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The economic viability of nuclear power is only going down

Nuclear Monitor Issue: 
#871
4773
25/01/2019
Grant Smith ‒ senior energy policy advisor at Environmental Working Group
Article

Last year the Trump administration's Energy Department announced the launch of a media campaign to counter what an official called "misinformation" about nuclear power.1 We haven't noticed an upsurge in pro-nuclear news ‒ because there is none to report.

On the first day of 2019, the energy industry trade journal Power asked whether new technology can save nuclear power by making new reactors economically feasible ‒ not only to replace coal and natural gas but also to compete with the rapidly dropping cost of renewable energy.2 The verdict from Peter Bradford, a former member of the federal Nuclear Regulatory Commission: "[N]ew nuclear is so far outside the competitive range. ... Not only can nuclear power not stop global warming, it is probably not even an essential part of the solution to global warming."

His bleak outlook is shared by the authors of a recent article in the Proceedings of the National Academy of Sciences.3 The authors ‒ an engineer, an economist and a national security analyst ‒ reviewed the prospects for so-called advanced designs for large nuclear reactors, and for much smaller modular reactors that could avoid the billions in construction costs and overruns that have plagued the nuclear energy industry since the beginning.

They concluded that no new designs can possibly reach the market before the middle of the century. They cite the breeder reactor that, according to the Bulletin of Atomic Scientists, received US$100 billion in public development funds worldwide over six decades and still did not get off the ground.4

The authors say there may be an opening for small modular reactors but that it will be very difficult to find a market for these reactors without ‒ as is always the case with nuclear power ‒ a massive infusion of taxpayer dollars. "For that to happen," they argue, "several hundred billion dollars of direct and indirect subsidies would be needed to support their development and deployment over the next several decades, since present competitive energy markets will not induce their development and adoption."

Despite the past failure and poor future outlook, support for more nuclear funding persists. In a recent study, the Energy Department pointed to the US$50 billion in federal incentives provided to renewables like solar and wind power between 2005 and 2015, implying that such policies can have a similar impact on modular nuclear reactors.5 But unlike nuclear power, the costs of wind and solar have dropped dramatically, to the point where the cost of new, unsubsidized utility-scale wind and solar power investment can now compete with that of existing coal and nuclear power plants.6

The bigger question is whether nuclear power is needed at all. Nuclear advocates' claims that nuclear power is required to fight climate change falls short. California met its climate goal of reducing greenhouse gas emissions to 1990 levels by 2020 four years early by turning off its nuclear plants and setting policies that prioritize renewables, energy efficiency and energy storage investments over natural gas plant additions.7

An argument advanced in the Energy Department report is that, to ensure that power can be delivered 24/7, large coal and nuclear power plants designed to run day and night ‒ also known as baseload plants ‒ need to be replaced by small nuclear units that run day and night. However, mounting, real-world evidence refutes this assertion.

Recent studies from New York and California show that it is cheaper to invest in renewables, energy efficiency and energy storage in order to replace aging nuclear plants than it is to keep the existing plants running.8 Savings range from hundreds of millions to billions of dollars ‒ achieved without any impact on electric system reliability.

Nuclear power belongs in a museum. We shouldn't continue to squander public dollars on a technology that will never make economic sense. We should divert resources into improving and deploying wind, solar, energy efficiency and energy storage technology that we know will keep the lights on, effectively reduce carbon emissions and cost what we can afford to pay.

Reprinted from https://www.ewg.org/news-and-analysis/2019/01/economic-viability-nuclear...

References:

1. https://www.eenews.net/eenewspm/2018/03/06/stories/1060075577

2. https://www.powermag.com/debate-continues-can-new-technology-save-nuclea...

3. https://www.researchgate.net/publication/326140294_US_nuclear_power_The_...

4. https://www.princeton.edu/sgs/publications/articles/Time-to-give-up-BAS-...

5. https://www.energy.gov/sites/prod/files/2018/11/f57/Examination%20of%20F...

6. https://www.lazard.com/media/450784/lazards-levelized-cost-of-energy-ver...

7. https://www.ewg.org/news-and-analysis/2018/07/california-years-ahead-sch...

8. https://www.ewg.org/news-and-analysis/2018/04/renewables-not-natural-gas...

