Tony Abbott’s sound political instincts kicked in yesterday when he saw nuclear power looming as a potentially damaging issue for the Coalition. At the risk of openly contradicting his deputy, he killed the issue off.
The Coalition doesn’t have a policy to promote nuclear power in this country. I think for the foreseeable future nuclear power will be far more expensive than coal power, gas power, even some renewable power I think, and I think it’s not an option that Australians are likely to need to consider any time soon.
In saying that, Abbott summed up the nuclear issue accurately and succinctly. Nuclear spruikers in his party such as Julie Bishop, who used to point out that 19 of the G20 countries had nuclear power, and Greg Hunt, who last July tried to covertly signal to the Business Council that nuclear power would be pursued under a Coalition government for local councils that were interested, might take heed. Fans of the atom all have one thing in common — they never mention the cost.
Abbott was doubtless driven by two more political motivations — the bad look of the Coalition toying with nuclear power while Japanese reactors were blowing up on our TV screens, and what might politely be termed the Switkowski problem. Ziggy Switkowski, hired by John Howard to investigate nuclear power in Australia, said it would be viable, but only with a carbon price of $20-$50 a tonne.
So any Liberal backing nuclear power is, by their own lights, backing a carbon price — and a steep one, too. Not a good look for the party of direct action.
That’s not the only reason why events in Fukushima will be a serious blow to the nuclear power industry, not just here but right across developed economies.
The problem of nuclear power isn’t merely its cost (Crikey looked at the costs of nuclear power compared to a range of other options, in November 2009). It’s the length of time it locks up capital. In recent years, the average length of time taken to build nuclear reactors around the world has been nine years. Some take as little as five years. One, Romania’s Cernavoda-2, took 24 years. That’s because reactor construction is notoriously subject to serious delays — European reactors currently under construction are up to three years behind schedule. They suffer from what the ratings agency Moody’s termed “substantial execution risk”.
That means they also run over budget — 50%-70% in the case of the European reactors, from a starting price of more than €3 billion.
So, if you’re funding a nuclear power plant, you’re locking up several billion dollars for at least five years, most likely nine years, and possibly closer to two decades, before you see any return on investment. Also, you’re likely to need to have to stump up another billion or two along the way when the budget blows out.
That’s why nuclear power has long been problematic — not just because Three Mile Island and Chernobyl turned nuclear reactors into the stuff of nightmares, but because investors and banks don’t like the uncertainty and lengthy delay on return.
Now factor in Fukushima. There’s now an extra risk premium to new nuclear reactors, particularly those in seismically active areas. There’s likely to be a wave of further regulation to impose still more safety constraints. Banks that might have previously considered joining consortia to provide capital for new plants suddenly have the most dramatic nuclear emergency in decades to consider.
It’s not so much about the risk of reactors melting down, as the social acceptability of funding nuclear power. The industry’s social licence was already torn and tattered; Fukushima is going to rip it up. Right now, there’ll be plenty of banks wondering about the wisdom of being involved in the 50-odd reactors currently planned or under construction around the world. Anti-nuclear NGOs will already be preparing to give them some doubtless unwanted publicity on the issue.
The only alternative is government investment or loan guarantees. That’s fine in China, but in most Western economies that means a massive state re-entry into the power sector, with taxpayers taking on the burden of delay and blowouts to multibillion-dollar projects — projects of which a substantial portion of taxpayers are terrified. If even bankers start baulking at nuclear power, it’s unlikely governments are going to rush in to fill the gap.
The financial maths of the nuclear power renaissance were already looking suspect. Fukushima has wrecked them for years to come.