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New Study on Staggering Cost of Nuclear Energy, Staggeringly Pessimistic

Posted By Nicolas Loris On January 7, 2009 @ 1:20 pm In Energy | Comments Disabled

Jack Spencer [1], Research Fellow in Nuclear Energy at the Heritage Foundation, authored this post.

The Center for American Progress is promoting a  study [2]called “Business Risks and Costs of New Nuclear Power,” which according to a CAP press release uncovers the “staggering” costs new nuclear power. The study prices out new nukes based on what it purports to be a realistic set of conditions.

Aside from the cherry-picking of data and its clear tilt toward Big Green (the vast industrial complex and lobbying machine being built around global warming alarmism), its conclusions are potentially not that far off.

In other words, it describes a possible cost structure for new nuclear power. Where it misses the mark is by not telling the reader that such an outcome is not predetermined, thus leaving its audience with the impression that nuclear energy is necessarily expensive. That is not the case.

The reality is that nuclear related institutions in the U.S. are not structured to promote a strong, efficient, and sustainable nuclear industry. Subsidies, the regulatory environment, and the nation’s nuclear waste management strategy all promote entrenched interests, are disincentives to innovation and discourage competition. Together, these all result in higher prices.

The value of the CAP study is to demonstrate why a nuclear renaissance may never unfold unless something is done to ensure that the conditions set forth by the study never come to pass. The Heritage Foundation has written extensively on what some of these pro-market reforms should be.

Here [3]is a study on waste management;
here [4]is one on subsidy reform; and
here [5]is one on how regulation contributed to killing the nuclear industry
and one on how to fast-track permits [6]for new reactors.

The CAP study shows what could be if we do not learn any lessons from the past. Heritage is busy using CAP’s base numbers with a new set of assumptions to determine what could be if we make the right policy choices.

While we are working on that, here are our initial thoughts on the study. This will give you some insight into what we are thinking as we are crunching a new set of numbers.

