Financial risk not safety will limit the use of nuclear power
To: Denise Balkissoon and Dan Gardner
Re: Nuclear power is the key to fighting climate change
How I learned to stop worrying and love
nuclear power (Globe and Mail - June 22)
Three Mile Island
In March 1979, Unit 2 at the Three Mile Island nuclear station suffered a partial core meltdown.
It was the most significant accident in the history of American commercial nuclear power.
The accident taught us several important lessons.
- Nuclear power is safe for people.
Inadequate regulation, faulty design, imprudent operations and several coincidences all contributed to causing the accident.
Bottom line - the containment held.
No one was hurt.
There was no catastrophic radiation leak.
Damage awards were small.
- Nuclear power is extremely dangerous for investors.
John
Graham, Treasurer of General Public Utilities (owner of TMI) wrote in
Journal of Commercial Bank
lending - May 1980, “The discussion of whether to recommend a
moratorium on new nuclear plants in the Report by the President’s
Commission on Three Mile Island is somewhat irrelevant.
I
do not believe that there is a board of directors of an electric
utility in the country which would now approve a nuclear plant as a new
initiative.”
Why? Overnight, a billion dollars in revenue producing assets turned into a gigantic, unfunded liability. People were safe. Investors were not.
Ontario came close to a nuclear financial meltdown.
The first unit at Darlington was started up in 1991.
After a month, they did an inspection.
To their horror, there were cracks in the giant rotor.
It was a design flaw.
All four rotors had to be replaced.
More delay - which in a debt intensive project, means escalating costs.
It got much worse.
When they took the fuel bundles out of the reactor, they had been shaken apart.
A massive pump within the system was putting out a vibration that was destroying them.
The pump was re-designed.
The vibration stopped.
Had the re-design not cured the problem, it was possible the entire $15 billion project would have to be written off.
(I was an Executive Speechwriter at Ontario Hydro at the time.
I
sat in the office of Ontario Hydro Chair Marc Ellison with Phil Carter,
Premier Bob Rae’s personal representative at Hydro who told me this
story.
The
test of the new pump was the next day and they were terrified that they
would have to announce the complete write-off of the Darlington
project).
Things have not gotten better for the nuclear industry
The
Alvin W. Vogtle Electric Generating Plant in Georgia, are the only
nuclear power reactors currently under construction in the U.S.
The station is years behind schedule and billions over budget.
Plans
to add two nuclear reactors to the V.C. Summer Nuclear Station in
Jenkinsville, South Carolina have been scrapped with a loss of $9
billion.
Westinghouse, the prime contractor in these projects has filed for bankruptcy.
Parent company Toshiba was forced to sell its chip unit.
"Our children will enjoy in their homes electrical energy too cheap to meter..." - 1954 Lewis Strauss, then
chairman of the United States Atomic Energy Commission.
It has never been true.
Those
that think new, smaller nuclear systems will be more affordable should
remember that these are the same people who have not come up with a
solution for the disposal of high level
spent fuel in fifty years.
Georgia Power - Vogtle - http://fortune.com/2018/09/27/vogtle-nuclear-power-plant-construction-deal/
South Carolina - https://theintercept.com/2019/02/06/south-caroline-green-new-deal-south-carolina-nuclear-energy/
Westinghouse bankruptcy - https://www.reuters.com/article/us-toshiba-accounting-westinghouse-nucle-idUSKBN17Y0CQ
Renewables
Thankfully, there are many alternatives to nuclear power that don't produce green house gases.
Below
is an April Globe article by David Berman and Shawn McCarthy describing
the collapsing price for various forms of renewable power.
Even with reduced costs, renewables are still vulnerable to weather.
The
following links are to descriptions of developments in utility scale
electricity storage necessary to address the issue of intermittency in
renewables.
https://news.mit.edu/2016/battery-molten-metals-0112
https://www.altenergymag.com/article/2018/09/are-sulfur-flow-batteries-the-answer/29441
Given
the trends over the last fifty years, which problem is more likely to
be solved - Utility scale batteries or spent fuel disposal?
@@@@@ - Globe article on declining cost of green energy @@@@@@@
The fallowing article about the falling costs of rewnewables appeared in the Globe and Mail
Renewable
energy hits its stride; Forget the politics of climate change. Green
power is gaining for a better reason - it's finally getting cheap
Copyright: COPYRIGHT 2019 CISION Ltd. (A Division of CNW Group Ltd.)