Unraveling the New York nuclear subsidy scam

Nuclear Monitor Issue: 
#867
4757
15/10/2018
Tim Judson ‒ Executive Director, Nuclear Information & Resource Service
Article

Across the country, nuclear plant owners are insisting states and the federal government approve billion-dollar subsidies to bail them out ‒ even if they're profitable. In its 2016 Clean Energy Standard (CES), the New York State Public Service Commission quietly authorized charging ratepayers up to US$7.6 billion over 12 years on their electric bills to subsidize nuclear giant Exelon, so it would keep running upstate nuclear plants it threatened to close (FitzPatrick, Ginna, and Nine Mile Point). Since these surcharges kicked in last spring, New Yorkers have already handed over US$656 million and counting to prop up these failing nuclear plants.1

The nuclear subsidy scam started in New York, and it's getting exported. After they were imposed here, Exelon and other nuclear owners used the same playbook to obtain billions more in subsidies in Illinois (US$2.4 billion), New Jersey (US$3.6 billion), Connecticut (estimated up to US$3 billion), and soon, Pennsylvania and other states. They did it by falsely claiming their nuclear plants are "clean energy" and "zero emissions," and threatening to shutter them and terminate their workers if they don't get the money, escalating their lobbying activity all the while.

Such tactics shouldn't work, yet they do. For example, in New Jersey Exelon and PSEG threatened to close plants and spent a combined US$2.6 million last year on lobbyists, who kept dogging the New Jersey legislature until the unpopular subsidy package finally passed.2

To date, the fairness and legality of these subsidies have not been challenged and judged in court. But that's about to change. A suit in New York State Supreme Court (Matter of Hudson River Sloop Clearwater v. NYS Public Service Commission, Albany County, 7242-16) is finally examining whether these subsidies are illegal or improper, if they violate the public trust and due process of law, and if PSC overstepped its authority by granting them without due process. The suit, of which I am a plaintiff, survived motions to dismiss, and hearings are pending which will have far-reaching implications.

New York is where the nuclear subsidy trend started. The PSC sold subsidies as a way to preserve jobs and "carbon-free" power as a kind of radioactive "bridge" to developing renewables. Now the New York State Supreme Court could be where those specious arguments unravel.

Dirty, obsolete nuclear plants are neither "clean energy" nor "zero emissions" and don't deserve "zero emissions credits." Subsidizing them squanders billions that won't be invested in renewables or efficiency, the two best ways to lower greenhouse emissions and fight climate change. In its first year, New York's Clean Energy Standard spent 99.5% of its money to subsidize nuclear plants, and just 0.5% on renewables.

Nuclear subsidies aren't a public good, but a private wealth transfer, enriching wealthy nuclear owners at ratepayers' expense. As Illinois subsidies kicked in this year, Exelon Generations' earnings growth shot from 8% to a cork-popping 36%.3 In New Jersey, the Salem and Hope Creek nuclear plants obtained ratepayer subsidies, yet they're profitable and will remain so at least through 2021.4 Nuclear owner PSEG's CEO admitted to The Bergen Record the subsidy was calculated to guarantee an 18% profit ‒ almost double the average return for a regulated utility in New Jersey.5

Could it be that behind such greedy profiteering is an enlightened desire on the part of nuclear owners to save us from climate change or preserve local jobs and tax bases? Is it unfair to accuse them of ratepayer money grabs?

Hardly. A March 2017 presentation by a former Exelon lobbyist that recently resurfaced brags about its nuclear subsidies representing a huge return on its "investment" in lobbying and political influence.6 One slide asked rhetorically, "Is Politics Profitable?", and answers by comparing Exelon's outlays in New York for the FitzPatrick plant, capital expenditures, and lobbying and PR campaigns to the US$7.6 billion it got back in subsidies. It boasts that represented a "return on investment" of 750%. An image on the slide showed copious amounts of cash spiraling down a vortex.

That image is emblematic of what's wrong with these subsidies: lobbying and politicking for profit, dumping billions in ratepayers' money down the drain to enrich wealthy plant owners, instead of investing in renewables and efficiency. Those are the real issues, and as the New York State Supreme Court lawsuit goes to trial this year, they will finally get heard.

Tim Judson is the Executive Director of the Nuclear Information and Resource Service (NIRS), one of the plaintiffs in the New York lawsuit.

