Nuclear Energy 2016:
Status and Outlook
Annual Briefing for the Financial Community
February 11, 2016
Today’s Briefing
• Industry performance
• 2015 Recap: Key events and activities
• Creating additional margin:
- by increasing value
- by improving efficiency
• Looking forward: 2016 and beyond
Impacts of Losing A Nuclear Plant
A typical nuclear power plant:
• 400-700 permanent jobs
plus equivalent number of
indirect jobs in local area to
support the plant
• Plant salaries 36% higher
than average in the local
area
• $16 million per year in state
and local taxes
Better Deal for Consumers ... Existing
Nuclear or New Combined Cycle Gas?
$ per megawatt-hour
$81.70
Upper end of range
Lower end of range
$78
$72.81
$68.60
$52
$36.27
$33.76
$44.14
Average
Multi-Unit
Single Unit
Nuclear Plant Nuclear Plant Nuclear Plant
EIA
Dominion IRP
Lazard
Levelized Cost New Combined Cycle
Sources: Existing nuclear costs are 2014 total generating costs (fuel, O&M, capital) from Electric Utility Cost Group. Gas-fired combined cycle costs are
levelized costs from (1) Energy Information Administration, Annual Energy Outlook 2015; (2) Dominion Virginia Power 2015 Integrated Resource Plan; (3)
Lazard, Levelized Cost of Energy Analysis, 9.0, 2014.
Better Deal for Consumers ... Existing Nuclear or New
Combined Cycle Gas?
Sources
 Nuclear costs are 2014 total generating costs (fuel, O&M, capital) from Electric Utility Cost Group.
 Gas-fired combined cycle costs are levelized costs from:
1. Energy Information Administration, Levelized Cost and Levelized Avoided Cost of New Generation
Resources in the Annual Energy Outlook 2015, June 2015, Table 2. In the Reference case, the
Henry Hub natural gas spot price (in 2013 dollars) rises from $3.69/MMBtu in 2015 to
$4.88/MMBtu in 2020 and to $7.85/MMBtu in 2040. The cost range reflects regional variations,
such as differences in terrain, weather, population, and labor wages. For power plants that use
combustion turbine technologies, regional adjustments are also made to reflect the impacts of
ambient conditions (temperature, humidity and pressure) on output. Available at
https://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf
2. Dominion Virginia Power 2015 Integrated Resource Plan, July 2015, Figure 5.5.6.3, page 103.
Reference case assumes Henry Hub natural gas price of $6.51/MMBtu in 2030, Dominion Zone
delivered gas price of $6.60/MMBtu (all nominal 2030 dollars). Available at
https://www.dom.com/library/domcom/pdfs/electric-generation/2015-irp-final-public-version-i
nternal-cover.pdf?la=en
3. Lazard, Levelized Cost of Energy Analysis, 9.0, November 2015. Assumes natural gas price of
$3.50/MMBtu. Available at
https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf
Industry Performance
Record Capacity Factor in 2015
• U.S. reactors set
•
•
record capacity
factor: 91.9%
Nuclear plants
generated 798 billion
kWh in 2015
Average refueling
outage duration
declined again:
2015: 36 days
2014: 37 days
2013: 41 days
U.S. Nuclear Plant Capacity Factor
100
80
91.9% in 2015*
91.7% in 2014
89.9% in 2013
86.1% in 2012
89.1% in 2011
91.1% in 2010
60
40
20
0
1990
1995
2000
2005
2010
2015
Source: Energy Information Administration
* NEI estimate
Snapshot of 2014 U.S. Nuclear Plant Costs
($ per MWh)
•
•
•
•
Average generating costs have decreased from peak of
$39.70/MWh in 2012 to $36.27/MWh in 2014
Fuel costs down slightly in 2014, operating costs flat
Capital spending down significantly
$6.5 billion in 2014 capex, 26% decrease from $8.7
billion in 2012
2014 Average
Generating Costs
44.14
36.27
33.76
29.23
2014 Generating Cost
7.17
8.18
Fuel
O&M
Capital
20.92
First
Fleet Single
Quartile Average Unit
Sites
MultiUnit
Sites
Total generating cost = fuel + capital + operating.
