Our attention is on the risks but growth is possibleby Malcolm Grimston / March 23, 2011 / Leave a comment
The unfolding horror in Japan has thrown nuclear energy back into the public eye in the most dramatic way possible. Most of the country’s nuclear power stations withstood the earthquake and tsunami. But the problems at Fukushima (in plants built in the 1960s or commissioned in the early 1970s) and the failure of hydropower dams have cast into sharp relief the sometimes uneasy tensions between our needs for low-carbon energy and the challenges of the energy sources that could provide it. That the plants survived the earthquake was testimony to their designers’ skills; that their backup safety systems were knocked out by the tsunami shows the dilemma.
The unrest in the Middle East had given new force to talk of a nuclear revival. But although this idea had resurfaced regularly over the past few years, it had yet to translate into many orders for new nuclear plants in western Europe or North America, even before Japan’s disaster. The experience of the last big phase of nuclear construction, prompted by the oil price shocks of the 1970s, helps to explain why: the economic outcome was terrible. Safety concerns aside, potential investors would need good reason to be confident that there would be no repeat of this poor economic performance.
Several factors contributed to that disappointment. First, although nuclear capacity is relatively cheap to run, it is expensive to build. Typically, capital costs represent about 75 per cent of the cost of nuclear-generated electricity, compared with 25 per cent for gas. Coal-fired plants lie between these two. So, for nuclear power, it is vital that the station is built on time and budget, and that the cost of capital is not too high. Poor management of the construction can blight a plant’s economics forever. Projections from the latest Nuclear Energy Agency study, based on data from 11 countries, suggest a total cost of 8.2 US cents per kWh for nuclear, 8.9 for gas and 9.1 for coal (without carbon capture and storage). However, these figures assume that all plants are built on time and on budget, and that the same 10 per cent rate of return is applied to nuclear as to gas and coal-fired plants.
In the 1970s and 1980s, many projects took far longer to build than expected and cost far more. Plants now being built in Europe still give cause for concern. New projects at Olkiluoto (Finland) and Flamanville (France) are at present running significantly behind schedule and over budget. This is perhaps to be expected for the first plants in a series, but there will need to be evidence of improvement in future.
Second, some plants in Britain had poor output performance at least in their early years. Most notorious was Dungeness B, the first of the Advanced Gas-Cooled Reactors. It took 28 years to complete and has generated less than half the electricity expected.
Third, even before Japan’s crisis there has been public mistrust of nuclear energy—or outright hostility, especially following the accidents at Three Mile Island in 1979 and Chernobyl in 1986. As a result, several countries decided to phase out nuclear power or prevent further construction. The multi-billion dollar Shoreham plant in New York state was refused an operating licence and sold to the state for $1, in effect bankrupting the utility that owned it. New projects would need guarantees, or at least reasonable confidence, that they wouldn’t suffer the same fate.
Fourth, the experience of the 1970s and 1980s suggests that though decommissioning and waste management will represent a relatively small proportion of total nuclear costs, governments will require investors to establish “back-end” funds to ensure that the taxpayer is not left with large costs if the operating company should go bankrupt.
These challenges represent considerable barriers to the building of new nuclear power stations. Yet there are also powerful attractions. Nuclear can supply low-carbon “baseload” electricity to meet the constant demand from essential services, which power from renewable sources is largely unable to do because it is intermittent.
While fears are growing about the geopolitics of oil and gas reserves, uranium is widespread and relatively plentiful, mined in a range of stable and friendly countries such as the US, Australia and Canada. At times of rising fossil fuel prices, nuclear energy offers some protection against price shocks since raw uranium accounts for only a few per cent of the total costs of nuclear electricity.
In addition, the government recently proposed to create a “floor” carbon price. At present, the price that companies must pay for “permission” to emit greenhouse gases is set by a market (the European Union Emissions Trading Scheme) that offers no guarantee of long-term profits to investors in low-carbon energy. The new “floor” price would address this concern by ensuring that the cost of emitting carbon will stay above a certain level, thereby tilting the market more in favour of low carbon sources such as nuclear power.
As older plants reach the end of their lives, there is a desperate need to invest in new power capacity of some kind—perhaps 20,000 megawatts (MW) over the next decade (against a British total at present of 80,000 MW) and another 15,000 MW in the following decade. A large nuclear station would generate 1,200 to 1,600 MW.
“Merchant” nuclear plants, built in the hope of attracting a market over their projected 60-year operating life, are probably unfundable in liberalised markets. There need to be long-term contracts for the output if the risks are to be manageable. But the emergence of huge cross-European electricity giants (EDF, RWE, E.On, Enel, Iberdrola, Vattenfall, GDF Suez, and so on) with deep pockets and long-term interests in supplying energy, represent one way in which new plants might be funded. Another is emerging at Olkiluoto, which is being built by a consortium of major electricity users—in effect, the shareholders are also the customers. Like many countries, Finland is now reassessing the security and design of its nuclear projects.
But even if all goes well it takes around ten years from deciding to build a nuclear plant to the point when it generates electricity. The time is evenly split between licensing and construction. Before the Japanese disaster, Britain intended to have its first new plant operating in 2018. If this is achieved, it will be the mid-2020s before nuclear capacity starts to increase, as the first new stations simply replace older ones. But the mid-1980s showed that once a big programme has begun, nuclear power can be deployed rapidly.
Experience in the Asia-Pacific region has shown that plants can be built more quickly. China’s quoted costs for new energy from most sources are about half those in North America and western Europe, although it suspended its building plans while assessing Japan’s crisis. China can build plants at greater speed partly because of the lack of a lengthy public planning process, and the lower rates of return demanded where electricity generation is a monopoly controlled by the state.
The case for nuclear power is stronger than it has been for a long time. It has also just taken a hard blow from the catastrophe in Japan. People will not simply ignore the pictures of the outer buildings at Fukushima exploding and the radiation alerts in northern Japan. A highly politicised industry has become even more fraught.
Yet it is hard to imagine meeting world energy demand and cutting emissions without much more nuclear capacity. The future of nuclear power will depend partly on the politics, but also on whether plants can be built on time and to cost, whether output meets expectations, whether ageing plants can be operated safely and whether governments can resist intervening in the market, thereby scaring investors away.
Also in Prospect’s energy special:
Dieter Helm: Fossil fuels are not running out. That’s our biggest problem—and our big opportunity
Simon Henderson: The main security risk for Europe lies in Moscow
Roger Harrabin: Battery power is the way ahead for transport
Miles Brignall: Get your solar panels while the subsidies last