Nuclear Industry Subsidies Part II: The Mining Sector

Doug Koplow, in a Union of Concerned Scientists report titled, Nuclear Power: Still not viable without subsidies," has offered us an attempt to assess subsidies offered by the Government to the Nuclear Industry. Koplow charges that one form of government subsidy has to do with Uranium mining,

The mining and milling stages have historically been environmentally damaging, and available data (Table 15, p. 61) indicate the taxpayer cost to address these issues has rivaled the market value of the minerals extracted.

Yet the sale price of Uranium made fuel an almost insignificant part of nuclear power costs. The World Nuclear Association notes,

Fuel costs are one area of steadily increasing efficiency and cost reduction. For instance, in Spain the nuclear electricity cost was reduced by 29% over 1995-2001. This involved boosting enrichment levels and burn-up to achieve 40% fuel cost reduction. Prospectively, a further 8% increase in burn-up will give another 5% reduction in fuel cost.

Uranium has the advantage of being a highly concentrated source of energy which is easily and cheaply transportable. The quantities needed are very much less than for coal or oil. One kilogram of natural uranium will yield about 20,000 times as much energy as the same amount of coal. It is therefore intrinsically a very portable and tradeable commodity.

The WNA argues that increases in nuclear guel costs has little effect on the cost of nuclear produced electricity.

The WNA reports:

Doubling the uranium price (say from $25 to $50 per lb U3O8) takes the fuel cost up from 0.50 to 0.62 US cents per kWh, an increase of one quarter, and the expected cost of generation of the best US plants from 1.3 US cents per kWh to 1.42 cents per kWh (an increase of almost 10%). So while there is some impact, it is comparatively minor, especially by comparison with the impact of gas prices on the economics of gas generating plants. In these, 90% of the marginal costs can be fuel. Only if uranium prices rise to above $100 per lb U3O8 ($260 /kgU) and stay there for a prolonged period (which seems very unlikely) will the impact on nuclear generating costs be considerable.

Nevertheless, for nuclear power plants operating in competitive power markets where it is impossible to pass on any fuel price increases (ie the utility is a price-taker), higher uranium prices will cut corporate profitability. Yet fuel costs have been relatively stable over time – the rise in the world uranium price between 2003 and 2007 added to generation costs, but conversion, enrichment and fuel fabrication costs did not followed the same trend.

For prospective new nuclear plants, the fuel element is even less significant (see below). The typical front end nuclear fuel cost is typically only 15-20% of the total, as opposed to 30-40% for operating nuclear plants.

Kaplow claims that the Civilian Nuclear power industry is subsidized by government tax policies that benefit all mines.

Subsidies to uranium mining and milling come through three main routes. First, special percentage-depletion allowances for uranium allow highly favorable tax treatment for this mineral. Second,“hardrock” mining on public lands, including uranium mining, is governed by the arcane and archaic Mining Law of 1872. This law, which has withstood numerous attempts at modernization, enables extraction of hardrock minerals with very low payments and no royalties, and it includes patenting provisions that allow public land to be privatized for only a few dollars per acre. Third, there are bonding requirements for post-mining restoration, but they are too modest, resulting in significant residual damage at uranium mines—a public health and safety obligation that falls to the taxpayer. The government has also historically sought to main- tain a strategic stockpile of uranium, though the impacts of this effort on the industry have varied over time—sometimes reducing costs to users, and other times restricting cheaper supply and driving up prices (PNL 1978: 118–126).

But note that these government policies are not intended to subsidize the Civilian nuclear power industry directly.

Terms like Uranium mine or uranium minor do not give us enough information to determine whether the mine operator should be classified as part of the Civilian Nuclear power industry. So who owns the Uranium mines. I noticed that two American uranium mines were owned by Cameco , which also owns uranium mines in Canada and Kazakhstan. A glance at the Wikipedia reveals that Cameco stands for Canadian Mining and Energy Corporation. The Cameco web page reveals that Cameco would definitely belong in the Canadian Nuclear industry,

Refining & Conversion

Cameco is a major supplier of uranium processing services required to produce fuel for the generation of clean electricity.

Cameco's Port Hope conversion facility is one of only four commercial uranium hexafluoride (UF6) production plants in the western world. UF6 is exported to international customers, to be enriched for use in light water nuclear reactors. The Port Hope facility is also the world's only commercial supplier of natural uranium dioxide (UO2) conversion services needed to produce fuel for Candu nuclear reactors. Both processes receive refined uranium (UO3) feed from Cameco's uranium refinery located in Blind River, Ontario.

