel matrix, and is generally cladded. Also this material is stored in proper containment and thus is not bioavalable.

    This is not to say it wouldn’t be better to use this material in other fuel cycles. However it is not by any means all that hazardous, as industrial wastes go, and it is certainly not dangerous for hundreds of millions of years, as often asserted by antinuclear zealots.

  33. DV82XL, on 12 December 2010 at 10:27 AM — Yes of course. I was merely pointing out that plutonium can be a radioactive hazard, not a particularly potent chemical poison (as I suppose cadmium particles are). Indeed, depleted uranium particles, while not good for one, are not that dangerous; see the IAEA web page about depleted uranium.

    What is a long term radoactive waste issue is the left-overs from the days of making plutonium; Handford is a bit upwind from me and its been in the process of cleanup for decades. The stuff is being isolated in glassy containers and shipped to a “Pilot Isolation Facility’ in New Mexico. Ideally even all that horrid stuff could go through some fast cycle fissioning just to get rid of it; whie “hundreds of millions” of years is vastly too long, hundreds of thousands might not be.

    Regarding the leftover uranium fuel rods from NPPs, reprocessing in (approximately) French style seems a good plan; while the Le Havre reprocessing facility has had some problems, these are truely minor compared to the evil stuff emitted by coal burners world wide.

  34. The alpha radiation plutonium emits does not penetrate the skin but can irradiate internal organs when plutonium is inhaled or ingested, thus even as a radiation hazard Pu is a good deal less of an issue then it is often portrayed in both the popular press an by antinuclear militants.

    And while some isotopes of plutonium have very long halflives , the point I made above remains that perforce the radioactivity of such is very low. Rapidly decaying isotopes transmute sooner than slower decaying ones per unit mass. There are no radioisotopes that can maintain a high flux of decay energy for a long time – they just run out particles to eject.

    This is the key concept: radioactive hazard is inversely proportional to halflife. So any talk of material remaining radiotoxic for even thousands of years simply violates the basic physics of nuclear decay.

  35. DV82XL, on 12 December 2010 at 1:21 PM — Ingested plutonium particles are almost surely simply going to pass through. AFAIK plutonium is only a hazard when inhaled or forceably injected (as has happened in an accident).

    Since micrograms of an internalized radioisotope might be enough to start a cancer (it is for plutonium), larger quantities even after long times retain some radiotoxicity.

    Its been decades since I read my health physics, but you are simply flat out wrong about the length of time various isotopes remain a hazard. Indeed, that was the reason the Yucca Flats was supposed to isolate all that stuff for maybe 100,000+ years. Fortunately that plan is essentially done with and we can hope that the USG will actually build a few fast reactors to fission everything into manageably short lived radioistopes with isolation for 200 years being ample.

  36. Can anyone point me to a report which details the number of people who have been killed by nuclear waste of any sort? No, I thought not because there have been NONE killed. An acquaintance of mine spent three years handling plutonium. His hands were protected by gloves. Whatever “radiation ” was emitted by the plutonium could not pass through the gloves. High level nuclear materials, including “waste” have been handled safely and securely by hundreds of people for decades and such materials have been crossing the oceans of the world between Europe and Japan since the early 60′s with never an accident which saw nuclear waste leaking into the marine environment. Yeah yeah, But what if one of those ships had been sunk on the way? Well, first you have to sink a double hulled, double powered, twin navigation systemed vessel [They're the safest ships on the ocean] Once sunk, the 100tonne 30cm thick walls of the transport cask have to be ruptured thereby allowing the stainless steel canisters containing the 5 tonnes or so waste to spill their contents after rupture, out on the ocean floor whereupon the waste which is in the form of sparingly soluble ceramic material to be attacked by the sea water for subsequent slow release into the sea water. Then that 5 tonnes of radioactive nuclear stuff will be added to the other 4.5billion tonnes of uranium already in our oceans. If such an event happened off the coast of South Australia [Great Australian Bight] on its way inland to the Officer Basin [world's best nuclear waste disposal site], it would have minimal effect on marine life there. I made this point in March 2003 [7 years ago for heaven's sake] when debating Professor John Veevers from Macquarie University on what economic benefits we could get in Australia were we to make the Officer Basin available to nuclear countries for their waste disposal. What did Veevers say in reply, you’ll love this, “Yes, but we could make just as much money going into wholesale Heroin productuion” True story. Ask Phillip Adams.

  37. David B. Benson – I would strongly suggest that you research the topic by going back over the health physics before you make sweeping statements like: ‘you are flat out wrong’.