Source: Electric Utility Cost Group.
Nuclear Plant Capital Spending Trends
(2014 Billions of $)
Distribution of Capex in 2014
4.4
4.1
3.3
Uprates, Extended Operation
32%
Equipment Replacement
28%
Regulatory
31%
Other
9%
2.6
2.1
2.3
1.9 1.9
1.8 1.8
1.9
2.0
1.6 1.6 1.7
0.4 0.5 0.4 0.4 0.6
Uprates, Extended
Operation
Equipment
Replacement
2010
2011
Regulatory
2012
2013
Other
2014
Source: Electric Utility Cost Group
Regulatory CapEx Expected to Moderate
Significantly Going Forward
(2014 $ in millions)
$2,000
$1,800
Fukushima
$1,600
Nuclear Safety
$1,400
Spent Fuel
$1,200
Other
$1,000
Environmental
$800
Security
$600
$400
Emergency Prep
$200
ALARA
$2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Electric Utility Cost Group
Trends in U.S. Nuclear Operating Costs
$25.00
Dollars per MWh (2014 dollars)
Nuclear Fuel Ops
$20.00
Work
Management
Training
$15.00
Support Services
$10.00
Operate Plant
Material and
Services
$5.00
Loss Prevention
$Ave 02-08
Source: Electric Utility Cost Group
Ave 09-14
• Operating costs
increased from
$18.59/MWh in 2002
to $20.92/MWh in
2014
• Increase not driven by
any single category
• Operating costs have
declined 4% from the
peak in 2011
2015 Recap: Key Events and Activities
New Nuclear Plant Construction
• Watts Bar 2 ready for
commercial operation
around midyear
Fuel assemblies being loaded
into Watts Bar 2
New Nuclear Plant Construction
• Major project
management
improvements at Vogtle,
Summer projects
- Westinghouse
purchase of
CB&I/Stone & Webster
- EPC contracts
restructured
- Litigation resolved
- Fluor managing
construction
Preserving the Nuclear Option
Projects with applications for combined
construction/operating licenses under review by
the Nuclear Regulatory Commission
Company/Site
Design
(# Reactors)
Nuclear Innovation North America:
South Texas Project 3 & 4
ABWR (2)
Dominion Resources: North Anna 3
ESBWR (1)
Duke Energy: William States Lee 1 & 2
AP1000 (2)
Duke Energy: Levy County
AP1000 (2)
PPL Bell Bend LLC: Bell Bend
Florida Power & Light: Turkey Point 6 & 7
EPR (1)
AP1000 (2)
Preserving the Nuclear Option
• NuScale Power expects to file design
certification for its small modular
reactor in 4th quarter
• Growing interest in GEN-IV reactors
Fukushima Response Substantially
Complete by End of 2016
• U.S. reactors have implemented
post-Fukushima safety
requirements ahead of the NRC’s
schedule
• Significant improvement to safety
• U.S. industry’s FLEX strategy sets
standard worldwide for
preventing fuel damage
Five full sets of emergency backup
equipment are stored at the two national
FLEX centers in Memphis and Phoenix
Global Market Leadership
• Global nuclear market could reach $750 billion over the next
10 years
• U.S. technology among the most innovative – e.g., the only
“passive safety” designs
• U.S. nuclear technology is a strategic instrument of U.S.
foreign policy
• Participation in the
World’s Top
world market
Nuclear Markets
enhances U.S. ability to
achieve
nonproliferation goals,
export safety practices
Major Referendum in 2015 on U.S. Role in
World Nuclear Market
• Export-Import Bank reauthorized
• Nuclear trade agreements with China,
South Korea renewed
• Department of Energy’s export control
regulations updated
• Joint industry-government nuclear trade
missions to India, United Arab Emirates
Status of First License Renewal
Status of First License Renewal
81 Reactors Approved
6 Reactors
Intend to
Renew
11 Reactors
Under
Review
Source: Nuclear Regulatory Commission
• Forty reactors have passed
40-year mark
• Approximately 31,000 MW of
nuclear capacity will reach 60
years between 2029 and
2035
• Approximately one-half U.S.