Cameco also has access to additional UF6 capacity through a toll processing agreement with the Springfields Fuels Limited plant located in Lancashire, UK.
Fuel Manufacturing

Cameco operates a fuel manufacturing facility in Port Hope, Ontario and a metal fabrication facility in Cobourg, Ontario. The company manufactures and sells the fuel bundles used in Candu reactors, serving nuclear utilities in Canada. The company also makes reactor components and provides nuclear fuel and consulting services to Candu operators around the world.
Power Generation

Cameco produces nuclear electricity through our 31.6% share of the four Bruce B reactors at the Bruce Power nuclear power generating site, North America's largest nuclear generating station, located in Ontario, Canada.

Thus Cameco is a part of the Canadian Civilian Nuclear power Industry. Camieco owns about half of the Uranium currently mined in the United States of America. But the American uranium mining industry is small compared to the Uranium mining Industries of Canada, Australia, and several other countries. Thus the tax subsidy policies of the United States Government has little effect on the cost of uranium ore. However, in the past this might have been different.

During World War II most of the Uranium used by the Manhattan Project came from Canada or the Belgium colony of the Congo. After World Wat II, the United States Government sought to develop domestic uranium supplies, for national security reasons. There is no doubt that during the 1940's and 1950's the United States Government heavily subsidized exploration for uranium as well as domestic uranium mining. The February 1949 issue of Modern Mechanix reported,

the Atomic Energy Commission desires desperately to uncover any new sources of worthwhile ore and the commission has announced that a $10,000 prize or bonus will be paid for the delivery of 20 tons of ore or concentrates that assay 20 percent or more in uranium oxide, provided that the material comes from a new, previously unworked deposit. In addition the commission will pay for the ore at the ordinary price. The offer applies to any discoveries inside the United States, its territories, possessions and the Canal Zone. . . .

The guaranteed minimum AEC price for uranium ores is at the rate of $3.50 per pound of uranium oxide that is recoverable from the ore, less refining costs, plus allowances for other valuable minerals that may be contained in the ore. Carnotite ores are priced on a different schedule at rates that vary from 30 cents to $1.50 per pound of contained uranium oxide, plus certain bonuses, plus allowances for other valuable constituents. Carnotite purchases are made in minimum lots of 10 tons. Ores that assay less than 0.10 percent uranium oxide or that contain excessive quantities of lime are not purchased.

During the Middle 1950's the United States Atomic Energy Comission (AEC) paid out over $2,000,000 for new uranium discoveries with some prospectors reportedly making $150,000 a month. For example uranium deposits were discovered near Moab, Utah

in 1952 by Texan prospector Charles Steen, who went on to make millions of dollars . . .

The AEC financed uranium rush was not intended to subsidize the domestic nuclear power industry however, rather

large uranium ore deposits were first tapped for the voracious Cold War nuclear weapons program in the early 1950s, . . .

The AEC purchased uranium to go into nuclear bombs, nuclear warheads, and reactors meant to power submarines, not domestic power reactors. Thus past domestic uranium subsidies were intended to produce uranium for military use, and not to subsidize the Civilian Nuclear power industry. The subsidies did not in fact produce a flourishing domestic uranium mining industry, and indeed once the military demand for uranium slowed, the domestic Uranium mining industry withered on the vine, because American produced uranium was more expensive than military surplus uranium, much of it coming from Russia, that was offered to civilian power reactors bythe United States Government. The intent of this program was to dispose of unwanted Russian weapons grade U-235 which the United States government feared would fall into evil hands and then used by terrorists and third rate failed states, to attack more peaceful countries.

Paradoxically if domestic uranium mining is to be counted as part of what is included in the American domestic nuclear industry. the sale of low cost Russian U-235 to the American Civilian Nuclear Industry has weakened the mining sector of that industry. But if the United States government had stockpiled Russian uranium which it purchased to keep it away from evil hands, the domestic uranium mining industry would not have profited nearly as much as foreign uranium mines, that do not receive receive U.S. Government subsidies. The price of uranium would have risen, but this would have little effect on the cost of producing nuclear power in the United States as we have seen.

Thus past large U.S. Government uranium mining subsidy policy was related to national security concerns, and failed on a long term bases to offer positive economic benefits to the domestic uranium mining, reactor manufacture and nuclear power production segments of the domestic nuclear power industry. Thus the so called "legacy" uranium mining subsidies would have been paid whether on not there was a domestic nuclear power industry, and much of it was paid before the inception of the civilian nuclear power industry.