    As for using Yucca Flats plans as an indication of anything, it is clear that the politics of spent nuclear fuel, and other radioactive wastes in the U.S. diverged from science some years ago. Other countries have been managing their spent fuel for some time with policies that are quite different to those of the US and without killing their populations. And I am not just thinking of those that reprocess.

    Fanning fears of radiation is one of the primary tools of those in the antinuclear movement. They have lied so often, and for so long, that few stop and check to see if there is any substance to what they say. Unfortunately there is now an industry devoted to radiation protection that has grown up around this fear that helps perpetuate these myths. However any logical reading of the facts, and half and hour with a pencil and paper doing the calculations, is more than enough to prove to one’s self that most of it is tripe.

  38. DV82XL, on 12 December 2010 at 1:55 PM — Well, lets stop going off-topic on this very fine thread. Since a back-of-the-envelope calculation won’t suffice for this rather complex topic, I have moved over to the Open Thread with a remainder about Yucca Mountain and plutonium.

    I agree that with proper handling nuclear power rods have proven safe and that so-called nuclear waste from NPPs is essentially a non-issue. Nonetheless, waste isolation for a long time is required; see (and respond if you need to on) the Open Thread.

  39. Terry you know there already is a radiation issue with the Great Australian Bight. The loading jetty at Thevenard near Ceduna SA will handle about 25% of the world’s zircon production. It will be shipped to Geraldton in WA to separate titanium minerals and monazite. The latter will then be sent to other countries to remove thorium and rare earths I gather. Ditto zirconium smelting from the zircon.

    Note en route shipments will pass by both the 1950s A-bomb test sites, Maralinga SA and Albrolhos WA.

  40. Turnages I read in some magazine in the recent past that statement about being able to handle nuclear waste with gloves after a few years of storing the spend fuel on site. I looked and looked for that specific article, and as Murphy would have it, I cannot locate it. I did a search on the internet and came up with some information on this topic.,+Effectively+dealing+with+nuclear+waste.pdf mentions 40 years after the fuel is extracted from the reactor it is much easier to handle. says the spent nuclear fuel has to be water cooled for only 5 years before being stored in dry caskets. Theft of the material is a bigger problem than the radioactivity at that point. I will continue looking for that specific article.

  41. Dear David Benson. I will let you in on a secret. I have $16000 to burn and I don’t really care about the economics. By purchasing the capacity it gives me market power. How is this? Well suppose that I do not use 16,000 kWh annually. The excess power that I have purchased should be bid on the open market. I tell my operator to set the price low enough to insure I sell all the excess. I always beat out other bidders no matter how low cost they make their power. I can do this because I OWN the capacity and have already paid for all the capital cost and the energy cost is free. Now try to capture the good feeling I get in your economic model by being able to beat out other competitors in the market. If enough customers bought enough solar and nuclear capacity, they could out bid the gas and coal plants and literally drive them off the grid. Thats one way the free market can operate to address the climate change and no new government rules are needed. You only need a bunch of interested customers willing to put up the up front cash. $16,000 is a drop in the bucket. We are building a new pool at ten times that cost at my house.

  42. David B. Benson, concerning the lung cancer. You only get the lung cancer if you breath the dust. Beryllium oxide does the same thing and its used in electronics. Better not open that electronics case ha ha. Also if you get fiberglas harderner in your eyes it causes instant blindness and this is sold in hardware stores. Your statement is moot because we never have any intention of creating a powder out of plutonium oxide. You can’t get scared by everything you read. If you did you would not be able to function in today’s society.

  43. One nice thing about nuclear materials is if there is a leak its really easy to detect. However, other hazardous materials like mercury in coal ash is difficult to detect if its getting into ground water and only after its too late. The nuclear spend fuel is never going to be stored in a open pit so there is little chance of it leaking into ground water. This spend fuel is really very valuable stuff and has a lot of potential for producing power in the future if burned in the right kind of reactor, so we should get out of our mind that we are going to bury it forever. We aren’t. We just need to set it aside for future use and make sure it is secure and does not get in our air and water. Because the volume is so small, this is not a very hard or expensive task.

  44. Concerting storage of nuclear materials in an open pit… I remember seeing a photo in National Geographic a few years back. It was in an article about why Yucca Mountain (or similar waste repository) was necessary.

    The photo was only “low-level” contaminated stuff (used gloves, overalls, masks etc). But it was stored in steel 44-gallon drums, which were simply stacked up in, yes, an open pit. Oh, except for the bits that had caved in, half-burying the drums. And the bits that were full of water…

  45. Low level rad waste is defined by exclusion, that is to say it is anything that cannot be slotted as High or Intermediate Level Waste, Spent Nuclear Fuel, or Transuranic Waste, or uranium mill tailings.

