Statement of Joseph E. Aldy
Associate Professor of Public Policy, Harvard Kennedy School
Visiting Fellow, Resources for the Future
Faculty Research Fellow, National Bureau of Economic Research
Senior Adviser, Center for Strategic and International Studies

United States House Committee on Energy and Commerce, Subcommittee on Energy, hearing on “Federal Energy Related Tax Policy and Its Effects on Markets, Prices, and Consumers”

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Some good news at last on the nuclear front: The Tennessee Valley Authority (TVA) last week fired up a second reactor at its Watts Bar plant, making it the first new reactor to go live in this century. The advanced 1,150-megawatt reactor will supply carbon-free energy for 650,000 homes and businesses.

This follows a spate of announced closings of existing civilian nuclear reactors, including California’s Diablo Canyon. Since nuclear power is America’s largest source of zero-carbon energy, the shrinking of the nation’s nuclear fleet is both an environmental and an economic problem. It will compound the already difficult task of meeting U.S. commitments at the Paris climate summit to sharply reduce greenhouse gas emissions. It also weakens the U.S. civilian nuclear power industry as other nations race ahead to add more nuclear generation and develop “next-generation” reactor technologies.

The industry arguably was born in Tennessee. The world’s first nuclear fuel enrichment plant was built at Oak Ridge National Laboratory as part of the World War II Manhattan project. Even before Unit 2 was activated, nuclear power accounted for 33% of the state’s energy production from Watts Bar and two reactors located at the Sequoyah facility.

Thanks to TVA, Tennessee also is one of the top 3 largest producers of hydroelectricity east of the Rocky Mountains. But hydro accounts for only 6% of the state’s electricity production, while solar contributes another one percent. Renewable energy may hold great potential, but as these numbers show Tennessee and most other states are a long way from being able to generate most of their electricity from such sources.

While America’s much ballyhooed “nuclear renaissance” has yet to materialize – one reason is the shale boom-enabled influx of relatively cheap natural gas — four other reactors are under construction around the country and are expected to be completed over the next four years. That’s encouraging, but it’s not enough to offset the rate of plant closures, including the five reactors shuttered in 2013 and 2014. Diablo Canyon will be mothballed in 2025, 20 years before its useful life is scheduled to end.

In addition to cheap natural gas, the U.S. nuclear energy industry continues to be hobbled by hostility from “green” activists who want to put all of America’s energy policy eggs in one basket. That’s a huge mistake. Advanced nuclear technologies hold enormous potential for generating clean power in safer and cheaper ways than today’s nuclear reactors. Yet regulatory inertia and lingering prejudices against nuclear power stand in the way.

Fortunately, there is some hope for regulatory improvement. Last month, the House passed the Advanced Nuclear Technology Development Act which would require the Department of Energy (DOE) and Nuclear Regulatory Commission (NRC) to develop a regulatory framework for the testing and licensing of advanced reactors. It would also ensure the two agencies have sufficient technical expertise to regulate advanced designs, and move beyond their current focus on light-water reactors. Regulatory commitments such as this and more will be necessary if the U.S. wants to be a global leader in the clean energy market place.

In the meantime, TVA’s investment in new nuclear generating capacity will ensure that Tennessee remains a clean energy innovation leader.

Nuclear power is by far America’s biggest source of zero-carbon energy, providing 19.5 percent of the nation’s electricity. So why are environmental groups who profess to care about climate change working overtime to get rid of nukes?

The mystery deepens with today’s announcement by Pacific Gas & Electric that it intends to shutter California’s Diablo Canyon facility, the West’s last zero-carbon nuclear plant. The decision reflects a deal PG&E has struck with labor and environmental groups to invest more in energy efficiency, renewables and storage as it phases out Diablo Canyon.

The news comes amid a recent wave of nuclear plant closures in the Midwest, where deregulated markets flush with wind and natural gas simply make the plants uncompetitive. But Diablo’s costs are carried by rates, not competitive markets, so something else was clearly at work. And that something was extreme green politics.

Behind the Faustian bargain were big environmental groups like Friends of the Earth, National Resources Defense Council and Environment California. Together with their allies in state government (Mary Nichols, chair of California’s powerful Air Resources Board, founded the state’s NRDC chapter), the groups have advocated successfully for policies that privilege renewables as the only “clean” route to a low-carbon economy. Governor Brown’s former girlfriend, Linda Ronstadt, recently joined celebrities who have made a second career off opposing Diablo in sending a letter of opposition to relicensing. Not surprisingly the state’s 50 percent renewable standard—enshrined on Governor Brown’s watch–excludes nuclear.

The bargain would let Diablo’s duel reactors run until 2024 and 2025 but retire them 20 years before their useful life is up, in 2044, 2045. The groups claim Diablo’s power would be replaced by renewables and by energy efficiency, but as Rod Adams, blogging for Forbes noted:

“That’s a deceptive fig leaf; it is physically impossible for wind, solar and energy efficiency to replace the steady production of a nuclear power plant. Producing the same total number of kilowatt-hours each year is not the same as producing the same kilowatt-hours on a minute by minute, hour by hour or day by day basis.”