References:

1. www.stopthecuomotax.org/

2. www.njspotlight.com/stories/18/03/08/over-the-top-special-interest-lobby...

3. https://twitter.com/stevedaniels27/status/961284588072030210

4. www.northjersey.com/story/news/watchdog/2018/02/21/nuclear-plants-profit...

5. www.northjersey.com/story/news/watchdog/2018/02/21/nuclear-plants-profit...

6. www.chicagobusiness.com/article/20180328/NEWS11/180329876/does-lobbying-...

U.S. nuclear bailout could cost $8‒17 billion a year

Nuclear Monitor Issue: 
#863
4736
22/06/2018
Article

The controversial Trump Administration plan to nationalize the nuclear energy marketplace could cost U.S. consumers US$8‒17 billion a year in artificially high electricity bills, with the prospect of extensive coal-fired power plant subsidies potentially doubling that figure. Further, the bailouts of nuclear and coal could trip up America's renewables industry, leaving the U.S. even further behind in the global race for clean energy technology development and deployment.

On June 6, the Nuclear Information & Resource Service (NIRS) released updated and expanded figures on the nuclear bailout costs estimated in its November 2016 report that concluded that federal handouts for nuclear alone could add up to US$280 billion to electricity bills by 2030. A bailout of coal-fired power plants would leave ratepayers and taxpayers holding the bag for even more. NIRS estimates that the current Trump bailout scheme could costs consumers US$8‒17 billion for just the nuclear element and as much again for coal subsidies.

Tim Judson, executive director, Nuclear Information & Resource Service (NIRS), said: "By pushing for a nationwide bailout for nuclear power and coal, the Trump administration is rushing headlong into an energy buzz saw, and they don't even seem to know it. Subsidizing the nuclear industry alone is likely to cost American consumers US$8 billion to US$17 billion per year, and subsidies for coal could cost just as much. Betting on old, increasingly uneconomical nuclear and coal power plants as a national security strategy is like gold-plating a Studebaker and calling it a tank. And it could destroy the booming renewable energy industry, which is already employing more Americans than coal and nuclear combined."

Peter A. Bradford is a former member of the U.S. Nuclear Regulatory Commission (NRC) and former chair of the Maine and New York utility commissions. Bradford also taught energy policy and law at the Vermont Law School. Commenting on the bailout scheme, Bradford said: "The Trump Administration's desire to tax American consumers to support failing power plants is energy policy-making gone haywire. As was said in the run-up to the 2003 invasion of Iraq, the facts are being fixed around the desired end result. We have no military crisis and no threats of our system reliability or resilience that require this drastic and expensive governmental intervention. Claims of such problems are fairy tales, straight out of Mother Goose."

Bradford continued: "The Administration's warnings of dire effects from power shortages caused by shortages of reliable and resilient generation are contradicted by all of the bodies with actual responsibility for assuring adequate supplies. There are no state or federal energy regulators petitioning DOE for these measures. Indeed, those who have spoken clearly have said that such steps are unnecessary. By overpaying hundreds of dollars per family per year for electricity that can be obtained far less expensively from other sources, the administration is impoverishing customers, cutting off construction and industrial jobs and suppressing energy innovation, in which the U.S. has been competing for global leadership."

Tyson Slocum, director, Energy Program, Public Citizen, said: "President Trump's asinine nuclear and coal bailout will cost households billions of dollars, but will bolster the profits of a handful of Trump's top campaign and financial supporters. Trump is charging consumers billions to fill the swamp with undeserving special interests."

Slocum said that any effort to force consumers and/or taxpayers to bailout the owners of nuclear and coal power plants under the guise of resilience, fuel security or national security is absurd and will be subject to vigorous legislative, regulatory and legal challenges.

As such, it is likely that the Administration is still months away from an actionable plan using any of the three statutes it has identified. Action under 202(c) of the Federal Power Act would involve a subsidy structured through electric rates, subject to review and approval by the Federal Energy Regulatory Commission. Action under the 1950 Defense Production Act would require Congressional appropriations, and therefore a taxpayer-based subsidy, as would action under the Fixing America's Surface Transportation Act. Further, the formal National Security Council review process to develop a national security threat assessment intervention plan is at least months away.