    Generally speaking the place that the waste comes from, rather than its specific radioactivity defines it as such. LLW typically exhibits no higher radioactivity than one would expect from the same material disposed of in a non-active area, such as a normal office block. In fact there is much more LLW in most municipal garbage dumps by several orders of magnitude, than there is is specialized LLW dumps.

    In some jurisdictions there is no Intermediate Level Waste categories and Low level waste is divided into four classes, class A, B, C and GTCC, which means “Greater Than Class C”. The latter two needing some special handling but nonetheless suitable for shallow burial.

  46. Gene Preston, on 13 December 2010 at 6:43 AM — Ok. in some sort of econmic trms you are doing the equivalnt of purchasing a 60 year annuity which generates enough $$ to purchase your retail price elctricity. The difference is you are setting up a GenCo which, assuming an auction market for producing power to go to the grid, you’ll price low enough to always generate.

    Maybe. Some existing coal burners have busbar rates of US$0.02–0.03 per kWh. The only NPP I know anything about is Columbia Generating Station which began generating in 1984 and has a busbar cost of US$0.0275. I don’t know how LCOE was determined for that BWR.

    New construction, coal or nuclear, has a very much higher capital cost, so surely your plan would cause NPPs to be built rather than new coal burners and maybe even new gas turbines.

  47. Bern, on 13 December 2010 at 4:33 PM & others — Those photos are what was left out to rust during the days of making plutonium for bombs. Hanford continues clean up operations even as I write.

    It has nothing to do with fuel processing for NPPs, which has, world wide, proven to be quite safe.

    More on waste disposal, radiation hazards and related matters belongs on the Open Thread. This one ought to be researved for Glenn’s interting ideas about the economics of power genration.

  48. Yes yes David you have the concept clearly in your mind now. This customer financing method is an excellent way for individuals to actually have a direct inpact on switching the world from fossil fuels to non fossil fuels.

  49. David B Benson I give you credit for inventing the concept of “energy annuity”. The idea is so good I even posted a description of the idea of an energy annuity.
    Thanks for a great idea. This is what I will call it from now on. You get the credit. Now we move forward to change the world with the energy annuity concept being applied in practice. I have my $16,000 on the table right now to purchase new solar and nuclear plant capacity.

  50. Gene Preston, on 17 December 2010 at 12:16 AM — Thank you. I hope the idea, in some form, becomes popular.

    I haqve some data regarding LCOE projections for the
    miniPWR. The data is from new the bottom of their marketing VP’s presentation @
    Conf. on small modular nuclear reactors; Nuscale in presentation session I-P:

    If I have done this right, without interest and return of capital, the busbar cost is US$0.0323/kWh. This ought to be low enough to compete with any new alternate generation, even wind?

  51. Gene Preston, on 17 December 2010 at 2:19 PM — Many of the answers can be found here on BraveNewClimate. Briefly, NPPs have proven to be much, much safer than coal and even (I think) natgas. The once-through fuel needs to be sent to a reprocessing facility to use again and again. Proliferation means just following the IAEA guidelines as the othr 35 or so countries which eithr have or are seriously considering NPPs.

  52. Concerting storage of nuclear materials in an open pit… I remember seeing a photo in National Geographic a few years back. It was in an article about why Yucca Mountain (or similar waste repository) was necessary. The photo was only “low-level” contaminated stuff (used gloves, overalls, masks etc). But it was stored in steel 44-gallon drums, which were simply stacked up in, yes, an open pit. Oh, except for the bits that had caved in, half-burying the drums. And the bits that were full of water…

  53. Dear David Benson. I will let you in on a secret. I have $16000 to burn and I don’t really care about the economics. By purchasing the capacity it gives me market power. How is this? Well suppose that I do not use 16,000 kWh annually. The excess power that I have purchased should be bid on the open market. I tell my operator to set the price low enough to insure I sell all the excess. I always beat out other bidders no matter how low cost they make their power. I can do this because I OWN the capacity and have already paid for all the capital cost and the energy cost is free. Now try to capture the good feeling I get in your economic model by being able to beat out other competitors in the market. If enough customers bought enough solar and nuclear capacity, they could out bid the gas and coal plants and literally drive them off the grid. Thats one way the free market can operate to address the climate change and no new government rules are needed. You only need a bunch of interested customers willing to put up the up front cash. $16,000 is a drop in the bucket. We are building a new pool at ten times that cost at my house.

