Myth and reality: Nuclear energy costlier than solar power

The risks involved in construction, operation and costs of nuclear power plants are much higher

No longer. In a ‘historic crossover,’ the costs of solar photovoltaic systems have declined to the point where they are lower than the rising projected costs of new nuclear plants, according to a scientific paper.

“Solar photovoltaics have joined the ranks of lower-cost alternatives to new nuclear plants,” John O Blackburn, a professor of economics at Duke University, in North Carolina, and Sam Cunningham, a graduate student, wrote in the paper, “Solar and nuclear costs — the historic crossover.” This crossover occurred at 16 cents per kilowatt hour, they said.

While solar power costs have been declining, the costs of nuclear power have been rising inexorably over the past eight years, said Mark Cooper, senior fellow for economic analysis at the University of Vermont Law School’s Institute for Energy and Environment.
Estimates of construction costs — about $3 billion per reactor in 2002 — have been regularly revised upward to an average of about $10 billion per reactor, and the estimates are likely to keep rising, said Cooper, an analyst specialising in tracking nuclear power costs.

Identifying the real costs of competing energy technologies is complicated by the wide range of subsidies and tax breaks involved. As a result, American taxpayers and utility users could end up spending hundreds of billions, even trillions of dollars more than necessary to achieve an ample low-carbon energy supply, if legislative proposals before the US Congress lead to adoption of an ambitious nuclear development programme, he said in a report last November.

At the state level, the industry has also pressed the case for ‘construction work in progress’, a financing system that requires electricity users to pay for the cost of new reactors during their construction and sometimes before construction starts. With long construction periods and frequent delays, this can mean that electricity users start to pay higher prices as much as 12 years before the plants produce electricity.

Cooper said, “the utilities insist that the construction work in progress charged to ratepayers also include the return on equity that the utilities normally earn by taking the risk of building the plant — even though they have shifted the risk to the ratepayers. If the plant is not built or suffers cost overruns, the ratepayers will bear the burden.”
History suggests that the risk of this is not negligible. In 1985, ‘Forbes’ magazine dubbed the construction of the first generation of US nuclear plants “the largest managerial disaster in business history.”

The first round of plants resulted in write-offs through bankruptcies and ‘stranded costs’ — investments in existing power plants made uncompetitive by subsidised new ones — which essentially transferred nearly $100 billion in liabilities to electricity users, said Doug Koplow, an economist and founder of Earth Track, based in Cambridge, Massachusetts, which campaigns against subsidies it considers environmentally harmful. “Although the industry frequently points to its low operating costs as evidence of its market competitiveness, this economic structure is an artifact of large subsidies to capital, historical write-offs of capital, and ongoing subsidies to operating costs,” Koplow said.
Between 1943 and 1999 the US government paid nearly $151 billion, in 1999 dollars, in subsidies for wind, solar, and nuclear power, Marshall Goldberg of the Renewable Energy Policy Project, a research organisation in Washington, wrote in a July 2000 report. Of this total, 96.3 per cent went to nuclear power, the report said.

A November 2009 research paper by Citigroup Global Markets termed the construction risks, power price risks, and operational risks “so large and variable that individually they could each bring even the largest utility to its knees.”

Limited scope

Adding to the risks facing any reactor construction programme, only one of five proposed designs under consideration by US utilities has ever been built, the Nuclear Regulatory Commission said.

Stephen Maloney, a utilities management consultant, said, “No one has ever built a contemporary reactor to contemporary standards, so no one has the experience to state with confidence what it will cost. We see cost escalations as companies come up the learning curve.”

Market risk has been heightened by the recent recession. “The current crisis has decreased energy demand even more than the 1970s oil price shocks,” Cooper said. The recession “appears to have caused a fundamental shift in consumption patterns that will lower the long-term growth rate of electricity demand.”

Cooper said the industry’s equanimity was based, at least partially, on the supportive cushion provided by loan guarantees and work-in-progress financing. “With such financing the utility is making a one-way bet, allowing it to make a profit even when the project fails,” he said. “The people bear the risks and costs; the nuclear utilities take the profits. Without loan guarantees and guaranteed construction work in progress, these reactors will simply not be built, because the capital markets will not finance them.”

Nuclear subsidies in the Senate proposal include five-year accelerated depreciation; tax credits for investments, production and advanced energy, an increase in US government insurance against regulatory delays, access to private activity bonds and an increase in US loan guarantees of $36 billion, bringing the total to $56 billion.

According to the US government accountability office, the average risk of default for such department of energy loan guarantees is about 50 per cent, which is the historic rate for the nuclear industry.

For Cooper, the core issue at stake is one of cost. “While the cost estimates of nuclear power continue to rise, the potential for energy efficiency measures to reduce the need for energy are far cheaper,” he said.

Lower-cost, low-carbon technologies are already available, and cost trends for several others indicate that a combination of efficiency and renewable technologies could meet projected power needs while also achieving aggressive carbon-reduction targets, Cooper said.

In a June 2009 report drawing on several earlier studies, Cooper said energy efficiency and low-cost renewable sources could meet power needs at an average cost of 6 cents per kilowatt hour, compared with a cost of between 12 and 20 cents per kilowatt hour for nuclear power.

Choosing the nuclear route, and constructing 100 new reactors, would translate into an extra cost to taxpayers and electricity users of $1.9 trillion to $4.4 trillion over the 40-year life of the reactors, compared with the costs of developing energy efficiency and renewable sources, the report said.

“The risks that have dismayed Wall Street should be taken seriously by policy makers because they would cost not just hundreds of billions of dollars in losses on reactors that are cancelled, but also trillions in excess costs for ratepayers when reactors are brought to completion by utilities that fail to pursue the lower-cost, less risky options that are available.”

“The frantic effort of the nuclear industry to increase federal loan guarantees and secure ratepayer funding of construction work in progress from state legislatures is an admission that the technology is so totally uneconomic that the industry will forever be a ward of state, resulting in a uniquely American form of nuclear socialism.”

International Herald Tribune