Department of Energy

Remarks by Secretary Moniz at the Summit on Improving the Economics of America’s Nuclear Power Plants -- As Delivered

May 19, 2016

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Thanks, John.  Brief is good. I like that. 

Let me also repeat what John said about the thanks to the members – Senator Crapo for co-sponsoring, but also Senator Booker and Congressmen Kinzinger and McNerney.

In this group I don’t think we need to spend a lot of time talking about why this is an important issue.  Again, I think the challenge is very clear, with the economic challenges facing certainly some of our nuclear plants.  We’re seeing, as you well know, some closures before license expirations.  We’re seeing the prospect of even more.  The importance of incentivizing continued operation I think is very clear, but the solutions are less clear.  

And in fact, I have at least the advantage of here just framing the issues and not pretending to offer the solutions.  But I am, of course expecting an excellent report, with things that we can do directly, potentially, or certainly do in terms of working with states and others to help with our shared agenda.

Today, down from 104 to 99 reactors in operation.  Marv, is that still the right count? 

And I think an important distinction:  54 gigawatts of capacity in regulated markets, and the rest in restructured markets.  And we’ll come back to that, because obviously these market structures are quite critical to the – to the issue being discussed.

Again, and we all know nuclear power is 60 percent of our – roughly speaking – zero-carbon generation.  And if we are going to meet our target of 27 percent, plus or minus 1 (percent), in 2025, in terms of carbon emissions, and then be able to meet the even more ambitious requirements required after that, even as we get into a period where certainly much of the fleet will reach 60 years old in the succeeding decade, this is a huge problem – a huge issue for us to have the tools at our disposal to meet those kinds of goals.

So, basically, the idea is we are supposed to be adding zero-carbon sources, not subtracting or simply replacing by building to just kind of tread water.  And that’s kind of the picture that we all know that we face today without some action.  In addition to the five early retirements that occurred in the last few years, three more already scheduled – again, this is carrying coals to Newcastle – by the end of the decade.  That could rise; a recent projection that, beyond those three closures, another six-and-a-half gigawatts or so, potentially, by 2030.  And that doesn’t even include the possible closure of Fort Calhoun that was announced last week.  So even as we build the new plants in the Southeast, this is a picture of maybe holding capacity and perhaps going down a bit unless we really start working and prevent more closures, and get on the trajectory to add more capacity.

Certainly, in my native region of New England, without assigning complete causality, it’s just facts that, in the 2014-2015 kind of time period, with Vermont Yankee closing, with natural gas generation going up, electricity generation actually dropping slightly in 2015, and CO2 emissions going up significantly in the region, that’s the kind of confluence of data that we would like to avoid more of.  Again, when natural gas has displaced coal, that has one CO2 impact.  When it displaces nuclear, it has the opposite.   This is not very complicated, but obviously, quite important.

Let me just make a few comments.  Actually, I would add that the closures, in addition to the CO2 calculus, of course, as we all know, has significant economic impacts in those communities, and in addition, just keeps adding to the human capital challenge in terms of skilled workforces, managers, et cetera, in this arena.  So, anyway, I think we all know that, but it’s probably important  in framing today’s discussions, to get back to that.

Now, one of the issues, very important, which we discussed already is the issue of the markets.  And you know, again, it’s pretty obvious, but I think it merits reminding ourselves that when this fleet of reactors was built, it was a very different market structure.  And it’s that change of market structure that has posed at least many of the challenges in the sense of kind of a cost-of-service regulated utility model that made not just nuclear, but any large capital investment in this space more easily managed, obviously.  But now, certainly with competition in wholesale power markets, some of the cost evolution that we’ve seen, especially for the smaller plants and the single units, obviously, the cost equation is somewhat different.

Now, we are seeing FERC, for example, taking on some of these issues of market structure and values.  But this question of valuations is one that I think is absolutely central.  It’s one that we are certainly paying attention to.