  54. For everyone’s info, the above came from my posting on December 13 and are not Lavonne’s words.

    Here is a new idea for you to consider. If a utility finances or purchases power from a centralized solar facility to the point the solar investment causes a rate increase, then that rate increase will harm the economic development of customers being served by the utility. Individuals and businesses on the verge of bankruptcy are likely to be driven to bankruptcy by the solar investment. If this is the case, the utility has no business engaging in investments that drive up the utility costs. The best solution to this problem is for the utility to implement the energy annuity concept as outlined in this document when the utility is contemplating investing in solar and nuclear plants. Let those people that are able to build new solar and nuclear plants proceed to build and own them. Those that are not capable of moving toward renewables at this time need to be shielded from those costs. As far as I know this can only be done using the energy annuity concept.

  55. Gene, I have to admit I haven’t studied your proposal in detail, but I wonder about this statement:

    I will let you in on a secret. I have $16000 to burn and I don’t really care about the economics.

    The only people who would be prepared to make such an investment are eco-idealists, not the average person or investor. I understand only about 2% of people in Australia are prepared to pay more for so called “green power”, so that suggests an upper bound for the size of the market for the $16,000 investment you are suggesting.

    For me to invest I would need to know:

    1. is my capital safe (especially against sovereign risk – which is where a future government changes the rules resulting in a loss of capital value or loss of earnings; i.e. the government – the commons – effectively steals my money after I’ve been enticed to make the investment)?

    2. What rate of return will I get on my investment for the life of the facility?

    3. Can I exit at any time without loss of capital if I decide I want to move my money to a better investment?

    4. What are the financial risks to my investment?

    Are you able to expand on your proposal by answering these questions (as numerically as possible)?

  56. Dear Peter,

    I’m spending over $200,000 on a pool and cabana. I bought a house that cost $700,000. I will probably buy an EV one of these days that costs $40,000. The $16,000 is being put aside to provide power to all the electrical equipment at this location. Its a small amount of money to spend to secure my energy future. Therefore all I care about is that the power supply being purchased for $16,000 actually works. If it is mostly solar and nuclear powered I am shielded from all kinds of bad things that are likely to happen with oil, gas, and coal in the next few decades.

    Concerning your questions:

    1) How safe the capital investment is depends on the contracts and on the stability of the US government. I hope both would be in good shape well into the future, because if they aren’t, we are in big trouble in more ways than just wasting $16,000.

    2) The rate of return is of no concern because money is not the objective. The objective is security of the power supply. Since we cannot predict when coal will be phased out and when natural gas will be in short supply again, and cannot predict the GHG legislation costs, we cannot predict the economic benefits and costs precisely.

    3) You would have to sell your investment. There has been speculation on another group that the nuclear investment will grow in value in the future and be worth much more than the initial $5 per watt.

    4) The finiancial risk is that the plant is a flop and never generates and I cannot get my money back. Thats the risk the investors have to take.

    Well obviously the solar investment will not have favorable economics. The nuclear investment should provide lower cost energy than the utility power if you see that the utility is making foolish investments, which my utility is currently doing, such as a power purchase for a 100 MW bio plant that costs the same as 400 MW of a nuclear plant (which is currently under construction here in Texas). The utility has already announced a planned 35% rate increase to fund its solar program. If I knew how bad my utility will continue in making its investments in the future, then I could compare my cost of energy with theirs. But I don’t know what they will do in the future. Right now it appears to me that all electric utilities in the US have inadequate generation plans. We are probably going to see hard times in a couple of decades. To me the future power supply appears to be in trouble in the US.

  57. Hi Gene,

    Thanks for this reply. I’ll have to take a closer look at your suggestion. Unfortunately, I am nowhere near as rich as you :) so I need to look after my $16,000s. If I could be assured it was a good investment, I’d be interested, but I am very sceptical at the moment.

  58. I ask my friends if they would spend $8000 on a solar annuity. Some say they would and others say no. I find very few who will be installing rooftop solar. I have asked the NRG folks to please give everyone in Texas a chance to invest in the nuclear plant before they decide to cancel it, if they are contemplating cancelling it. Peter please read this closely to see the reasons why someone would want to invest in an energy annuity
    The reasons are clearly stated.

  59. One thing I am finding is that getting utility folks at the top to read and appreciate a new idea takes a while. There is a tendency to keep the status quo even as they are bragging about their renewables and how they are moving toward the smart grid.

  60. Gene,

    Sorry for not responding to your post of 30 December. I didn’t see it until now.

    I am note what you are suggesting. I woluld like to see the risks listed and rough quantrification for eacn stakeholder. I would also liek to see the critique by a competent investment banker. It seems to me there is a lot more to it that has not been considered.

    I would be interested to understand how what you are proposing compares and contrasts with how the Finns have set up to build and pay for the new Finnish EPR that is presently under sconstruction.