Environmentalists didn’t stop nuclear energy. Oh, wait, yes they did. The study dedicates an entire page (3) to argue that environmentalists did not kill nuclear energy. It suggests that Wall Street and utility executives simply assessed the risks associated with nuclear power being too great to carry forth with their nuclear projects. Fast forward to page 20, after describing how one of the greatest cost drivers with nuclear power is construction delays, the paper points out that organized opposition has been a “highly significant factor” in delaying plant construction. Perhaps these were not environmentalists who organized.
New plants are already delayed and over budget, well not ALL of them. Sticking with page 20, the study falls back on the anti-nuke adage that delays and budget overruns of the Finish reactor demonstrates that new U.S. reactors will also be over budget and delayed. It also points out that two-thirds of current reactor projects around the world are also being delayed. First, as Heritage has pointed out numerous times [7], the Finland reactor is a first of a kind and assigning delays and cost overruns that it incurs to future reactors is not a legitimate criticism. But more importantly, while the CAP study might point out that two-thirds of the reactors might be delayed, one-third is not. So instead of assuming that the U.S. will do the wrong things that the two-thirds are doing, how about learning some lessons from what the successful one-third?
A ten year construction schedule is not predetermined. The basic problem with the study is that their conclusions are based on the assumption that new nuclear plants will take ten years. This significantly drives up both the cost of capital and other inflationary pressures, which the study refers to as construction cost escalations. A fairer approach would have been to develop conclusions based on a few scenarios. Japan, for example, is completing plants in four years. So while it is true that historically plants have been delayed in the U.S., it is also true that modern construction methods in industrialized economies are allowing plants to be built more efficiently. That should have been recognized.
Assumes technological homogeneity. One of the real disservices to the American public of the current debate over nuclear power is that lack of discussion over the array of nuclear technologies available. While large, light-water rectors will likely remain the back-bone of the U.S. fleet; there are a host of other technologies that we should be discussing. Each has their own set of advantages for different applications. Not recognizing the impact that new technologies could have on the viability of nuclear power dismisses one of the greatest contributions that nuclear technology could have on America’s energy future.
Overnight costs are misleading. The CAP study started with an overnight cost estimate as the basis from which to build its total cost models. The problem is it uses Florida Power & Light’s estimate as the basis for the study’s overnight costs. The problem is that using this estimate does not take into consideration the significant savings that should be achieved as additional plants are built. So while the FP&L plant may well cost $4,070/KW, future plants should cost significantly less as regulatory hurdles become more predictable, the supplier base matures, construction methods are honed, and economies of scale are achieved.
So-called “all in” costs are misleading. The study attempts to calculate all of the costs associated with the plant, divide them by the amount of electricity the plant will produce to give an all-in cost for nuclear power. This is the exorbitant 25 to 30 cents per kilowatt hour that the report suggests. The problem with this mixture of fixed capital costs and variable costs is that it is based on what the cost for electricity would be in the year 2018, the year the plant comes on line. While the study recognizes that the current low cost of nuclear energy is largely because the plants are already paid for, it ignores the fact that the cost for nuclear energy at new plants would be drastically reduced once they are paid for. A more accurate way to assign all-in costs would be to describe all-in, lifetime costs. In other words, the actual cost to consumers should be spread over the life of the plant, which will likely be over 80 or more years.
Variable costs are unnecessarily escalated. In addition to the capital costs, the study describes and assortment of variable costs. Like the capital costs, these estimates assign first year costs to the overall cost of electricity, rather than spreading those costs over the lifetime of the plant. Nor do they not allow for the possible downward price pressures that a shift in policy would produce. For example, it assigns a cost to building a workforce to operate the plant. While developing a workforce certainly has costs associated with it, the total cost of such activities should not be assigned to the all-in cost of electricity. They are investments that would be returned over time. Another interesting cost that is assessed is that for property taxes. To be sure, property taxes are an important source of revenue for local communities that host nuclear plants. The problem is that the study assumes that because the costs for the plant will be so high, so will the property taxes. If, however, costs can be kept down, than so to will taxes.
Pursuing a least cost approach. One recommendation that is on spot is that the nation should pursue a least cost approach to meet its needs. The Heritage Foundation advocates a free-market approach to energy policy. It does not support subsidies for nuclear or any other energy source. The federal government should set a fair and predictable regulatory environment and allow all energy technologies to compete in the open market place.

Maybe the CAP folks are correct and the cost of nuclear energy is prohibitively expensive. Maybe other alternatives are the way to go for a clean, affordable energy future. As one who believes in the value of nuclear energy, I am fully supportive of removing all the subsidies and government preferences and allowing the market to decide. If Big Green is so confident, then they should be prepared to do the same.

Addendum: David Bradish at the Nuclear Energy Institute’s blog makes a very good point [8]:

The study assumes a payback period of 40 years. That’s way too long. A new nuclear plant will probably be setup to pay back its loans for construction in 15-20 years and maybe faster depending on the financing agreements. Investors don’t wait 40 years to receive their money back and in fact 15-20 years is a long time for any investment. Changing this one assumption in the study basically cuts the cost of electricity from a nuclear plant in half and becomes more in line with the conclusions from the other studies I’ve seen.”


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/01/07/cap-study-on-staggering-cost-of-nukes-staggeringly-pessimistic/

URLs in this post:

[1] Jack Spencer: http://www.heritage.org/about/staff/JackSpencer.cfm

[2] study : http://climateprogress.org/wp-content/uploads/2009/01/nuclear-costs-2009.pdf

[3] Here : http://www.heritage.org/Research/EnergyandEnvironment/bg2149.cfm

[4] here : http://www.heritage.org/Research/EnergyandEnvironment/bg2207.cfm

[5] here : http://www.heritage.org/Research/EnergyandEnvironment/bg2086.cfm

[6] how to fast-track permits : http://www.heritage.org/Research/EnergyandEnvironment/wm2062.cfm

[7] Heritage has pointed out numerous times: http://www.heritage.org/Research/EnergyandEnvironment/bg2117.cfm

[8] blog makes a very good point: http://neinuclearnotes.blogspot.com/2009/01/business-risks-and-costs-of-new-nuclear.html

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