© 2014 Winston & Strawn LLP Legal and Regulatory Frameworks for Nuclear Power Risks, “Subsidies” and Public Acceptance David A. Repka June 30, 2014
© 2014 Winston & Strawn LLP
Legal and Regulatory Frameworks for Nuclear Power
Risks, “Subsidies” and Public Acceptance
David A. Repka June 30, 2014
© 2014 Winston & Strawn LLP
Which Generation
Technology?
Value of Baseload
Power
Cost of Energy Storage
Value of Carbon
Reduction
Impact on Supply
Diversity
Impact on Grid
Reliability Potential Scale of
Generation
Supply Resilience
Value of Technology
Number and Type of Jobs
The Basis for an Electricity Policy
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• “We live in an era of man-made climate change” (IPCC 2014)
Climate
• Retiring baseload plants means loss of grid reliability (FERC/NERC 2014)
Reliability
• Nuclear plants bring significant potential for economic development
Economic Development
The Case for Nuclear Deployment
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Obstacles to Nuclear Development
• Project schedule, cost • Licensing/regulatory
uncertainties • Safety and liability uncertainties
Risks
• Need consistent regulatory framework and support
• Political & public opposition to “subsidies”
Markets & “Subsidies”
• Reliable + Cheap + Safe + Green Public Acceptance
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Estimated Costs of Power Plants/Electricity
Levelized Capital (2012
$/MWh)
Fixed O&M (2012
$/MWh)
Variable O&M (2012
$/MWh)
Natural Gas – CC 14.3 1.7 49.1 Coal 60.0 4.2 30.3 Wind – Onshore 64.1 13.0 0 Nuclear 71.4 11.8 11.8 Solar PV 114.5 11.4 0 Wind – Offshore 175.4 22.8 0 Solar – Thermal 195.0 42.1 0
Source: U.S. Energy Information Agency, Annual Energy Outlook 2014
U.S. Average Levelized Costs (2012 $/MWh)
Natural Gas – CC 61.1 – 75.8
Wind – Onshore 71.3 – 90.3
Coal 87.0 – 114.4
Nuclear 92.6 – 102.0
Solar PV 101.4 – 200.9
Wind – Offshore 168.7 – 271.0
Solar – Thermal 176.8 – 388.0
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Financing Issues
• Balance sheet/revenue stream financing • Generally not viable for U.S.
electricity generators: market capitalization too small, risks too high
• Project financing • Skepticism in capital markets
• Flat electricity demand
• Regulatory (NRC) issues • Financial qualifications
• Foreign ownership
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Tilted Playing Field?
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Does a national or regional economic framework
foster or inhibit nuclear
deployment?
• The regulatory framework must address economic risks: • Financing • Capital cost curves • Operating cost recovery • Safety
• “All of the Above” is not a nuclear energy strategy
Varying Models
• Public Utility: Cost-of-Service Rate Regulation
• Market: Merchant Generators
• Sovereign / State-Owned
• Long-Term Power Purchase Agreements
Legal and Regulatory Economic Framework
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Traditional U.S. Model
Central station generation, long
distance AC transmission
Vertically integrated
generation, transmission, distribution
Not distributed generation
Planned Generation
Mix
Low cost sources
“subsidize” higher cost
sources
Supports policy goals (fuel
diversity, grid reliability,
environment)
Allows local siting of facilities
Cost Recovery
Cost-of-service rate regulation
Reviewed for prudency
Construction-work-in-
progress rate recovery
U.S. Projects
• Vogtle 3, 4 (Georgia)
• Summer 2, 3 (S. Carolina)
• Turkey Point (Florida)
Public Utility Model (Rate Recovery)
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Cost-of-Service : Direct – Goal Oriented
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Market approach: • Reduces cost • Fosters economic
efficiency • No central authority
specifying generation mix
Cost may trump policy: • Grid reliability • Fuel price volatility • Carbon profile • Diversity of supply • Innovation
Negative pricing due to production
tax credits for wind – Quad Cities (Illinois, USA)
Capacity zones inadequate to
value baseload – Indian Point (New
York)
Nuclear units uneconomic in short term (gas prices): early
closures in U.S. – Kewaunee,
Vermont Yankee
New merchant development
stagnant in U.S. – South Texas
Project, Calvert Cliffs 3
“Deregulated” Market-Based Supply (Merchant)
Distortions in Overall Energy/Capacity Supply
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Everyone Goes for the Ball?