  61. Dear Peter,

    Investment bankers would be interested in loaning money to small residential customers and more likely to larger industrial customers wanting to invest in some nuclear plant capacity. In my case, I already have the ~$16,000 cash in hand and could make the payment without borrowing money. I could make the transition off fossil fuels by 2016. Doing so would set a good example for what is possible. Some risks I can think of are listed in the next posting.

  62. Risks to the utility providing electric service:
    1) There are costs and complexities in setting up the mechanics. This will require time and money. Even if a utility were favorable to the idea it might take one or two years to implement. A pilot program might be helpful to see the interest level of the program from the community.
    2) Once the investment is made by the utility in billing and legal services such as the design of the contract agreements, etc, there may be too few participants to make the program worth while.
    3) The opposite may be true, that the program is highly successful and nearly everyone wants to buy their own power sources. This could leave stranded investment in coal plants and facilities that would no longer be needed. The utility might see this coming and try to sell of its coal and gas plant assets that it will no longer be needing. So its unclear if a highly popular program is a liability or an asset.
    4) having individual customers owning pieces of power plants will require a whole lot more record keeping. This should not be a problem if properly computerized.
    5) transitioning to a new system would require the utility providing transmission and distribution services to look at their rate structures critically and design new rates for their energy annuity customers that insure they cover their needs properly, i.e. going to the new customers does not harm the utility financially. If some utilities are under PUC or FERC jurisdiction, then the new rates might not get approved, and the entire idea of the enegy annuity would fail, not because the utilities were opposed to the idea, but because governments would interfere with it being properly set up. As you can see I am pro utility on this point. I think that if there is to be any rate review, it should only be cocerned with the amount of profit made so that the profits be kept in line with the public interest in mind.

    Risks to the power plant builder.
    The power plant builder has low risk with this idea because all the financing for the plant is pre arranged through binding contracts, obligations from the investors. In order to keep a power plant builder honest, there would need to be provisions for non performance, so that the investors would be protected to some degree from unscrupulous builders or sham projects in which some up front money is collected by the builder and then he leaves town with the money so to speak. A risk to the builder is that some of the participants may default when the time comes for them to make a payment. The contracts need to be written to cover these possibilities.

    Risks to the energy annuity investor:
    1) The plant is delayed or costs rise. The investor will need to cover these additional costs and accept the delays.
    2) There is risk to the energy annuity investor customer that the plant never gets built. Maybe the performance of a plant does not meet expectations. The owners would absorb those risks along with the plant builder, depending on how the contract is written. The utility would not be at risk except for the transmission lines connecting to the plant.
    3) Whether the cost of the power lines is born by the utility or the investing customers remains to be determined. If the utility wants to charge its full service rate for transmission then the utility probably should be paying for the new lines.
    4) The energy annuity should be able to be moved from owner to owner or to new addresses, however once the investment is made in a specific power plant, it can never be changed to another power plant. However this is not a limitation in trading and offerings between customers. I.e. one customer may choose to trade his solar plant for a nuclear plant if he can find a buyer of his annuity. But that buyer muct be another electrical customer, not just a financial institution. There must always be elecrical connections associated with the energy annuity. In this way the annity always has value in hardware out in the field and in a real customer taking that power. This will prevent the monetary nonsense that we currently see with trading on wall street with has turned into mostly a gambling operation with computers making all the trades these days. Its a completely nonsense system that wall street has evolved to. Lets get our investments back to hardware items that have concrete value. Sorry for the diversion…

    Risks to the exsiting customers:
    The only risk to existing customers is that the energy annuity program is too popular, leaving to few customers in the existing system. However if the new system is done properly, the remaining existing customers would be able to keep their existing rates indefinitely while the rest of the system moves on. Eventually nearly everyone would buy into some form of their choice of sources of power and own them.

    Other problems with this idea? Lets discuss them.

  63. I filed testimony to the Texas PUC utilizing the ideas discussed on this forum. Here is the submission:
    I am told this will not be received well. If the PUC and utilities begin discussing what is in the letter, it will lend credibility to the ideas. So I expect they will lay low and hope it goes away. It won’t because I intend to keep hammering the PUC and my elected representatives with ideas like reverse Robin Hood. See the letter to see how we are taking money from the poor and giving to the rich using a rooftop solar subsidies program. My utility says that 65% of the rooftop panel costs are paid for my the US government and utility. I say really! No, we pay for those subsidies.

  64. Gene,

    Somewhere on another thread I gave you a link to the ACIL-Tasman report. The link was broken (the report was archieved) and it has now been reinstated at its original URL. This is the link:

    The report explains how they have estimated the capital cost, FOM, VOM, fuel, tax, SRMC, LRMC, emissions intensities, and a lot more. It contains a lot of useful information on the existing Australian electricity generators and on estiamtes for new entrants.

