Mar 16, 2011

Fukushima wrecks the already problematic finances of nuclear power

Financing new nuclear power stations is difficult enough at the best of times. Fukushima will make the maths even harder for years to come.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

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.

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11 thoughts on “Fukushima wrecks the already problematic finances of nuclear power

  1. MLF

    “…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…”

    Says it all really.

    Thanks Bernard. Loving the observations in the top half of this piece.

  2. rossco

    There have been no new reactors commissioned in the USA since 1979, ie Three Mile Is. Obama has proposed nuclear as the way for the US to cut emissions to meet climate change targets. Can’t see it happening now.

  3. Gavin Moodie

    And of course governments have to take responsibility for nuclear waste, for which there is still no satisfactory solution. Furthermore, the solution has to be effective for longer than the USA has existed as a political entity, longer than any democracy has lasted, and prolly longer than Christianity has lasted.

  4. Dr Strangelove

    The Australian Industry Group’s recent report on energy summed up nuclear power reasonably objectively as far as business groups go:

    “While a cheaper source of baseload than some immature or intermittent renewables, nuclear power has very high capital costs. It is unlikely ever to be commercially competitive in Australia without very substantial regulatory intervention or a moderate carbon price.

    Other serious obstacles include strong opposition from parts of the community, associated political nervousness, the need for secure long-term waste storage or processing facilities, and the broader need for a nuclear industrial and skills base that would take some years to develop. At least a decade would elapse between any decision to pursue nuclear power and an operational plant.”

  5. MLF

    “Obama has proposed nuclear as the way for the US to cut emissions to meet climate change targets…”

    I agree Rosco, it will be hard politically now – although the lobby is large. I haven’t read about Obama being pro-nuclear, this surprises and disappoints me.

    God forbid they should consider actually reducing their energy requirements and stop driving gas guzzlers around…..

  6. James P. McGrath

    Does anyone know the carbon price per tonne solar and wind power becomes feasible? If it is less than $20-$50 a tonne then Nuclear is a dead duck (at least until fusion becomes a reality).

    With a Nuclear plant taking 10-20 years to build, and solar power’s cost coming down constantly, it seems that it would be a risky investment to build a nuclear plant when Solar might easily become a cheaper option before the plant comes online.

    That said, there is something to be said for the new class of reactors that can reprocess spent fuel from nuclear weapons and older reactors. This means there is no need to dig up more fuel (that has to be somehow stored) and it reduces the potency of the the waste:

  7. klewso

    Personally, it doesn’t matter what Tony Abbott says, when there’s a vote in the balance and up for grabs – even if it’s “scripted”?

  8. rossco

    Re Obama & nuclear power.

    State of the Union Address 2011

    “Now, clean energy breakthroughs will only translate into clean energy jobs if businesses knowthere will be a market for what they’re selling. So tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America’s electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal,we will need them all – and I urge Democrats and Republicans to work together to make it happen.”

    And on 15/3,0,2062754.story

    “U.S. stands by nuclear power, Energy secretary says
    The Obama administration is ‘committed to learning from Japan’s experience,’ says Steven Chu. The White House had proposed billions of dollars to help expand nuclear power.”

  9. rossco

    Any reason why my last comment is stuck in moderation?

  10. Alan Carpenter

    Nuc lear plants cannot be built without taxpayer/government taking on the insurance liability normally bourne by the company. This is going to be a monumental burthen on the Japanese taxpayers already in terrible strife, In addition Nuclear power generation is not a sustainable power source; as uranium mines are worked out cost will rise like oil. Add in the decommisionig and waste storage cost most of which will fall to the taxpayer and the whole concept seems ludicrous

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