Byline: DAVID BERMAN, SHAWNMcCARTHY
Ever since U.S. President Donald Trump, the world's most powerful climatechange skeptic, embraced "beautiful clean
coal"
(his words) as a fundamental resource for U.S. security, investors in renewable
energy have been wondering about the political risks associated with wind and
solar
energy.
During a March rally in Michigan, Mr. Trump doubled down on coal by attacking the alternatives: He made the absurd claim
wind
turbines
cause cancer and can't possibly provide enough power when you need it.
"If it doesn't blow, you can forget about television for that night,"
the President told his adoring
crowd.
He is by no means the only politician pushing back against renewable energy.
Ontario
Premier Doug Ford abruptly cancelled 758 renewable-energy contracts in
the province last year, blaming wind and solar farms for a rise in
electricity costs. And in Alberta, Jason Kenney's United
Conservative Party says it will roll back the province's climate
regulations if it wins next week's election. That could mean
terminating a carbon tax, killing subsidies for wind and solar power and
allowing the most efficient coal-fired plants to remain open longer.
But
far from recoiling, sophisticated investors and the top executive ranks
of the renewableenergy sector are reacting to these shifting political
winds with shrugs. Renewable energy, they argue, is
viable with or without political assistance, and these experts remain
attached to the promise of spectacular growth over the coming decades.
"As
renewable power becomes a lot cheaper - and coal, on a relative basis,
is more expensive - there are coal plants all across the United States
that are shutting down prematurely," said Andrew Lin,
a managing director at DBRS, a credit-rating agency.
And
that's good news for companies such as Algonquin Power & Utilities
Corp., a $7.2-billion player that owns and develops renewable
power-generation assets in Canada and the United States and also
distributes energy services to customers.
"It's all about the economics," said Ian Robertson, Algonquin's chief executive officer.
"The
ultimate political U-turn we've seen, with the change in administration
in the United States from Obama to Trump, has done nothing to dampen
the opportunity in renewable energy. Why? It is now
being fuelled by an economic proposition rather than sustainability or
environmental benefits. These benefits are, in many respects, coming for
free," Mr. Robertson said.
Mike
Crawley, CEO of Northland Power Inc., which has wind farms and solar
facilities in Canada, Germany and the Netherlands, agrees. "The cost of
renewable power has been falling so dramatically that
government intervention is not nearly as imperative to the sector as it
was maybe 10 years ago," he said.
Indeed,
government incentives supporting renewable energy are mostly legacy
policies from when wind and solar needed a helping hand. U.S. federal
incentives are now being phased out.
The
high level of confidence among executives should resonate with
investors who have been startled by some of the recent political
rhetoric. Investing in wind or solar generation, and the technologies
that drive them, used to be a risky bet that was best suited to
investors who simply wanted to align their money with environmental
responsibility.
Now,
though, the bet is looking increasingly attractive - to the point where
it doesn't require a socially conscious investing agenda. The bet also
offsets simmering frustration with Canada's struggling
traditional energy sector, as a number of global investors distance
themselves from the environmental risks associated with the oil sands.
The
viability of renewable energy and its global surge underpins bullish
enthusiasm for companies such as Brookfield Renewable Partners LP,
Algonquin Power, Northland Power and Boralex Inc. - Canada's
leading green energy producers, which are positioning themselves for
strong growth in wind and solar power across the world.
Sure,
plenty of risks remain: Not all players will succeed as competition
heats up and envisioned growth meets the sticky issue of generating
strong returns.
But
it's comforting to know some of the world's biggest pension funds are
on board, underscoring the potential among shrewd investors with
long-term horizons.
The
Canada Pension Plan Investment Board created a power and renewables
group in late 2017 to focus on investing in wind, solar, hydro and other
energy assets in emerging markets and elsewhere, with
the understanding that solar and wind
power
generation will double over the next seven to 10 years, accelerating
the cost competitiveness of renewable energy. The group, led by Bruce
Hogg, made investments totalling
$2.9-billion in its first year and expects to make a similar investment
each year going forward.
"Within developed markets, we're still seeing an energy transition from
fossil
fuels
- specifically and most importantly coal - to renewables. But the
lion's share of where the capital is going to go is emerging markets,"
Mr. Hogg said.
