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Nov 20, 2009

To those who say “beaudy nuke”: why should taxpayers suffer?

Why should taxpayers fund the most expensive and slowest energy option when so many alternatives are significantly cheaper and pose less financial risk?

What would it cost Australia to go nuclear? Good question. Excellent question, in fact, because no one really knows.

Estimating the cost of building a nuclear power plant is difficult even in countries with established nuclear industries. For a start, not too many have been built in recent years. Further, very few — in fact, not really any — have been built in an open, competitive, private power-supply market where the plant would face competition from alternative electricity sources. Governments indirectly or indirectly play a huge role in offsetting costs, transferring risk from company balance sheets into governments programs, tax offsets and implicit guarantees.

Worst of all, the construction of nuclear power plants is notoriously prone to cost overruns. It wasn’t Three Mile Island and Chernobyl that smashed the US power industry in the 1980s — it was the fact that from the 1960s to the end of the 1970s the final construction cost of US nuclear plants was on average twice to four times the original cost.

Regularly blowing out your costs by 400% is not a way to engender investor and government confidence.

Currently we’re seeing the same thing in Finland and France, where costs for new nuclear plants (initially €3.3 billion, or $A5.3 billion) are currently 50-70% over budget, years out from completion.

Overruns and delays are toxic to the balance sheets of nuclear plant builders and their customers because of the cost of capital, already high due to the extended construction period. That’s why so many nuclear power advocates say low-interest government loans are necessary to make building new reactors financially viable — they want taxpayers, rather than capital markets, to provide their capital.

There is also uncertainty over the construction costs of new generation “III+” reactors, which have been developed to the design stage since 2000. And construction costs have also escalated rapidly in recent years, partly because the lack of plant construction has meant bottlenecks and reduced capacity among manufacturers of the specialised equipment required. That, however, would be remedied if the nuclear industry started to develop real momentum.

There’s also the problem of accurately costing the entire lifecycle of a nuclear plant. The costs of running nuclear power plants, much more so than other types of power plants, are mainly fixed costs derived from initial construction — between 60-70% of overall costs. Operating costs (such as fuel, although the cost of uranium has spiked more than 600% in the latter part of this decade), tend to be comparatively lower than for, say, coal-fired plants. But there are also decommissioning costs, which need to be built into revenue while the plant is operational or picked up by a government. And there’s the the vexed problem, still unresolved, of the storage of nuclear waste (similar to the problem of carbon capture and storage), which will be a cost for the sorts of periods beyond even the most forward-looking economic modelling, let alone power company balance sheets.

And there’s the insurance cost of dealing with a nuclear accident, which is so large that several governments have simply capped the liability of plant owners, with the assumption taxpayers will pick up the cost of mopping up a major radiation leak.

So, with enough caveats to sink an industry, how much do nuclear power plants cost? The industry and analysts talk of “overnight” costs — that is, what it would cost to build one overnight and connect it to the grid. Couched in terms of cost per kilowatt capacity, the industry itself variously proposes costs ranging between $US1500-3500 per KW. Actual power plants proposed in the US since 2006, however, have all cost more, with cost estimates starting at $2500/kW, averaging about $4500/kW, up to more than $6000/kW.

In May last year, ratings agency Moody’s estimated a cost for US nuclear power plants “potentially exceeding” $7000/kW. More extreme cost estimates — from the Wall Street Journal, not green groups — put the figure as high as $8000/kW.

At the time the contract for the Finnish plant was signed in 2005, the cost was about $2400/kW. With overruns and delays, the cost is now $4000/kW and rising. The equivalent figures for the Flamanville plant under construction in France are $2600/kW and $3260/kW.

How does that compare with other energy sources? Last year financial advisory giant Lazard published an analysis of US energy costs. Lazard put the construction cost of nuclear power at $5750-7550/kW — twice as expensive as coal, four times as expensive as gas and more expensive than coal with CCS. It was also much more expensive than wind, geothermal and slightly more expensive than even the most expensive solar technologies. (click here or on the image to enlarge)

When it comes to operational costs, nuclear has a greater advantage given its high proportion of fixed costs. Even then, based on Lazard’s figures, it is not much cheaper than coal with carbon capture and storage, and still more expensive than renewable wind or geothermal and the same cost as some solar technologies. (click here or on the image to enlarge)

Remember, these are US figures. Our operating costs for gas and coal are probably lower since we’ve got so much of the stuff.

Wind and solar power have the advantage of much shorter construction times, and no decommissioning costs. Neither requires taxpayers to take on risk — either through lending capital to nuclear reactor builders for the decade-plus construction and 200% budget blow-out history shows they require, or through requiring high electricity prices for consumers to guarantee a return on capital, or through the acceptance of safety and storage risks by the taxpayer into infinity, or at least the next 200,000 years.

