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July 8, 2005

Nucleonomics

I’ve written several times about the future—and economics—of nuclear power. The Economist has now weighed in and made many of the same points:

It costs German utilities perhaps 1.5 (American) cents per kW-hour to make nuclear electricity, estimates Vincent Gilles of UBS, an investment bank, but they can sell it for three times that amount once credits from Europe’s carbon-trading scheme are included. In contrast, it costs 3.1-3.8 cents to produce power from natural gas in Germany and 3.8-4.4 cents to produce it from coal. In America, where there is no mandatory carbon regulation (and hence no penalty on fossil fuels), nuclear power has less of an edge: coal power costs about 2 cents per kW-hour on average today, gas-fired power costs about 5.7 cents, while nuclear cranks out electricity at 1.7 cents or so.
But the economic case is not as clear-cut as it seems. The costs of nuclear power produced by existing plants are likely to be far lower than the costs of newly built plants, because the capital costs of nuclear plants—typically reflecting half to two-thirds the value of the project in present-value terms—are long forgotten. Most of today’s plants were built in an era when central planners or state utility boards had no idea of the true cost of capital. Today’s low interest rates are good for big capital projects like nuclear, but those rates may change sharply in the future. At the same time, gas and oil prices—whose current astronomical levels enhance nuclear’s charms—may well fall.

Then there’s the unpredictable—and astronomical—cost of reprocessing nuclear waste. British taxpayers recently stumped up $90 billion to deal with the nuclear-waste liabilities of British Nuclear Fuels, a disastrously managed (and bankrupt) re-processor. And never mind that even the nuclear industry’s own (rose-tinted) cost projections still mean that a typical nuclear power plant costs about twice as much as its coal-fired equivalent—and takes forever to build:

A 1,000MW nuclear plant would cost $2 billion and take at least five years to build. A coal plant of that size would cost perhaps $1.2 billion and take three to four years, while a combined-cycle gas plant that size costs about $500m and takes less than two years to get up and running. The bigger the project, the more susceptible it is to delays—and UBS’s [Vincent] Gilles estimates that a two-year delay in nuclear projects wipes out 20-25% of the project’s value to investors.

Small wonder that Standard & Poor’s recently concluded that “the industry’s legacy of cost growth, technological problems, cumbersome political and regulatory oversight, and the newer risks brought about by competition and terrorism may keep credit risk too high for even (federal legislation that provides loan guarantees) to overcome.”

But for all this economic uncertainty, the environmental case for nuclear power remains compelling. As I wrote in a previous post, climate change continues to accelerate, thanks to strong global economic growth, rapid industrialization in Asia, little commitment to conservation in developed economies—and lots of coal-fired power plants that account for over 80% of greenhouse-gas emissions. The usual green alternatives—sun, wind, waves, biomass, hydro—would have little impact, even on the most optimistic forecasts. Natural gas? Cleaner than coal, but costly and still environmentally damaging. Super-clean coal? Even more expensive—and unproven.

Nuclear power, on the other hand, is a viable large-scale way to slow climate change. The (obviously partisan) NEI Nuclear Notes blog recently made the point that if all of the 97 U.S. nuclear-power plants that have been cancelled since 1973 had actually been built, we’d now be halfway to the 7% reduction in greenhouse-gas emissions (from 1990 levels) stipulated in the Kyoto Protocol. The blog also has an interesting post today on nuclear energy and total life-cycle emissions.

At some point, we have to decide which cost—economic or environmental—we care about most.

Posted by Stephen at 12:05 AM in Economics | Energy + environment | Permalink | TrackBack (0)

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