Friday, March 10, 2006

How much will new nuclear power plants cost?

Nuclear advocates are saying that nuclear power is economic and cost-effective. But should we believe them?

The following is a digested summary of a paper by Steve Thomas of Greenwich University, from "Nuclear Power – Myth and Reality": a series of issue papers offered by Heinrich Böll Foundation.

The nuclear industry is notoriously secretive and has been highly 'economic with the truth' in the past. So when it says new nuclear power is cost-effective, how should we evaluate their figures?

Untested processes

Many of the industry's forecasts' assumptions relate to processes which have not been proven on a commercial scale, such as decommissioning and waste disposal, especially for long-lived low-, intermediate-, and high-level waste. All experience of nuclear power suggests that unproven processes could easily cost much more than expected.

There is also a lack of reliable, up-to-date data on actual nuclear plants. Utilities are notoriously secretive about their costs and there's only been a handful of recent orders in Western Europe and none in North America. All the modern designs are therefore more or less untested.

Gaps between forecasting and reality

Over the past 40 years, there has consistently been a wide gap between the performance of nuclear plants and the forecasts made for them before they were built.

This gap is as wide as ever between current forecasts of the economic performance of the next generation of nuclear power plants and that of the existing plants.

This does suggest that forecasts relying on major improvements in performance should be treated with scepticism.

The most important assumptions are on construction cost, operating performance, running costs, and the cost of capital/discount rate.

Cutting costs means cutting quality

The conventional wisdom in the industry has been that construction costs must be about $1,000/kW for nuclear to be competitive with combined cycle gas-fired generation (which costs about $500/kW). Even the most optimistic forecasts are nowhere near $1,000/kW.

But many are around $2,000/kW. The rise in gas prices in the past couple of years, if sustained, will make nuclear seem a bit more competitive but probably not enough to pay for a doubling of expected nuclear construction cost.

There's therefore the risk that companies will try to cut costs through measures that in the long run will prove unwise.

In the 1960s when the economics of nuclear power were found to be worse than forecast, cuts were made on materials and by rapid scaling-up. This made things worse in the long run.

For example, steam generators in PWRs had to be replaced at great expense and requiring a shutdown of about a year, sometimes after only fifteen years,
because the material used was not durable enough.

Optimistic load forecasts

Of the current forecasts, the one that appears to be based on an actual contract cost, the Lappeenranta study, uses a significantly higher construction cost forecast. But the bid which is the basis for the study, Olkiluoto, was below the economic price.

Operating performance forecasts typically suggest load factors of 90 percent. But this is far above the level achieved so far and achieved only by the most reliable plants.

Cost of capital

The most difficult assumption is the cost of capital. In some cases, the assumptions would only be credible if the owners of the plant were allowed full cost recovery.

This is almost inconceivable in the current competitive market. So subsidies by taxpayers or consumers would be needed.

Falling foul of state aid laws

It is questionable whether this would be politically viable or acceptable under European Union state aid laws.

Therefore a discount of at least 15 percent is likely to be imposed, resulting in generation costs of at least 4p/kWh.

So, for new nuclear power plants to be built, extensive government guarantees and subsidies would be required, for:
  1. construction
  2. operating performance
  3. non-fuel operations and maintenance
  4. nuclear fuel
  5. decommissioning
There might also need to be agreements that the output would be bought at a guaranteed price. It seems doubtful that such an extensive package of 'state
aids' would be acceptable under EU competition law.

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