Fuel cycle

Penny for a fission

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When the nuclear industry first emerged, it promised us it would provide electricity "too cheap to metre". The industry broke its promise.

The slogan "Too cheap to metre" did indeed become widespread. However, it is wrong to attribute this to a marketing promise of the nascent nuclear industry. The person to use the phrase was the science writer, Lewis Strauss, in 1954, and it is unclear if he was even referring to nuclear fission at all. For a science writer, someone enthusiastic for technological advancement, the 1950s was an exciting time. As the world rebuilt from the Second World War, there was a surge of progress as new technologies promised to advance the quality of life of the average American, as well as the citizens of many other countries. This progress was not just the emergence of nuclear energy, but also advances in aviation, telecommunications, medicine, electronics and that much hyped fad, television.

Strauss, speaking to like minded science writers, embraced this evolution. He optimistically described a coming utopia courtesy of human ingenuity and in this Utopia, electricity would indeed become "too cheap to metre". Nuclear fission was offered as a stepping stone to this, but not necessarily the Holy Grail itself.

The nuclear industry itself was not so flamboyant in their predictions.

Nuclear power is too expensive.

This is highly variable. There are areas with secure access to low cost fossil fuels, where current nuclear technology is uncompetitive, Australia, with its vast high quality coal reserves, being an example. In other areas without such advantage, nuclear power has proven itself economic.

For nuclear economics, it is vitally important to keep the capital costs, the investment required to get the plant built in the first place, low. While this may seem like a truism universally, it is particularly critical for nuclear power plants because capital is such a large part of the overall cost of nuclear power. To see the importance of this, consider a study from Lappeenranta University of Technology in Finland published in 2000 on the economics of various forms of energy. Capital costs of nuclear were placed at around 60% of the overall cost. For gas, this was closer to 20%. If capital costs were to inflate by 25% due to cost overruns, then the overall cost of gas would increase by 5%, but the overall cost of nuclear would increase by 15%.

Opponents are keen to point to cost overruns in Generation II projects as evidence that the competitiveness of nuclear power is indeed vulnerable from a high risk of capital inflation. However, there has been much progress and many lessons learnt since then. The expediency of building Generation II reactors suffered because of in most places, each reactor was essentially custom built for the site. So each unit had its own investment cost for the design process. When it came to building them, it would be a first-of-a-kind and so the typical snags would crop up. Because each reactor was unique, there would have their own parts. The regulatory agencies would then step in with ever increasing regulation, which would force changes in the middle of construction, driving up costs and causing more mistakes to be made.

With Generation III+, much effort has been made to reduce these difficulties. The most fundamental change of approach has been for contractors to create standardised designs, they can market to customers as a complete package. By having one design to be repeated, the cost of design is shared between all units built. It also means that the licensing only needs to happen once and the only further requirement for the regulatory agencies is for an initial license of the site itself. This rapidly reduces the cost of the regulatory burden significantly. By having a standardised design, parts can be mass produced, making them cheaper, and experience from the first one or two units built can be used to make constructing the next units easier. Regulatory agencies such as the NRC have also worked towards eliminating frivolous lawsuits from opponents aimed at merely delaying and disrupting nuclear efforts.

All this, combined with the benefit of more advanced, efficient and simpler designs, has the potential to bring greater control to capital costs and if capital costs are under control, then nuclear power is economic. AECL boasts that under the new system they have delivered numerous nuclear projects across the world on time and on budget. It is true that not every project is successful in this regard, but that applies to any large capital project, Wembley Stadium and the Scottish Parliament being graphic examples.

The forecasts for energy economics are expected to increasingly favour nuclear. This is because the capital costs, which can be controlled the experience, technology and, in the case of the regulatory component, reform, are expected to reduce, while fuel costs, which are the burden for fossil fuels, are expected to rise. The International Energy Agency has produced projections for comparative energy costs in 2010 for various different countries.

The numbers in table 1 use a high discount rate of 10%, which will disproportionately affect nuclear compared coal and gas. Even so, in most of the listed countries, nuclear comes out on top.

If the economics are so favourable, why aren't we seeing more companies coming forward to build new power stations?

Nuclear construction has continued uninterrupted in the rapidly industrialising economics like South Korea, China, India and Eastern Europe as well as Japan. This alone has led many commentators to suggest we are in the middle of a Nuclear Renaissance.

Progress stalled in the West during the 1980s due to the high interest rates, which disproportionately hit a capital intensive energy source such as nuclear, public opposition following Three Mile Island and Chernobyl, reduction in demand growth following the oil shocks (the regulatory framework tends to favour larger power stations for which the demand evaporated) and then, somewhat ironically, the subsequent era of low gas prices, largely due to discoveries in Canada and the North Sea.

Rebuilding momentum is more difficult than a simple numbers game. Despite the prominence of global warming, development of fossil fuel infrastructure is not a politically charged issue (global warming activism tends to focus on visible end users such as airlines and large cars). Nuclear power, on the other hand, has always been a politically charged issue and with no new development becoming the status quo, it requires a political will to give the green light to further renewal.

