BALANCING LONG-TERM ENERGY PLANNING WITH NEAR-TERM ENERGY OPPORTUNITY

An Exploration of Nuclear Infrastructure Investment in a Low-Price Natural Gas Market

MARCH 2013

TABLE OF CONTENTS
Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Snapshot of the Energy Landscape. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Preserving a Long-Term Energy Vision in the Context of Short-Term Opportunity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Importance of Long-Term Investment in Americas Energy Future. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Staying Focused on Long-Term Energy Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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FOREWORD
The way we think about energy is changing. Americans understand that the development of our countrys clean energy sources is critical to a sustainable energy future. By investing in a balanced energy portfolio that prioritizes the reduction of harmful emissions, we can protect both our economy and our environment for future generations. While American citizens and businesses will always be quick to take advantage of electricity sources that provide us with affordable power in the near-term, we must also recognize that decisions we make about energy today will have an impact on the availability and cost of energy tomorrow. In the following white paper, the Clean and Safe Energy (CASEnergy) Coalition examines the role that natural gas and nuclear energy play in a diverse energy portfolio, outlining the short- and long-term benefits of each electricity source. With electricity needs projected to increase steadily in the coming decades, now is the time to take a closer look at the investments in infrastructure that will provide reliable electricity at costs that will remain affordable and stable for years to come. We hope that this paper inspires more conversations about our energy options and the importance of a diverse and balanced energy portfolio.

EXECUTIVE SUMMARY
The United States historically has been quick to capitalize on cheap, plentiful electricity. The country has taken advantage of affordable and available coal, oil, nuclear energy, natural gas and renewables. American businesses and citizens alike have been the primary beneficiaries, given access to abundant, cheap electricity. But Americans arent just interested in cheap energy today. They also want energy pricing thats going to be stable over the long term. They want the security of knowing energy costs wont spike tomorrow because of the weather, and they want assurances of no disruptions in the supply chain, no instability in energy markets, or radical changes in resource availability. Ultimately, a diverse energy portfolio will ensure reliable, predictable and manageable costs for energy users. Such diversity provides greater access to cost-stable energy sources and reduces overreliance on energy sources that are vulnerable to unpredictable supply or cost fluctuations. America must commit to the development of an energy portfolio built with an eye toward balancing the short-term advantages of plentiful, low-cost energy sources like natural gas alongside reliable, affordable sources like nuclear energy that provide long-term benefits. These two energy sources are essential components in any discussion about building a secure, domestic energy portfolio. This paper explores the importance of long-term electricity planning in the context of short- and long-term opportunity, taking into account the following:

Christine Todd Whitman Former Governor of New Jersey and EPA Administrator Co-Chair, Clean and Safe Energy Coalition

 How shifts in consumer demand for and consumption of electricity, along with a focus on cleaner energy, are changing the way the United States is prioritizing energy development.  How immediate and long-term electricity costs are impacting critical energy decisions.  The arguments for and against taking advantage of short-term drops in energy prices versus long-term investment in projects that deliver predictable electricity at stable costs.  The advantages of longer-term energy investments, taking into account jobs, environmental impact and energy security.  How existing programs and strategies help communities manage the cost of up-front investments in large energy infrastructure, allowing them to accrue benefits for the long term.

About the Clean and Safe Energy Coalition

CASEnergy Coalition is a national grassroots coalition that promotes the economic and environmental benefits of nuclear energy as part of a clean energy portfolio. Under the leadership of Founding Co-Chairs Christine Todd Whitman, former governor of New Jersey and former administrator of the Environmental Protection Agency, and Dr. Patrick Moore, co-founder and former leader of Greenpeace, the coalition has advanced the national dialogue about Americas energy options and united unlikely allies in their support for nuclear energy. Today the coalition comprises more than 3,000 members across the business, environmental, academic, consumer, minority and labor communities. For more information about CASEnergy Coalition visit: www.CleanSafeEnergy.org

SNAPSHOT OF THE ENERGY LANDSCAPE

The energy landscape is shifting before our eyes. The use of cleaner energy is leading to real changes, both in the way consumers perceive energy and the way they consume it. These changes, along with a sustained commitment to energy research and development, have the potential to significantly impact the development of Americas next-generation energy portfolio. Understanding these changes is critical to appreciate why a diverse mix of energy solutions is vital to developing a sustainable, more secure energy future.

