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Tuesday, June 26, 2012

Nuclear Energy Policy

Mark Holt
Specialist in Energy Policy

Nuclear energy issues facing Congress include power plant safety and regulation, radioactive waste management, research and development priorities, federal incentives for new commercial reactors, nuclear weapons proliferation, and security against terrorist attacks.

The earthquake and resulting tsunami that severely damaged Japan’s Fukushima Daiichi nuclear power plant on March 11, 2011, raised questions in Congress about the disaster’s possible implications for nuclear safety regulation, U.S. nuclear energy expansion, and radioactive waste policy. The tsunami knocked out all electric power at the six-reactor plant, resulting in the overheating of several reactor cores, loss of cooling in spent fuel storage pools, major hydrogen explosions, and releases of radioactive material to the environment. The Nuclear Regulatory Commission (NRC) issued orders to U.S. nuclear plants March 12, 2012, to begin implementing safety improvements in response to Fukushima.

Significant incentives for new commercial reactors were included in the Energy Policy Act of 2005 (EPACT05, P.L. 109-58), such as tax credits and loan guarantees. Together with volatile fossil fuel prices and the possibility of greenhouse gas controls, the federal incentives for nuclear power helped spur renewed interest by utilities and other potential reactor developers. License applications for as many as 31 new reactors have been announced, and NRC issued licenses for four reactors at two plant sites in early 2012. However, falling natural gas prices and other circumstances have made it unlikely that many more of the proposed nuclear projects will move toward construction in the near term.

DOE’s nuclear energy research and development program includes advanced reactors, fuel cycle technology and facilities, and infrastructure support. The Obama Administration’s FY2013 funding request totals $770.4 million, which is $88.3 million (10.3%) below the enacted FY2012 funding level. DOE is requesting $65 million for FY2013 to provide technical support for licensing small modular light water reactors (LWRs), $2 million below the FY2012 funding level. The House-passed version of the FY2013 Energy and Water appropriations bill (H.R. 5325) increased nuclear R&D by $89.9 million from FY2012, while the Senate Appropriations Committee recommended a $20.1 million increase (S. 2465).

Disposal of highly radioactive waste has been one of the most controversial aspects of nuclear power. The Nuclear Waste Policy Act of 1982 (P.L. 97-425), as amended in 1987, required DOE to conduct a detailed physical characterization of Yucca Mountain in Nevada as a permanent underground repository for high-level waste. The Obama Administration decided to “terminate the Yucca Mountain program while developing nuclear waste disposal alternatives,” according to the DOE FY2010 budget justification. Alternative waste management strategies were evaluated by the Blue Ribbon Commission on America’s Nuclear Future, which issued its final report to the Secretary of Energy on January 26, 2012. The report recommended options for temporary storage, treatment, and permanent disposal of highly radioactive nuclear waste, along with an evaluation of nuclear waste technologies. It did not recommend specific sites for new nuclear waste facilities or evaluate the suitability of Yucca Mountain. No funding was provided in FY2012 or requested for FY2013 to continue NRC licensing of the Yucca Mountain repository, although the issue is currently the subject of a federal appeals court case. The House-passed FY2013 Energy and Water bill provided DOE with $25 million to resume Yucca Mountain licensing, along with $10 million for NRC. The Senate Appropriations Committee authorized a pilot program to develop one or more voluntary nuclear waste storage sites.

Date of Report: June 20, 2012
Number of Pages: 45
Order Number: RL33558
Price: $29.95

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U.S. Renewable Electricity: How Does the Production Tax Credit (PTC) Impact Wind Markets?

Phillip Brown
Specialist in Energy Policy

U.S. wind projects that use large turbines—greater than 100 kilowatts (kW)—are eligible to receive federal tax incentives in the form of production tax credits (PTC) and accelerated depreciation. Originally established in 1992, the PTC has played a role in the evolution and growth of the U.S. wind industry. Under existing law, wind projects placed in service on or after January 1, 2013, will not be eligible to receive the PTC incentive. Industry proponents are advocating for an extension of PTC availability, citing employment, economic development, and other considerations as justification for the extension. While a PTC extension may improve the prospects for U.S. wind development and manufacturing next year and beyond, the wind industry is influenced by a number of other factors. It is uncertain how the near- or long-term availability of the PTC incentive—in isolation of changes to other market factors—would either grow or sustain current wind development and manufacturing levels.

