ELECTRICITY MARKET RESTRUCTURING AND INVESTMENT IN NUCLEAR POWER GENERATION Evidence From Power Uprates In U.S. Nuclear

1. ELECTRICITY MARKET RESTRUCTURING AND INVESTMENT IN NUCLEAR POWERGENERATIONEvidence From Power Uprates In U.S. Nuclear Industry Chen-Hao Tsai Advisor: Zhen Lei Ph.D. Option in Energy Management and Policy John and Willie Leone Family Department of Energy and Mineral Engineering The Pennsylvania State University October 10, 2011

2. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion U.S. Nuclear Generation Overview Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • 104 commercial power reactors • Largest nuclear generation fleet worldwide • Supply 20% of electricity in US • All light water reactors • 69 Pressurized water reactor (PWR) • 35 Boiling water reactor (BWR) • No new commercial power reactor went on-line after mid-1990s • Six reactors shutdown prematurely before various states in US began to introduce competition to electricity generation

3. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion U.S. Nuclear Electricity Generation- Increased 24% over past 20 years 200 million MWh Data: U.S. DOE Energy Information Administration Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

4. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion How did US nuclear fleet increase electricity generation by 200 million MWh? Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • Improvement of plant availability & efficiency • Capacity Factor over 90% in average • Expanding generation capacity in current plants through “power uprates” • A way to increase power output of nuclear plant by: • Increase thermal power in the reactor • Improve thermal conversion efficiency by refurbishing or replacing turbine equipment

5. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion 5810 MWe accumulative PUs – Equivalent to 5~6 new 1000 MWe reactors 3600 MWe Data: US Nuclear Regulatory Commission Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

6. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Motivation and research question Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Empirical study has identified positive relationship between electricity market restructuring and increased nuclear plant utilization (Fan Zhang 2007) What about power uprates?

7. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Power Uprates (PUs) Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • Measurement Uncertainty Recapture (MUR) • Less than 2% capacity increase • Stretch • Up to 7% capacity increase • Construction cost: $600~$800 / KWe • Extended • Up to 20% capacity increase • Construction cost: up to $1,800 / KWe

8. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Power Uprates Status in U.S. NPPs (As end of 2010) Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

9. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Nuclear generation investment in regulated and competitive regimes Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • 53 reactors under regulated regime: • guaranteed rate-of-return and cost recovery • subject to approval by state public utility commission • 51 reactors under competitive regime: • New investment must turn a profit in the competitive wholesale electricity market • Advantages of high plant availability, low fuel cost and low carbon emission • Disadvantage of high construction cost

10. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Difference-in-Difference Strategy: Comparing PUs in regulated and competitive regimes Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

11. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Econometric Specification Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

12. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Power Uprates Data Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • PUs applications submitted to U.S. NRC between 1991 and 2010 of operating power reactors • Applicant • Date of application • Type and capacity increase (MWt) of PU application • Exclude applications before 1990 • Exclude 13 non-investor-owned power reactors • Federal power agency or state power authority • Owned by a diverse mix of an investor-owned utility, cooperatives, and municipal groups

13. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Coefficient estimates of “Regulatory” variable Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

14. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Preliminary Results Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Electricity restructuring did provide incentives for investment in nuclear power uprates (one type of nuclear generation investment) Stretch PUs are preferred to Extended PUs for nuclear power generators in states having electricity restructuring, as Stretch PUs require less construction cost.

15. Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Implications for Investment of New NPPs Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • Electricity restructuring could provide incentives for investment in new NPP • Significant construction cost required by new NPP might be an important factor impeding such investments • Consistent with current policy and industry activities • Energy Policy Act 2005 – loan guarantee • Small module reactors • Babcock & Wilcox – 125 MWemPower reactor

16. Thank you for your attention Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference

17. Econometric Specification Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference • Independent variables • Binary variable of regulatory status • REGULATORY – One denotes unregulated • Variables to capture possible economies of scale • FLEET– # of units owned by the same company • LICENSED CAPACITY – licensed thermal power • Variables of electricity demand • STATE_SALES – Total electricity sales (TWh) in state • Variables of plant vintage • AGE – number of commercial operation years • EXPIRATION – number of years left before operation license expiration