Penny for a fission

Nuclear power is too expensive.

The competitiveness of different sources of energy vary from location to location depending on a multitude of factors, such as availability of natural resources, distribution of population, properties of the economy, political considerations, education of workforce. In general, economies with direct access to abundant fossil fuels, will find use of those the clearly cheaper option than nuclear. What is competitive varies hugely from area to area. In some areas, this statement may indeed be true. However, in all areas it is fast becoming the most competitive source of energy.

France has very little access to fossil fuels and so after the oil shock of the 1970s, embarked on a huge nuclear build program to ensure security of their energy supply. The result is that today they generate nearly 80% of their electricity from nuclear power and are also the world’s largest exporter of electricity. By contrast, Australia does not use any nuclear power, with only one small reactor used to manufacturer isotopes for medical use. Australia enjoys the luxury of sitting on huge reserves of very high quality coal, which is cleaner than most coal reserves around the world.

For another example of this variability, Canada generates 60% of its electricity from hydroelectric power. This is made possible by the abundance of mountainous terrain and the relativity low population density. Britain, on the other hand, gets less than 5% of its electricity from HEP because it is overall much flatter and has a much higher population density, requiring greater use of other sources.

The main costs of energy can be grouped into three main areas: capital, fuel and operation and management. Some studies add costs associated with the emission of greenhouse gases, such as emissions trading. Whether you include this or not is dependent on how serious you regard the threat of global warming and the importance of mitigation versus adaptation in dealing with that. Here, we will not be going into it other than to mention that if you do factor in these costs, it only serves to increase the competitiveness of nuclear power against fossil fuels.

The most beneficial element to nuclear economics is the low fuel costs. Even though a given mass of fuel is very expensive, owing to the need for conversion, enrichment and fabrication to get from the original ore to fresh fuel ready to be used, the miniscule requirements for fuel for a given energy output, typically several orders of magnitude less than fossil fuels, in the end, the fuel costs for nuclear power are significantly lower than all except for certain renewables such as HEP, wind and solar, where the fuel is, one way or another, the Sun, which does not charge for its service. More efficient use of natural resources in the form of higher enrichment and higher burnups helps to reduce these costs further.

Aside from simply saving money, the advantage of low fuel costs is price stability. Once a power facility is built and in operation, fuel cost is the most changeable and hence by far the largest factor affecting the cost of the electricity produced. Because fuel costs for nuclear power are low, it means that increases in the price of fuel do not affect the overall cost and much as it would for fossil fuels. Doubling of the price of uranium, would increase the cost of electricity produced from LWRs by 7%. For a doubling of the price of natural gas, the cost would increase by 70%. Since gas supplies are being seen as increasingly unstable, the price stability of nuclear power is being seen as an economic advantage despite the fact that low cost gas is cheaper.

Operation and management costs are generally higher than other forms owing to the hefty regulatory burdens and the internal accounting of spent fuel handling and decommissioning. However, they are still not appreciably large. Advanced reactors with higher capacity factors, greater economies of scale and simplified and more reliable designs will see lower operation and management costs than before so this will only get better. Accounting for only operation and management and fuel costs, nuclear power is very competitive. In the last decade in the US, these costs were generally around 2-3 cents/kWh, on average about the same level as coal and significantly lower than variable oil and gas.

The sticking point for nuclear economics is the capital costs. Because of the more advanced materials, the greater standard of workmanship required, and the greater safety and containment requirements, including the steel reinforced concrete containment structure, construction of nuclear reactors involves much higher costs than for fossil fuels, although not as much as wind, owing to its diffuse nature.

So it is the case, the future competitiveness of new nuclear power is entirely contingent of keeping the capital costs low. And of course, this is no simple matter. Previous nuclear projects have not enjoyed a good reputation with regard to budgets. Therefore, it is not without basis that some sceptics suggest that the economics of renewing and expanding nuclear capacity remains in doubt.

So what would make new nuclear build more cost effective than before?

