Past, present and future Climate change in the USA

30 November 2001

Corbin A McNeill, Jr, Chairman and Co-CEO of Exelon, explains why he believes nuclear will continue to be a significant part of the USA's energy mix.

The events of September 11, 2001 will be remembered by all of us for the rest of our lives. The date will go down in history along with December 7, 1941 and November 22, 1963 as dates where everyone remembers where they were and what they were doing when they first heard the tragic news.

The changes brought about by the events of that horrific day have implications throughout our society. One of these implications is that it is now clearer than ever before that we must develop domestic sources of energy. In a time of crisis having secure and reliable supplies of energy is vital to our national security.

Even before that tragedy there was a growing consensus that new nuclear plants were needed — both to replace ageing existing nuclear plants and fossil-fuelled plants, as well as to meet our nation's growing appetite for electricity. Now that need is even clearer.

A powerful country

There is a general consensus throughout our industry and among policy makers at both the national and state levels that we must build more power plants in the USA. There is also agreement that we must begin building those plants as soon as possible. According to data from the Nuclear Energy Institute (NEI) the nation's installed capacity has remained relatively static for the past couple of years at 677,000GWe. NEI forecasts that over the next 20 years we can reasonably expect to see a 50% growth in demand as our economy recovers and moves into the next growth cycle.

While the economic slowdown of the past year has caused overall demand to remain steady or, in some areas even decline slightly, there is no doubt that the economy will eventually turn around and demand will again begin to grow. However, the pace of that growth, and our ability to sustain it, will depend, to a great extent, on our ability to meet the energy demands of the economy.

President Bush's energy plan estimates we will need to build about 1200 power plants — or about one per week — over the next twenty years to meet the anticipated demand. While some may debate that figure, no one disagrees with the fact that many new power plants are needed.

In the near term I think most of those plants will be natural gas fired. While public support for nuclear power is increasing, it is still easier to site and build a natural gas plant. However, the construction of numerous natural gas plants will put pressure of the supply and price of natural gas. This will lead to higher generation costs, and thus higher bills for the end user, as well as higher prices for natural gas itself. Consumers may tolerate higher prices in the short term, but over the long term, pressure will increase to reduce prices for both electricity and natural gas.

There will be some construction of coal-fired plants, but these present environmental challenges. While coal is a plentiful, domestic source of energy, it comes into conflict with a major demand of our society — the desire for cleaner air.

Although President Bush has said the US will not approve the Kyoto protocol, the American public will continue to require that the utility industry finds ways to reduce the emission of greenhouse gases. This societal demand works to the detriment of building coal-fired plants and to the advantage of building nuclear plants, which emit no greenhouse gases.

But building support for nuclear power plants from environmentalists requires that we address the issue of the storage of spent nuclear fuel. This is an issue that has been endlessly debated for too many years. I was pleased last August when the US Department of Energy report stated very clearly that Yucca Mountain was an appropriate location for the permanent storage of spent fuel.

The time is ripe

Several issues are coming into alignment that auger well for the construction of new nuclear power plants.

• First, with the international threats we face in the US becoming clearer every day, we need a secure, reliable domestic source of energy.

• Second, growing demand and ageing plants means we must build hundreds of new power plants over the next 10 to 20 years.

• Third, relying exclusively on natural gas fired plants will drive up both natural gas and electricity costs, when the reality is that the economy of the USA requires abundant, low cost energy.

• Fourth, there is growing public support for maintaining the nuclear option as part of the nation's electricity mix. For the first time since the accident at Three Mile Island 22 years ago, public opinion surveys are showing that people are open to the idea of building new nuclear power plants.

• Fifth, the public is also demanding cleaner air. They expect utilities to take action to reduce greenhouse gases. This will limit the ability to build a large number of new coal-fired plants, even with the scrubber technology now available.

• Sixth, the issue of locating a permanent repository for spent fuel at Yucca Mountain is moving towards resolution.

The alignment of these issues means we must now start working on plans for the next generation of nuclear power.

