E3G

The future will not be nuclear

By Tom Burke

Why is nuclear power so expensive?

There are only two honest answers to the question of how much it costs to build a nuclear power station. These are “I don’t know” and “I’ll tell you when I’ve built it.“ Everything else is a guess. These may come in official volumes stuffed full of impressive-looking data, but they are still guesses. Some numbers will illustrate the point. Between 1966 and 1967, reactor costs in the US exceeded estimates by an average 209 per cent. Between 1968 and 1969 they went up 294 per cent. Between 1970 and 1971 they went up 348 per cent. 1972 to 1973 was a good year, they only went up 318 per cent. But by 1974 to 1975 they were back up to 381 per cent. In 1976 they only went up 169 per cent. But by then the American utilities had given up. They have not ordered a nuclear reactor since 1974. We did little better. The cost of building Sizewell B went up “only” from £1.7bn to £3.7bn during construction.

The government’s commitment to new nuclear power stations is based on just such guesses. The cost of a reactor is normally quantified by what it costs to build each kilowatt (kW) of its capacity to generate electricity. To find the cost, you multiply this by the reactor’s size—measured in thousands of kW, or megawatts (MW). To this must be added the cost of financing the expenditure. In its January white paper on nuclear energy, the government’s worst-case analysis assumed that the construction cost would be £1,625/kW, giving a total cost (based on a reactor size of 2,200MW) of £3.6bn. But in May, the German utility company E.ON estimated the cost at just over £3,000/kW, making the overall cost of a new reactor close to £6.7bn. Other recent guesses range from $4,000/kW (£2,162) early in 2007 to $10,000/kW in January 2008 (£5,000). This certainly looks like “I don’t know” to me.

Nuclear enthusiasts argue that everything is different now. Lessons have been learned, designs have been standardised and new reactors can be built on time and to budget. But the fact that none of the three designs under consideration in Britain is operating anywhere in the world might give pause for thought.

The government has pledged that there will be no subsidies for new nuclear construction.

Recent events in Finland provide further grounds for caution. There, French company Areva is building the first example of the reactor design most favoured for Britain, the so-called EPR. It has not been a success. The 1,200MW reactor is more than £1bn over its original £2.5bn budget and two years late just two years after construction began. If this is the best Finnish contractors can manage, the thought of what those who brought you the Scottish parliament or Wembley stadium might accomplish is chilling.

This is not just, or even mainly, about incompetence. Nuclear costs are rising disproportionately. This escalation—14 per cent a year after inflation, according to one estimate—has many causes. Nuclear power stations are intensive in metal and concrete, and their construction requires specialist skills. So they have been hit harder than other forms of power generation by the surge in engineering costs. The nuclear supply chain has atrophied in the quarter century since there were last large programmes in the OECD countries. In the US there are now only 80 nuclear-qualified suppliers of key components, compared to 400 a decade ago.

And there is only one global provider—the Japan Steel Works (JSW)—of the heavy forging capacity needed for reactor pressure vessels. JSW is already hard-pressed by demand for new refinery equipment and can only supply five new reactor vessels a year, although it wishes to double capacity to ten vessels. But the need to fund this investment is itself contributing to rising prices, which have increased by 12 per cent in six months, and JSW now requires a 30 per cent down payment on an order. It takes six years from the date of the order to get other key components, including reactor coolant pumps and control and instrumentation equipment.

The human resources needed to resuscitate the nuclear industry are in even shorter supply. Before you can even apply for permission to build a nuclear power station, you need approval for the design you plan on using. This can take several years. Yet inspectors and engineers are leaving Britain’s Nuclear Installations Inspectorate (NII), some to retirement and others to more lucrative employment with contractors hoping to come to the nuclear party. The NII now has only 16 people to carry out the detailed safety approval of new reactors, a task estimated to need at least 40. What this means is that if you wanted to have a reactor up and running in Britain by 2020, you would need to have sought approval some time ago. Generous pay rises, relocation from Merseyside and a new management structure are all proposed to relieve this bottleneck. But these reforms will need time to become anchored if we are to avoid an unacceptable choice between speed and safety.

The government has pledged that there will be no subsidies for new nuclear construction. But this was never credible, and it is already possible to detect signs of retreat. In 2006 the government bravely promised to “make sure that the full costs of new nuclear waste are paid by the market.“ By 2008 this had mutated into the more nuanced: “The government will [set] a fixed unit price [for] waste disposal at the time when approvals for the station are given.“ This effectively caps the costs of nuclear waste disposal to the operator and transfers the risk of cost overruns on to the taxpayer. It is hard to argue that this is not a subsidy.

Furthermore, as Stephen Thomas from Greenwich University has pointed out, if you take E.ON’s estimate of the cost of a new reactor of £3,000/kW, then the operating cost of that reactor is likely to be about £80 to generate a kW of electricity for an hour—a measurement known as a kilowatt hour (kWh). The current wholesale electricity price, which is causing ministers such headaches, is about £40/kWh. We already know what happens to nuclear operators when their operating costs exceed the price at which they can sell electricity. In 2002 British Energy lost money hand over fist and found itself technically insolvent. But the company did not go bust. In a prequel to Northern Rock, the government bailed it out to the tune of some £4bn, taking a large stake in the business. (British Energy is now profitable, thanks to rises in fossil fuel prices.)

This precedent helps to explain why utilities companies are looking at nuclear power. They know that once Britain has started down this road, there will be no going back, as other investment will be suppressed. The “no subsidies” rule will be a distant memory. The utilities companies will be in a strong position to extract from taxpayer and consumer alike what they need to keep going.