The Generation II build programs in the Europe and North America, mainly during the 60s and 70s suffered from a number of problems that inflated the costs, problems that have been rectified in Generation III+. The most important factor was lack of standardisation of design, with the exception of France, which did it right the first time. Despite the commonality of themes (PWR, BWRs etc), each reactor was essentially custom designed for the project. Starting a design from scratch each time means that each project must carry the burden of certification (Can you imagine if British Airways had to spend a year waiting for Airbus to certify each of the one hundred A320s it bought?). Further, the lack of commonality means special parts for each project.

Generation III+ makes use of standardised designs. This means that licensing for new reactors is only a matter of approving the site, rather than the reactor itself, which only needs to be certified when first brought to the market. Westinghouse recently had its AP-1000 PWR certified by NRC as part of the new licensing procedures allowing nuclear operators to apply for licenses without having to deal with certification of the design itself. This represents a very large reduction in costs. Standardisation also means mass produced parts for cheaper and yet more effective maintenance plus benefiting from commonality of experience rather than doing everything for the first time at every project.

Standardisation brings with it one other advantage. Reactors can be constructed without ad hoc revisions during the construction process, which so plagued Generation II projects. Frequently, Generation II reactors would have to be changed mid-construction because of some new regulation. The result was an expensive process of altering parts already built, not to mention potentially jeopardising the quality of the engineering. With standardisation, this will not happen and construction should proceed unobstructed.

Of course, further to that, Generation III+ makes several other improvements including simplified designs putting greater emphasis on passive safety, which reduce the amount of materials and construction time needed. Shorter construction times, many under four years from pouring of first concrete to reactor start-up, are major factor in reducing costs of construction. Reactors are also designed to operate for longer, some as long as sixty years. This gives more time to amortise the costs of construction, reducing its effect on the price of electricity.

So, with simpler designs, standardised designs and streamlined licensing procedures, capital costs will be significantly lower. But there is one factor that is beyond the control of the nuclear industry: the opponents. Previous attempts at nuclear build have been delayed, leading to cost overruns, or halted altogether by opposition in the form of lawsuits or campaigns by politicians (particularly disingenuous is when they proceed to gloat over the high capital costs, which they caused). Sometimes even full scale public enquiries are conducted before a license can be granted, such as the one required before building a third unit at an already established nuclear site, Sizewell. The opponents are a force of nature, but with streamlined licensing procedures, hopefully nuclear build projects will be more resilient against the delay tactics. This is considered one of the largest risks of nuclear build.

A summary of the other benefits of Generation III+ can be found here. With the influence of capital costs kept under control and advancements leading to lower fuel and operation and management costs, the price of nuclear power will be coming down. This is contrary to the likely trend of fossil fuels in many places, where increasing worldwide demand is bringing the fuel costs up. Since fossil fuel power is sensitive to fuel costs, this will be leading to higher and less stable electricity prices. It is the combination of these factors that will mean that many areas, though not all, will find nuclear power increasingly competitive.

Well it all sounds fine in theory, but where are the figures?

Country Nuclear Coal Gas
USA 3.73c 3.27c 5.87c
UK 2.3p 2.2p 2.5p
Canada 5.3c 4.8c 7.2c
France 3.20c 3.05-4.26c 3.81-4.57c
Finland 2.37c 2.81c 3.23c
Croatia 4.8c 5.2c 5.8c

Table 1- electricity prices from nuclear, coal and gas per kWh in a number of different countries.

When considering figures, it must be remembered that every economy is different. I cannot offer figures to argue nuclear power is competitive in Australia, because they have more high quality coal than they know what to do with.

Various studies by organisations such as the OECD, the Royal Academy of Engineering and MIT have attempted to put a comparison on the costs between various forms of energy. With little surprise, the areas with coal access find it cheaper, with nuclear generally lacking slightly behind.

It is no surprise that coal is cheaper than nuclear generally. Coal has been in use ever since the beginning of the industrial revolution. However, it also has external costs such as the effects of pollution. Methods to mitigate the release of sulphur and nitrogen compounds, particulates and heavy metals may erode the cost competitiveness of coal.

