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Nuclear Costs and Finances

The capital costs of new reactors are “out of control,” according to the December issue of Time Magazine. New reactors are not just extremely expensive but spectacularly expensive, with costs on track to reach 15 – 20 cents per kWh. (1)

The Institute for Energy and Environment Research (IEER) in Maryland cited costs of 10 to 17 cents per kilowatt-hour in October last year – compared with 8 to 12 cents for wind, and about the same for new large solar plants in California. (2) But the Nuclear Information and Resource Service (NIRS) now reckon costs will be closer to 20 cents/kwh. Most renewable and efficiency projects would be cheaper. (3) One recent study even puts the figure at 25 to 30 cents/kWh — triple current U.S. electricity rates! (4) Nuclear cost estimates now put new reactors among the costliest private projects ever undertaken. (5)

Moody’s Investor Services estimated in October 2007 that new reactors would cost $5,000 to $6,000 per kilowatt to build, or up to $12 billion per unit. But as staggering as their estimates were at the time, those who did the calculations for Moody’s have concluded, based on newer data, they were not high enough. “The numbers have simply gone flying past our highest 2007 estimates,” says Moody’s, which now predicts new nuclear power plants will cost $7,500 per kilowatt. (6)

Back here in Europe there are widespread doubts about the ability of nuclear power companies to build new reactors on time and budget. EDF’s new European Pressurised Reactor (EPR) being built at Flamanville in France is already 20% over budget, while delays continue to plague the Finnish EPR. EDF said Flamanville will cost €4bn (£3.5bn) instead of €3.3bn, blaming “higher raw material costs and the impact of technical and regulatory evolutions”. (7)

Areva, the French nuclear plant designer, has now become embroiled in a war of words with the Finnish utility over delays at Olkiluoto. Areva has told the utility, TVO, the reactor will be three years late – it will not be ready until 2012 – and 50% over budget. TVO attacked Areva and its German consortium partner Siemens for suggesting the embarrassing problems had been caused by the Finns, and totally rejected the consortium’s accusations that TVO has any responsibility for the delay. (8)

The fall in the value of sterling has added over 40% to the cost of constructing new reactors in the UK. The €5.2bn prospective cost of the Finnish reactor now implies a price in UK£ of about £5bn rather than £3.5bn. This raises the prospective cost of electricity generated by the nuclear station to around £70 per megawatt hour, or over £20 more than the current wholesale price. So, at today’s electricity prices and exchange rates the operator of a nuclear power station built for the same price as the Finnish plant would lose £20 per megawatt hour. No rational electricity company intent on making a profit would contemplate making an investment in a reactor if these conditions persist. (9)

An “excessive exuberance” for expansion in the U.S. nuclear power industry has calmed because of the global credit and economic crisis, according to the head of the U.S. Nuclear Regulatory Commission. Separately, a GE Hitachi Nuclear Energy official warned that the lack of credit will slow the pace of U.S. nuclear power development. U.S. Nuclear Regulatory Commission Chairman Dale Klein said in the past two years he worried whether there would be enough NRC staff to review an avalanche of licenses for new nuclear power plants, none of which have been ordered since the 1970s. Now it seems like the global economy has resolved the issue. (10)

France

EdF and Areva are at the core of what has been labeled as the global "nuclear renaissance." But both have escalating money problems which underscore an epic failure that has been a significant factor in the current global economic crisis. After a half- century of massive government subsidies in the US, UK, France and elsewhere, atomic energy still staggers under an unsustainable load of high construction costs and uncompetitive prices for the electricity it generates. (11)

Areva is desperately short of money, and is begging for a bailout from its dominant owner, the French government. Areva's mismanagement and overextension in promoting and building new reactors has wrecked its image in worldwide capital markets. According to Mycle Schneider, Paris-based author of "Nuclear Power in France---Beyond the Myth," Areva shares have plunged by over 60% since June 2008, twice as much as the CAC40, the standard indicator of the 40 largest French companies on the stock market. (12)

On March 11, European Union regulators raided EdF offices in Paris because "suspected illegal conduct may include actions to raise prices on the French wholesale electricity market." The stunning action against the massive conglomerate, which is 84.8% owned by the French government, could result in huge fines. Areva's cash shortage and EdF's price-fixing scandal underscore the huge financial imbalances imposed by building and operating atomic reactors. According to Schneider, "EDF's shares dropped by over 40% during the last six months alone. The EDF share now stands 12% below the value when it was first introduced to the stock market in November 2005. Not really a brilliant investment."

