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 Date:7/20/2009

 

News & Views
Nuclear Waste
Mark Cooper tells how nuclear power is still uneconomic.

Those who cannot remember the past are condemned to repeat it – George Santayana.

From a strictly economic point of view, the question of whether nuclear reactors are a cost-effective means of meeting the need for electricity has been hotly debated for more than half a century. Back in the 1970s and 80s, the comparison was strictly between nuclear, coal and natural gas. Today, energy efficiency and renewable resources have entered the mix. But the answer has been the same for 50 years. Nuclear reactors are far more expensive than the alternatives and the gap has grown over time, not narrowed.

Concerns about climate change have not changed that conclusion. While climate change policy is likely to raise the cost of coal substantially and the cost of natural gas somewhat, it makes efficiency and renewables much more attractive, too. Building 100 large nuclear reactors in a couple of decades, as some policy makers in Washington have suggested, rather than pursuing efficiency and low cost renewables, would impose a massive excess cost burden on consumers and the economy of trillions of dollars.

The nuclear industry of the 1970s was built on a ruse (low-ball cost estimates that the vendors could never deliver), a bait and switch (turnkey, fixed price contracts that were replaced by cost-plus contracts with no upper limit), and a sleight of hand (risks shifted from utilities to ratepayers, with construction work in progress). The final reactors constructed in what came to be known as the “Great Bandwagon Market,” cost seven times as much as the initial cost estimates. When the costs ran out of control, consumers were stuck holding the bag for overpriced plants and plants that had been abandoned. More than 100 reactors, planned or under construction, were cancelled in the late 1970s and 1980s.

The “Nuclear Renaissance” is being built on the same bag of tricks – low-ball estimates put out by the U.S. Department of Energy and its contractors, a 2005 request for a few loan guarantees for nascent technologies, replaced in 2009 by demand for subsidies for 100 reactors, and ratepayers again asked to sign cost-plus contracts with no upper limit and pay construction work in progress. Even before licenses have been issued or construction begun, the cost estimates from “official” sources have doubled, but Wall Street and independent analysts project costs to be much higher – three to four times the initial low-ball estimates.

There are clear supply and demand reasons that the nuclear reality does not live up to the hope and hype of the promotional low-ball estimates. Nuclear reactors are megaprojects in which complex interconnected activities must be executed in large-scale physical undertakings that tend to be site specific and which are prone to delay and interruption. The difficulty is compounded when the supply chain is thin and bottlenecks when there is an effort to ramp up activity significantly. The long lead times, high capital costs and high consumer costs, of nuclear reactors makes them vulnerable to marketplace and technology risk.

The oil price shocks of the 1970s and the nuclear rate shock of the 1980s destroyed the demand that the reactors were intended to fulfill. Utility management was slow to recognize the change in demand and unwilling to admit that the projects they had bet their companies on were simply not needed. Today, the “great recession” has dramatically reduced load growth projections. Climate policy, if implemented as passed by the House of Representatives, with mandates for dramatic energy efficiency improvement in building codes and appliance standards, retrofit of existing building and renewable energy standards, will reduce the need for generation from nonrenewable sources even farther. There is simply no market for nuclear reactors in the U.S., which is why Wall Street has made it clear that they will not be able to raise capital in the marketplace.

Policy makers need to look very carefully at the facts before they make trillion dollar decisions. They need a rigorous, comprehensive, analytic framework to sift through the dozens of cost projections that have been made in recent years. They should be careful to take all the direct costs, i.e. the costs that affect consumer’s bills, into account, including construction, finance, taxes, operation and maintenance, waste disposal and decommissioning. They need to compare these costs to a similarly comprehensive analysis of the costs of alternatives, including efficiency, biomass, cogeneration, geothermal, hydro, wind, solar, as well as natural gas and coal with carbon capture and storage. Ultimately, they should also consider indirect costs, including environmental impacts, risks, and subsidies that affect decisions about which technologies to utilize to meet the need for electricity in a carbon constrained environment.

In a recent analysis of the “Economics of Nuclear Reactors” I compiled data on 100 reactors built in the U.S. between 1971 and 1996; four dozen projections of the cost of new nuclear reactors, and almost a dozen studies of the cost of alternatives. These data indicate that efficiency and several renewable generation technologies, as well as natural gas cogeneration are much less expensive than nuclear reactors and available in sufficient quantities to meet the need for electricity in a carbon constrained environment for decades. The excess cost of choosing to build 100 reactors instead of pursuing these less costly alternatives would be between $2 trillion and $4 trillion over the life of the reactors.

In a world where carbon must be constrained and financial resources are limited we cannot do everything. It would be nice if we could, but we have to make choices. Moreover, once utilities commit to huge nuclear projects, they are going to be hostile to efficiency and renewables, which would diminish the need for new reactors. We are at a critical decision point.
A rational energy/environmental policy must start with the least-cost options, which not only can meet our needs for electricity, but also buy time to develop alternative long-term solutions, especially if the trillions of dollars not wasted on nuclear reactors are put to more productive uses, above all developing storage technologies that make the vast renewable potential resource in the U.S. more exploitable. Building 100 reactors would be a mistake not only because it would be horribly expensive, but also because it would put us on the wrong path.

Mark Cooper is a Senior Research Fellow for Economic Analysis at the Institute for Energy and the Environment; his current project is Energy Assessment. Dr. Cooper holds a PhD from Yale University and is a former Yale University and Fulbright Fellow. He has provided expert testimony in over 250 cases for public interest clients including Attorneys General, People’s Counsels, and citizen interveners before state and federal agencies, courts, and legislators in almost four dozen jurisdictions in the U.S. and Canada. Dr. Cooper has published numerous books and articles on energy, telecommunications and high technology industries.