  65. Thanks Peter for the reference. Page 22 shows some of the assumptions for the cost of capital. I would say these are only good from the perspective of a utility. For example the 8% interest financing rate and the 16% return on equity have no meaning for a homeowner who just wants to buy something and has the money in their pocket. If you buy a new car would these numbers apply – no. You would have a simpler line of thought. If you told a homeowner he could get his house energy off fossile fuels for a $10,000 investment, would they care about all the detailed analysis – no. They would just look at their checking and savings account and see if they could afford it then make their decision whether they wanted to buy it or not.

    On the flip side, the utility analysis should be more detailed than the formulas in the report. I would recommend an hourly model of the entire AU system running into the future in which dispatching is considered hourly just like the operators have to deal with. Throw in some random outages of generators and scheduled maintenance of lines to make the simulation more real. And then in stead of trying to capture costs in formulas, use the hourly expense and income results to calculate the levelized costs. Then on top of that do a sensitivity analysis of how interest rates for nuclear affect the results. I think you would find two stable solutions. One would be a low interest rate, high nuclear penetration. The other stable solution would be a high interest rate low or no nuclear penetration. You could use either study to justify you pro or anti nuclear stance and both would be correct. Now which future would you rather have? The analysis cannot tell you which one is best until you bring other factors like climate change into the picture. You might model it as a carbon tax. But who can predict that????

  66. Gene,

    The economists who come up with these figures have gleaned them from the way consumers of different types behave. Most consumers apply very high discount rates to their purchasing decisions. They want very short payback times, much shorter than utilities. The reason is rational. Because they never know when they might lose their job, or may have to move, or something better might come along. That is why most people buy the cheapest appliances rather than ones that would be expected to have a longer life.

    I expect TerjeP could say more about this if he is following this thread.

    So I am not persuaded that most consumers think the same way as you do about investing in, what is in effect, a ‘nuclear co-operative’.

    the utility analysis should be more detailed than the formulas in the report.

    Of course this is true ands they point out exactly that in the report, as do all the other reports like MIT, EPRI, Chicago, RAE, etc. They explain this is an LCOE analysis, not a market analysis ,and they explain the difference and when it is appropriate to use which methodology. All important understanding that I believe BNCers need to understand to have a good debate about energy options analysis.

  67. Peter you are talking about people who pinch pennies and have no business investing in anything. For people with money their investment will look beyond the cheapest available and choose the best becauses it meets other requirements. Consider that Austin TX has over 20,000 millionairs but it also has about 200,000 people in poverty. You can’t lump everyone together and say the public does this and that. I keep windering why my friends keep buying expensive cars when everyone knows that their money could be use for better purposes. The reason is they want to look good. It has nothing to do with what economists say or want us to believe.

  68. Gene,

    Peter you are talking about people who pinch pennies and have no business investing in anything.

    No. I am talking about market information statistics, collected over decades and centuries, which show the behaviour and marketing choices of consumers – the very people you want to invest in the ‘nuclear co-operative’.

    One of the most obvious is that people buying a new house will buy the cheapest that meets their needs. They will not pay a significantly higher price for energy efficency for example because they do not judge that it is a good investment. It is a good investment for the country, but not for the individual home buyer. This demonstrates that consumers want a short pay-back time and, therefore, apply a high discount rate to their purchasing decisions – much higher than utilities use.

  69. Peter, I always have bought the most expensive house I could afford. Everyone I know does the same. Where did you get the idea that people buy the cheapest house that meets their needs? How can you even define “meets their needs”? Of course we will try to get the best house for the least amount of money, but thats not what you said. My return in investment at this time is 0%. I’m losing money in my investments. How can you say that I have to have a high rate of return? I’ve never expected a high rate of return. There were some home owners who bought on speculation that the prices of houses would keep rising and sell for a profit. Guess what, they loss their ass in the latest downturn. That kind of short range speculation is what gets people in trouble financially.

  70. Gene,

    We are miles apart on this because you are working on your gut feeling and I’m basing my points on what the research says. But no point getting into it because far too much background to get up to speed on. Far, far too much.