Three Mile Island

March 28 was the 30th anniversary of the Three Mile Island near meltdown in the US,
which saw the instant conversion of a $900 million "asset" into an epic liability. The costs from the earthquake last year that crippled seven reactors at Japan's Kashiwazaki nuclear station are still rising. The failure of Yucca Mountain has converted billions of dollars in utility and taxpayer investments into pure waste.

The Credit Crunch

Professor Steve Thomas and David Hall at Greenwich University say that even before the extent of the current financial crisis became clear, cracks were beginning to appear in the so-called ‘nuclear renaissance’. The designs were unproven, costs were escalating sharply, obtaining finance was problematic, and there was a looming skills shortage and component supply bottlenecks. The implications of the credit crunch on nuclear power are potentially severe, and it is clear that governments and utilities will no longer find it so easy to pass nuclear risks on to taxpayers and electricity consumers. (13)

Steve Kidd of the World Nuclear Association says the financial crisis isn’t necessarily bad news for nuclear because it is a capital intensive industry, lower interest rates and more favorable government infrastructure planning could benefit new build. (14)

But the attitude of the Baltimore-based utility – UniStar – a joint venture between EDF and the UK company Constellation Energy, is probably most telling.  Unistar is planning four new nuclear plants in the US. The cost could be up to $48bn – roughly the same the US spent on the Iraq War in 2006. The U.S. Treasury is expected to guarantee 80% of the total costs through the Department of Energy loan guarantee program. To cover the remainder, UniStar plans to seek loans from the French import/export bank COFACE. Under no circumstances does Constellation or EDF intend to dip into their own coffers to fund the project. "Without the federal loan guarantees, this whole thing will come to a stop," according to the UniStar Chief Executive. (15)

 

Further information

A briefing on nuclear costs and finances is available at:
http://www.nuclearspin.org/images/2/20/Nuclear_Costs_and_Finances.pdf

 

References

(1) Grunwald, M. Nuclear’s Comeback Still No Energy Panacea, Time, December 31, 2008.
(2) Makhijani, A. Nuclear isn’t necessary, Nature 2nd Oct 2008
(3) Lusk, P. Nuclear Plant Electricity: A Simple Costing Model, NIRS website, April 2008.
(4) Exclusive Analysis Part 1: The Staggering Cost of New Nuclear Power, Climate Progress 5th January 2009.
(5) Severance, C. Business Risks and Costs of New Nuclear Power, January 2009
(6) Blake, M. Bad Reactors: Rethinking your opposition to nuclear power? Rethink again. Washington Monthly Jan/Feb 2009
(7) Macalister, T. Nuclear industry claims it is now sexy but admits to rising costs. Guardian, December 5, 2008
(8) Macalister, T. Areva clashes with Finnish utility over delays to new nuclear plant. Guardian, January 14, 2009
(9) Goodall, C. The rising costs of UK nuclear energy. Guardian, January 5, 2009
(10) Economy to slow US nuclear power growth: NRC head. Reuters, March 11, 2009
(11) Wasserman, H. France’s nuke power poster child has a money meltdown. The Free Press 19th March 2009.
(12) Schneider, M. Nuclear Power in France: Beyond the Myth. Greens EFA Group in the European Parliament, December 2008.
(13) Thomas, S and Hall, D. The financial crisis and nuclear power, University of Greenwich. February 2009
(14) Kidd, S. Global financial meltdown – what impact on nuclear? Nuclear Engineering International, February 2009.
(15) Blake, M. Bad Reactors: Sub-prime nuclear loans, Washington Monthly, Jan/Feb 2009.

 

Last updated 28th March 2009