Some of nuclear power’s construction costs will come down if reactor construction significantly expands globally. By the time Australia has developed the basic regulatory infrastructure and skills base required to seriously consider a nuclear power industry, we may be able to take advantage of it. But construction costs will have to fall a long, long way before nuclear power can be remotely considered a viable economic option compared to renewables or even gas-fired power.

So next time a nuclear proponent tells us we should be “having a debate” about nuclear power, ask them a simple question: why should taxpayers fund the most expensive and slowest energy option when so many alternatives are significantly cheaper and pose less financial risk?

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13 thoughts on “To those who say “beaudy nuke”: why should taxpayers suffer?

  1. Barry Brook

    I’m glad people like Bernard are discussing these issues, but there are a lot of dubious points thrown in for good measure (such as the waste storage issue — it will all be recycled as fuel and the renewables costs WITHOUT energy storage).

    For my recent analyses of nuclear power costs, please read these two posts:


    The reality is that nuclear power will be the fastest, cheapest and only feasible way to replace fossil fuels. Renewables will have a role, but cannot do it alone (or even do it mostly).

    My broader point is this — if wind and solar really are so cheap and low risk right now, why aren’t utilities dashing to invest in them without subsidies, feed-in tariffs etc?

  2. Mark Duffett

    Why bother commenting, when Mr Keane shows no sign of having even read the comments on part 1 of this piece?


  3. Frank Campbell

    This tortured debate is a perfect example of the fine mess that the AGW cult has gotten us into: Barry Brook and his nuclear ogre are rampaging through the disoriented and tattered ranks of the greens…you’ve only got yourselves to blame folks. Jesus wept, we’ll end up infested with wind towers 100% backed up by nuclear reactors! The redundant pursued by the radioactive…

    (the scientific and peer-reviewed term for this powergen combination is unprintable, even on Crikey)

    (And while solar domestic is inoffensive, domestic wind turbines on a house block are like a revolving dog. Beef up your life insurance.)

  4. Liz45

    MARK DUFFETT – During the discussion in 2007? about where the ‘proposed nuclear reactors could be’ I rang several insurance companies re coverage for domestic residents in an area near a reactor. THERE IS NO INSURANCE CO, including LLOYDS of London or that other well known one, where a person can be insured against an incident or accident. What does that tell you? Too much risk, it tells me! End of story! Other more vialable alternatives etc etc as on the other site.

    How much compensation did the people of Chernobyl receive?
    I fear, that when politicians assert that we ‘need to have a rational debate’ they really mean, ‘you lot need to realize that we’re right and you’re just plain stupid’!

    Then they resort to abuse and ridicule, like one Christopher ‘Robin’ on the other site!

  5. Roger Clifton

    Indeed, why should the taxpayer pay extra for low-emissions technology? Because the taxpayers’ representatives have failed to make the hydrocarbons industry pay for its waste, that’s why.

    A “modest” increase in the price of carbon would make nuclear power competitive, according to the
    Uranium mining, processing and nuclear energy review report of 2007. .

    On the other hand, if our power economy slides towards gas (decorated with wind, etc), we will eventually find these costs in their turn escalating, while overseas nuclear gets cheaper and cheaper. Then, as the climate worsens we will find we have gas generating plant which is only 10 or 20 years old, which we must then dismantle and replace – with even less construction time to escape the vengeance ahead.

    Yes, Bernard has been grinding the axe for gas in both articles. That’s methane gas by the way, of which 1 or 2% leakage exceeds any saving in CO2.


    A quick google on “Jumping to conclusions” by Andrew Teller, will get you to this assessment of another user of Lazard’s “Levellized” numbers:

    “One must take the fact into account that nuclear power plants are available 90% of the time while for wind mills it is about 30%. For good measure, one might as well also include in the comparison the life duration of the energy sources: 60 years for nuclear and 20 years for wind machines. Furthermore, one must acknowledge the fact that wind farms take longer to build than individual wind machines: a 1000 MW nuclear power plant is equivalent to 500 wind machines of 2MW. Inflation and cost escalation will therefore also impact the bottom line of a wind farm project, albeit at a constant rate. Finally, the construction cost escalation factor applied to nuclear applies even more to wind since the latter’s consumption of steel and concrete are roughly 11 and 4.5 times as high as for the former’s.

    When all the above factors are integrated in the analysis, one comes to the conclusion that wind might well end up again being more expensive than nuclear.”

    (And I’ll add that the production life of the newer pebble bed reactors is approximately double that quoted above)

    As the Lazard chart says: “This assessment,however, does not take into account issues such as dispatch characteristics, capacity factors, fuel and other costs needed to compare generation technologies”

    Some caveat.