The current subsidy to the domestic uranium mining industry large enough to effect its fate. Koplow acknowledges,

An estimate by the Texas comptroller (2008) pegged uranium’s share of this provi- sion at an insignificant $0.5 million for 2006, and that for coal at less than $30 million. In contrast, the Joint Committee on Taxation estimated total subsidies from percentage depletion flowing to fuels other than oil and gas to average $160 million per year between 2008 and 2012 (JCT 2008: 62). This figure, which applies to coal and uranium, is more than five times the Texas comptroller’s estimate.

Kaplow acknowledges the weakness of this data,

Three factors call both of these estimates into question.

And then plows ahead to claim on the basis of a guess that,

the subsidy value of percentage-depletion allowances for uranium is about $25 million per year.

Nor does Kaplow acknowledge the subsidies to the Oil, natural gas, coal, wind, solar thermal and photovoltaic industries.

Kaplow notes

between 1994 and 2007 the share of domestic uranium purchased by the civilian sector dropped from more than 20 per- cent to less than 8 percent . . .

Then he observes,

Surging uranium prices in the past few years have greatly increased interest in uranium mining throughout the West . . .

But the few U.S based active Uranium mines produce only a tiny amount of the Uranium produced by the United States nuclear power industry, and half of the uranium produced comes from Canadian owned mines.

Kaplow talks about legacy costs, for example claiming

Uranium-tailing remediation costs approach the value of ore. . . . The cost per pound of U3O8 produced, even using values only through 1999 (scaled to 2007 dollars), exceeded the average value of uranium during the period tracked by the EIA prior to the commodity price spikes that began in 2006. Even with surging prices included, socialized remediation costs were still more than 80 percent of the value of the ore produced during the period. Assuming full remediation costs, including all Title I sites, Title II sites, and unfunded liabilities associated with uranium mine and enrichment facilities, the degree of subsidy to upstream processes would grow even more substantially.

But most of those tailings were produced by the mining of uranium for military purposes. A small percentage of those tailings can be legitimately be assigned to to the nuclear power industry. Yet Kaplow appears to believe that every penny payed by the government for uranium mine site reclamation is a subsidy to the domestic nuclear power industry.

To cover the cost of proper mine reclamation, it is reasonable to assume that the price per pound of U3O8 would need to have roughly doubled. Based on data from the World Nuclear Association (WNA 2009b) on the contribution of raw uranium prices to the delivered price of nuclear power, the underpricing of uranium has generated a subsidy to nuclear power of 0.13 to 0.32 ¢/kWh of resultant nuclear electricity produced. It is striking that this range exceeds what the industry currently pays the federal government to take full responsibility for its nuclear waste from reactors.

Is government cleanup of domestic uranium mines that was on federal own lands, and were mined because the government was purchasing uranium for military purposes, really a subsidy? Or is the government taking care of a responsibility which was its all along. Kaplow argues that government policy should have included bonding of uranium mines for the environmental consequences of its mining, but the government through its various arms was the principal consumer of uranium during the uranium rush days, and it made the rules easy so that uranium would be easy to obtain. Thus the uranium tailings were the consequence of government desires to lower military costs, not to benefit a civilian nuclear power industry. Thus the tailings clean up responsibilities can be largely assigned to the United States government, and thus is not a legacy subsidy for the nuclear power industry.

In the nest part of this review, I will look more carefully at Kaplow's claims about the complex relationship between United States national security interests and the civilian nuclear power industry.

The British Wind Scam

Richard North of EU Referendum, and Patrick Sawyer and Christopher Booker of The Sunday Telegraph have this weekend been taking 2 by 4s after British windmills over the issue of subsidies. This amounted to piling on after the BBC's Simon Cox socked it to the Windmills earlier this month.

Together they supply a devistating critique of the wind industry, and the corrupt motives that lie behind T. Boone Pickens' energy plan.

Simon Cox reported on the BBC about the problems of the Danish wind model:

Denmark is the poster boy for wind power - 20% of the electricity it generates comes from wind, it claims. Horns Rev can provide enough power for 150,000 homes. On the day I visited it would be lucky to power a village,

Cox interviewed energy expert Hugh Sharman, who described Denmark's export of wind generated electricity:

"Every time the wind is high, the exports are high. Every time the wind is low, of course there are few exports".

