Nuclear power: A cheap option?

Westminster Keynote SeminarOctober 19th 2009, Portcullis House

Steve Thomas (stephen.thomas@gre.ac.uk)

PSIRU (www.psiru.org), Business SchoolUniversity of Greenwich

What do nuclear companies care about

• Construction cost & time & cost of borrowing

• Repaying fixed construction cost & interest accounts for 70% of the cost of power

• Reliability. The reliability, how much kWh of power it produces every year, determines how thinly fixed costs can be spread

• Utilities always assume new plants will be reliable. Not always true

• Electricity price

What don’t companies care about?

• Fuel. Small part (5%) of generation cost• Decommissioning & spent fuel disposal.

High cost but so far in the future, costs are discounted away

• Operations & maintenance. 20% of generation cost

• Insurance and liability cover. International treaties mean governments bear the risk

Construction costs• 10 years ago industry forecast cost

$1000/kW Cost of 1600MW plant like EPR $1.6bn

• 2004: Olkiluoto ca $3000/kW• 2007-08: US utility estimates ca $5000/kW• 2009: Ontario bids $6700/kW, $10000/kW• UK government 2008 nuclear White Paper

assumed £1250/kW, or $2000/kW• In 2008, E.ON, likely builder at Oldbury, said

cost 70% higher than government estimate• Cost estimates before construction always

an under-estimate

Cost of borrowing• If consumers always pay for errors, risk to

banks low so cost of borrowing low - ~5% real• If electricity market competitive, extra costs

not passed on, they come from profits and could bankrupt the company

• Investment analysts, credit rating agencies may reduce share price and credit rating of companies that try to build nuclear

• Government credit guarantees can protect banks so if project fails, taxpayers pay the bill

• US programme to build 15 nuclear plants needs $120bn loan guarantees (80% cost coverage)

Olkiluoto• Construction cost: €3bn ($2800/kW) fixed

price contract• €1.95bn provided by loan at 2.6% interest.

Export credit guarantee provided by French (€650m) & Swedish (€110m) governments

• Plant expected to take 4 yrs to build, but after 4 yrs, nearly 4 yrs from completion

• Costs now expected to be at least 75% above contract price. Who will pay?

• Turnkey contract is under dispute in court: TVO suing Areva, Areva countersuing TVO

• Safety regulator threatening not to license plant if design issues not sorted out

What will happen?

• In 2012-13, E.ON/RWE/EDF will go to government and say without a levy/fixed carbon price and loan guarantees, nuclear cannot be financed

• Government will not be able to admit 7-8 years of effort wasted and will cave in

• 2-4 plants built at very high cost by 2025• Government support for energy efficiency

& renewables weak for the period up to 2025