Markets for Power & the Efficient Operation of Nuclear Reactors

Lucas Davis and Catherine Wolfram at UC Berkeley’s Energy Institute at Haas have an excellent new working paper analyzing the impact of the deregulation of wholesale electricity markets on the efficiency with which nuclear power plants are operated. They examine as well the impact of consolidation in ownership of reactors:

We find that deregulation and consolidation are associated with a 10 percent increase in operating efficiency, achieved primarily by reducing the frequency and duration of reactor outages. At average wholesale prices the value of this increased efficiency is approximately $2.5 billion annually and implies an annual decrease of almost 40 million metric tons of carbon dioxide emissions.

They also look at one measure of the safety of operations–the number of scrams, or emergency shutdowns–and find that divestiture of a reactor from a regulated utility into an idependent power producer implies a 30% decrease in scrams. That’s based on a full regression, but here’s the raw data:

Efficiency and safety are often presumed to be in conflict. However, there has long been a view among observers of the nuclear industry that the situation may be the reverse: well run reactors are likely to also be run safely. This is an issue that deserves much more scrutiny. Lucas and Wolfram accurately represent their results on this particular point as simply one brief glimpse at a more complex problem.

In the broader public discourse, markets and regulation are often spoken about as opposites, which is not accurate. A well run market is well run in part because it operates under sound rules and regulations. They’re just different rules than the old cost-of-service system developed for electric utilities. And the discipline of wholesale power markets and government safety regulation can work in tandem. Lucas and Wolfram take note of the regulatory actions immediately post Three Mile Island as well as a specific case of stricter Nuclear Regulatory Commission enforcement during the Clinton Presidency that both played a role in improving safety in the performance of the reactors.

Left out of their discussion is the reforms to the liability insurance system and the interaction with the creation of INPO, the industry-wide best practice organization. As noted in our recent post on TEPCO, this is also a story worth looking into in more detail.

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