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Saturday 22 November 2008

Go nuclear, but keep your hand on your wallet

The government claims that the private sector will meet the costs of new nuclear plants, says Irwin Stelzer. But there is every risk that the public will end up footing the bill

Assuming that the permitting process can be expedited, there is then the small matter of whether these massive, capital-intensive stations will be economic, without government subsidies. Reasons for optimism include the rising cost of fossil fuels, with which nuclear must compete; the inability of renewable resources to do more than make a marginal contribution to future electricity supplies and the reduction of carbon emissions; the proven ability of US firms such as Exelon to operate nuclear plants at 94.5 per cent of capacity, a doubling of efficiency in the past decade; and the likely increase in the cost of carbon permits, which must be included in the cost of electricity produced from coal.

But if we know anything about nuclear power plants, it is that their cost always exceeds estimates. Perhaps the situation is no longer as bad as it was a few decades ago, when the predicted cost of one plant in the New York area was put at $700 million, and the final cost at completion came to over $5 billion. But we can’t be certain, since current estimates of the cost of these energy behemoths vary widely. Some American companies say they can bring a plant on line for $5 billion; others put the figure at twice that. The optimists might be right, but investors being asked to part with billions of capital must factor the risk that the low estimates are wrong into the price they will want for their money. As they watch the price of uranium rise, the cost of building materials escalate, and observe the rising wages of the scarce personnel who know how to build these plants, they will worry even more. Which is why John Hutton is hedging his bets by approving the construction of new coal plants.

And why the government has left open the possibility of subsidising nuclear power. On the surface its disclaimers are absolute — rather like its pledge to hold a referendum on the EU treaty/constitution. But it has left itself several escape hatches. First, there is the government’s indication that it will establish ‘a level fiscal playing field between nuclear power and other forms of electricity generation’. Just what that means is hard to say, but it certainly leaves the government room to take such steps as it deems appropriate to bring the costs of nuclear and non-nuclear power in line with one another, should nuclear prove too expensive to compete in the deregulated energy market.

More articles from: Irwin Stelzer | this section

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