The
Ontario Municipal Employees Retirement System (OMERS) is also involved.
Last year, it acquired Leeward Renewable Energy, LLC, a U.S. wind-power
operator that has 19 wind farms in nine states, for
a total installed capacity of 1.7 gigawatts.
OMERS
is also backing ArcTern Ventures, a Toronto-based venture-capital firm
that has raised $150-million as it focuses on investments in early-stage
clean technologies.
Murray
McCaig, a managing partner at ArcTern, noted that the firm's
investments are not predicated on supportive political policy, but
rather the ability to compete successfully against incumbents.
Political tailwinds in the form of, say, a carbon tax or new
environmental standards simply speed things along.
"We look at that as a cherry on top," Mr. McCaig said.
Renewable power has come a long way in the past decade.
In
2009, the then-Liberal government in Ontario sought a global leadership
role along with countries such as Germany and Spain. The province
ushered in the bitterly contested Green Energy Act that
year and began awarding high-priced, long-term contracts to wind and
solar developers.
The
province suffered from the curse of the early adopter, however, with
the government hoping that a willingness to absorb high prices would
translate into manufacturing jobs - which, for the most
part, failed to materialize - while supporting a clean-energy mandate
that included the phaseout of coal-fired electricity.
Renewable
energy was expensive compared with traditional generation sources.
Under Ontario's feed-in tariff, wind energy producers in 2009 were paid
13.5 cents a kilowatt hour under power-purchase
agreements, while solar energy providers received as much as 80.2 cents
for rooftop installations, contributing to a steep run-up in
electricity prices in the province.
However,
due to a combination of better technology and the benefits of scale,
renewable-power prices have tumbled over the past decade and are now
competitive with traditional sources of power in many
jurisdictions, turning what was once a novel approach to energy
generation into a big, viable business.
And
not just in Ontario. In December, the Alberta Electricity System
Operator - which runs the province's grid - announced that it had
entered into three wind contracts for a total of 763 megawatts
at an average cost of 3.9 cents/kWh. The Alberta government announced
in February it had contracted for 100 MW of solar capacity at a price of
4.8 cents/kWh.
Prices are even lower in parts of the United States.
Idaho
Power stunned the energy industry two weeks ago by announcing a deal
for 120 MW of solar power at a record-low price of just 2.2 US
cents/kWh.
New
York-based Lazard Ltd., a financial-advisory and assetmanagement firm,
produces an annual survey of average electricity prices around the
globe, a work that is considered the bible among industry
executives because it calculates the levellized cost of electricity -
the average price needed to break even over the life of a project. The
takeaway from the most recent survey, released in November: Prices of
electricity from large-scale solar and wind projects
had declined to the point that, even without subsidies, they were at or
below the cost of power from conventional sources such as coal, nuclear
and even natural gas in some locations.
According
to Lazard, the lowend cost for onshore wind is US$29/mWh, compared with
an average marginal cost of US$36 for natural gas. The cost of
utilityscale solar is almost identical to that of gas,
Lazard said.
Renewable
power fares even better when prices reflect the broad array of
subsidies available, with the average cost of energy of US$14/mWh for
onshore wind and US$32/mWh for large-scale solar - suggesting
that subsidies help but are no longer a dealbreaker.
The
levellized cost of wind power has dropped to a third of what it was in
2009, while solar costs have come down by a factor of eight, Lazard
reported.
And renewable prices continued to fall since the second half of last year, said Elena Giannakopoulou, head of
energy
economics
for Bloomberg New Energy Finance. She expects prices to continue to
fall despite the imposition of U.S. tariffs on solar panels and the
loomingexpiry of some U.S. tax breaks.
"Module
prices keep getting cheaper and cheaper. And manufacturers need to keep
pushing the price down, with a lot of innovation in the pipeline,"
Ms.Giannakopoulou said.
Many
observers point to improvements in battery storage as the next big step
for renewable energy because they will resolve the challenges posed by
intermittent wind and sunshine.
"Originally,
that was a crazyexpensive proposition. But the price of batteries - and
I think we can all thank Elon Musk for this - is falling dramatically,"
Algonquin's Mr. Robertson said. "The forecast
for the decline in the cost of energy storage for 2018 was 8 per cent.
They got 18 per cent.