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Demand-Side Policy Tools (Market Influencers)
User Incentives • Feed in Tariffs • Investment tax credits • Tax-exempt financing • “Green certificates” • Rebates • Matching grants
Pricing •Externality pricing (e.g., taxes, cap-and-trade)
•Price stabilization (e.g., floors or caps)
Regulatory Mandates • Portfolio standards • Efficiency codes and standards • “Best Available Control Technology” • Government procurement • “Net Metering”
Industry/Market Restructuring •Deregulation •Re-regulation •Mandatory unbundling •Nationalization
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Supply-Side Policy Tools (Technology Push)
Direct Public Funding of Research & Development
Indirect Subsidies to Innovators
• Production tax credit • Accelerated depreciation • Matching grants • Loan guarantees • Procurement programs • Purchase guarantees • Price guarantees
Government-Financed Seed and Venture Funds Monetary Prizes and
Awards
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Direct Expenditures
Tax Expenditures
Research & Development
Fed & RUS Electricity Support
Loan Guarantee Total
Share of Total
Subsidies and Support
Coal 37 486 575 91 0 1,189 10.0%
Natural Gas/ Petroleum Liquids 1
583 15 56 0 654 5.5%
Nuclear 0 908 1,169 157 265 2,499 21.0%
Renewables 4,178 1,347 632 133 269 6,560 55.3%
Biomass 6 54 55 0 0 114 1.0%
Geothermal 115 1 72 0 12 200 1.7%
Hydro 17 17 51 130 0 215 1.8%
Solar 409 99 287 0 173 968 8.2%
Wind 3,556 1,178 166 1 85 4,986 42.0%
Unallocated 75 0 0 0 0 75 0.6%
Transmission & Distribution 461 58 222 211 20 971 8.2%
TOTAL 4,677 3,382 2,613 648 555 11,873 100%
Source: EIA, Direct Federal Financial Interventions and Subsidies in Energy Markets in Fiscal Year 2010 (July 2011)
U.S. Electricity Support and Subsidies – 2010
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Complex Markets: Tiki Taka?
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Consistent Support or Subsidies? (Renewables in Europe) • A number of countries introduced incentives for renewables – Feed-in-Tariffs
(FiTs)
- Guaranteed electricity purchase price above market prices
• After the financial crisis, many countries reduced the FiTs • Spain: reduced solar FiTs = reduced rates of return on investment
• Czech Republic: 26% levy on FiT
• Romania: suspended Green Certificates, cut incentives
• Bulgaria: 20% tax on income from solar and wind, effectively reducing FiT
• International investors in these countries may seek redress under international instruments such as Energy Charter Treaty or bilateral investment treaties • International arbitration
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Other Economic Models
• Sovereign/State-Owned Model: Government bears all the risk
• Public Corporation Model: TVA in U.S.
• Build-Own-Operate (BOO): Allows for contractual allocation of construction risks, operation/revenue risks, political risks
• Finnish model (Okiluoto 3): TVO joint venture comprised of energy consumers to invest in new units: expanding equity partners/diversify risk
• Long-Term Power Purchase Agreements: • Hinkley Point
• Contracts for Difference (CFD): “Strike price” – floor or guaranteed base price
• EU concerns regarding State aid (“subsidies ”)
• Akkuyu • Long-term (15-year) power purchase agreement
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Legal and Regulatory Liability Framework
• Necessary for vendors and operators
• Crucial for Public Acceptance • But, is this a “Subsidy”?
• Nuclear is not really unique…
• Accident and security risks of other infrastructure facilities
• Insurance schemes effective for other high-cost events • Catastrophic crop failures
• Major floods, hurricanes, and earthquakes
• Bank failures
Strict liability
Exclusive liability
(operator)
Financial Protection
Liability limit
(time and amount)
Single tribunal for recovery
IAEA Principle Elements
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Nuclear Safety Regulation
• Public Acceptance! • Requirements justified by
safety benefits?
• Sufficiently predictable to support business decisions?
• Is the regulatory burden an undue disadvantage in competitive markets?
• Does regulatory process truly support energy innovation?
• Independent • Well-funded • Robust and visible
oversight Regulator
• Predictable licensing • Regulatory stability
Framework
• Promotes acceptance • Transparency • Can cause delays
Public Participation
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In Search Of: Joga Bonito
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Nuclear Innovation
and Deployment
Clear and Consistent
Political Support
Public Acceptance
Comprehensive Legal and Regulatory Framework
Conclusions: The Nuclear Challenge
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Thank You!