Costs and Benefits: Final in the SACOME Series

This article concludes the series of six articles from Barry Brook and me that have had published in the SACOME journal over the last 12 months.

In a subject like nuclear power which is not easily discussed in sound bytes (presuming it is a mature, responsible discussion you are seeking that is…) it is challenging to establish a quality conversation. SACOME’s support has enabled us to do that here, staying with their readers over six issues of the magazine, covering most of the hotly contested issues with a good 800+ words to play with each time.

The articles have been widely shared and roundly appreciated. We (Barry and I) are looking forward to releasing them soon in an easily shared compendium.

My thanks to SACOME for this opportunity. That organisation is representative of a whole range of energy technology players including those that might compete with nuclear power (and those some commentators mistakenly say compete with nuclear power). So their interest in raising the quality of discussion on nuclear is to be congratulated. It indicates they have the genuine longer term best interests of South Australia at heart, through facilitating more informed choices on energy that will be of benefit to the whole state.

In our final article, we talk turkey…

It does not take long in any discussion of nuclear power before people want to talk turkey. How much does nuclear power cost?

It’s odd that when it comes to nuclear power alone, some environmentalists morph into incredibly hard-nosed economic rationalists. If the solution can’t pay its own way from the get go, bad luck.

That suggests a misunderstanding of not so much nuclear economics, but of energy economics more generally. It also hints at an ideological position if the same criteria are not applied elsewhere.

In considering nuclear at all, we are looking to replace baseload fossil fuels at 100s or over 1,000 MW at a time. Take your pick of technology, including modern fossil fuels: that is never going to be a cheap task. There is no way around the “sticker shock” of a modern power facility.

If we want new, large-scale energy generation in Australia, there is a large price tag, comfortably in the billions of dollars range. If, as we would argue, response to climate change demands that any new baseload is zero-carbon generation, then the options are (currently) restricted to the more expensive end of the range for capital costs (fuel is cheap or free for these technologies).

So, what, in that context, can low-carbon options offer in terms of up-front cost?  Let’s take some real-world examples.

If we take the oft-quoted Olkiluoto nuclear new build in Finland (oft-quoted because it is suffering major cost and time over-runs), we find that the new EPR design, with 1600 MWe of generation capacity, looks to be coming in at a cost of EU6.4 billion. That normalises to $6.0 bn per GWe when capacity factors are accounted for.

Dome 3 being lowered onto the Olkiluoto nuclear power plant in Finland.

A large (600 MWe peak) planned wind farm in South Australia, with a proposed 120 MWe biomass generation as back-up, will cost $1.2 billion, plus and extra $0.2 billion for the connecting infrastructure. That’s about $6.9 billion per GWe.

When we turn and face the sun,costs jump. Based on the proposed Moree Solar Farm, this large solar PV facility with no storage or back-up (i.e. not a true baseload solution) comes in at $19.6 billion per GWe. A concentrating solar thermal plant (based on the Spanish Gemasolar plant) with molten salt storage back-up can be had at a cost of $25.1 billion per GWe.

Moree Solar Farm (proposed)

The lesson is clear. Costs, like any other number, mean nothing sitting on their own. This is a question choosing the best option. Even using a notoriously expensive ‘first-of-a-kind’ nuclear example, new nuclear is still the best value for zero-carbon generation.

If we look beyond the infamous Finnish example to some of the other 60 new reactors under construction or more than 200 currently proposed,the picture becomes even clearer. South Korea is undertaking a substantial program of new nuclear build. Indeed, the South Koreans have sold their technology and expertise to the currently non-nuclear United Arab Emirates at a contracted price of $3.5 billion per GWe with 6 GWe to be delivered by 2018. Meanwhile the Chinese are delivering new nuclear based on the Westinghouse AP 1000 design for reported domestic cost of as low as $1.7 billion per GWe. So, if we want zero-carbon generation at scale, we would be foolish in the extreme to reject nuclear from consideration on capital cost grounds.

But  what we really want is the product of the power plant, not the plant itself: that is, dependable electricity. Here, nuclear excels, delivering electricity at an excellent price, with capacity factors now exceeding 90% in the U.S. and South Korea. Perhaps even more importantly, this price will be reliable. Thanks to negligible fuel costs and no carbon emissions in the generation, nuclear power is almost completely insulated from two of the biggest incoming pressures on power prices: carbon prices and fuel scarcity. When we are building expensive infrastructure with long life, such considerations matter a great deal.