It’s actually interesting that this question of valuation of services, if you like, in the electricity system, that’s an issue that is spanning the entire system in a certain sense, all the way from, you know, nuclear central baseload plants to rooftop solar units and net metering.  I mean, there is an enormous issue spanning the entire system in terms of addressing valuation in the context of today’s realities, and the evolution of the system, the technology evolution of the system.

And so certainly the alignment of benefits with costs, with market structure, is one that really requires I think a much better characterization and pricing of benefits than we are seeing.  We are seeing, again, movement in this direction, but we’re not at the place, I think, that we need to be, and right now we have a time issue in terms of the question of existing nuclear plant operation.

I would say that in our Quadrennial Energy Review process, I think most in this room know we published the first major installment just over a year ago, on infrastructure.  We are working on the second major installment right now – we’re pretty well into it – and this is on electricity system end-to-end.  And in that activity this valuation exercise is playing a very important role, and we hope to be able to be coming out with some at least first analyses relatively soon and getting into a discussion with the stakeholders, including those in this room.

Valuation is also wrapped into our Grid Modernization Initiative.  That is a multi-office effort at DOE, and also has an important multi-laboratory component in our laboratory system.

So we’re focused not just on valuing new grid services and technologies, but also on understanding how existing assets like nuclear plants should be valued as the grid’s physical and institutional structures evolve.  And some of the value streams that nuclear plants provide – like carbon-free electricity, high availability, reliability of services, et cetera – again, as we know – fuel diversity could be another issue.  And these are not certainly systematically, in any sense, valued in – certainly in any uniform sense across different jurisdictions.  So, again, these kinds of valuation issues are in many ways at the heart of the analysis work going on right now in developing this Quadrennial Energy Review next installment.

We are also, I might add – of some relevance; at least it’s kind of connected in a certain sense – we’re also implementing a legislative requirement from the FAST Act, the highway bill that was passed in December, to understand our energy security posture and to recommend methodologies, again, for valuing energy security as part of the whole energy system.  I might add also, when Prime Minister Trudeau of Canada visited the president recently, in the communique there was also a commitment for looking in a unified way at these issues of energy security and reliability, particularly with the regard to the electricity system.  So that, certainly, I wanted to really emphasize as a very, very important piece of what we’re doing.

In terms of some of the actions going on to at least hopefully move in the right direction, certainly the Nuclear Energy Institute and their initiative on “Delivering the Nuclear Promise.”  And Marv promises to reduce operating costs by 30 percent by 2018, correct? You’re going to hang around for that?  All right. 

MARVIN FERTEL (President and CEO, Nuclear Energy Institute): I’ll be here.

SEC. MONIZ:  All right.  

Also, there’s the interesting move in New York in terms of nuclear power in the clean energy mandate, the modifications in PJM for capacity markets, valuation, Capacity Performance.  FERC – again, I mentioned FERC’s energy and ancillary services and kind of price formation proceedings.  So there are a set of activities that are going on, but I think we’ve got a lot to do yet to knit these together in a policy sense, but also in a geographic sense.

The Clean Power Plan, obviously, is another piece of the equation, with the 32 percent goal in greenhouse gas reductions from the power sector by 2030.  And there I think obviously we still have a ways to go to know how that’s going to shape.  I want to emphasize in saying that we feel very confident in terms of the legal standing of the rule, and there’s still plenty of time in the implementation plan to get through the litigation and move forward.  We certainly continue to be available for technical assistance in terms of implementation plan development.  But, of course, the core of the plan, as put forward – well, actually as in place, I should say, really – is the tremendous flexibility for the states and/or regions in formulating their plans.

And that gets to some pretty fundamental issues, including using either a mass-based or a rate-based approach, for example, and those are not equal.  For example, in nuclear, there can be a difference in terms of going to a mass-based approach to meet the goals.  And so, again, I think there’s a lot to discuss in here in terms of how we work with the states in that way.

