Negawatts and micropower are market winners, while nuclear is a market loser

Steve Berry undoubtedly supports energy efficiency, on which he did good work in the past. But
his understanding of it is so minimal that he thinks it “barely lowered the slope” of China’s
energy demand. In fact, “barely” averaged 70 percent during 1980-2001.

In his world, cheap, fast, profitable, privately financed market winners that provide the
majority of the world’s new electrical services (negawatts and micropower, in roughly equal
measure) are inevitably too slow and small. Instead, he urges that we should subsidize a costly,
slow, unprofitable, tax-funded market loser that has only a few percent market share and actually
lost net capacity last year. (The International Atomic Energy Agency reports that global
nuclear capacity shrank 0.43 gigawatts (GW) in 2006, while even the smallest and costliest
renewable–photovoltaics–installed 1.74 new GW.) Yet he never explains why this perverse shift is
necessary or desirable.

I agree that “no single approach” can
entirely power a climate-safe, prosperous global economy. Yet energy efficiency, in its
myriad forms, comes closer than all other energy options combined.

Steve’s appeal to “provide energy” to people without clean water or electricity is valid but
irrelevant: For those mainly rural people without wires or money, an
efficiency-and-distributed-renewables portfolio is the only practical solution today, while nuclear
power is the most exorbitant and unsuitable.

Steve claims that China plans “to build roughly one nuclear plant per month”–five times the
actual rate in the 2006 official target (40 GW by 2020). China’s 7 GW of nuclear capacity is
struggling to reach 10 GW by 2010. Yet, in 2005, China led the world with 42 GW of installed
renewable capacity excluding big hydro (in which it was number two); it tied Germany for the lead
in renewable investments; and it ranked number five (just after India) in wind-power additions. Its
wind-power target rivals its nuclear target but is far likelier to be achieved.

True, China has been building about 1 GW of coal plants a week, two-thirds of them unauthorized
by Beijing. But many of these will be idled as the “coal rush” collides with reinvigorated
efficiency efforts and burgeoning micropower. Similar trends are clear in India. In both countries,
efficiency and renewables are starting to become flourishing private enterprises, thanks to
gradually more transparent and competitive power markets.

Steve’s central basis for his nuclear fixation is his claim that efficiency can’t level off
China’s or India’s total electric or energy needs. Why not? Their rapid economic growth comes from
constructing millions of buildings, appliances, factories, and vehicles that can be designed
properly the first time; if they’re not, supply-side investments will eat the budget, stalling
development. Even in the United States, which is several times more efficient and has already built
most of its infrastructure, efficiency grew faster than the economy last year. A poorer, more
populous nation with faster economic growth needs efficiency even more and has more of it left to
buy at lower cost.

Even if efficiency could only drastically reduce demand growth and not eliminate it, a logical
investor would seek the cheapest, fastest supply-side portfolio to meet the remaining needs.
Micropower, lately adding an order of magnitude more capacity each year than nuclear and at far
lower cost, seems the obvious place to look.

Of the four studies Steve cites, only the Keystone and MIT studies properly examined real data
when comparing the costs of coal and nuclear power. The MIT study found nuclear uncompetitive with
coal and gas; the Keystone study examined only nuclear and found it around 8-45 percent costlier
per kilowatt-hour (kWh) than MIT had said four years earlier. The Keystone report’s capital costs
(actually measured in dollars per kilowatt, not dollars per kWh) are quoted as if to imply that
U.S. plants cost more than foreign plants; actually, the cited foreign costs (for seven Asian units
completed during 1994-2005) are “overnight” costs in 2002 dollars, while the U.S. costs look higher
because they include interest during construction, are in 2007 dollars, and reflect rapid actual
capital-cost escalation.

However, coal-versus-nuclear costs are irrelevant because both have proven grossly uncompetitive
against negawatts and micropower. In 2006, micropower surpassed nuclear power’s total global output
and added roughly 34 GW of global net capacity, 15 GW of it from wind power. Why is micropower
winning? Well, as
Lawrence Berkeley
National Laboratory’s 2007 wind review (PDF) found, the median price of power provided by new
U.S. wind farms added during 1999-2006 was 3.4 cents per kWh in 2004 dollars, while the cheapest
cost less than 2 cents. If you take the higher median price, “firm” that variable wind power to
make it fully dispatchable whether the wind is blowing or not, and take away its 0.86 cent
Production Tax Credit (far less than nuclear’s subsidies), it still costs less than half of what
Keystone found new nuclear plants would cost. Wall Street understands this arithmetic.

In 2006, distributed renewable power sources worldwide got $56 billion of private risk capital;
nuclear projects got zero. As Peter Bradford rightly notes, recent industry efforts to entice the
U.S. Treasury to give it $50 billion are a desperate response to private capitalists’ unwillingness
to finance plants they consider too costly and too risky.

Steve urges us not to “abandon” nuclear power. But he doesn’t mean benign neglect; he means
putting this moribund technology in an extremely costly intensive care unit. Paying ever vaster
subsidies to a market loser incurs a grave opportunity cost: we get 2-10 times less climate
solution per dollar, slower, than if we bought market winners instead, and we harm rather than help
global security and development.

Why Steve insists this inversion of market outcomes is desirable remains a mystery. As an
empirical scientist who takes market economics seriously, I’m unmoved by nuclear theology. Show me
the numbers.