nuclear capacity will reach 60
years by 2040
Status of Second License Renewal
• NRC regulatory process
stable, well-understood;
existing regulations
adequate
• In November 2015,
Dominion Virginia Power
announced intent to file
second license renewal
application for Surry nuclear
plant
• Decision to renew a second time depends on whether market
conditions justify capital investment required
Creating Additional Margin By Increasing Value
Market Stresses … In Brief
• Low growth (in some cases, no growth) in electricity
demand
• Continuing surge in supply of low-cost shale gas
• Fuel/technology diversity is taken for granted and
undervalued
• State and federal mandates and subsidies for
renewables distort markets
• Transmission constraints
• Market design issues
- Failure of markets to recognize valuable attributes
- Price suppression in energy markets
Solutions Emerging Among the States
• States beginning to recognize
need to act
- Ohio considering PPA for DavisBesse
- New York – Reliability Support
Services Agreement for Ginna
- Illinois considering low-carbon
portfolio standard, New York
developing Clean Energy Standard
• States can also use tools
available under Clean Power
Plan
Closing nuclear facilities “would
eviscerate the emission reductions
achieved through the state’s
renewable energy programs, diminish
fuel diversity, increase price volatility,
and financially harm host
communities.”
– New York Gov. Andrew Cuomo
Dec. 2, 2015
Progress in Improving Markets
• Capacity market reforms
- New model in PJM better
recognizes important
nuclear attribute
- No benefit in markets that
have not taken steps to
improve
• Energy market reforms
- Accurate “day ahead”
pricing is the key for
nuclear energy
NY-NE-PJM Revenue Source by Technology
100%
A.S.
75%
Capacity
50%
25%
PTC/
REC
Energy
0%
Nuclear ST-Coal NG-CC NG/Oil NG/Oil
ST
GT
Wind
Sources: Velocity Suite; Entergy Research and Analysis
A.S.: Ancillary Services; PTC: Production Tax Credits;
REC: Renewable Energy Credits
PJM, Others Moving in the Right Direction
• PJM Capacity Performance: Welcome recognition
that attributes must be priced in market
- Rewards resources committed to be available when
needed (substantial penalties if not)
- $1.4 billion to Exelon, $1.1 billion to FirstEnergy
• MISO recently acknowledged concerns about
resource adequacy
• FERC denied ISO-NE proposal to include nuclear in
winter reliability program
Market reforms do work. Additional revenues from PJM Capacity
Performance gave short-term reprieve to some nuclear plants in
western PJM. But market reforms to date
are not enough by themselves.
PJM Capacity Auctions
$/MWd
2016-2017
Original
2016-2017
CP Transition
59.37
134.00
2017-2018
Original
2017-2018
CP Transition
120.00
151.50
2018-2019 CP
RTO
EMAAC
COMED
164.7
225.42
215.00
Price Formation Must Reflect All Costs
• Energy markets: 80-90% of
revenue for baseload
resources
• Accurate price formation is
key: minimize “out of market”
revenues (uplift), ensure all
costs necessary to operate
system reflected in price
• Uplift dampens the wholesale
price; impact varies by region
but is significant
Uplift Example: November 8, 2012
~$128K uplift paid to
~23,100 MWh
Estimated suppression:
$5.50/MWh
$120
$110
$100
$90
Market Price + Uplift
$80
$70
$60
$50
Market Price
$40
$30
$20
1
3
5
7
9
11 13 15 17 19 21 23
Hour ending
Energy Market Reform Goals
• Accurate day-ahead and
real-time price signals
• Reflect all RTO actions, all
costs of all units used, in
setting the market-clearing
price
• Allow fast-start units to set
market prices
• Ensure day-ahead signals are correct for both energy
and reserve needs
• Transparency into reasons for out-of-market actions
Movement on Energy Market Reforms
• FERC technical conferences in late
2014 on price formation in energy
markets
• FERC Notice of Proposed
Rulemaking on two issues
₋ Settlement intervals
₋ Shortage pricing
• NOPR on price formation only
addresses real-time market issues,
not day-ahead markets
• Order directing reports from RTOs on uplift and other issues
• Proposal to lift offer caps
Recognizing Nuclear Energy’s
Carbon-Free Value
U.S. Electric Power Industry CO2 Avoided
Million Metric Tons 2014
Nuclear
Hydro
-184
Wind
-133
Solar
-13
Geothermal
-12
Wind
14.4%
Nuclear
62.9%
Hydro
19.9%
-595
Sources: Emissions avoided are calculated
using regional and national fossil fuel
emissions rates from the Environmental
Protection Agency and generation data from
the Energy Information Administration.
