by James A. Bacon
Perhaps the biggest question facing Virginia as it implements the Clean Power Plan, which mandates a 37% reduction in CO2 emissions from Virginia power plants by 2030, is what fuel mix to rely upon. Compelled to cut coal use sharply, Virginia’s power companies effectively have a choice of natural gas, nuclear and renewables such as wind and solar.
While not committed to building a third nuclear plant at North Anna Three, Dominion Virginia Power has spent hundreds of millions of dollars to create that option. But leading Virginia environmental groups have declared their all-out opposition to nuclear power, despite its zero carbon emissions. Then on Wednesday the Attorney General’s Office, which represents the interests of Virginia’s consumers, publicly stated that Dominion should abandon its nuclear initiative on the grounds of cost.
“How many hundreds of millions or billions of dollars does a company need to spend … before we can say we are planning to build this generation project?” said William Reisenger, an assistant attorney general, as reported by the Richmond Times-Dispatch. “Is there a threshold? Could Dominion spend $3 billion on a generation project without deciding whether it is building that project?”
At present, North Anna 3 is the third most expensive option for complying with the Clean Power Plan, Thomas P. Wohlfarth, Dominion’s senior vice president for regulatory affairs, acknowledged Wednesday in a hearing about Dominion’s long-range planning document, the Integrated Resources Plan. But that ranking could change. “All it takes is some variation on how the state decides to implement the plan, or decisions by other states, or a change in gas prices. You could very easily see a flip in the value where North Anna ends up being the lowest cost. … You can’t go all in on one fuel source.”
Framed this way, the question becomes how much is it worth to maintain diversified power sources for Virginia’s electric grid?
Dominion, like other electric utilities across the country, is increasing its commitment to natural gas. Gas is cheap (at the moment), it is virtually pollution free, and it has half the carbon emissions of coal. But there are legitimate questions how long it will remain cheap. No one is certain how long the Marcellus and Utica shale fields can continue to expand production, or how long supplies can keep pace with increasing consumption, especially after the U.S. starts exporting liquefied natural gas.
The main non-nuclear alternatives to natural gas are solar energy and wind power. In the past, those power sources have been exceedingly expensive, but improving technology has brought costs down. In Virginia, off-shore wind is still wildly uncompetitive in the near-term, and it appears that on-shore wind, sited mainly along mountain ridges, will be only a niche power source. The economics of solar look far more positive. The issue with solar, as with wind, is the intermittent nature of the power production. How much conventionally powered backup will be required, and what will be the impact, as solar becomes a major contributor, on electric grid reliability?
The strategic question Dominion is asking is this: Does Virginia want a future electric grid that relies largely upon natural gas, wind and solar? Or does it want to diversify its fuel mix with nuclear power to provide a stable base? Should the state roll the dice on two or three power sources or spread its bets to include nuclear?
The cost of nuclear is a huge consideration. According an expert witness for the AG’s office, North Anna 3 would cost in the realm of $19.3 billion, a sum that could increase customers’ electric bills by 25%. Irene Leech, president of the Virginia Citizens Consumer Council, declared the nuclear project “the biggest single threat posed today against the pocketbooks of Virginia consumers.”
Dominion spokesman Richard Zuercher says the AG office’s $19.3 billion estimate is “not unreasonable.” But it’s important to understand the context. That is not the up-front capital cost of building North Anna 3. The figure includes the cost of interest, which is paid out over decades. It also doesn’t take into account the fact that, once built, a new nuclear unit would likely have a 60-year life span, longer by decades than the life span of an investment in gas, wind or solar. All things factored in, will nuclear will be economically competitive? As Wohlfarth says, it all depends.
So, how much is it worth to maintain the nuclear option, not knowing whether it will ever be exercised? It’s not clear from the Times-Dispatch article where Reisenger with the AG’s office got the $3 billion figure. (I suspect it was a number pulled out of thin air for purpose of making a rhetorical point, not meant to be an authoritative cost projection.) Whatever the source, Dominion takes issue with it. Wrote Zuercher in an email late yesterday:
We disagree with the $3 billion stated by the witness in reference to how much the company could spend before committing to the new unit. The net capital spending to date is $278 million, net the $301 million that the Virginia General Assembly allowed to be covered by existing rates, and does not include interest. It is more likely that spending on the unit could be in the $450 million range (net the write off) by the end of 2017, the year in which we expect the NRC to issue the license that would allow us to build and operate the North Anna 3.
Combining the $301 million “write-off” (what Dominion has already spent and is charging to rate payers) plus an additional $450 million, the total cost of preserving the nuclear option would be about $750 million. That’s about one-quarter the $3 billion figure cited.
Is the benefit of of preserving the nuclear option worth spending $450 million over and above the $301 million in sunk costs? If you’re dead-set against nuclear, no number is worthwhile. If your primary interest is holding down electric rates, maintaining system reliability and reducing greenhouse gas emissions over the long haul, reaching a judgment is a lot more complicated.
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