If we were having this discussion a decade ago the answer to what kind of plant to build would be fairly straight forward — build a traditional 1000 to 1200MWe plant for several billion dollars. Then get regulators to allow you to put construction and operating costs into your rate base and recover the costs from your customers within your "service territory".

Deregulation and nuclear

But there is one issue I haven't mentioned yet that has changed the marketplace and made the old approach untenable. That is the issue of deregulation, or as some prefer to call it "restructuring", of the electric utility industry.

More than half the states in the USA have some form of deregulation in place. Before the events in California last spring, we were moving in the direction of all states being deregulated within the next few years. But the rolling blackouts that took place in California earlier this year made some state legislatures and regulators pause.

However, I think this pause is just that — a pause not a stop. The blackouts and soaring electricity prices that were predicted for the past summer never materialised. Wonder of wonders, the marketplace worked. With demand increasing, California started bringing gas turbine generating units online quickly. Consumers began to conserve. Prices stabilised and even fell. And throughout the summer, despite the predictions of the doomsayers, the lights stayed on!

I think within a few months the memory of the problems in California will fade and lawmakers and regulators in states not yet deregulated will once again begin examining the issue and realise that it holds long term benefits in the form of lower costs for their constituents, and economic growth for their state.

But deregulation does present a challenge for an investor-owned utility considering construction of a nuclear plant. It isn't feasible to build multi-billion dollar plants. The time needed to recover the costs and begin making a profit on the investment is longer than any shareholder will accept.

Therefore our industry is faced with the challenge of finding a technology that is cost-effective and can bring faster return on our shareholders' investment.

The PBMR fits the bill

One technology that I think holds tremendous potential in this area is the Pebble Bed Modular Reactor (PBMR).

The PBMR is an improvement on the gas reactor technology that was used by PECO Energy in the construction of Peach Bottom Unit 1, Pennsylvania in the early 1960s. Germany also did research on similar plants in the 1970s and '80s, and China is testing similar plants today.

The PBMR has a simple design basis, with passive safety features that require no human intervention and cannot be bypassed or rendered ineffective in any way. If a fault occurs during reactor operations, the system simply comes to a standstill and merely dissipates heat on a decreasing curve, without any core failure or release of radiation to the environment. The inherently safe design of the PBMR reduces dependence on redundant back-up systems, thus greatly reducing the construction and operating costs of the plant.

Because of its modular design, plants can be built in 120-140MWe units. New units can be added as demand increases. The standardisation of design introduces the concept of mass production of plants in an assembly line fashion, not unlike the way commercial aircraft are built today. From the standpoint of the investor, the return on investment starts sooner due to a shorter construction schedule — usually about 18 to 24 months. And the design of the plant means that catastrophic investment losses due to core damage, such as occurred at Three Mile Island 2, are not credible.

One other feature that has been highlighted by the recent tragic events is that the footprint of a module is small enough that we can place much of the plant below ground and increase the resistance to terrorism substantially.

Exelon has invested in a research project on the PBMR design in South Africa. Recent reviews of the project have highlighted several technical issues that have not reached the point of design to demonstrate feasibility. However, we are confident that these issues will be resolved favourably within a year.

Better times ahead

The past couple of decades have been difficult ones for those of us in the nuclear industry. But we have passed through the difficult times to a point where the future never looked better.

Support for new nuclear plant construction is coming from both major political parties. The concerns of environmentalists are being addressed. Americans are coming to understand the need for a reliable and secure domestic source of energy. Our entire national economy demands a reliable supply of electricity. There is no longer any debate on whether we must build more power plants if our economy is to grow.

This is an exciting time to be in the nuclear power industry. We serve a vital need for our nation. We're gaining public support.

A few years ago people in our business wondered if they would ever get the opportunity to build another nuclear plant in their career. Now that is no longer the issue. Today they are simply waiting to see where and when the next nuclear plant will be built.

I don't think they will need to wait much longer.

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