So where does that leave us? Real-world experience tells us that nuclear can provide well-priced and reliable electricity. In capital terms, nuclear is the best-value form of zero-carbon generation, with miles of daylight to the competition. That may be a surprise, but this industry has learned. New designs are predominantly more standardised in design, and more reliant on passive, rather than engineered safety systems, and come in a range of sizes. All of this brings cost down.

That means the hurdle is up-front capital. Economist Tony Owen is clear about this situation, saying this:

If the CEO of, say, Origin Energy said to the board “I’ve got a great idea. Let’s spend $5bn of the company’s money, for which we will not start seeing a return for at least 5 years” he would be laughed at. In fact he would probably be sacked.

Tony’s point is a deadly serious one. He is not saying it’s difficult for fully private investments in nuclear, or other multi-billion dollar energy technologies for that matter. He’s saying it’s impossible.

If Australians want the best energy outcome as we undertake the challenging replacement of our aging fossil baseload, we will need to remember something: such projects are nation-building works.Whether we like it or not, some Government involvement will be required, to ensure a public good. This could be as simple as a loan guarantee (which protects the lender, not the vendor. The project must still stack up on financial grounds) such as the U.S. Government is providing. Or it could be something more complex, like an emissions-trading scheme and power-purchase agreements.

Our point is this: we can’t have something for nothing, least of all major infrastructure. The “barrier” of nuclear cost is one of our own creation, born of a lack of context and comparison, and our collective amnesia regarding nation building. We have a job to do. It is going to cost a lot of money, so we had better make sure we get the best result. If nuclear technology is a financial lemon, it won’t get up. There is no reason to exclude it from making its case, on a fair and level playing field.

 

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6 thoughts on “Costs and Benefits: Final in the SACOME Series

  1. Pingback: Talking turkey on nuclear $$ costs « BraveNewClimate

  2. John Newlands

    Here’s a few ideas at random
    1) adjust quoted costs for wind and solar to 90% capacity factor
    2) drop the RET
    3) have a real not wishy washy CO2 cap ie no exemptions or cheap offsets
    4) funnel some money from the NBN
    5) bring in loan guarantees (n.b. Solyndra was solar)
    6) cap insurance liability (n.b. Barrow Island is gas related)
    7) include NP as well as gas in Fed funded ‘contracts for closure’

    What I’m saying is some rather feeble or overpriced performers are treated like royalty while nuclear is regarded as a leper . The billions of dollars and the breaks are already there but they are going to the political pet projects. What is needed is a re-balance not new commitments.

    I think a couple of small quick build units (SMRs, CANDU) should start the ball rolling then gigawatt scale needs should be addressed.

    Reply
  3. kakatoa

    John,

    The true costs of some forms of renewable energy are being played out in CA’s market currently. As we bring more RE (wind and solar primarily) into the generation mix the grid stability issues associated with the intermittent nature of these forms of generation are going to start showing up in various financial accounts at CASIO. How to allocate those costs (and the associated CO2 generation to have spinning reserves in place) will be interesting. I can’t wait to see the August CASIO summary for the states grid as we have had 3 Flex Alerts so far this month (high temperatures across the state). An example of how the costs and markets were cleared for April is noted here. http://www.caiso.com/Documents/MarketPerformanceMetricCatalog_April2012_Version1-24.pdf

    The real impact of the intermittence of some forms of RE can be pulled from the daily RE summaries at CASIO. Taking a look at the three flex alert days (August 9, 10, 14) within day generation profiles gives one a sense of the importance of dispatch able generation as a back up for RE. http://www.caiso.com/green/renewableswatch.html

    Reply
  4. John Newlands

    Santos reckons SA must pay double the wholesale price for reliable gas
    http://www.adelaidenow.com.au/news/south-australia/secure-gas-will-come-at-a-higher-price-to-customers/story-e6frea83-1226452928723
    That wholesale price appears to be around $6 per GJ
    http://www.aemo.com.au/en/Gas/Operational-Data/STTM-Data
    compared to $2 in parts of the US. Note a recent report stated Vic brown coal cost 61c per GJ.

    The gas/wind combo accounts for 70% of SA’s generation mix which could explain why power prices in SA are ~60% higher than Queensland with its black coal heavy generation mix. Therefore Qld power also has a higher carbon tax burden.

    Thought; should SA shop around for something a bit cheaper than gas?

    Reply
  5. Pingback: Old Wine in New Bottles: Can Nuclear Power Pull Us Out of Global Climate Change? | The Green Mien

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