Background

The theories advanced by the Trump Administration for the nuclear and coal bailouts are radical, unprecedented, and unsupported by any factual or empirical analysis. Nuclear and coal power plants expected to retire because of their uneconomic performance pose zero reliability or national security concerns.

Nonetheless, an internal National Security Council policy memo leaked on June 1 outlined potential actions by the US Department of Energy (DOE) to provide billions of dollars in financial assistance over two years to uneconomic nuclear and coal power plants using: Section 202(c) of the Federal Power Act; the 1950 Defense Production Act; and the Fixing America's Surface Transportation Act. While the Trump Administration has been trying to push for such bailouts in a variety of ways over the past year, the involvement of the NSC introduces a new twist in these efforts by trying to make fuel security a new national security priority that requires aggressive federal intervention into domestic energy markets.

The National Security Council memo focuses on supposed threats to natural gas pipelines and infrastructure from natural disasters and malicious attacks, but it does not consider the essential vulnerability of a national electricity grid based on central station power plants, of which coal and nuclear power plants are the most typical. They require high-voltage transmission lines to deliver electricity from coal and nuclear plants, hundreds of miles in many cases. In addition, the memo neither considers the vulnerability of power plants themselves, nor does it discuss the attractiveness of nuclear power plants in particular as targets for malicious acts.

In an odd twist, the memo cites provisions of the Defense Production Act to justify federal intervention into industry during times of war that make a stronger case for reliance on entirely different technologies than central station coal and nuclear power plants: Defense Production Act authorities should be used "to reduce the vulnerability of the United States to terrorist attacks" and to "encourage the geographic dispersal of industrial facilities in the United States to discourage the concentration of such productive facilities within limited geographic areas that are vulnerable to attack by an enemy of the United States." These provisions of the Defense Production Act, taken to their natural conclusion, should encourage the expansion of distributed and on-site power sources and modern infrastructure designs, like "islandable" microgrids, rather than trying to retain a grid design based on large, vulnerable central station power plants.

Audio from a June 6 media teleconference hosted by NIRS is posted at www.tinyurl.com/bailout-audio

The November 2016 NIRS report, 'Too Big to Bail Out: The Economic Costs of a National Nuclear Power Subsidy', is posted at www.bit.ly/too-big-to-bail-out-nuclear

Financing Models for Nuclear Power Plants

Nuclear Monitor Issue: 
#851
4680
20/09/2017
Jan Haverkamp
Article

The following is an overview of a briefing paper on nuclear financing models, written by Jan Haverkamp for WISE International. Jan is an expert consultant on nuclear energy and energy policy for WISE, Greenpeace Central and Eastern Europe, and Greenpeace Switzerland, and vice-chair of Nuclear Transparency Watch.

1. Introduction

2. Some historical examples

2.1 Belene, Bulgaria (market and corruption based)

2.2. Mochovce 3,4, Slovakia (market corporate funding and bonds)

2.3 Olkiluoto 3, Finland (turn-key price and Mankala model)

2.4 Hinkley Point C, UK (guaranteed feed-in tariff and other guarantees)

2.5 Akkuyu, Turkey (BOOT)

2.6 Astravetz, Belarus / Roopur, Bangladesh / Paks II, Hungary (sovereign loan)

2.7 Hanhikivi, Finland (hybrid model)

3. Different financing models

3.1 Liberalised market versus regulated market

3.2 Who carries the risk?

3.3 Market based loans

3.3.1 Project financing

3.3.2 Corporate financing

3.3.3 Bond financing

3.4 BOO(T)

3.5 Fixed prices (Contracts for Difference) and guarantees

3.6 Sovereign loans

4. Risks to be taken into consideration

4.1 LCOE

4.2 Market development

4.3 Risk of severe nuclear accidents

4.4 Breaking time schedules, cost overdraws, unexpected costs

4.5 Political risks (inc. international relations and dependency issues)

4.6 Influence of proliferation developments and security risks

4.7 Contract and financial model risks

4.8 Reputational risks

4.9 Conclusions about risks

1. Introduction

Nuclear power is globally in decline. Although the last two years have seen an increase in new connections to the grid, the trend of decline of installed amount of reactors only had a short reprieve due to a glut of temporary halted constructions in China after the Fukushima catastrophe.1 In 2016, only three new reactor projects started, two in China, one in Pakistan.2 The coming years, based on the estimates of the IAEA3, will see a further decline.

