1. ELECTRICITY MARKET RESTRUCTURING AND INVESTMENT IN NUCLEAR POWER GENERATION Evidence 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. U.S. Nuclear Generation Overview 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Introduction Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Page 2

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

4. How did US nuclear fleet increase electricity generation by 200 million MWh? Improvement of plant availability & efficiency Capacity Factor over 90% in average power uprates 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Introduction Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion Page 4

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

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

7. Power Uprates (PUs) 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 7 US Nuclear Power Uprates Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

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

9. Nuclear generation investment in regulated and competitive regimes 53 53 reactors under regulated regime: guaranteed rate-of-return and cost recovery subject to approval by state public utility commission 51 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 9 Research Design Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

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

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

12. Power Uprates Data 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 12 Data Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

13. Coefficient estimates of “Regulatory” variable (1) Any three types of PU (2) MUR PUs (3) Stretch PUs (4) Extended PUs Panel 1 # of PUs.0514068** (.0223383) -.0006154 (.0103893 ).0362955** (.0149699 ).0157267 (.0121333 ) Panel 2 Capacity of PUs (MWt) 11.60237** ( 4.602471 ).2072741 (.4424873 ) 5.661013** ( 2.276281 ) 5.734086 ( 4.001424 ) Note: All regressions are with year fixed effects and reactor fixed effects. Robust standard errors are reported in the parenthesis. ** indicates significance at the 5% level. Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 13 Results Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

14. Preliminary Results 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. Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 14 Results Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

15. Implications for Investment of New NPPs 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 MWe mPower reactor Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 15 Conclusion Introduction US Nuclear Power Uprates Research Design Econometric Model Data Results Conclusion

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

17. Econometric Specification 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 Chen-Hao Tsai presentation @ 30th USAEE/IAEE North American Conference Page 17