COLUMN-Rising costs argue against new nuclear: Gerard Wynn

Fri May 18, 2012 8:36am EDT

(The author is a Reuters market analyst. The views expressed are his own.)

By Gerard Wynn

LONDON May 18 (Reuters) - The costs of nuclear power are rising in developed countries, where fossil fuel and renewable energy prices are stable or falling, suggesting present proposals for a major programme of new investment are ill-advised.

Overall, the picture is one of uncertainty about nuclear costs, but a clear upward trajectory is evident in developed countries, urging a re-think on construction plans in Britain, the United States, France, Canada, Finland and Poland.

The picture is different in India and China where vast plans with economies of scale plus cheaper labour may favour the technology.

Capital costs make up the biggest part of nuclear costs and have been rising since lows in the 1970s when massive expansion programmes in the United States, France, Germany, Japan and Britain captured economies of scale.

Costs rises reflect increased regulation, project delays and skill shortages, plus more recently the impact of concerns from the Fukushima crisis.

The problem argues in favour of an alternative, more nimble energy model, at least in the industrialised world.

That could include a bigger focus on energy trading across more intelligent and internationally connected grids, and on efficiency in demand and fossil fuel supply.

Such a transition would have to happen gradually to avoid rises in carbon emissions, rather than precipitously shutting reactors, as planned in Germany in the wake of the Fukushima disaster.

The smartest nuclear policy in industrialised economies may therefore be one of nuclear lifetime extensions, in a gradual phase-out with no new construction.

That is already effectively the stance of the United States, where more than half the existing plants have had their lives extended to 60 years from an initial 40 years, and increasingly so in France.

The World Nuclear Association lists 20 countries which have new plans to build reactors beyond those under construction, including nine industrialised countries. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Nuclear reactor starts: link.reuters.com/qun38s

U.S. reactor capital cost: link.reuters.com/run38s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

RISING CAPITAL COST

Capital costs of selected U.S. reactors rose about fourfold (in constant 2010 dollars) from 1975 to 1985, to more than $7,000 per kilowatt (KW), calculated University of California's Lucas Davis in a recent discussion (not peer-reviewed) paper, "Prospects for nuclear power".

When included, the cost of borrowing would raise these so-called overnight costs by about as half as much again.

The U.S. Energy Information Administration (EIA) gave a bleak outlook in 2010, before Fukushima, raising its capital cost estimate by nearly 40 percent over the previous year.

It attributed the increase to higher commodity prices and an inadequate supply chain for complex engineering projects.

The impact of Fukushima, raising financing and regulation costs, pushed up construction costs by another 5 to 10 percent, the International Energy Agency (IEA) said last November.

The IEA, EIA and various other groups put the overnight capital costs in developed countries at between $3,500 and $5,500 per KW, in present dollars.

EXPERIENCE

But costs are rising in Europe, as shown by two flagship projects in Finland and France.

French utility EDF last year estimated the overnight cost of its new Flamanville 3 reactor, the first to be built in France in 15 years, at 3,600 euros ($4,600) per kilowatt, up from an initial estimated 2,000 euros ($2,500).

Increasing the capital cost by $1,000 per KW raises long-run power generation costs by a quarter, according to the IEA.

The Flamanville reactor would also be over-due by four years.

Delays increase financing costs, as interest payments continue over a longer period. EDF blamed the higher costs and delays partly on stiffer regulation.

In Finland, the Olkiluoto 3 reactor, would be commissioned five years behind schedule and also massively over-budget at about 4,125 euros ($5,200) per KW.

Once financing costs are included, a new nuclear reactor in the United States could cost more than $6,000 per KW, estimated the University of California's Davis.

POWER GENERATION

The trouble is that the lower operating cost of nuclear power and lower carbon emissions no longer compensate for those rising upfront costs.

The financial crisis has led to record low carbon prices in Europe, and helped block a planned cap and trade scheme in the United States, undermining a key potential advantage over fossil fuels.

Meanwhile, U.S. gas prices have fallen precipitously and wind and solar equipment prices have fallen.

Davis calculated the present full generation costs of a new U.S. nuclear reactor at double that of gas.

The U.S. EIA last year estimated that the full generation costs of both gas and wind power would undercut nuclear in future decades, while the IEA projected nuclear power to be more expensive than almost all rival technologies in the United States in 2020, but the cheapest in China.

A better energy model may be a low-cost, modular approach focused more on the grid, demand and fossil fuel efficiency plus renewable power rather than massive centralised nuclear and carbon capture and storage projects. ($1 = 0.7869 euros) ($1 = 0.6324 British pounds) (Editing by Keiron Henderson)

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