  71. Gene,

    I didn’t answer your last comment very well. What I was trying to say is that consumer choices demonstrate they use a high implied discount rate in making their purchase decisions – much higher than utilities. Consumers commonly want pay-back period around 1 or 2 years for many products, around 3 years for computers, around 3-5 years for white-goods, solar panels, home insulation and 30-40 years for new houses. No one will invest in a house that has a 500 year life expectancy (like the castles built in the middle ages) or 100 year life expectancy (like the house built on our property in 1870), or 60 years like the house we live in now built in about 1960 and with decades of life left in it. The new house being built on the block next door to us, and the new apartments and office buildings, have a life expectancy of around 40 years before they will be demolished and replaced. No one will buy a computer with a 20 year life expectancy or pay for a solar panel at a price that implies a 20 year life expectancy. They know technology will change and they know the government will change the rules, so their ROI will be reduced. The evidence is incontrovertible that consumers apply high discount rates to their purchase and investment decisions.

  72. Food cooperatives failed. Why would energy cooperatives succeed?


    Your lead article for this thread is thought provoking – it is “thinking outside the square”.

    However, in thinking some more about your suggestion, it occurred to me that food and energy are both essential services. We tried food cooperatives and they failed. So why should we expect that a nuclear cooperative would succeed?

    If the nuclear cooperative could succeed then why haven’t we tried, and succeeded with, cooperatives for other essential services such as: water, health system, education, transport?

  73. I don’t know how the food cooperative and other cooperatives failed so I can’t compare them with the energy annuity idea. What I am suggesting is a pre pay deal such as in this article that appeared today….see my comment at the end….
    The prepay customers are happier. I suggested prepaying the entire capital cost up front of a solar PV system supplying about 6,000 kWh annually from a solar PV farm off the customer’s site. Compare that with the same customer paying $30,000 on his rooftop. Once people see the economic difference they will (should) lose interest in buying the rooftop solar and instead go for the centralized solar PV farm and invest in that. So this argument sidesteps the cooperative question you have posed. Maybe a better question is why would anyone in their right mind spend $30,000 on a bunch of solar panels on their rooftop, or even for that matter spend $11,000 for the equivalent off site solar? I guess some of us are nuts to spend our money that way.

    Once you agree that you are going to invest in some form of solar and you realize that the off site solar is a whole lot cheaper than the rooftop solar, then you ask yourself, what else can I purchase? You look around and see a nuclear plant being offered and learn that for about $3750 you could buy into that plant and get your annual 6000 kWh. Why wouldn’t you want to do that? Maybe if you were anti nuclear would be the only reason to not make the investment.

    Now lets consider what it means for the coop idea to be a failure. To be a failure would mean that not very many people chose to invest in the off site generation. If individual customers were not interested in investing in solar and nuclear then why would the utility be interested? So the failure is not a failure at all. It simply means that people are not concerned about climate change and not concerned about renewables, so their non concern translates into a vote of no confidence in the utility spending money on either solar or nuclear investments. By people not voting with their money, they are getting what thay want. But if they do invest in solar and nuclear, then that shows they are thinking about the future and don’t like what they see and want to make a difference. That represents my position.

    Most other people I have talked to said they would like to invest in some solar but are not sure about nuclear. The reason most people do not put on rooftop solar is because its too expensive to the extreme and/or they cannot put on rooftop solar because they are on the move, i.e. plan to change houses in a few years and just are not interested in messing up their houses with a bunch of odd panels on the roof. A lot of young people are in apartments and cannot put on solar panels. Once they have the opportunity to buy solar off site, then the nuclear off site option needs to be offered also. So the definition of fail and succeed with this idea is not well defined, because both low interest and high interest in the program are both successes.

  74. Gene,

    The vast majority of people want to buy least cost electricity. Also the vast majority will pay a bit more to have periodic payments delayed as much as possible. They want small monthly or quarterly payments they can manage from their pay packets. They run to tight budgets and cash flow. They want money for TV’s, cars, strereo, I-phones, etc. That is another indication of how the actual choices consumers makes demonstrates they place a high value of haveing disopsable funds available NOw, not later. In other words, as I said in an earlier comment, consumers work to a high discount rate.

    I can’t check the cost assumptions you are making, but so far I am not finding the concept convincing me. I’d need to see a proper options analysis (with proper financial analysis), done from the perspective of an average customer. I’d be applying a very high discount rate for that analysis.

  75. Gene,

    Your figures refer to the 1% to 2% of electricitry customers who would consider investing in solar panels. These are mainly wealth people who want buy a status symbol. They do not make the decision for genuine finacial or economic reasons. So the argument you are making doesn’t seem relevant to the vast majority of customers, who simply want least cost, reliable power supplies and no hassels thanks.

  76. Peter you should be able to show that a nuclear investment by a customer should pay off financially to that customer. When you evaluate the cost of the nuclear, don’t include a high interest rate for the capital cost because the plant owner will not see that cost. If you cannot show the nuclear is a goo dinvestment I would be interested in why not. It certainly pays off for me. I have already told you my line of thought on it. I just divide the capital cost into the total kWh over the life of the project and add on all the other costs which is about 2 c/kWh. In fact, the energy annuity idea only works to the interest of the customer if nuclear is added in the mix.

