South Australian Premier Jay Weatherill raised a few eyebrows about his plans, announced this weekend, for a “royal commission” into the nuclear energy industry.
But Weatherill is right about one thing: Nuclear energy, he says, is “not something that would be economically viable in South Australia, or indeed the nation.”
For most people, Weatherill’s comments about the costs of nuclear energy would be a case of stating the bleeding obvious. Not the nuclear fan club, however, who appear completely detached – even from the nuclear industry – on the reality of nuclear’s costs.
A glance at the contract for the Hinkley C nuclear reactor -the first to be built in the UK for a generation – proves otherwise. Even in the UK, with a well established nuclear industry, and all the infrastructure that has been built, it is still expensive. Hinkley C will start with a tariff of £92.5/MWh ($180/MWh) in 2023 before rising nearly three-fold over the following three and a half decades.
Nuclear boosters commentating on this web-site have argued that nuclear tariffs are no higher than solar or wind in the UK. But this is not true. The tariffs for wind and solar will fall each year over the next five years. From 2020, the UK government expects that new onshore wind and solar projects will need no further subsidy.
Hinkley C, however, will not start operating until 2023 at the earliest. Its contract has a built-in indexed rise for 35 years. That means that by 2058, it will be paid something like €329/MWh, or just short of $A500/MWh, according to a study commissioned by Vienna Ombuds-Office for Environmental Protection, and released late last year.
The study suggests suggests that if nuclear support was shelved in favour of renewables, the cost savings would be spectacular – on average 37 per cent across the EU.
And this is despite Hinkley C receiving other government benefits, including £16 billion of loan guarantees, and with the UK government accepting all construction, production and insurance risk.
“The real costs of nuclear energy as well as for fossil electricity production are not well known as these technologies stem from a time when states made decisions not mainly driven by economical reasoning,” the Vienna report notes.
The pricing of Hinkley C – which one would presume would be the bare minimum for a new industry in Australia – contrasts with the results of the ACT government’s wind energy auction last Friday, which locks in a price for wind energy of between $A81.50 and $A92 for 20 years. It is a fixed price. In other words, wind energy for the ACT will still cost $82.50 – $90/MWh in 2037, around one third the prevailing price of Hinkley C.
(It’s important to note that Hinkley’s price does not include the additional $12 billion in costs that will be passed on to consumers for new “back-up” that has to be built in case such a large reactor fails. South Australia has gotten to 40 per cent wind and solar without the need for any additional back-up).
Even with this huge support, it is not clear that the project developers – government owned corporations from France and China – will go ahead with the Hinkley C project. The only privately-owned partner, Centrica, formerly British Gas, pulled out in 2013 because it said it could not afford the risk and potential cost blowout. That tells us something about the financial market thinks of nuclear costs.
As Deutsche Bank energy analysts noted in a report last month, Hinkley C is not the only problematic nuclear development in Europe. In fact, there are only two other significant nuclear projects there. It summarised them thus:
EPR in France: five-year delay
Flamanville Unit 3, developed by EDF, started construction in December 2007 with an originally designed construction period of 54 months (start-up in 2012). In December 2012, EDF announced completion would be delayed until 2016 and that the cost would increase to EUR8.5bn (Rmb64bn, or Rmb37,200/kW). In November 2014, EDF announced a further postponement into 2017 due to delays in component deliveries from Areva.
EPR in Finland: 10-year delay
In August 2005, Finland began construction on the world’s first EPR unit, which was originally expected to go on line in 2009. It is currently expected to go live by late 2018, as its prolonged construction period (more than 13 years) has delayed it by nearly a decade. It may even be pushed back further. The cost overrun is also substantial. In December 2012, Areva estimated the total cost would come to EUR8.5bn (Rmb64bn, or Rmb37,200/kW), almost three times its original planned EUR3bn.
These problems also exist in China. The new Taishan Nuclear Units 1-2, which could be the first GIII reactors, were originally scheduled to commence operations in end- 2013 and October 2014, but are now postponed to 2016, according to the latest guidance provided by CGN. Deutsche Bank thinks the delay is likely to extend to at least 2017. The cost is estimated to be Rmb73.2bn (Rmb20,900/kW), up 46 per cent from the original estimates of Rmb50bn, Deutsche says.
This is one of the reasons why Deutsche bank has a slapped a sell recommendation on CGN, the world’s only listed pure nuclear play. It says the market does not understand the risks of soaring costs, lower tariffs, and lower capacity factors (as demand falls),
In the US, the problem also continues. The new Vogtle plant in Georgia is also facing yet more cost over-runs and delays. It is now three years behind schedule, with the latest 18-month delay – announced last week – adding another $US720 million in costs. Lawyers are making hay, with endless court battles about who is responsible and should pay for the soaring costs.
As Greentech Media notes: “The latest delay at Plant Vogtle is another setback for a project that was supposed to prove nuclear reactors could be built on time and without the cost overruns that financially strained utilities decades ago. Power companies are already shuttering existing nuclear plants because natural gas is so cheap by comparison.”
And, last week, oil industry analysts Wood McKenzie conceded that gas was now being undercut by large scale solar, predicting that the next revolution will be from solar, and the shale boom may already be over, such is the rapidly changing nature of the energy market, and the plunging cost of renewables.
The push for nuclear is largely driven by those who wish to retain the century-old grid model of centralised generation, or don’t understand that there is a valid alternative.
That argument suits coal generators, who are equally strident in their views that the deployment of renewable generation should be delayed. This is what the Abbott government has effectively done already – in the interests of the fossil fuel generators who faced rapidly declining earnings if wind and solar took off, and in the interest of those still pushing the nuclear bandwagon.
Interestingly, the two biggest utilities in Europe and the US, E.ON and NRG, are turning their focus to distributed energy, solar and storage and micro-grids. Both have significant amounts of nuclear generation, but see no future for the technology in a rapidly changing market. They expect half of demand to come from local supply.
Weatherill’s reported comments suggested that small modular reactors may offer an option down the track. At the very least, these are a decade away, most likely more. By that time, in South Australia’s own limited target, the state will be more than 55 per cent renewables, and – according to the network operators – will be looking at renewables-based micro-grids as the most cost-effective option.
It is more likely that Weatherill’s commission may be looking at whether the state should try and cash in on the nuclear waste management industry, which with the tens of billions of liabilities piling up, could be a lucrative opportunity.
The Sellafield plant in Cumbria will cost £70 billion ($A136 billion) to clean up, according to the UK’s Public Accounts Committee (PAC). These “opportunities” will be repeated hundreds of times as other nuclear plants are retired.
Giles Parkinson is founder and editor of RenewEconomy.com.au, and is also the founder of OneStepOffTheGrid.com.au and founder/editor of www.TheDriven.io. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.