Natural Gas is Cheapfor Now

The flood of natural gas in the marketplace has caused prices to drop. As a result, electric companies are relying more heavily on natural gas resources, shifting priorities to take advantage of the cheapest energy source available. This shift has had a noticeable impact on power generation across the United States. Coal-fired power generation, already on the decline, has taken a sharp downward turn. Older coal plants are being retired in favor of new, cleaner natural gas plants. It is often cheaper to build new gas-fired infrastructure than it is to bring coal-fired plants into compliance with new EPA emissions standards, or to build new, compliant coal plants. Nuclear energy, which is unique in its ability to provide 24/7 electricity without emitting greenhouse gases, is expanding, albeit at a limited pace. The upfront cost of building nuclear energy facilities is high, but low fuel costs over 40 to 60 years of power production and the absence of greenhouse gases during generation of electricity are overriding market factors. Renewables still lack the capacity to meet the same level of demand as nuclear energy or natural gas, and are struggling to be cost-competitive. In fact, because of low capacity factor and intermittent production, renewables must be backed up with gas-fired generation to ensure reliability.

Energy Production is Getting Cleaner

In recent years, non-emitting or lower-emitting sources of electricity have replaced many of the large emitting sources of greenhouse gases. These changes in the countrys energy portfolio have been instrumental in reducing controlled air pollutants and greenhouse gas emissions to the lowest levels seen in America since 1992, according to data from the U.S. Energy Information Administration. And consumers can expect an even greater change moving forward, when proposed Environmental Protection Agency regulations that would significantly restrict the amount of emissions from new power plants are finalized and begin to take effect.  Consumer support is shifting away from fossil fuels: a March 2012 Gallup poll shows that the majority of Americans want stricter emissions standards and would like more emphasis on the development of alternative energy over oil, gas, and coal.

OF AMERICANS WANT

THE MAJORITY

STANDARDS
Source: Gallup

EMISSIONS

STRICTER

Energy Demand and Consumption are Changing

 The nation is still recovering from a recession, and financial concerns have led to relatively flat electricity demand. Projections into the near future show the same general lack of growth (though demand for clean energy is rising as demand for oil, coal and other traditional fuels declines).  Over the long term, however, electricity demand is projected to increase steadily, growing 28 percent by 2040, according to the U.S. Energy Information Administration.  Changes in electricity demand have led to a reduction in capital investment, preventing an excess of supply in some energy markets. The exception has been in the natural gas industry, where production has boomed.  The way Americans consume energy is changing. Electric vehicles fundamentally shift the way we look at energy use in the transportation sector and provide an opportunity to displace foreign oil with domestically produced electricity. Similarly, the nations ports are moving to electrified machinery, shedding their dependence on oil.

U.S. ELECTRIC GENERATION BY FUEL TYPE 2012 0.6% 19%

Oil Nuclear

28% INCREASE
37.4%
Coal

2040

ELECTRICITY
2013
Source: U.S. Energy Information Administration

IN DEMAND FOR

6%

Renewable and Other

30.4%

6.7%

Natural Gas
Source: U.S. Energy Information Administration

Hydroelectric

PRESERVING A LONG-TERM ENERGY VISION IN THE CONTEXT OF SHORT-TERM OPPORTUNITY

In a market focused on short-term benefits, arguing for energy infrastructure investment with long-term benefits is challenging, given the allure of immediate payoff. But long-term energy solutions that provide predictable, stable costs are prudent choices when taking into account the big impact that even small shifts in the market and supply chain can have on the cost and availability of energy. Investing in new infrastructure and upgrades to existing infrastructure while energy is plentiful and affordable ensures that a broader range of electric options are available in the future, as electricity demand grows and as outside forces impacting energy cost and availability come into play. If we work to expand and diversify our technology portfolio now, we will not be caught unprepared. Investment in energy infrastructure that does not offer immediate payoff, but rather contributes to long-term availability, price stability and energy security, is integral to a cleaner and more diversified energy economy and to providing the most affordable energy solutions for consumers. Infrastructure costs. Compared to baseload coal and nuclear power plants, natural gas-fired power plants have lower capital costs to build and are comparatively easy to site. Combined with their small footprint, this makes natural gas-fired power popular. Nuclear power plants, on the other hand, require significant up-front investment in construction. However, once, the plants are built, they operate at low production costs for decades. In fact, even factoring in the cost for uranium fuel, plant operation and maintenance, nuclear energy is the cheapest source of large-scale electricity in the United States.

