Thank you, Mr. Chairman and members of the committee.
I appreciate the opportunity to testify today, and I will share some research I've been working on about the cost of building nuclear reactors. Plus, I've done some analysis looking at the impact of safety, an issue the last panel suggested needs to be considered at this moment.
The high cost and large capital expenditures associated with the construction of nuclear reactors make the technology more expensive and risky than available alternatives. Because reactor projects are extremely complex and involve environmental safety concerns of very toxic and volatile fuel, they are prone to cost overruns. The cost is driven by the difficulty of dealing with the fuel.
Their huge size and long lead times make them vulnerable to changes in marketplace dynamics, or public policy for that matter, which may eliminate or alter their economics. Because of these characteristics, certain utilities in the U.S. cannot raise funds in capital markets to build them.
Reacting to this marketplace reality, nuclear utilities in the U.S. have sought to sidestep the judgment of financial markets to secure massive subsidies that shift the risk of nuclear construction away from utility stockholders onto taxpayers, in the form of loan guarantees, and onto ratepayers, in the form of advanced cost recovery. Equipment vendors are probably kicking in some subsidy too in an effort to get a bandwagon going.
In the U.S. the industry had some success getting loan guarantees and advanced cost recovery, but the reality of the economics of nuclear reactors has set in. Almost every one of the projects that was talked about or asked for licences has been delayed, suspended, abandoned, or cancelled altogether.
What we've had here in the U.S. is a classic bubble with a promotional frenzy in the early part of the 2000s followed by a speculative surge and then the failure of the industry to live up to its promises about costs, something it has always had difficulty doing. Finally, the bubble burst with low-cost natural gas, declining demand growth, stable alternatives, and subsequent cancellations.
The long lead times of these reactors and high costs make them a uniquely bad investment to make in a period of great uncertainty. The simple fact of the matter is that what you want in uncertain times are investments that are flexible, let you make changes, don't sink costs, the antithesis of building large central station facilities. I have laid this out in exhibits attached to my testimony.
As bad as nuclear economics were in the recent past, I believe the incident at Fukushima will make them more difficult.
As you heard in the last panel, after an incident all the people with responsibility for various aspects of nuclear reactors have to step back and re-examine. Policy-makers would be irresponsible not to look at how safety standards are set and how the process is used to re-evaluate the cost-benefit of various alternatives. To consider gathering more information and slowing down is a good policy.
Safety regulators would be irresponsible not to re-examine safety, perhaps looking for more safety measures, which may lead to long lead times or the retrofit of existing plants. Of course financial analysts will have to look at the risk of these projects, whether they are more difficult to complete and whether they're less attractive than alternative options, whether they are less popular with policy-makers who will give them less support. As a result, the cost of capital will increase.
Cost escalation flows from the conduct of these complex plants. I looked at the U.S. before Three Mile Island, I looked at the U.S. after Three Mile Island, I compared that to the French before and after, and what we know is that nuclear construction had a cost escalation problem before Three Mile Island, it had a cost-escalation after, and the problem got a little worse after, because safety was an increased concern.
Some utilities will argue it is unnecessary, especially when subsequent events or incidents don't occur. But one can also argue that the lack of events is a function of taking proper account of safety.
I looked in my testimony at the occurrence of such events, not to predict when a future event will occur but to make it clear that these are possibilities. They do happen; they need to factor into our thinking; and inevitably they will have an impact on costs.
In the U.S., there was never any reason for the government to put taxpayers or ratepayers at risk when this nuclear bubble started to inflate. Instead, they should have listened to the judgment of the capital markets and let the technology be. If in the future it comes around, I'm a consumer advocate: I would be glad to support it if its costs would support it, leading me to conclude that it was the least-cost option to pursue. But the simple fact of the matter is that the economics of new nuclear reactors, certainly in the U.S., were bad before Fukushima and will be worse after.
Thank you for the opportunity.