Nuclear: too hot to handle

Published by MAC on 2011-08-08
Source: Climate Spectator, Australian Mining

But is uranium still warm?

Nuclear: too hot to handle

By Giles Parkinson

Climate Spectator

2 August 2011

Australia - Recent reports about the potential of BHP Billiton to delay uranium production from its massive Olympic Dam project, and Resource Minister Martin Ferguson's urging of the NSW coalition government to overturn the state's ban on uranium mining, suggests differing views about the outlook for the nuclear industry.

That the much anticipated "nuclear renaissance" has been stalled - at least in western democracies - appears to be beyond doubt, at least in the short term. But the medium- to long-term outlook is subject to much conjecture, and seems to depend on how you answer two questions: Who is going to want it? And who is going to pay for it?

In the immediate aftermath of the Fukushima nuclear crisis, we noted that the nuclear industry was unique among energy sources in that it relied on the indulgence of public opinion - unless, of course, you live in a country like China - to be built. This has been borne out by events in Germany and Italy, and the continuing angst in Japan.

But it's not the only problem - even in those countries where nuclear is supported by the government, the question remains, who is going to pay for them? And it seems clear that the private sector is not.

Advocates for nuclear power in this country like to present the industry as the lowest-cost clean energy alternative to fossil fuels. But this ignores the fact that nuclear plants are massively expensive and involve huge up-front costs, invested well in advance of a commercial return because of the long lead times.

And it is completely dependent on government support. As Citigroup analysts pointed out in a 2009 analysis on the economics of the nuclear industry, there hasn't been a plant in the world built without the relevant government assuming much of the construction, operating and financing risk. There is not a single insurer, banker or construction company in the world that is willing to assume that risk.

France is often cited as the glowing example of low cost nuclear energy, but the French government effectively wrote off the capital investment of its nuclear fleet, meaning that the operating companies such as EdF and GDF Suez have been able to book what the International Energy Agency described as billions of dollars in "nuclear rent."

Now, the assumption that nuclear will be cheaper than competing "clean" technologies such as coal with carbon capture and storage is being questioned again, particularly in light of the extra costs that will become an inevitable consequence of post-Fukushima safety reviews.

Nomura Securities analyst Kyoichiro Yokoyama last week released a detailed assessment of competing clean baseload technologies, in which he concluded that the cost of nuclear was considerably higher than that of even coal with carbon carbon and storage.

Yokoyama noted that low costs had been a key selling point for nuclear power, underpinned by an analysis from the IEA and the OECD's Nuclear Energy Agency last year that suggested that the levelised cost of energy (LCOE) for coal-fired plants with CCS comes out 25-40 per cent higher than that for nuclear plants, with or without a carbon price. But Yokoyama said that, since the Fukushima Daiichi incident, an increasing number of people have been questioning the real cost of nuclear power generation.

"Some observers have noted that the cost of the various subsidies paid when nuclear plants are constructed is not factored in and it has also been pointed out that the estimation of costs associated with spent fuel has tended to be overly optimistic," he wrote. "In many cases, the details of these amounts are unclear or unspecified, which makes calculating the actual cost of nuclear power generation somewhat problematic."

He drew on research from MIT that noted how the cost of disposing of spent fuel and numerous regulatory and political risks associated with operating licences, including gaining the approval of residents, meant the capital costs were considerably higher (around 2-3 percentage points) than for thermal generation. MIT suggested that this translated into a LCOE for nuclear power generation of $US60-$US65/MWh for the US and Germany and $90/MWh for the Czech Republic. These costs are roughly the same as for coal-fired generation with CCS.

The question of costs and the ability of the private sector to come to the party has been raised on several occasions in recent weeks in the UK, which is keen on pressing ahead with its nuclear rollout. A joint venture between France's EDF and the listed UK utility Centrica plans to roll out of three or four nuclear plants by the end of the decade.

Last week, Lakis Athanasiou, the utilities analyst with London-based investment bank Evolution Securities, warned that Centrica should "not touch (the new nuclear venture) with a barge pole," particularly if the UK government is unwilling to take construction risk.

The Evolution Securities view reinforces renewed concerns expressed by other investment specialists such as Citigroup, which a week earlier said new nuclear was not an investable option for public equity markets and listed companies such as Centrica or Germany's RWE.

"The cost of capital based on those risks would be way too high to give you an electricity price which is affordable," Citigroup's utilities analysts told reporters at a briefing in London. "You would be looking at a project cost of capital of at least 15 per cent. That would require a power price of about 150-200 pounds per megawatt hour (based on 2017 money) to make that project work," he said, noting it is three to four times as much as current UK spot power prices.

"We think (nuclear energy) is uninvestable for public equity markets. EDF may be willing to take on the construction risks but none of the other (big utilities) are willing to do that." EDF, he noted, is an exception because it is majority-owned by the French government.

In that 2009 report, Atherton noted that three of the risks faced by developers - construction, power price, and operational - are "so large and variable that individually they could each bring even the largest utility company to its knees financially. This makes new nuclear a unique investment proposition for utility companies." He noted that UK government policy remains that the private sector takes full exposure to the three main risks. "Nowhere in the world have nuclear power stations been built on this basis," he said.

Further delays and cost overruns at new generation nuclear plants being developed in Europe by French companies have also raised questions about the cost factor, particularly with the extra safety measures that would appear to be an inevitable consequence of the Fukushima incident. EDF said the new generation European pressurised reactor (EPR) at Flamanville, in north-western France, has been further delayed and is now expected to open in 2016 (rather than 2014), and its budget has now jumped out to €6 billion ($8 billion). It was originally to be built by 2012 at a cost of €3.3 billion.

Another French company, Areva, is experiencing similar problems at its EPR plant in Finland. EDF has blamed "structural and economic" problems, noting that a nuclear plant has not been built in France for 15 years. It's a similar problem in the US, where even nuclear technology suppliers such as GE say it is impossible to estimate the cost of nuclear reactors because none have been built for more than two decades.

A plan unveiled in 2007 to build two nuclear plants in San Antonio using reactors provided by Toshiba was effectively abandoned three years later after the prospective cost ballooned from an estimated $US5.8 billion to $US22 billion. The Obama administration has said it would release $58 billion in loan guarantees to help a new fleet of nuclear reactors to be built, but there are questions about whether this would be anywhere near sufficient.

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NSW uranium mining ban to stay, O'Farrell says

By Cole Latimer

Australian Mining

5 August 2011

The NSW Government is no longer considering a repeal on the uranium mining ban.

Earlier in the week it emerged that Federal resources minister Martin Ferguson had called on the NSW Government to reconsider existing bans on uranium as it limited "knowledge of potential deposits".

It was reported that NSW minister for resources and energy Chris Hartcher met with Australian Uranium Association (AUA) chief Michael Angwin in June, to discuss the ban.

Following this, Angwin then wrote to Hartcher, asking him "to make any necessary change to permit uranium exploration and mining to take place in NSW".

However, responding to a question by opposition leader John Robertson on whether the government is considering a repeal on the ban, O'Farrell tersely stated "No", the SMH reports.

Uranium exploration has been banned in NSW under the Uranium Mining and Nuclear Facilities Act.

Western Australia recently overturned its ban on mining and exploration in the state.