One of the reasons is that nuclear reactors, having to fulfil ever growing safety requirements because of the shocking impacts of the Three Miles Island, Chernobyl and Fukushima catastrophes, are increasingly expensive to construct and to maintain. Reactor construction costs under US$5000 per installed kiloWatt electrical output (US$5000 / kWe) are only reported from state projects in China and the KEPCO-built second generation reactors in the Union of Arabic Emirates. In both cases the cost quotes are not very transparent and it is unclear whether this includes all costs.

Reactors of the generation III+ currently under construction in Russia, the US, Finland, France, the UK, Belarus, Turkey and the EPR and AP1000 projects in China all are over the US$5000 / kWe mark for overnight investment, with the Hinkley Point C project in the UK topping with more than US$7500 / kWe. With that, nuclear power has basically priced itself out of the market. The three main sources of renewable energy, on-shore wind, industrial scale photovoltaic and since this year even off-shore wind all deliver lower electricity cost-prices than these nuclear projects. Especially in markets with a weak electricity infrastructure – where the choices for type of grid and grid management still have to be developed – nuclear power introduction or expansion poses a large financial risk.

In this briefing I will list a few historical examples and some conclusions on the different financing models behind them. They cover virtually all the possibilities of how large risk large scale infrastructure projects like nuclear power stations can be financed. Key in all these models is the financial risk for the investors. This risk depends on several factors that should be taken into account and that are listed in part 4.

2. Some historical examples

2.1 Belene, Bulgaria (market and corruption based)

The Belene nuclear power project in Bulgaria started in 2002 as a re-start of construction of an old project from the mid 1980s that was halted in 1990 and cancelled in 1992. After the re-start of the project by announcement by the Prime Minister of that time, the former king Simeon Saxecoburgotski, the project was handed in a by corruption-botched open-tendering procedure to the Russian Rosatom group. Owner of the project was for 51% the Bulgarian state utility BEH and 49% the German RWE as strategic investor. Original construction costs were to be €3.2 billion (US$3.8 billion). RWE left the project in 2010 after it had become fed up with the fact that BEH was developing the project with Rosatom behind the back of RWE and cost increases that the project had seen. The Bulgarian government cancelled the project in 2012 after an assessment by HSBC showed that construction cost estimates already had ballooned to €10.15 billion (US$12 billion). Bulgaria lost an arbitration court case in 2015 for cancellation of this contract and had to pay US$600 million in compensation for large equipment already produced for the project. That equipment (two reactor pressure vessels, four steam generators and several emergency water vessels) was delivered to Bulgaria at the end of 2016 and early 2017 and is currently stored at the Belene site without further purpose.

The project had to be financed under liberalised market conditions. Initially 13 OECD based banks showed interest in financing the project in the form of project loans (mainly to BEH) or corporate loans (mainly to RWE). Nevertheless, confronted with the risks of the project (financial and reputational – especially because the project was sited in a seismic active area where 120 people had been killed in an earthquake in 1977 less than 12 km away), all 13 banks withdrew their interest. These include top-names like UniCredit, Deutsche Bank, Commerzbank, Societé General and others. The financial advisor to the project, BNP Paribas, the only bank that also provided a start-up loan, withdrew from the project as soon as its advisory contract had ended and called its loan short in 2010 because the project group had not kept to the contract conditions.

After the Belene case, banks basically stopped considering project loans as vehicle for financing nuclear construction projects.

2.2. Mochovce 3,4, Slovakia (market corporate funding and bonds)

The Mochovce 3,4 project is a bit of an odd-one out. The construction of the two early-second-generation reactors started in 1985 and was stopped in 1991 due to lack of funds. Plans to restart the project appeared in 2006 in a construction in which the Italian utility ENEL had taken control of 66% of the former Slovak state utility Slovenské Elektrarne (SE), with the state holding the remaining 34%. One of the conditions of this privatisation was the finalisation of construction of the Mochovce 3,4 project. Because already quite a bit of construction work had been done, it was impossible to change to another design. Complications concerning safety caused severe delays and it is now expected the reactors will come on-line in 2018 / 2019, while costs have soared to €5.4 billion (US$6.4 billion) for a mere 880 MWe of capacity.4