Without it, investors may be hesitant. Although the technology is ready, breaking down the political obstacles is still a work in progress. Regulatory reform, including eliminating the ability of opponents to file frivolous lawsuits, is the work of governments who wish to see nuclear power be given the opportunity to flourish. No company is going to study new nuclear build in Germany for as long as the nuclear phase-out remains official policy.

However, progress is being made and momentum is building. In the USA, the administration has implemented a number of reforms to the NRC, including the introduction of a new streamlined licensing framework, recognising the reality of standardised Generation III+ designs. A number of companies have already entered into the licensing process. These include Duke Energy, Constellation Energy and Dominion Energy. In Canada, the government of Ontario expressed its commitment to maintaining nuclear power as 50% of their electricity supply and Bruce Energy have followed suit by starting the licensing process there.

In Europe, Olkiluoto-3 is already under construction in Finland and Flamanville-3 in France is authorised and will start construction soon. The British government has paid lip service to the need to maintain the nuclear sector and companies such as EdF Energy, E.On and British Energy have expressed interest in new build, though the government’s procrastination is causing these companies to remain reserved at the moment.

Investors are expressing an interest across the world in new nuclear power stations. But in many places, there remains much work to be done by governments to convince them that their investment will be able to operate as they plan and will not be curtailed by reactionary anti-nuclear policies, incompetent administration of the governmental role or insufficient protection from direct action by opposition groups.

Nuclear power stations are a riskier investment that fossil fuel fired power stations.

This is due to the capital intensive nature of nuclear power. Most of the cost of a nuclear power station over its lifetime is paid up front in the form of the capital investment, whereas for a fossil fuel fired power station, it is paid incrementally over the lifetime in the form of fuel expenses. Working from the Finnish example, which assumed a 40 year operating plant life, after 5 years of operation, the operator of a nuclear power station would have spent 65% of the total lifetime cost. By contrast, the operator of a gas fired power station would have only spent 30%. So if some unforeseen event forces the permanent closure of the power station after this time, the owner of the nuclear power station is significantly worse off.

This explains the need for investors to be sure of the political environment in which they will be investing. They cannot risk the government suddenly turning around and saying they do not want nuclear reactors operating in their domain, or loading burdensome regulation on top of operator, driving it out of business.

Any new nuclear power stations will require massive taxpayer subsidies.

This complaint is often made by people who will in their next sentence turn around and demand ever more subsidies for renewables, calling into question the depth of their conviction on the evils of subsidy.

All forms of energy have received subsidy in one form or another at some point and in many places, production is still subsidised today. Today, the largest beneficiary of direct subsidies are the wind and solar. A combination of direct production subsidies, feed-in tariffs and tax breaks are given to these energy sources in varying measure across the developed world.

By contrast, only the USA has a policy of giving any subsidy to nuclear power in the form of a tax credit for the first 6GWe of new capacity for the first 8 years of their production life in order to encourage initial development, which is hoped to establish the experience base for further development. This compares to a similar subsidy for wind, which is applied to all development, not just the first 6GWe.

Many of the potential investors, particularly those in Europe, where nuclear power paying for the subsidy of others rather than receiving it, have said they do not require any for new nuclear build. There have not been any moves to receive a direct production subsidy. Some have suggested they would like a price floor, aware of the effect of the wholesale electricity price crash in the 1990s in the UK when the energy market was flooded with cheap North Sea gas, though much talk of this has been abandoned. More voice has been given to levies on fossil fuels to cover the cost of pollution so that the economics of fossil fuels better reflects the true cost of their use. Other voices have requested the government to underwrite some of the risk associated with the first-of-a-kind unit, though this means that if project is completed even close to plan, it will not cost the taxpayer a cent.

Exactly what subsidies, if any, new nuclear build will receive will depend greatly on the government. But in the long history of energy subsidies, what benefits the investors are asking for are small change compared to what has been given to all forms of energy in the past and what renewables are enjoying today.

The taxpayer will have to foot the bill for decommissioning and waste disposal.

In fact, nuclear power internalised these costs in the price of electricity more than any other industry. The exact arrangements for funding the back end of the fuel cycle vary. It is widely practiced that the government takes responsibility for providing the service. However, the funding comes out of the price of the electricity. In the USA, $0.10/MWh goes towards the waste management fund that is being used (badly) on Yucca Mountain and another $0.10/MWh goes to a fund to cover the cost of decommissioning.

The worst of the Western countries in funding these activities has been the UK due to inconsistent government policy over the years. The Generation II reactors operated by British Energy have paid for their decommissioning, but there is no clear hypothecated fund for dealing with the legacy wastes of nuclear reactor development by UKAEA, nuclear weapons development by the MoD and the Generation I Magnox reactors operated by BNFL. This issue is discussed here.

There are many activities that need funding. What if a nuclear operator goes bust? The taxpayer will have to foot the bill.

This risk is present in all walks of life, wherever there are liabilities from an activity. Practices for dealing with liabilities from bankrupted firms are complicated and constantly evolving. It is not a unique hazard to the nuclear industry. Large landfills full of hundreds of thousands of toxic waste from coal burning are a much greater liability for concern.

Copyright © 2007 Josh Baxter

Last updated: 2007/08/13