Market Power in Uranium Enrichment

Four firms dominate the international uranium enrichment market. Two reasons for this industrial concentration are (1) enrichment capacity can be used to make nuclear weapons, and hence its spread has been controlled through many mechanisms, including technology classification, and (2) increasing returns to scale. Historically, strong increasing returns to scale in gaseous diffusion technology development and commercialization prevented non-nuclear weapons states from considering uranium enrichment. Later, gas centrifuge technology allowed new entrants to build commercially competitive enrichment plants at much smaller sizes than diffusion technology and at a fraction of the electricity cost. At the same time, the nations that privatized or host privately-owned enrichment facilities have strongly discouraged others from developing enrichment capacity. Therefore, these firms have been benefiting from the exercise of national power to prevent entry into this market. Had there been no control on enrichment capacity, the uncompetitive diffusion capacity could have been retired and the market price could have been lower. Further, non-proliferation is not these firms’ primary mission. In situations like this, firms are usually regulated or nationalized, because free markets do not necessarily lead to the socially optimal level of concentration and diversity in supply.Market Power, Government Regulation, Uranium Enrichment, Imperfect Competition

Can the Modular Helium Reactor Compete in the Hydrogen Economy

In today’s energy economy, hydrogen is primarily used in the petroleum refining and petrochemical industries. The dominant technology for generating hydrogen is Steam Methane Reforming (SMR), which uses natural gas as both feedstock and fuel. In the much-discussed future hydrogen economy, hydrogen could become a major carrier of energy for distributed use, such as in fuel-cell vehicles. This paper compares the cost of hydrogen production using natural gas and SMR technology with the cost of nuclear-powered hydrogen production using a Modular Helium Reactor (MHR). A time series model of natural gas prices is estimated and used to simulate the cost of hydrogen from SMR to 2030: it is never above $11.80/GJ or$12.45/million BTU (in 2001 dollars). A cost engineering model of the General Atomics’ MHR shows a range of hydrogen production costs, none of which are below $11.80/GJ. For the MHR to be competitive in the pipeline hydrogen market, there must be an increase of 50-100% in the price of natural gas.hydrogen markets, hydrogen economics, nuclear power economics

Coordination Under Uncertain Conditions: An Analysis of the Fukushima Catastrophe

This paper analyzes the impacts of the 11 March 2011 earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe, comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shock and the lack of “defense in depth.”fukushima catastrophe; nuclear power; earthquake and tsunami

Organizations under Large Uncertainty: An Analysis of the Fukushima Catastrophe

This paper analyzes the impacts of the March 11, 2011, earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame for the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shocks and the lack of defense in depth.The suggested policy response is to harness the power of Òopen-interface-rule-based modularity by creating an independent nuclear safety commission and an independent system operator owning the transmission grid module in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.horizontal coordination, modularity, nuclear power, regional monopoly, electricity regulation, safety regulation, public ownership, independent system operator

Steam-Electric Scale Economies and Construction Lead Times

There was a widespread belief in the 1970s that the construction of coal and nuclear generating units exhibited positive economies of scale. Recent empirical literature has confirmed this belief for coal plants. But these studies have not considered the relationships among cost, plant size, and the building period. This paper derives and estimates a model in which construction cost and lead time are jointly determined. Constant returns to scale are not rejected for nuclear units. While coal units may exhibit positive returns to scale, because larger plants take longer to build, these returns are lower than previously estimated

Coordination under uncertain conditions: An analysis of the Fukushima catastrophe

This paper analyzes the impacts of the 11 March 2011 earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe, comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shock and the lack of defense in depth. The suggested policy response is to harness the power of open-interface-rule-based modularity by creating an independent nuclear safety commission and an independent system operator owning the transmission grids in Japan. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives

A Note on Allowed and Realized Rates of Return in the Electric Utility Industry

Most empirical investigations of electric utility behavior use the realized rate of return as a proxy for the allowed rate of return, We examine the validity of this assumption and investigate the relationship of the allowed and realized rates to the cost of capital between 1973 and 1982, We use two measures of the cost of capital: one based on returns to book equity, the other derived from a market price of equity. While realized and allowed rates were generally higher than the book measure throughout the period, both of the rates of return were less than the market price of capital after 1979. We also find firms did not earn their allowed rate of return after 1974. Therefore, the use of the realized rate as a proxy for the allowed rate in empirical models will lead to biased parameter estimates. To help correct this bias, we give data for allowed rates

Preparing for the Improbable: Safety Incentives and the Price-Anderson Act

The Price-Anderson Act requires commercial nuclear power plants to maintain (approximately) $660 million in off-site accident coverage through two forms of insurance: market-provided private insurance and self-insurance in the form of retrospective assessments of reactor owners. We examine how changes in retrospective assessments influence the safety incentives of nuclear reactor owners. As one would expect, increases in self-insurance premiums increase the incentive to install safety systems more quickly. However, a more important conclusion is that self-insurance premiums as a function of reactor riskiness, rather than equal payments by reactor owners, yield a higher level of safety than under the current law

An Optimal Allocation between R&D and Prototype Funding: The Case of Generation IV International Forum’s Nuclear Energy Initiative

National Research Council of the National Academies, Prospective Evaluation of Applied Energy Research and Development at DOE (Phase One): A First Look Forward (2005) proposes a cost-benefit methodology to evaluate U.S. Department of Energy’s Research, Development, and Demonstration (RD&D) programs. This paper develops the methodology for nuclear energy programs. The RD&D process is analyzed in two stages with two success probabilities: (1) that the technology will transition from the R&D Stage to the Prototype Demonstration Stage, and (2) that the technology will be adopted commercially. It models discounted expected total benefits of an RD&D program as a function of the levels of funding, stage durations, the probabilities of success, and spillovers to other technologies. Project duration is an exponential function of funding. Project success is a logistic function of funding and uncertainty. Spillovers are linear functions of funding at each stage. This specification allows calculation of the marginal effects of changes in funding on discounted expected total benefits for a single technology. The paper uses this method to offer an optimal allocation of pre-prototype R&D funding in the development of the Generation IV International Forum’s advanced nuclear energy systems under a specific parameterization and funding constraint

Comparing Models of Electric Utility Behavior

Several models of electric utility behavior have been suggested and tested. Among them are profit and revenue maximization and cost and revenue minimization. The latter being the stated objective of many public utilities. These four models are compared empirically by examining power plant choice from 1970 to 1977. The net present value (profit) model yields the highest estimated likelihood and its parameters are consistent with a priori theory. Firms were attempting to maximize their return, while minimizing fixed and variable costs. Also, I find no evidence that the difference between the allowed rate of return and the cost of capital influenced technology choice