This will be a game-changer for renewable energy in the future."
The size of the market for renewable energy is staggering.
Sachin
Shah, the CEO of Brookfield Renewable Partners, said during an investor
day presentation last September that renewable energy captured some
$1.5trillion in capital spending over the previous
five years, adding a million megawatts of capacity to global grids.
Investments in solar and wind comprised 75 per cent of the total.
But the potential is far larger.
According
to Mr. Shah's estimates, replacing just half the thermal power in
Brookfield's core markets (Canada, the United States, Britain, China,
India and others) with renewable energy would require
an investment of about US$5-trillion.
That's
not an outlandish scenario. Martin Grosskopf, a portfolio manager who
oversees sustainable investing at AGF Investments Inc., pointed out that
between 2010 and 2015, 1.7 GW of coal capacity
was cancelled for every gigawatt commissioned - supporting the notion
that the long-term political risks are actually stacked against coal,
not renewables.
"There is a tremendous effort to phase out coal. And that's only beginning," Mr. Grosskopf said.
"We are still early-stage, because the renewables market is still small relative to global capacity.
But the growth in energy is in renewables. And from an investing standpoint, that's what's exciting."
Investors have been rewarded.
Over
the past five years, Brookfield Renewable units have delivered total
gains of 74 per cent, including dividends. That's more than double the
total return for the S&P/TSX Composite Index over the
same five-year period.
Northland
Power delivered gains of 79 per cent over five years, also with
dividends, while Algonquin Power delivered an astounding 154 per cent -
all of which suggests that renewable energy is enjoying
some momentum.
No
doubt, some of the interest in these stocks is being driven by impact
investing - also known as socially responsible investing and ESG
(environmental, social and governance) - where investors align
their money with companies that benefit society and the environment.
But
Tania Carnegie, who leads the impact ventures practice at KPMG in
Canada, said many impact investors no longer see a trade-off between
doing good and generating a strong return.
"In
some cases, the investors we spoke with thought that the focus on
investing in companies that are driving a positive environmental impact
would enhance returns," Ms. Carnegie said.
Although
investors have been rewarded handsomely in recent years, there are
probably more gains ahead given the outlook for sustained growth in the
sector.
Renewable
generation - including hydro - accounted for 16 per cent of the U.S.
energy supply in 2017 but is expected to grow dramatically in the coming
decade.
States
such as California and New York have a renewables target of 50 per cent
by 2030. Maryland matched that goal with legislation passed last week.
In
Canada, Saskatchewan has committed to a 50-per-cent target by 2030,
while Alberta's NDP government set a 30-per-cent target for that year -
although a UCP government would revisit that goal.
That doesn't mean the greenand-clean sector is without risk, of course.
Although
Tesla Inc. has seen its share price rise eightfold over the past six
years on the promise of shaking up the automotive sector with its
electric cars, the company is still burning through cash
and has yet to report an annual profit.
Canadian
Solar Inc., which makes solar photovoltaic modules, is operating in an
industry that has faced U.S. import tariffs and an oversupply of panels
from China, leading to a zigzagging share price
over the past five years.
Renewable-power
operators also face challenges. Building complex wind and solar
projects brings operational risks. Acquisitions can lead to headaches
over integration. And the growing interest in renewable
energy has delivered competitive pressures and rising asset prices.
There
are also occasional growing pains. Northland Power, for example, raised
eyebrows last month, when its chairman and founder, Jim Temerty, sold
about 63 per cent of his holdings in the company
at a 9.3-per-cent discount (for estate-planning purposes, according to
the company).
But
the appeal of renewableenergy producers is strong, particularly for
risk-averse investors who like to see strong profitability and steady
payouts. In most cases, these companies are generating
stable cash flows from longterm contracts. And they're paying big
dividends, which is especially nice when interest rates are low and the
economic outlook is cloudy.
Northland
Power generated a profit of $405.5-million in 2018, up 47 per cent from
the year before. It is now expanding into Taiwan with the development
of an offshore wind farm as part of its plan
to undertake a new development roughly every year.
"The
area where we see a lot of opportunity is in offshore wind development.
There are more barriers to entry, because of the complexity of the
development work and the complexity of the construction
and operations," Mr. Crawley said.