ENERGY PRODUCTION

COSTS DRIVEN BY

Balancing Reliable Sources of Affordable Energy

The goal of electricity diversification should be to ensure that reliable, lowcost energy options are available to consumers. The factors that affect cost and reliability are: Fuel prices. Fuel costs for nuclear energy account for only a small percentage of the yearly costs of energy produced just 31 percent of the cost of production. In comparison, fuel costs for natural gas-fired plants average around 88 percent of power-production costs; 78 percent for coal-fired electricity. When fuel prices rise, so do energy production costs. For natural gas or coal-fired generation, where the cost of fuel is a high percentage of the overall cost of energy production, fluctuations in fuel prices can have a significant impact on consumer energy costs. Fuel supply. Natural gas is readily available and cheap, making it a particularly attractive fuel source at present. However, unexpected factors that impact the availability of fuel, such as supply disruptions due to weather events, also significantly impact fuel costs. Because fuel prices for natural gas account for such a high percentage of power-generation costs, supply instability can have a marked impact on end-user energy prices. In contrast, uranium the fuel used to produce electricity at a nuclear energy facility is readily available and is easy to obtain at a stable, predictable cost. Whats more, because the cost of uranium is such a low percentage of overall nuclear power-generation expenses, nuclear energy is insulated from the impact of price fluctuations when they occur.

GREATER VOLATILITY

ARE SUBJECT TO

FUEL PRICES

Percentage of production costs per kilowatt-hour 2011 NUCLEAR ENERGY

FUEL COSTS BY ENERGY SOURCE

31%
COAL

78%
NATURAL GAS

88%
Source: Ventyx Velocity Suite; Energy Resources International, Inc.

Moving Toward a Cleaner Energy Economy

Growing consumer demand for cleaner electricity, the need for increased use of domestic energy resources and pressure to minimize and stabilize energy costs should drive America to develop a more diverse electricity portfolio. Energy sources like natural gas and nuclear energy provide baseload electricity for our economy and standard of living. Moreover, natural gas is necessary to back up renewable energy sources when the wind doesnt blow or the sun doesnt shine. Nuclear energy is the nations largest producer of carbon-free electricity. It is comparable in life-cycle environmental impact to renewable energy sources like wind and solar but it offers a much higher capacity factor (a measurement of reliability) and low production costs that renewables cannot achieve.

Ensuring a Secure Electricity Future

Fuel diversification for electricity production also helps create energy security. By increasing consumption of domestically-produced fuel sources and preventing reliance on one or two primary sources of electricity, diversification enhances reliability of electricity supply and decreases the likelihood of unexpected spikes in fuel cost and the impact on consumer energy costs. Volatility in supply and price can produce significant changes in consumer electricity costs. When Hurricane Katrina slammed into the Gulf Coast in 2005 and shut down natural gas exploration and delivery, electricity prices spiked by 20 percent in Florida costing consumers $1.5 billion. Electricity prices also rose in other southeast states that are highly dependent on natural gas for electricity production. Today, Florida uses four times more natural gas for energy production than in 2005, according to the U.S. Energy Information Administration. Other factors, including the increased use of air conditioning or heating and coal plant closures, can send natural gas prices soaringas they did in a three-month period ending July 2012 when the price for natural gas at Henry Hub in Louisiana jumped more than 70 percent. Efforts to ensure the security of power-generation facilities themselves are critical to energy security. The U.S. nuclear energy industry in particular is working in cooperation with an independent regulator and in tandem with global and U.S.based nuclear energy organizations to ensure that commercial reactors are designed to provide the utmost protection to the people who maintain them and the communities around them. American nuclear energy facilities are the most highly regulatedand among the safestin the world.

