Nuclear ambitions pose company risk, public costs

Britain, Italy and Finland plan to decide this year on strategies to rebuild their collection of nuclear reactors, while Sweden will decide after its general election whether to allow new nuclear power plants.

But claims such as the British government’s that companies alone will shoulder the cost for the multi-billion euro projects will turn out to be misleading, past experience and today’s evidence show.

Plans from utilities such as Enel, EDF, E.ON and Fortum will only prove feasible if the public takes the risks.

“Nobody has ever built a nuclear power station in a deregulated market, and there are good reasons for it,” said Citigroup analyst Peter Atherton, noting nuclear requires strategies which “take the risk from the companies and transfer it to the consumer”.

In nuclear consultations in 2008 the British government promised a fixed price for waste disposal and decommissioning. As the real price is unknown for dealing with high-level waste which has to be stored and supervised for centuries, the risk for any cost overruns, which could run into billions of pounds, is carried by the taxpayer.

Utilities who have lined up to build new power plants in Britain say London needs to consider either guaranteeing a minimum price for carbon emission permits — making other power plants more expensive — or subsidising low-carbon power generation directly.

Helping hand

The United States demonstrates why companies are bound to ask for a helping hand from governments. In his budget proposal for 2011, President Barak Obama asks for loan guarantees of $54.5 billion for nuclear power. U.S. executives say state support is key for investments in nuclear.

In Europe, similar measures “will be useful at least for the first group of nuclear power plants” to rein in prohibitive costs for companies, said Martin Taylor, a scientist at the Organisation for Economic Cooperation and Development (OECD).

The same is true in Italy, where private investors would expect the reluctant government to take on risks such as waste disposal, accidents and decommissioning, analysts say.

Nuclear power has a history of vast cost overruns and if power prices don’t pay for construction costs once a plant starts generating power, any operator is in trouble.

Politicians are hoping increased use of nuclear power will cut carbon dioxide emissions believed to cause global warming, while companies bet governments will provide an environment that allows them to turn reactors into cash cows.

While that will be possible only with public support, benefits to taxpayers remain uncertain because utilities are not committing to lower power prices even if the life of existing power plants is extended, as in Belgium or as planned in Germany. They will have to pay dearly for new reactors.

The only reactor being built in a power market without state intervention — near the Finnish town of Olkiluoto — has contracted its output to a consortium that belongs to the plant’s builders, aiming to avoid unpredictable power markets.

Behind schedule

The plant is three years behind schedule and 80 percent over its 3 billion euro budget. Teollisuuden Voima (TVO), the operator of the plant, and its builder France’s Areva have taken their dispute over the ballooning costs to the International Chamber of Commerce for mediation.

Nonetheless, Finland will decide this year if it will build more new reactors in the next decade, while Italy, the only Group of Eight industrialised nation without nuclear power, is pushing ahead with plans to revive a sector it abandoned 22 years ago.

Neither RWE, E.ON or Enel have given estimates for the profits they will earn from building nuclear plants in Britain. But their output will come at higher prices than large-scale fossil fuel-fired plants (the most direct comparison since both would provide “base load” power 24 hours a day, as opposed to wind or solar).

According to estimates from the Massachusetts Institute of Technology (MIT) in a 2009 report, newly built nuclear power plants produce power at 8 U.S. cents/kilowatt hour.

That would be comparable to the cost of coal-generated power and more than gas-generated power, but was before a slump in prices for carbon certificates, coal and gas. In Europe, power trades at around 5 euro cents/kilowatt hour.

The high price for nuclear power is necessary to recoup production costs of nuclear reactors, which have risen since the study was made to as much as almost 6 billion euros per unit.

“In deregulated markets, nuclear power is not now cost competitive with coal and natural gas,” the MIT researchers concluded.

Consumer groups and analysts in Italy also predict costs for nuclear power are likely to boost energy bills, already the highest in Europe, casting doubt on Rome’s forecasts that nuclear would help cut power prices by about 30 percent.

Betting on government support in Italy and elsewhere in Europe clearly has appeal for companies, but from an economic point of view, as Citibank’s Atherton notes: “Nuclear has been a catastrophe.”