Mochovce 3,4 was initially to be financed largely by project financing from banks and other institutional investors. After having been informed by NGOs about the attached risks, project financing failed and banks resorted to corporate financing schemes whereby SE had to promise that the financing would not be used for Mochovce. This did not matter for SE, of course, which used the corporate funding to finance its other operations (according to one observer, its "cleaning ladies and such") and it could invest the saved expenditure into the nuclear project. When the banks came under fire for this indirect financing of Mochovce, the largest consortium supporting SE withdrew its financing relations. In the meantime, ENEL issued bonds – over which banks have less control – for its total international investment programme, from which the Mochovce 3,4 construction was only a small fraction that was not even mentioned in the bond prospectus because it did not add significantly to the total risk of the bond (only around US$3 billion out of a total over US$25 billion). With that, it secured the cash-flow for the ongoing construction.

When ENEL changed in 2013 its corporate orientation away from fossil fuels and nuclear, it wanted to sell its stake in SE. The Slovak government, fearing that withdrawal of ENEL also would mean withdrawal of the entire management of SE and with that basically crash the Mochovce 3,4 project, arm-twisted ENEL to keep 30% of its SE shares until Mochovce 3,4 would be operating for six months. ENEL sold 36% of the shares to Czecho-Slovak oligarch company EPH and still finds itself bound to bringing Mochovce 3,4 online. Given the low price that EPH had to pay for the ENEL shares, ENEL basically wrote off its investments into SE and the nuclear power station.

Mochovce 3,4 thus largely has been financed by a write-off of debt by the Italian utility ENEL. The still outstanding €500+ million investment appears to be a problem, because the market is still unwilling to take the risk in the form of further project or corporate loans.

2.3 Olkiluoto 3, Finland (turn-key price and Mankala model)

The Olkiluoto 3 project was to be the first EPR reactor from the French Areva group. The initial costs for the single 1658 MW reactor were estimated at €3.4 billion (US$3.8 billion). The project was financed in a construction called Mankala. In this, the owner and operator of the reactor is a purpose company called TVO, whose owners finance the project at the rate of shares owned and after completion are entitled to shares of electricity produced against cost price according to the portion of shares owned. This direct delivery is without VAT. The owning companies can then either use the electricity themselves or trade it further on the market. This model delivers a stable electricity price for the operation time of the reactor.

The second characteristic of the Olkiluoto 3 project is a turn-key price. That means that whatever the construction costs, TVO only will have to pay €3.4 billion. Additional costs have to be covered by the constructor, in this case Areva.

In the end, Olkiluoto 3 appeared to be far more complicated to construct and far more expensive. Currently, it is foreseen that instead of the originally foreseen date of 1 May 2012, it will go on grid at the end of 2018 or early 2019 at a cost of at least €9.6 billion (US$11.4 billion). There were severe arbitration cases between TVO and Areva in which Areva tried to recuperate part of the extra cost and TVO tried to recuperate part of its losses due to late delivery of the project. These cases are still ongoing. The project brought the French state company Areva to the edge of bankruptcy and it had to be bailed out by French state utility EdF and the French state itself. Since Olkiluoto 3, nuclear vendors are extremely wary of offering turn-key project set-ups.

The French project by EdF in Flamanville (where EdF is also the constructor, hiring Areva only for the equipment), has shown a similar overdraw of time-line and costs, which has put EdF into very large financial trouble, one of the reasons for the increase of its debts to unsustainable levels.

2.4 Hinkley Point C, UK (guaranteed feed-in tariff and other guarantees)

Having learned the lessons from the Olkiluoto 3 and Flamanville projects, EdF requested strong guarantees for the first nuclear project in the UK after three decades. In order to build two EPR reactors at Hinkley Point C in Somerset, EdF got an inflation-corrected price guarantee of £92.5 per MWh for 35 years after grid connection of the project in a so-called Contract for Difference scheme in which it will receive the difference between market price and this so-called strike price when the strike price is higher than the market price, and will have to pay the difference back to the UK state treasury in case the market price comes above the strike price. The strike price of £92.5 / MWh (US$120 / MWh) is more than twice the current wholesale market price.

Other low-carbon sources were to get similar contracts for difference with their own strike-prices. Different than for the case of nuclear, however, these strike prices are to be set in a tender procedure. As a result, current strike prices for on-shore wind and solar PV are already under the wholesale market price, and even off-shore wind strike-prices are well under the £92.5 set for Hinkley Point C.

