How did these nuclear plants magically become so much more effective? It all comes down to incentives. After deregulation, Wolfram told me in a phone interview, plant owners could now make a profit by selling as much electricity as possible on the wholesale market. That gave the owners incentives to make small tweaks like reducing the amount of time that the reactors needed to be shut off for refueling. That involves a lot of tricky organizational maneuvers, and until deregulation, operators rarely felt the need to figure it out.
And there are all sorts of small tweaks like this that get ignored because of misaligned incentives. Even today, Wolfram notes, many U.S. power plants still don’t have incentives to operate as efficiently as possible. There are many coal plants in the Southeast that are regulated under “cost-of-service” rules, in which power plants can pass their fuel costs onto consumers. That means there’s less reason to operate as efficiently as possible. And a carbon tax wouldn’t necessarily fix this — not if utilities could just pass costs onto consumers.
The National Bureau of Economic Research - Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power
For the first four decades of its existence the U.S. nuclear power industry was run by regulated utilities, with most companies owning only one or two reactors. Beginning in the late 1990s electricity markets in many states were deregulated and almost half of the nation’s 103 reactors were sold to independent power producers selling power in competitive wholesale markets. Deregulation has been accompanied by substantial market consolidation and today the three largest companies control more than one-third of all U.S. nuclear capacity. 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.
And a variety of research (pdf) suggests that small improvements in operations could boost the overall efficiency of the U.S. coal fleet by as much as 5 percent. (Wolfram, for instance, has found that a coal plant’s efficiency can vary as much as 3 percent depending on the skill of the guy sitting at the controls.) That may not sound like much, says Buchkeit, but spread across hundreds of coal plants, there are real carbon savings to be had here.
Truly significant gains could be had are in China and India. Both countries are building coal plants at a staggering pace, with coal accounting for 70 to 80 percent of their electricity. For the most part, their plants are often newer and more efficient than coal plants in the United States. But plant owners in these countries don’t necessarily have incentives to operate these plants as efficiently as possible.”
“Back-of-the-envelope calculations,” Wolfram estimates, “suggest that improving the fuel efficiency of Chinese coal plants by about 5 percent would offset more carbon emissions than all of the non-hydro renewable energy in the world.
If you liked this article, please give it a quick review on ycombinator or StumbleUpon. Thanks