I would just mention this is not, of course, so much for the immediate future, but obviously we remain focused, as well, on our R&D program, and working with industry to provide some focus on the existing fleet is relevant.  It may not be relevant in a one-year time scale, but over a few years I think can be quite important.  Certainly the industry’s success in terms of performance of the existing fleet is highlighted by the, you know, 91.9 percent capacity factor this past year.  And I – actually, I think in the public, I think very few understand that nothing else comes close, and I think that’s really not fully appreciated.

But anyway, much of our work in this area will continue to focus on the effects of aging.  And, of course, aging then becomes a critical issue in this question of when a major retirement wave of existing plants can kick in.  So this is a very important area that I want to emphasize in terms of our ongoing work with the industry.

Also, last November, we announced the formation of the Gateway for Accelerated Innovation in Nuclear, or GAIN, program to provide access to the technical, regulatory and financial support necessary to move innovative nuclear technologies toward commercialization, while obviously continuing to emphasize safe, reliable and economic operation.  And I appreciate that, by the way, through GAIN and John Kotek here, we were able to organize this event.

Although it’s somewhat beyond today’s immediate challenge and this workshop’s discussion, I do want to go back to this idea that certainly if we think in terms of 60-year lifetimes, then the 2030s become a really critical time.  And so I think what we are discussing today in this workshop in many ways I like to think of as a bridge over this next decade, 15 years to a time when I think nuclear power is going to have to see a substantial resurgence to be a significant contributor to – particularly to our carbon goals.

But I would just add that there is a lot of other stuff happening that hopefully will really help condition the landing point on the other side of the bridge.  Certainly things like we are continuing to advance the consent-based approach for the backend for repositories and storage facilities.  Of course, on the storage side, the WCS in Andrews County, Texas, application to the NRC a few weeks ago, potentially eventually for 40,000 tons, is a very interesting development, certainly.  And then the other announcement – well, a press report of kind of the notice of intent for a second facility, as well, of that type.  I think we still have, obviously, a lot of discussion in Congress.  It’s well-known that there is some strong support for this direction, and I think that could be very important in the longer term.

We continue to support the SMR directions.  And there, again, one has the TVA application to the NRC.  One has the agreement that we reached with the Utah utility for siting of a potential SMR at the Idaho facility.

I also charged my Secretary of Energy Advisory Board, SEAB – under and being – the subcommittee being chaired by the full committee chair because he wanted to do it, John Deutch – they have been charged with looking at what would be the federal role for basically the resurgence of nuclear power in the longer term.  They met yesterday at DOE, and I’m told that September is probably a time for that report to come forward.

So I just wanted to emphasize that – and of course – I should also add, not to mention the fact that TVA may very soon be moving towards initial criticality at the Watts Bar Unit 2, then maybe getting into operation in a few months, we hope.  We’ll wait for their announcements.  That, plus the Vogtle and Summer construction for 2019 and beyond.  So I think we shouldn’t lose sight of the fact that there are a number of things going in this direction of the central role of nuclear going forward.  But, as I said – we’ve got to get from here to there, and getting from here to there is where I think we need a good, solid operation of the current fleet, which is what you are here to talk about and to present us with recommendations.

So I think, again, the framing is pretty obvious in this sense.  And we are going to – well, we have completed – and John Kotek can say more – we’ve completed the first phase of a joint study to identify and prioritize RD&D for existing LWRs.  I mean, putting a stronger focus on this we think is quite important.  That involved, of course, DOE, the national labs, academia, industry, and to help bring more innovation to this question of the economic challenges of our current fleet.

I think, with that, I’m just going to conclude.  Again, repeating what I’ve said now many times, what we’d like to get out of today is really some insight into new policy ideas and options that we can use to help address the economic, market and valuation challenges for nuclear power.  That I see as the central issue.  Certainly, with some actionable ideas, we are prepared to take action.

And so, thank you, and look forward to the results of your discussion.  Thanks.