Solar
1.4%
U.S. Carbon-Free
Electricity Sources
2014
Geothermal
1.3%
Recognizing Nuclear Energy’s Value
Under the Clean Power Plan
• Two compliance pathways:
- Rate-based (pounds/MWh)
- Mass-based (tons)
• Clean Power Plan (CPP) favors mass-based
compliance:
- Easier, less expensive for states
- All existing pollution control programs
(SO2, NOx, etc.) are mass-based
• Mass-based compliance plans could be
structured to recognize nuclear plants’
compliance value
31
Creating Additional Margin
By Increasing Efficiency
Industry Goals:
Safety, Reliability and Improved Efficiency
• Sustain high levels of safety
and reliability
• Identify opportunities and
re-design plant processes to
improve efficiency and
effectiveness
• Use innovative technology to
increase efficiency across the
industry
The goal: $12/megawatt-hour cost reduction industrywide
The Goal: 30% Reduction in Cost
Why 30%? To drive innovative thinking,
not just tinkering at the margin
How the Arithmetic Works
Starting point: 2012 total generating cost*
$40/MWh
Goal
$12/MWh
reduction
Where Does the $12/MWh Reduction Come From?
Reduction in capex 2012-2014
$3.50/MWh
Estimated reduction in capex through 2020
$3/MWh
Estimated reduction in fuel costs through 2020
$2/MWh
Estimated cost reductions from improved industry efficiency
$3.50/MWh
* 2012 was peak year for total generating cost
U.S. Nuclear Plant Costs 2004-2014
(2014 $ per MWh)
Year
Fuel
Capital
Operating
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
5.28
5.02
5.04
5.13
5.35
5.93
6.76
7.10
7.46
7.73
7.17
5.65
5.80
5.56
6.12
6.76
8.91
9.16
10.06
10.76
8.20
8.18
18.54
18.95
19.21
19.07
19.51
20.49
20.63
21.88
21.47
20.93
20.92
Source: Electric Utility Cost Group
First Improvement Opportunities
Have Been Identified
• Based on analysis of costs,
CNO-led teams produced
over 180 ideas
(Improvement
Opportunities)
• These were ranked until 53
initial ideas were identified
for pursuit in 2016
• Ten CNO-led teams working on the 53 initial IOs, with plans to
develop more during 2016/17
Improving Regulatory Efficiency:
Major Initiatives and Results
• NRC has started self-assessment (Project
AIM) to improve performance and
“right-size” the agency
• Commission instructed staff to rebaseline
and set priorities among regulatory
activities
• Commission terminated several
rulemakings, including proposal
for filtered containment vents
($1.6-billion in avoided costs)
NRC Chairman Stephen Burns
Looking Forward: 2016 and Beyond
All Electricity Is Not The Same
• Basic economics
- Markets operate efficiently only
when goods have a price
- Goods will only be produced
when markets assign a price to
them
• Different forms of electricity have
different “goods” or attributes:
Every kilowatt-hour has a pedigree
• Those attributes have varying
degrees of value to the market
Nuclear Energy’s Solid Value Proposition
Safe, Reliable Electricity 24/7 Plus …
Supports
Grid
Stability
Provides
Price
Stability
Runs
When
Needed
(Fuel on
Site)
Provides
Clean Air
Compliance
Value
Contributes
to Fuel and
Technology
Diversity
(Portfolio
Value)
Avoids
Carbon
Emissions
Anchors the
Local
Community:
Jobs, Tax
Base
The Value of Nuclear Energy to America
Source: The Nuclear Industry’s
Contribution to the U.S. Economy,
The Brattle Group, July 2015