A “pay as you go” strategy for critical infrastructure, such as power supply – wherein infrastructure is financed incrementally, during the construction process – could make sense when applied to small remote microgrids supplying small solar systems in the developing world. End-users in these countries often earn subsistence wages and need only enough juice for lights, computers, and cell phones.
When applied to nuclear power, though, the pay as you go concept dramatically increases the risks to end-users. Just ask residents of Florida, where ratepayers are discovering that utilities can actually make more money – and consumers pay more for electricity – the longer it takes to build nuclear power stations. The culprit is something called “construction work in progress,” or CWIP.
The Nuclear Energy Institute (NEI) has made a convincing argument that CWIP should actually save consumers money. By collecting funds from ratepayers in advance of actual power production, sudden rate shocks can be avoided. Financing costs for such large infrastructure projects can be reduced under CWIP, since investors have more certainty that debts will be paid off. Since the investment ratings of utilities are protected, borrowing costs also shrink.
In the case of a proposed nuclear reactor by Progress Energy in Levy County, Florida, NEI estimated that CWIP program financing would save consumers $13 billion over the life of these nuclear reactors. When Florida passed a bill in 2009 authorizing CWIP, it sailed through the state legislature with only a single dissenting vote.
After 6 years of CWIP financing, residential customer bills in Florida are projected to increase by $50 a month this year, even before the nuclear reactors generate a single kilowatt-hour of electricity. Progress Energy originally estimated that building the two unit reactors would cost $5 billion and would be generating carbon-free power by 2016. Instead, the construction costs have ballooned to $22.4 billion, and the plant – if ever completed – will not be generating power until 2021.
Ironically, this revised price tag and construction schedule mean that Progress Energy will generate more – not less – revenue the longer it takes to build the nuclear reactor. If the project were cancelled today, the utility would still walk away with $150 million in profit. So far, ratepayers have committed to over $1 billion dollars for a nuclear plant that won’t produce any power for almost a decade.
If nuclear power could be financed in a way that makes economic sense, then proceeding down that path might make sense. “Distributed nukes” – which would be deployed at a much smaller scale, reducing large investment risks – could be a better fit for CWIP and provide the form of financial innovation that might lead to a nuclear renaissance. (Both water and transmission facilities have deployed CWIP with little controversy). Unfortunately, the experience in Florida is turning former nuclear advocates and supporters of CWIP into skeptics, though the practice still has its defenders.
All eyes are on Florida to see if and when the plug is pulled on CWIP for large-scale nuclear power plants, with Republican state representative Mike Fasano, who voted for the CWIP state legislation in 2009 and supports nuclear power, leading the charge to shift financial risks away from ratepayers and to utility shareholders with new state legislation.