DOE Establishes $6 Billion Civil Nuclear Credit Program

Background
Last year, the Biden administration set a target to reduce U.S. greenhouse emissions by 50-52 percent from 2005 levels by 2030, positioning the United States to decarbonize in a way that creates more jobs and ensures economic competitiveness. White House national climate adviser Gina McCarthy has pointed out that maintaining existing nuclear capacity is “essential” to reaching these goals. Her comments reflect the fact many U.S. nuclear plants are at risk for early closure, struggling to compete with low natural gas prices in markets that don’t always recognize the benefits of zero-carbon electricity. The closure of these plants would increase air pollution, cost thousands of high-paying jobs, cause losses to local economies and impede national goals for reaching net-zero. To address this issue, the Bipartisan Infrastructure Law appropriated funds to be allocated by DOE to certified nuclear reactors in order to prevent closure of carbon-free nuclear generation due to economic factors. 

The BIL directs the Secretary of Energy to establish the Civil Nuclear Credit Program, under which the DOE will evaluate reactors which are at risk of ceasing operations, certify reactors for program eligibility, and then allocate credits to certified reactors over a four-year period. The BIL provides that certification will be based on determinations of economic need, that cessation of operations would result in a projected increase in air pollutants, and that the U.S. Nuclear Regulatory Commission (NRC) has reasonable assurance that the reactor will continue to operate safely. Readers can learn more detail about the CNC Program here.

On February 10, 2022, DOE issued a NOI/RFI soliciting feedback on its proposed plan for implementing the CNC. The NOI/RFI outlines DOE’s proposed approach for implementing the CNC Program, and describes the seven certification categories under which DOE intends to evaluate applications. The NOI/RFI provides more granular detail on both the certification process and certification categories than was included in the BIL, and therefore helps potential applicants better understand the specific metrics DOE will use to award credits.  

Proposed Implementation Process
The NOI/RFI explains that the DOE’s implementation process will consist of three key steps: receiving and evaluating applications for certification of eligibility, receipt of sealed bids for credits from certified nuclear reactors, evaluation of sealed bids and allocation of credits and funds distribution. 

Under this process, applicants will first need to be certified by DOE for eligibility. DOE intends to issue a detailed Request for Applications for Certification, which will explain the evaluation framework and criteria for certification. The NOI/RFI describes the twelve elements DOE plans to guide its evaluation of applications for certification: inclusivity, confidentiality, acceptance of applications, standards of analyses and representation, evaluation of applications, NRC assurance, consultation with other agencies, terminology, credit allocation and funds disbursement, audit processes, adjustment mechanisms and recapture mechanisms. 

Of these elements, DOE’s proposed standards of analyses and adjustment mechanisms are likely to be of particular interest to potential applicants. First, with respect to DOE’s standards of analysis, the NOI/RFI explains that DOE recognizes that economic factors are specific to each reactor, and therefore proposes to request that applicants make a representation as to the economic situation of the reactor, which may also include providing their modeling approach, data and methodology. The NOI/RFI specifically requests comment on whether the DOE should establish a standard modeling approach and methodology that applicants must complete in addition to or instead of the modeling approach and methodology used by the applicant. Potential applicants should consider whether their economic case, as compared to other potential applicants, would be better represented under their preferred modeling approach or under a standardized modeling approach, and are encouraged to comment accordingly. 

Second, regarding DOE’s adjustment mechanism, the BIL obligates DOE to provide for recapture of allocated credits if actual economic performance during the period is such that the reactor did not operate at an annual loss in the absence of an allocation of credits. The NOI/RFI explains that DOE may need to create an annual settlement mechanism. Several state Zero Emissions Credit (ZEC) programs, which make ZECs available to nuclear power plants, use markets to adjust ZEC values. DOE may require applicants to propose an index mechanism or strike price for adjustments, or DOE may instead select its own index or methodology to impose on all applicants. The NOI/RFI proposes that if an indexing mechanism is used, DOE will tie the index to economic factors related to the reactor’s operating profit or loss, including changes in energy and capacity prices and any benefits received from federal or state programs (e.g., ZECs or tax credits). Potential applicants should consider the impact of such programs on their economic circumstances and are encouraged to provide comments to DOE that will best support their reactors given any applicable state programs.

Proposed Certification Criteria
The NOI/RFI also provides detail about DOE’s implementation of the seven certification categories outlined in the BIL: demonstration that the reactor competes in a competitive electricity market; demonstration that the reactor is projected to cease operations due to economic factors; estimate of emissions impacts; the applicant’s proposed post-support operations plan; the source of uranium used by the applicant; NRC assurance of safe operation, and “other information,” which DOE may require applicants to submit at its discretion. Of note:

• The BIL requires that to be eligible a reactor must “compete[] in a competitive electricity market.” DOE’s NOI/RFI seeks comment on whether a number of stated commercial arrangements would satisfy this standard, including market dispatch by an Independent System Operator or Regional Transmission Organization, participation in another market-based selection mechanism, such as a capacity market, sales from the reactor using Federal Energy Regulatory Commission market-based rate authority, merit order dispatch, or selection via a competitive solicitation administered by a state utility commission.
• The NOI/RFI describes the economic factors for determining whether a reactor is projected to cease operations due to economic factors. DOE proposes considering all sources of revenue, including power sales, payments for energy services, ZEC payments or other programs, including tax credits.
• The BIL did not provide detail on what “air pollutants” DOE must consider in awarding credits under the CNC. The NOI/RFI proposes air emissions impact be based on the six criteria air pollutants (carbon monoxide, lead, ground-level ozone, particulate matter, nitrogen dioxide and sulfur dioxide) defined by the U.S. Environmental Protection Agency (EPA), as well as carbon dioxide and methane.
• DOE explains that for the BIL’s uranium and fuel source category, considered controversial by some, certification will not include any specific sourcing requirements, but that priority will be given to reactors that use, to the maximum extent available, uranium that is produced, converted, enriched and fabricated into fuel assemblies in the United States.

Specific Questions and Statement of Interest
In addition to DOE’s overall proposed CNC implementation plan, the NOI/RFI seeks comments on 12 specific questions, related to areas such as the evaluation criteria and certification methodology, regulatory or business barriers that might impede CNC implementation, most cost-effective process for allocating credits to bidders, and certification methodology to prioritize U.S.-produced reactor fuel.

In addition, in order to provide advance notice of the total number and type of interested reactors, DOE requests that interested parties submit to the department a confidential, non-binding notice of their interest in submitting a confidential application for the CNC Program.

DOE intends to allocate credits to as many certified nuclear reactors as possible and encourages the submission of applications for certification from all operating nuclear reactors that project ceasing operation due to economic factors. Each award is intended to cover a 4-year period, with funds distributed annually based on the allocation of credits. Up to $1.2 billion of appropriated funds in Fiscal Year 2022 may be obligated for the CNC Program.

Responses to the NOI/RFI addressing general program design and bid process are requested no later than 5:00 p.m. Mountain Time on March 17, 2022. Substantive responses relating specifically to the certification process should be submitted by 5:00 p.m. Mountain Time on March 8, 2022, to ensure that this feedback can be used to meet the DOE’s expedited schedule. All potential applicants are strongly encouraged to submit comments in response to DOE’s NOI/RFI, as the ultimate framework for CNC implementation may affect whether and how many credits a reactor receives. Pillsbury’s top-rated nuclear, tax and public policy teams stand ready to assist with such efforts.