    The only reason I keep bringing up the two solar options of rooftop and central PV tracking is to show the crazihness of adding rooftop solar. Can you explain why anyone is buying rooftop solar? Its crazy to invest in rooftop solar but people do. Why they do requires warped thinking. I’m sure the number of warped thinking people is greater than 2%.

    I had a conversation with Mark Lively about decoupling customer investments in conservation from kWh sales so utilities would not be harmed. I.e. utilities hurt their income by promoting conservation and solar panels on rooftops. I suggested to him the argument I presented in my comment to this article
    Mark made the following comment to me:
    “I would characterize your approach as a consumer investment, effectively buying a piece of the action at a fixed price that gives the consumer the benefit of the renewable capacity. It is certainly one way to fund the renewable investment. The downside of the current Texas market is not just the variability of the number of KWH but also the variability in the price per KWH. Your approach gets rid of both variabilities.”

  77. Gene,

    I’ll have to think some more about this. At the moment I simply cannot see how it is viable, but I admit I probably have not grasped what you are suggesting.

    Before I would invest in something, I would want a formal Product Disclosure Statement giving all the facts about the investment. These are required for all financial investments.

    I would calculate the ROI I would expect to receive and compare it with the return I’d expect to get from keeping my money in Superannuation. I’d make allowance for the financial risks involved, and have a large allowance for “unknown unknowns”. I’ve done this every time I’ve considered installing solar PV on our roof. I’ve looked at it many times, including when the federal government was subsidising by $8,000/kW and the local government was giving a FIT of $0.50/kWh guaranteed for 5 years. I allowed for inflation and other factors. Everytime I looked at it it was not financially viable.

    At the moment I do not have the information to allow me to make such an analysis. My gut feeling is that the proposal is not even close to being a viable financial proposition. I let this work away in the subconcious for a while and may revist it in the future.

  78. We have to stop the government and utility solar subsidy programs. They are killing the poor. Here in Austin we have 20,000 millionaires but we also have at least 200,000 people in poverty. So leave out the solar subsidies in your analysis. I’m trying to get them stopped here.

    Now factor in that my utility just invested in a 100 MW plant whose cost starts out at 8 c/kWh and increases to 16 c/kWh at the end of 25 years. Our contract begins in 2012 at 8 c/kWh. I don’t want to be paying for that boondoggle. Also consider my inverted rate here in Austin is going to kill me when I get into the 20,000 kWh annual energy consumption. I need a hedge against that.

    I agree that before investing in a plant the contract should include all the things that can go wrong and how I would be protected. Can you make a single $5000 payment for 1 kW for continuous energy for the next 40 years plus a $2 c/kWh O&M charge work for you? I sure can. How would you calculate the energy cost of that to yourself? The $5000 would be $1000 annual payments for the next 5 years and then you would receive the 8000 kWh annually for the next 40 years. How would you calculate the energy cost of that to yourself?

  79. Gene,

    This is something you seem to be convinced of and seems to make sense to you. But it is not making any sense to me at all. I don’t know where the numbers are coming from, I cant see the assumptions, I don’t know when you are using constant and when you are using current $ for your projections, and much more. There is no way I am going to be able to get my head arround this as you are laying it out for me. I’d need to see the full analysis, with all the assumptions, all the sources for your inputs, and the analyses clearly explained. I’d need it laid out as in one of the references I previously provided the links for (ACIL-Tasman, EPRI, MIT, RAE) e.g.

    Chris Uhlik also provided a good layout that was easy to follow, although references were not provided for all his assumptions and inputs.

  80. Yes Gene, Thank you for the piece of work you did for this world. We are working on a foods and dairy products processing plant to be established in Uganda. The project is to big and it is expected to be the biggest in the region. We plan to process between 2.5 to 6.5 million liters a day and 600 to 800 tons of fruits a day. We plan to have a store of 300 million liters of milk and 28,000 tons of fruits to be used for over two months in the dry session. I just wanted to know if you can design a complete solar system for each of the forty solar systems to be built at each milk collection center. The project will be supported by one solar system at each center which shall be managing a maximum of 200,000 liters a day with all the equipment and machines and residences. etc. The main processing plant is expected to use around 5MW of solar system. Therefore, as an expert in power systems, do you have an Idea or are you interested in designing a solar system for such project? Let me know if this is what we can work on together.

    Kampala Uganda
    256 782 945060
    256 704 445060

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