PEST(EL) in the Nuclear Industry – The Political (part 1)

I’ve been going through some exercises to refine my consulting business model. More on that later, but a part of that was to do a high level analysis of the nuclear industry. It’s an interesting technique called a PESTEL analysis. The acronym stands for Political, Economic, Social, Technical, Environmental, and Legal. The idea is to look at the landscape your business is operating in and use that to determine where you should be working. So, for the next few posts, we’re going to work through this analysis and see where it leads.

There’s a great deal of territory to cover in the Political Landscape, so we’re going to break this into several posts.

Republicans and Democrats

For years, the tradition was that Republicans were pro-nuclear and democrats were anti-nuclear. Recently these waters are significantly muddier. The Democratic president, Yucca Mountain deals and NRC chairmanship aside, has been generally supportive. The Republican congress has been prone to cutting funding to all project rather indiscriminately. Some extreme drives to limit government have proposed significant cuts to all energy programs. This has a direct impact on research and development projects traditionally funded by the DOE.

Energy Policy

Generally, however, one of the most significant issues in the political realm is a lack of consistent energy policy on the part of the government. The two-year Congressional term has become the de facto length of any policy as campaigns, polls, and fundraising dominate the decision-making in the House of Representatives. This lack of consistency in an industry that operates on 60 year plant life time and operating cycles as long as a congressional term make business decisions in the industry much more difficult. Embarking on a multi-year development cycle for new technology without a clear likelihood of at least a neutral policy environment adds significant risk.

Taxation

Taxes (or their moral equivalent “fees”) have (or could have) impacts on the industry, some good, some not. Taxes that come immediately to mind:

National Waste Policy Act Fees

Currently all commercial nuclear power plants pay $1 for every generated MW of electricity. This tax, started in the early 1980’s has generated about $30B in revenue for the US government. The money was supposed to be earmarked to pay for the used fuel repository known as Yucca Mountain, but in practical fact, was used to cover general operations.

The cost of this burden has an insignificant impact on the current operating fleet, but is a consideration when looking at the economic viability of new construction. A modern 1200 MWe power plant with an expected life of 60 years at an average capacity of 90% could expect to pay almost $600MM to this fund.

Currently, a number of utilities are suing the DOE for return of these funds. The claim is that the DOE has failed to uphold its part of the law in providing a national waste repository.

Carbon Tax or Other Carbon Policy

There has been much discussion about forcing industries that generate significant atmospheric carbon to pay a tax or cap emissions through a cap and trade program. So far such an initiative has not garnered enough support in Congress to be law. Such a law could provide a significant economic parity for nuclear relative to carbon based electricity sources.

The nuclear industry as a whole has not been overly supportive of such taxation despite its obvious benefits to the industry. This appears to be due to the fact that few companies are solely nuclear, or low carbon based generation. Utilities frequently have a mix of generation with nuclear and coal providing baseload. Even the vendors are rarely pristine. GE, for example, in addition to nuclear plants and service, sells wind turbines, gas turbines, and steam turbines for coal plants as well as equipment for the oil industry.

Price-Anderson Nuclear Liability Insurance

This insurance policy was created by the federal government as early as 1957. It has been one of the few consistent nuclear stances the government has maintained. This policy is frequently perceived as a subsidy by nuclear opposition. This is due, in part, to the government requirement to pay beyond the required payment by the utilities. However, this is more correctly characterized as an insurance pool.

To date, claims totaling $151MM have been paid, including $71MM for Three Mile Island. No government funds have been paid out except for claims relating to national labs and military nuclear work.

Next week

Next week, we’ll look at agencies (DOE and NRC) as well as trade regulations. I won’t try to summarize until we finish the look at the whole political landscape. What have I missed?