Sherman stated that Denmark only uses 9% of the the electricity it generates. Cox demonstrates that the only way the Danish system works is the ability of Denmark to export electricity to Scandinavia and Germany, and import it back. cox observed that the UK does not have the import-export option. Of course UK "environmentalists", like Nick Rowe of the Friends of the Earth, support the use of fossil fuels as wind back up. But Dieter Helm, professor of energy policy at Oxford University, thinks this is

"about the worst possible thing that one could conceive of given what's going on in Russia and given our dependence on Russian gas supplies".

Cox notes that the wind plus natural gas back up scheme

could also prove costly. The energy company, E.On recently estimated back-up power could cost up to £10bn per year across all the energy suppliers. That would add £400 to the average annual household energy bill.

Patrick Sawyer's Telegraph article is dependent on information from the Renewable Energy Foundation , a UK energy think tank, that is not afraid the lay out the facts about renewable energy. Sawyer notea:

Critics insist that wind energy is too inefficient to replace the creaking network of fossil fuel power stations. Even with modern turbines, wind farms are unable to operate at full capacity because of the unreliable nature of Britain's wind.
The industry admits that for up to 30 per cent of the time, turbines are idle because wind speeds are either too low to turn the blades, or too high, risking damage to the machines.

Sawyer extensively relies on a REF report by John Constable and Robert Barfoot, which bitterly criticized wind subsidies in the UK. Sawyer observes

In 2006-07 more than £217 million was paid to energy firms under the subsidy scheme, known as the Renewables Obligation. Under the scheme, energy companies must obtain a proportion of their power from renewable sources, 6.7 per cent at present rising to 15 per cent by 2015. Those that fail to meet these targets pay a fine that is then shared between all the companies that have obtained energy from "green" sources. For every megawatt of green energy they sell, a company receives about £50 at present.

The Renewable Energy Foundation says that consumers ultimately end up funding the subsidies because energy firms that pay fines pass the costs on to customers.

Sawyer further states:

Critics have estimated that by 2020 the cost of the Renewables Obligation could rise to more than £3 billion.

Booker is on the warpath against wind. Like me, Booker was not always a wind opponent. "Six years ago", Booker stated,

when I first seriously looked at what they actually contribute to our energy needs and our environment, I had a profound shock. It was clear that the craze for wind energy had become one of the greatest self-deceptions of our time.

Far from being “free”, wind is one of the most expensive ways of generating electricity yet devised. Without an almost 100 per cent subsidy, unwittingly paid by all of us through our electricity bills, no one would dream of building giant wind turbines in Britain, because their cost is not remotely competitive.

Turbines are hopelessly ineffectual. The amount of electricity they deliver is derisory. The total power generated by all the 2,300 turbines so far built in Britain — covering hundreds of square miles of countryside and sea — averages just over 600 megawatts in a year, less than that contributed by a single medium-size conventional power station.

Most serious of all, however, is the fact that wind energy is hopelessly unreliable, for the simple reason that wind speeds are not only constantly changing but wholly unpredictable. One minute a turbine may be whizzing round, generating at full capacity; the next the wind drops and the turbine is contributing only a fraction of its capacity or nothing at all.

Booker's findings track closely with my own. Thus while I disagree with many of Booker's views including his skepticism about climate change, I think he is correct about wind.

Booker scores against the fundamental dishonesty of the wind Lobby:

The best-kept secret of the wind industry, however, which continues to fool both politicians and the media, is its trick of referring only to the contribution of windmills in terms of their “installed capacity”, as if that is what they will actually deliver. They talk about a “16 megawatt” wind farm “powering x thousand homes” as if that is the contribution it will make to our electricity needs. Yet in reality, thanks to the intermittency of the wind, a turbine will on average produce through the year only a quarter of its capacity.

The success of this deception means that politicians almost invariably exaggerate the potential benefits of wind power by a factor of four. And of course the other great trick is to conceal the fact that all this must be paid for by that huge hidden subsidy.

The real danger of the “great wind scam” is that it takes the eyes of politicians off the real energy crisis fast approaching us, so that we are not building the proper power stations we need to keep our lights on. That is why it will one day be looked back on as having been one of the most incomprehensible blunders of our age.

Richard North comments:

The main problem is that the generosity of the subsidy scheme is diverting cash from investment in longer-term schemes such as nuclear, and also driving generators to invest in increasingly expensive gas, this being the most suitable back-up for wind.

North quotes Constable and Barfoot:

"The market for renewable energy is an artificial one created and maintained by government legislation. The question is whether this consumer-derived money is well spent. It is worth noting that the excessive subsidy offered to onshore wind development has drawn developers even to sites where the wind resource is very weak and the environmental impact severe."