For 2012, the pending expiration of the wind PTC is actually creating a short-term surge in wind project development and related investment and employment. Wind installations in 2012 are expected to range somewhere between 10 to 12 gigawatts (GW)—a record year for the industry. However, market estimates for new installations in 2013 range from 1-2 GW if the PTC expires and 2-4 GW if the PTC is extended. Limited market activity in 2013 is partially explained by the uncertain nature of the PTC, which results in reduced manufacturing orders and development activity as developers and investors wait for official policy direction. Wind installation projections for 2014 and beyond vary with the assumed availability, and duration, of PTC incentives. However, all projections reviewed for this report expect annual U.S. wind turbine demand to be less than the existing U.S. turbine manufacturing capacity—approximately 13 GW per year.

Other factors that can affect wind development include (1) state renewable portfolio standards (RPS), (2) U.S. electricity demand growth, and (3) the price of natural gas. State RPS policies have been the primary demand creator for wind projects, in most cases, by requiring certain utilities to source a percentage of their retail electricity sales from renewable generators. Market analysis indicates that incremental RPS-driven demand for all sources of renewable power is estimated to be 4-5 GW annually until 2025. Additionally, U.S. electricity demand growth is expected to be modest for the foreseeable future, meaning that there will likely be modest demand for new electric power capacity. Finally, the price of natural gas can also influence wind markets. Low natural gas prices can erode the economic competitiveness of wind electricity, while high natural gas prices can result in opportunities for wind to compete economically without the PTC. Current estimates from the U.S. Energy Information Administration (EIA) project sustained low, but increasing, natural gas prices for the next several years.

By the end of 2012, Congress will either allow the PTC incentive to expire or it may choose to extend or modify the incentive. Should Congress decide to extend the availability of wind PTC incentives, the duration (e.g., two years, four years, permanent) of such an extension will likely be part of the policy debate. Generally, the shorter the extension the greater the short-term economic and employment activity as developers and investors accelerate development plans in order to qualify for the PTC incentive. However, this development acceleration is likely to reduce future RPS-driven demand. A permanent PTC is also a policy option that may be considered, and EIA estimates indicate that such a policy may actually reduce near-term wind capacity additions, with annual installations peaking at 4 GW in the 2030 timeframe. Higher natural gas prices, more aggressive RPS policies, and increased U.S. electricity demand could change this outlook.

Date of Report: June 20, 2012
Number of Pages: 19
Order Number: R42576
Price: $29.95

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Thursday, June 21, 2012

U.S. Solar Photovoltaic Manufacturing: Industry Trends, Global Competition, Federal Support

Michaela D. Platzer
Specialist in Industrial Organization and Business

Every President since Richard Nixon has sought to increase U.S. energy supply diversity. In recent years, job creation and the development of a domestic renewable energy manufacturing base have joined national security and environmental concerns as rationales for promoting the manufacturing of solar power equipment in the United States. The federal government maintains a variety of tax credits, loan guarantees, and targeted research and development programs to encourage the solar manufacturing sector, and state-level mandates that utilities obtain specified percentages of their electricity from renewable sources have bolstered demand for large solar projects.

The most widely used solar technology involves photovoltaic (PV) solar modules, which draw on semiconducting materials to convert sunlight into electricity. By year-end 2011, the total number of grid-connected PV systems nationwide reached almost 215,000. Domestic demand is met both by imports and by about 100 U.S. manufacturing facilities employing an estimated 25,000 U.S. workers in 2011. Production is clustered in a few states, including California, Oregon, Texas, and Ohio.

Domestic PV manufacturers operate in a dynamic and highly competitive global market now dominated by Chinese and Taiwanese companies. All major PV solar manufacturers maintain global sourcing strategies; the only U.S.-based manufacturer ranked among the top 10 global cell producers in 2010 sourced the majority of its panels from its factory in Malaysia. Some PV manufacturers have expanded their operations beyond China to places like the Philippines and Mexico. Overcapacity has led to a significant drop in module prices, with solar panel prices falling more than 50% over the course of 2011. Several PV manufacturers have entered bankruptcy and others are reassessing their business models. Although hundreds of small companies are engaged in PV manufacturing around the world, profitability concerns appear to be driving consolidation, with 10 firms now controlling half of global cell and module production.