NUCLEAR ENERGY

IS THE NATIONS

PRODUCER OF CARBON-FREE

LARGEST

SOURCES OF EMISSION-FREE ELECTRICITY

2011

ELECTRICITY

1.3% 9.6%
Wind

Geothermal

0.1%
Solar

25.7%
Hydro

63.3%

Nuclear

Source: U.S. Energy Information Administration

NEARLY TWO-THIRDS OF AMERICAS

NUCLEAR ENERGY PRODUCES

CARBON-FREE ELECTRICITY

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THE IMPORTANCE OF LONG-TERM INVESTMENT IN AMERICAS ENERGY FUTURE

Creating Thousands of Jobs and Economic Growth
Energy diversification also creates a broad range of economic opportunities. Nuclear energy facilities produce benefits well beyond the electricity they generate. They include economic benefits like job creation, taxes and procurement, grid reliability benefits in the form of voltage support and ancillary services, and the environmental benefit of prevented emissions and sanctuaries for endangered and threatened species. In the construction phase, a new nuclear facility represents up to 3,500 jobs, while the operation of a 1,000 megawatt (MW) facility requires 400-700 permanent jobs. Other segments of the energy sector offer jobs that range from exploration and production to building and maintaining infrastructure for operating plants. Creating opportunity across a greater number of industries also diversifies the types of opportunities available to workers. The primary obstacle to a reliable, secure electric grid that benefits from a diverse energy technology portfolio is clear. Significant investment in the grid must be made over the next two decadesin fact, more investment than has been made in the existing grid. These investments must include baseload power facilities. Nuclear energy facilities cost between $6 billion and $8 billion and take about four to five years to build, but this always-on power production is vital for industry and consumers alike. The up-front costs for infrastructure and the business risk involved in deregulated energy markets are challenges to future investment. Fortunately, companies and investors have options for reducing the impact of investment. The nuclear energy industry, for example, typically relies on two primary options for managing these costs, so that communities and investors are not overburdened and financial outlays are recoverable over the long term. Cost recovery as construction of major projects progresses is a practice in states and regions that operate under the traditional regulated utility model. This practice allows utilities building new plants to recover their costs of financing in real time during construction through customer rate adjustments, which are established and reviewed by state public service commissions. This pay-as-you-go approach reduces the overall cost of building a new facility and lowers electricity rates for consumers over the life cycle of a plant. The approach also helps energy companies reduce the stress that a nuclear energy facility investment puts on a companys cash flow. Federal loan guarantee programs put in place as part of the Energy Policy Act of 2005 allow consumers of electricity to benefit because the loan guarantee allows lower-cost financing so the nuclear energy facility can deliver lower-cost electricity. Nuclear energy projects pay the full cost of accessing the loan guarantee program. No matter how the program is financed, the initial costs of nuclear energy development are high, and in some markets, construction must be completed before the facilities can generate revenue that enables recovery of these costs. Given this fact, nuclear energy development today is limited to states where the electricity market is regulated by state public service commissions. These states recognize the long-term, levelized cost benefits over the advantages of lowcapital, short-term energy projects.

JOBS DURING OPERATION/1,000 MW CAPACITY

EACH NUCLEAR ENERGY

$470 MILLION

FACILITY GENERATES IN SALES OF GOODS

1200 1000 800 600 400 200 0

4701,060

Source: Navigant Consulting

AND NEARLY $40 MILLION

400700

IN TOTAL LABOR INCOME

190 50 Solar Nuclear Coal 50

100200

Natural Wind Gas

Hydro

Energy facilities dont just power the homes, businesses and communities they serve. They also power local and state economies, as well as the job market. On average, each nuclear energy facility generates $470 million in sales of goods and services in the local community, and nearly $40 million in total labor income. Natural gas development has injected billions of dollars of state and federal tax revenue into the economy, both directly and by spurring economic activity in areas where development occurs. Moreover, as the energy sector grows, so do other industries that benefit from the opportunities created by new infrastructure development, by energy exploration and production, and by ongoing plant operation and maintenance. For example, for every 100 permanent jobs created by nuclear energy facilities, local economies indirectly produce 66 new jobs, and an additional 726 jobs are created indirectly nationwide. Whats more, the reliable and affordable electricity produced at these facilities provides an additional boost to the economy by keeping costs low for American businesses.

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STAYING FOCUSED ON LONG-TERM ENERGY GOALS

We are at a critical juncture for Americas electricity infrastructure. Attitudes about energy and consumption are evolving; consumers want to know how they can use less energy and how the energy that they do use can be cleaner, yet reliable. While overall demand for electricity has fallen below the 2007 peak, demand for low-carbon energy is growing. Cleaner, cheaper energy sources like nuclear energy, renewables and natural gas are important parts of our ability to meet that need. In the current environment, where natural gas prices are low and supply is high, we must maintain the flexibility to take advantage of the benefits to consumers of low-cost energy. This flexibility is supported by the creation of a diverse energy portfolioone that allows us to balance power-generation sources based on the cost and availability of fuel without negatively impacting consumers and business. Diversification promotes healthy electricity markets that are good for consumers, good for business and good for energy security. Diverse electricity markets are less susceptible to supply interruptions, less dependent on unstable parts of the world for fuel, and less vulnerable to fluctuations in market-based prices. Nuclear energywith its stable production price and reliable outputhas an important role to play in a diverse energy portfolio. So does natural gas, which offers an abundant source of domestic fuel, as well as wind, solar and other renewables. Our nations energy portfolio should include all of these as well as emerging technologies. Diversification requires the commitment to long-term investments in infrastructure that will support consistent, reliable, affordable electricity for future generations. Today, as some aging power plants are being closed, securing support for new technologies and making good on that long-term commitment to energy security and diversification in the electricity sector becomes even more critical. Energy is not an either/or choice. The bottom line is that diversified investment in a variety of energy sources has always been good for Americaand it will continue to be so.

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Blog: Clean Energy Buzz at blog.casenergy.org Twitter: @CASEnergy YouTube: CASEnergy Coalition www.CleanSafeEnergy.org 202.338.2273

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