  7. baal

    Something else missing from the hot talk about nukes is any acknowledgement of the cost (and length of time ) of shutting one down permanently, ie “decommissioning” as its known in the trade. One example may suffice: a February 2008 report (cited in from the UK National Audit Office stated that the cost decommissioning Trawsfynydd, the only closed nuclear power station in Wales jumped 25% in just two years. The NAO says these costs are are “rising rapidly” across the board.

    Trawsfynydd will cost the taxpayer nearly £1.5bn (AU$ 2.7 bn) to safely shut down. and will not be completed until 2098. Across the UK, decommissioning costs for the 19 sites that no longer produce electricity are put at £73b ($133b) up 18% since an estimate give in 2005.

    Many of Japan’s nuclear power plants are still runnng past their use by date simply because of these kind of costs.

    As further evidence that nukers life in a fantasyland: without any citation or reference more credible than “according to reports from overseas” and merely in passing the usually harmless but always mischievous Des Moore of the Institute for Private Enterprise recently wrote in the Australian Financial Review that off the shelf “mini nuclear power plans” would soon be available . I want one now!

  8. Rena Zurawel

    There is a logical fallacy there, Mr. Keane. Only bush fires are free and still the taxpayer suffers.
    If we want to buy a new car, we do not suffer – we make a choice how to spend the money; if we can afford Masseratti we will buy Masseratti, Mr. Keane. We spend years and years on saving money to buy a home – and yes, we suffer.
    If the people of Australia decide to build new roads, bridges, power stations, water reservoirs, the taxpayer will ‘suffer’.
    All we need is the common consent to decide what to buy or build. And it does not matter whether it is nuclear or any other , or even existing power. But we should be able to excel in whatever technology we decide.
    Where were you Mr. Keane when monetarism was introduced?
    What I am trying to say is that the taxpayer suffers if he has to pay for somebody else’s business, like undeclared wars, unnecessary bush fires, or junky military equipment of no use.
    Comparing very opulent Australia to little shit of a country like Finland is beyond me. Don’t take me wrong. I love the country, but in comparison to Australia… well they are a very small and resource poor country covered mainly with snow, but they have much better social services system and much, much higher education standards, better technology and better infrastructure; their treatment of people of Lapland cannot be compared to the treatment of Aboriginal inhabitants of Australia. What is more, their taxpayers do not seem to suffer. Their aged pensions cannot be compared to our alms system. And the costs overruns are not foreign to any taxpayers anywhere in the world. . Aren’t we getting too thrifty?
    Neither Finland, France or Sweden have uranium. We have plenty of it and we have it free.
    Dear Mr. Keane, some people drive Mercedes and some prefer old bombs. And the discussion which choice is better can take years. And the old bombs will still be there… in the wreckage.

  9. Liz45

    RENA – “Neither Finland, France or Sweden have uranium. We have plenty of it and we have it free.”

    Free to whom Rena? The workers? We’re not told of the dangers to workers. I don’t even know if they’re told! Free? What about the cost to indigenous people? What about the cost to the people of SA, when Olympic Dam was getting their water for nothing, while the people of Adelaide were almost on their last rations? Free to whom? BHP is building a desalination plant just to provide sufficient water when they extend Olympic Dam by a huge amount. What energy is going to be used for this? Coal fired power station? How much will BHP pay for that? Less than a resident for domestic use?

    There’s no such thing as a free lunch. And when the big mining companies engage in ripping out the resources (usually on top or below aboriginal land?) they get all the freebies, and the people pay – in one way or another! Not FREE Rena!

  10. Rena Zurawel

    Quite agree with you. What I meant was, that we do not have to buy uranium from overseas. The irony is that we do all these things you have mentioned and we have nothing in return but a big, big hole. From all excavations and mining industry the State of South Australia benefits only 2% !! The decision about dumping uranium waste has already been made somewhere on indigenous land.. I do not hope they will ever be compensated.
    As far as the workers are concerned we should not be worried that much because quite many of them are i.e. Filipinos on temporary visas. When the hole is finished and not much work to do, we accuse them of ‘poor English’ (English language is language of instruction in all education institutions in the Philippines) and we send them back.
    Costs of digging holes is minimal. Plundering countries became very trendy in the name of globalisation and monetarism . One point I beg to disagree with you is that … somebody is getting free lunch.
    Imagine, the State of South Australia is about three times bigger than i.e. Poland (40 mln people).
    The population of SA is 1 mln and a half. But, unlike Poland, we have all possible natural resources, ever. Logically speaking we should have better standards of living than Saudi Arabia and all Skandinavian countries put together.

    Residential use of water is about 4%. The rest is mininig and other industries. In order to secure big savings of our precious water resources we have restrictions imposed on residents.
    By the way, BHP has not even started building any desalination plant, yet. Voila!