Algonquin,
which generates and distributes electricity, reported its annual profit
in 2018 increased 24 per cent from 2017, to US$185-million. And its
fourthquarter adjusted EBITDA (earnings before
interest, taxes, depreciation and amortization) sailed past analysts'
expectations.
"Algonquin
has now beaten or met consensus in nine of the last 10 quarters, which
has proven the benefits of the diversity of its business and stability
of its cash flows," said Bill Cabel, an analyst
at Desjardins Securities, in a recent note.
Brookfield
Renewable, an arm of Brookfield Asset Management, boasts a 6.5-per-cent
yield. But it's more than a cash geyser: The company has impressed
analysts with its potential for scoring big deals
as part of a goal to expand throughout North America, South America,
Europe, Asia and Australia.
In
2018, Brookfield invested almost US$500-million, commissioned 60 MW of
new wind and hydro development and added 350 MW of development to its
pipeline. In March, it struck a deal with TransAlta Corp.:
It invested $750-million in the Alberta power generator in exchange for
a large stake in its hydro assets down the road - at an attractive
discount, according to analysts - as TransAlta transitions from coal to
renewable energy.
Dawn
Farrell, TransAlta's CEO, said in an interview last week that changing
political winds won't affect this shift. "If I woke up after the
[Alberta] election and said, 'It was all wrong. We should
stay on coal,' we would lose our biggest investors. They will not
invest in companies that are going backwards on carbon," Ms. Farrell
said.
"That ship has sailed."
Ms. Farrell could easily be referring to a broader trend that is, in some cases, skipping over political boundaries.
Some
170 global companies, including U.S. giants such as Facebook Inc.,
Microsoft Corp. and Walmart Inc., have declared they will meet all their
electricity needs with renewable energy by 2030 - by
buying from developers that feed the electricity through the grid,
partnering on projects that can power a server farm or industrial site
directly, or by adding photovoltaic panels to sprawling rooftops of
warehouses and retail outlets.
More
surprisingly, several U.S.Midwestern states that supported Mr. Trump in
the 2016 presidential election are among the leaders in wind energy.
Last year, Kansas got 36 per cent of its electricity
from wind; Iowa, 34 per cent; Oklahoma, 32 per cent; and North Dakota,
26 per cent, according to the U.S. Energy Information Administration.
Yes,
there is political support for renewable energy in the United States.
Some 29 states have renewable-portfolio standards that include
incentives for utilities to purchase renewable power and penalties
for those that fail to meet the standards.
California, for example, is aiming for 60-per-cent renewable power by 2030.
The
U.S. government also provides generous tax incentives for both solar
and wind that underpin the competitive economics for projects. These
incentives are scheduled to lapse in the coming years,
but there is strong bipartisan support to renew them.
But
even in states with only modest or no renewable-power standards,
utilities are embracing a transition to lower-carbon electricity. These
utilities are facing increasing demands from their investors
and customers for a lower-carbon footprint, tougher regulations in the
future and the rising competitiveness of renewable sources of energy.
Arizona's
Tucson Electric Power, which is owned by Fortis Inc., the St.
John's-based company that ranks as Canada's largest investor-owned
utility, expects to more than double its renewablepower portfolio
over the next two years, with two wind projects and a solar project
under way. A few years ago, the company set a goal of 30-per-cent
renewable by 2030.
It expects to be at 28 per cent by the end of 2022.
"We're
seeing a lot of utilities committing to higher and higher goals - it's
really ramped up over the last five years," said David Hutchens, CEO of
Tucson.
Idaho
Power is shutting down coal facilities and announced an agreement two
weeks ago to buy 120 MW of power from a new solar farm being built in
the state.
With the solar electricity priced at just 2.2 US cents/kWh, Idaho Power described the deal as the "least cost option."
Darrel
Anderson, CEO of Boise, Idaho-based parent Idacorp Inc., said coal used
to be the cheapest source of power in the company's portfolio but is
now the most expensive, underscoring why investors
might be embracing the utility's transition. Idacorp shares have
returned 108 per cent over the past five years, with dividends, beating
the S&P 500.
Mr.
Anderson added that he expects continued innovation and price declines
in renewable technology - and more political pressure to eliminate
greenhouse gas-spewing fossil fuels from the company's
fuel mix as the impacts of climate
change become increasingly apparent.
"I don't think the drumbeat is going to go away," he said. "It is only going to beat louder."
With files from Jeffrey Jones