North describes how British wind is a tremendous scam on the pun;ic:

As an example of the way the rip-off works, pictured above left is one of the existing subsidy wind farms – 23 x 400 KW turbines at Ovenden Moor, on the bleak flanks of the Pennines just outside Halifax. Built in 1993 at the cost of £10 million with the aid of an EU grant of £1.3 million (approx), last year the installation earned for its owners, E.on, a cool £1,004,850 in Renewables Obligation Certificate (ROC) subsidy, recovered by a surcharge on electricity bills.

This is an installation rated at 9.2 MW, theoretically capable of producing 80,592 MWh but, with a load factor of only 27.71 percent, it actually produced 22,330 MWh. At today's inflated wholesale price of £85.58 MWh for electricity, that output would earn £1.9 million in sales, potentially earning the installation just short of £3 million a year when the ROC subsidy is added. For an investment of less than £9 million, this is an extremely attractive rate of return and it is thus easy to see why generators are piling into wind.

And you wonder why T. Boone Pickens loves wind so much.

T. Boone Tells It Like It Is

From a T. Boone Pickens interview with Fast Complany.com's David Case.

Pickens: "I'm not going to have the windmills on my ranch. They're ugly. . . ."

Question: "So whose land is it going on?"

Pickens: "My neighbors', . . ."

Question: "What happens if Congress doesn't extend the $20-per-megawatt-hour Production Tax Credit for wind -- set to expire December 31? On a project this size, that's an $80,000 deduction every hour at full capacity."

Pickens: "Then you've got a dead duck. It would be hard to go without a subsidy."

Question: "What about when the wind doesn't blow?"

Pickens:"That's the problem with wind generation. You've got to supplement it with a gas-fired or coal-fired source so whoever buys it gets continuous 24-7 generation."

Comment: Do you get the picture?

Solana, subsidies and future solar cost

I have some more solar (CSP) construction cost and performance data. Solana CPS facility under construction at Gila Bend, Ariz., will have a name plate capacity of 284 megawatts. The facility will cover about 1,900 acres. And its cost is piously estimated at 1 Billion. No power output estimate is reported but the power will reportedly sell for 4 billion dollars over a 30 year period of time. Assuming a 23% capacity factor that we calculated from Nevada Solar 1, the daily power out put would be 24 X 280 MWs X .23 = 1.5456 GWh Per day, The $1 billion dollar figure would appear to be proportional the Nevada Solar 1 construction costs which ran little more that $4 million per name plate MW. $4 Million X 280 MWs = $1120 Million. 1 Billion would be about 10% less, but who wants to bet on the $1 Billion figure considering inflation? We had to go with a dummied up capacity factor from Nevada Solar 1, but as we will see the data is not out of line. We get an average of 192 MWh electrical production. Now lets try out our .23 per KWh cost figure. 192 MWh is worth 192,000 X .23 X 8 = $253,280 x 365 = $128,947,200 which is remarkably close to $4 Billion divided by 30 years = 133,333,333.

We also have a similar land use pattern. 280 MW of name plate power requires 3 square miles of land. We don't have any information on water use yet. The Solana data set is fat from complete and our cost figure is far from final but the data I do have increases my confidence in the Nevada Solar 1 data set and conclusions I have drawn from it.

Solar investment exists because of government subsidies: The government now pays 30 percent of the capitol investment costs of businesses that invest in solar power to meet our energy need.

Renewable energy production tax credit: This program gives wind, solar, geothermal and other renewable power sources a leg up with a 1.9-cent per kilowatt-hour tax credit, which makes them more competitive with natural gas or coal-fired power plants. Every advocate of solar power believes that solar power in an "infant industry" that needs to be supported by such lavish subsidies. Failure to do so, the solar advocates tell me, will doom the human species to disappear from the face of our planet.

In addition to investments in solar arrays rate payers or tax payers are boing to pick up the tab on a $1.5 million per mile cost for new transmission lines.

Depending on various factors, building one MW of solar energy can involve an investment of up to $7 million. That is before interest, and does not include overnight energy storage. Solar theorist claim that solar investment costs are going to drop to a $3.5-5 million soon. It is not clear if that figure includes inflation, because the word inflation never appears in discussions of solar power. According to solar experts in the next few years the cost of solar facilities may drop as low as $2.5 million per MW. That is expected to happen shortly after the Starship Enterprise gets its warp drive coil.