The Department of Commerce and the U.S. International Trade Commission are investigating allegations that U.S. producers have been injured by dumped and subsidized imports from China. If significant duties are ultimately imposed, U.S. production could become more competitive with imports, but the cost of installing solar systems might rise. On the other hand, a number of federal policies that have helped to spur domestic demand for solar PV products have expired or reached their funding limits. These include the 1603 cash grant program and the advanced energy manufacturing tax credit; S. 591, which would extend the credit, has been introduced in the 112th Congress. Unless extended, the commercial Investment Tax Credit for PV systems will revert to 10% from its current 30% rate after 2016, while the 30% credit for residential investments will expire.

The competitiveness of solar PV as a source of electric generation in the United States will likely be adversely affected both by the expiration of these tax provisions and by the rapid development of shale gas, which has the potential to lower the cost of gas-fired power generation and reduce the cost-competitiveness of solar power, particularly as an energy source for utilities. In light of these developments, the ability to build a significant U.S. production base for PV equipment is in question.

Date of Report: June 13, 2012
Number of Pages: 33
Order Number: R42509
Price: $29.95

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Friday, June 15, 2012

The Low Income Home Energy Assistance Program (LIHEAP): Program and Funding

Libby Perl
Specialist in Housing Policy

The Low Income Home Energy Assistance program (LIHEAP), established in 1981 as part of the Omnibus Budget Reconciliation Act (P.L. 97-35), is a block grant program under which the federal government makes annual grants to states, tribes, and territories to operate home energy assistance programs for low-income households. The LIHEAP statute authorizes two types of funds: regular funds (sometimes referred to as formula or block grant funds), which are allocated to all states using a statutory formula, and emergency contingency funds, which are allocated to one or more states at the discretion of the Administration in cases of emergency as defined by the LIHEAP statute.

States may use LIHEAP funds to help households pay for heating and cooling costs, for crisis assistance, weatherization assistance, and services (such as counseling) to reduce the need for energy assistance. According to the most recent data available from the Department of Health and Human Services (HHS), in FY2008, 53.3% of funds went to pay for heating assistance, 3.1% was used for cooling aid, 19.0% of funds went to crisis assistance, and 10.1% was used for weatherization. The LIHEAP statute establishes federal eligibility for households with incomes at or below 150% of poverty or 60% of state median income, whichever is higher, although states may set lower limits. In both the FY2009 and FY2010 appropriations acts, Congress gave states the authority to raise their LIHEAP eligibility standards to 75% of state median income. In FY2009, the most recent year for which HHS data are available, an estimated 35 million households were eligible for LIHEAP under the federal statutory guidelines (45 million were eligible based on the appropriations provision). According to HHS, 7.4 million households received heating or winter crisis assistance and approximately 900,000 households received cooling assistance that same year.

For FY2012, the Consolidated Appropriations Act (P.L. 112-74) provided $3.472 billion for LIHEAP formula grants; there was no appropriation for emergency contingency funds. The amount appropriated for formula grants was actually $3.478 billion, but application of an acrossthe- board rescission of 0.189% for discretionary accounts resulted in the final appropriation of $3.472 billion. Funding for LIHEAP in FY2012 was about $1.2 billion less than was provided in FY2011, when Congress appropriated $4.5 billion for regular funds and $200 million for emergency contingency funds, but exceeded the President’s total request ($1.98 billion for regular funds and $590 million for emergency contingency funds) by about $900 million. HHS announced final distributions to the states on January 19, 2012 (see Table A-1).

For FY2013, the President proposed a total of $3.02 billion for LIHEAP, $2.82 billion in regular funds and $200 million in emergency contingency funds. The regular funds would be distributed similarly to the way in which Congress has appropriated funds since FY2009—a portion of funds, approximately $2.42 billion, would be distributed according to the proportions of the “old” LIHEAP formula, and the remainder, $403 million, distributed according to the “new” LIHEAP formula.

Date of Report: June 5, 2012
Number of Pages: 26
Order Number: RL31865
Price: $29.95

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