In the future, it is expected that the competitiveness of nuclear power will only increase with relation to fossil fuels. While increased demand for raw fuels will increase with growth of the world economy and the emergence of the new Asian superpowers, increasing experience and technology will drive down the costs of capital investment at O&M. This is beneficial for nuclear since most of its costs are in capital and O&M rather than fuel as is the case with fossil fuels. An increase in the price of fossil fuels can lead a very large erosion of their economics, while nuclear is no so vulnerable.

In addition, the cost of nuclear fuel is heavily weighted towards the treatment processes of the raw material to make it ready, most notably enrichment, rather than the cost of the raw material itself. As enrichment moves from the old, expensive gas diffusion method, to the much more modern centrifuge technique and perhaps in the future to laser enrichment, the savings in fuel costs here, will offset rises due to inevitable increases in the cost of raw uranium. So unlike fossil fuels, nuclear is sensitive to cost in the places where it will be expected to come down and insensitive in the places where it will be expected to go up, the opposite of fossil fuels.

Nuclear is not a panacea, but neither is it prohibitively expensive. In an environment where fossil fuels supplies are more stretched and environmental concerns are taken seriously, it begins to look very attractive.

If costs are competitive why is nuclear build considered so risky then?

It is because most of the cost of nuclear is up front in the investment. For fossil fuels, the cost is mostly in the fuel, which is bought over time, essentially on a pay-as-you-go arrangement. If a gas fired power station was forced to shutdown a couple of years after entry into service, then the loss to the investors is not so big since most of the money, which would be spent over its lifetme generating electricity, has not yet been spent. If a nuclear power station, on the other hand, was forced to shutdown a couple of years after entry into service, then the loss to the investors is huge because most of the money has already been spent on initial construction.

For investors to decide to invest in new nuclear reactors, they look hard at the possible scenarios, which could affect their operation, because it is more important that things go right in the market place than it is with fossil fuels, where the initial investment is not as high. Concerns over spiralling capital costs due to regulatory hurdles is one major concern. The streamlining of the NRC licensing procedures has renewed interest in nuclear build and several operators are already considering putting forward new applications in the US. Concerns over a deluge of fossil fuel use such as the North Sea gas rush in the UK in 1990s has caused potential investors to request a price floor, which could be considered a form of subsidy, though not the traditional sort, such as aid, tax breaks or obligations, which are given in varying packages to most forms of energy in the UK, and most renewables too would benefit.

So is nuclear expensive? No. Overall, it is competitive with fossil fuels, though in some places fossil fuels are clearly cheaper. It is risky? More risky than fossil fuels because most of the investment is upfront before any money is being made. That is why fossil fuels, provided there are no serious supply problems, will always look more economically favourable. But of course, we already knew that.

The reason why nuclear power is looking increasingly attractive is that serious supply problems for fossil fuels is becoming a growing concern, and environmental external costs are being treated more seriously. The stirring of enthusiasm for new nuclear build, in Japan, France, Finland, Canada, USA, Russia, Argentina, China, South Korea and to a growing degree the UK, is showing that the rewards of competitive cost, security of supply and low environmental impact, are worth the initial financial risk.

There is also spent fuel and decommissioning costs to be taken into account.

Generally, spent fuel and decommissioning costs are included in the price of the electricity. For example, in the US, nuclear operators pay 0.1c/kWh towards a fund for national spent fuel facilities such as Yucca Mountain. Certainly, all projections for new build nuclear internalise these costs. It is one reason why utilities are seeking clarity from government on ultimate waste disposal methods before proceeding with new build projects.

Why no mention of renewables?

Hydroelectric has proven very economical where available. The dominance of HEP in Canada is not expected to change. Other common forms of renewables such as wind are significantly more expensive than fossil fuels and nuclear though. They are also limited due to their intermittent nature. As such, they will not supplant nuclear or fossil fuel power in the short to medium term, merely compliment them where appropriate.