The wind doesn’t always blow and the sun doesn’t shine at night but a nuclear reactor generates zero emission electricity 24/7. In a state where industry continues to flee (Toyota ran to Texas and Tesla opted for Reno) there just isn’t sufficient demand to manage over-generation. And for a company such as PG&E, beleaguered over the current criminal trial for a natural gas explosion, it was politics rather than economics that trumped the West’s last nuclear plant standing.

The timing could not be worse as parts of California are reeling from one of the worst heat waves to hit the Golden State at a time of year when it typically is blanketed by fog or “June Gloom.” In Southern California, grid operators are straining to meet demand in a system that both lost the San Onofre Nuclear Generating Station but also placed a moratorium on natural gas from Aliso Canyon. As a result of the Aliso Canyon moratorium, the state’s grid operator for this summer has forecast at least 14 rolling blackouts.

Renewables need fast-ramp natural gas to back off generation at midday, when solar generates a surplus, and then to ramp back up at night when the sun sets. California’s grid operator throws away or curtails as much as 13,000 megawatts of excess electricity per day. For the green extreme shuttering Diablo is the path to tossing away less solar.

Reliability is an issue but the green extreme’s well-kept dirty secret is that wind and solar have severe environmental downsides. Diablo’s closure will eliminate in 10 years the state’s last, steady reliable, pollution-free electricity source. Replacing Diablo with solar will require vast tracts of land. Siting those facilities pits NRDC against staunch conservationists dead set against displacing the desert tortoise. And wind kills hundreds of thousands of birds and bats annually. But the environmental downside is that renewables need to team with fossil to keep the lights on.

California has for years been banking on an unholy alliance between renewables and load-following natural gas. Moreover, California has already blown its climate change targets because 100,000 tons of potent climate-changing methane leaked unabated into the atmosphere from the Aliso Canyon natural gas field. In a world of unreliable renewables, electricity systems require something to keep the lights on. But unlike nuclear, natural gas is a fossil fuel. California’s apparent model — Germany — has watched climate pollution increase there as decommissioning nuclear plants has led Berlin to rely more on carbon-intensive coal to backup to wind and solar.

But the green extreme is mute on rising emissions. “It makes your skin tingle,” said Damon Moglen, senior advisor with Friends of the Earth, regarding Diablo’s closure. Probably the highly-skilled and decently-paid nuclear plant workers at Diablo are feeling that way too.

Although the price of electricity in the Eastern United States fell by half over the last decade, residential customers saw their monthly bills increase by 26 percent, according to government data. What accounts for this anti-market discrepancy?

Consumer advocates claim that power companies are using tumbling electricity costs as camouflage to increase other charges. Utilities push back, saying price hikes are necessary to pay for billions of dollars of government-mandated improvements to long-neglected infrastructure. Last year PPI held a “future grid” summit which posed this key question to the assembled experts: Who will pay for the modern grid we need? Now we may have an answer: consumers.

Electricity charges make up about a third of the average utility bill, down from around half just a few years ago. This decrease is due to a flood of cheap natural gas extracted by hydraulic fracturing, otherwise known as “fracking.” The rest of your utility bill consist of retail charges associated with delivering supplies—for example getting the electricity to the end user and adding enough capacity to handle demand surges.

Bernie Sanders may want to ban fracking, but the resulting glut of cheap gas is driving down the wholesale cost of electricity across his native Northeast. According to the U.S. Energy Information Administration, these low prices are attributable to warmer than normal temperatures, additional pipeline infrastructure, and “the generally well-supplied and low-priced natural gas environment.” Northeast regional prices for electricity are just a fraction of what they were two years ago. For example, in January peak prices for the month in New England reached only $66/MWh down from $438/MWh January two years ago. New York has similar numbers peaking at $71/MWh this year as opposed to $518/MWh two years ago.

Thanks to these low, low prices, utilities have room to pass along the costs of modernizing our outdated electricity grid to residential consumers without their bills exhibiting dramatic spikes. The rapid deployment of intermittent renewable energy resources on the U.S. power grid is partly responsible for rising delivery costs. This evolution away from large, centralized power plants toward smaller, more widely distributed generation sources means utilities must install digital sensors, meters, and more power lines, the costs of which are passed along to consumers.

According to the Edison Electric Institute, the trade association for investor-owned utilities, their member companies spend $20 billion annually on upgrades to the distribution grid alone. Without cheap natural gas electricity consumers would certainly bear a heavier share of these costs. In other words, without fracking, U.S. consumers won’t be reaping the benefits of more renewable energy and a smarter and more reliable grid. And when their electricity bills start to soar, they will really be feeling the burn.