Next to the guaranteed price, EdF also received a government loan guarantee for around £10 billion, and a political guarantee that the UK would reimburse all lost profit in case the project is halted before the end of its technical lifetime of 60 years.

Because the strike price is so far above market prices and because the perspective of market prices also on the longer term is that they will remain more or less stable due to the decreasing costs of renewable energy sources, the enormous subsidy that Hinkley Point C will be receiving remains under heavy criticism. Total estimates for this subsidy are currently hovering around €23 billion (US$29.4 billion).

On the other side, EdF has problems generating sufficient cash flow to construct Hinkley Point C. The profit-guarantee deal with the UK government is perceived as too good to hold true in the long term by much of the financial markets and because EdF is struggling in its home market (because of needed upgrades to its ageing nuclear fleet in France, the botched Flamanville project and the takeover of failing Areva), its credit rating has been severely downrated and it has problems bringing together finance for construction. For that reason it has teamed up with Chinese nuclear utility CGN in the hope that CGN will be able to take over up to 33% of the project. This deal depends on CGN receiving the possibility from the UK government to build its own reactors at Bradwell.

All in all, criticism of Hinkley Point C and calls to drop the project are growing while EdF has started construction on the project.

2.5 Akkuyu, Turkey (BOOT)

Turkey has made a deal with Russian Rosatom to have up to four VVER 1200 reactors built at the Akkuyu site on the South-East Turkish Mediterranean coast. Total costs are estimated at €20 billion (US$23.8 billion). This project is agreed as a so-called BOOT project: Russia is committed to Build, Own and Operate the project and Transfer the spent nuclear fuel to Russia.

As builder and owner of the project, the complete financing risk is on the shoulders of Rosatom. Construction is to start in 2018 and the first reactor is to come online in September 2023 to coincide with the 100th anniversary of the modern Turkish republic.

Rosatom has already come into problems with the financing of this project, as it is itself depending fully on state budget funding from the Russian state, which has seen a sharp decrease in income over the fall of oil prices in recent years. As such, Rosatom is to be reorganised in the coming years and should become in 2020 independent of the Russian state budget, meaning that it will have to be able to cover its losses with profits from other branches of operation. Until now, investments were part of the annual state budget and independently from that, incomes fell to the state budget.

Now that that situation is going to change, Rosatom is currently looking to get 49% outside participation in the project, mainly from Turkish firms that have a stake in it. One of the interested parties mentioned is the Turkish Cengiz-Kolin-Kalyon consortium, one of Turkey's main construction firms with close links to the current AKP Party of president Erdogan and with a controversial history in other large-scale projects.

Because financing of this project depends on Russian state finances, the priority of investible cash flow will depend on political priorities. This might easily lead to delays and related cost increases. In a recent case, the Baltitskaya project near Neman in the Russian Kaliningrad enclave, the project was cancelled because it had lost its political priority after Germany declared it would not take electricity from it and Lithuania had cancelled its new build plans in Visaginas after a negative referendum in 2012.

Turkey also could face problems with the "T" in BOOT. In spite of its agreement, Russia has a ban on import of radioactive waste. It is allowed to import spent nuclear fuel for reprocessing, but resulting wastes, according to the law, have to be returned to the country of origin. The question is whether Turkey will be perceived legally as the country of origin or whether the Akkuyu project is basically seen as a piece of Russia on Turkish soil.

2.6 Astravetz, Belarus / Roopur, Bangladesh / Paks II, Hungary (sovereign loan)

The Astravetz project in Belarus, the Roopur project in Bangladesh and the Paks II project in Hungary are largely financed with the help of sovereign loans between Russia and the recipient country. These loans are given under a low interest rate, but with very severe penalty clauses in case of non-performance. In the case of Hungary, Russia lends €10 billion (US$11.9 billion) of the foreseen €12.5 billion (US$14.9 billion) total costs against an EU LIBOR +1,5% rate but with a 150% penalty in case of non-performance. With this, Hungary has been made strongly dependent on Russia for the foreseeable time.

An assessment by the financial analysts CANDOLE Partners from 2016, commissioned by Greenpeace Hungary, furthermore showed that the costs of the Paks II project were so high that under normal market circumstances, the project would not be able to make a positive return.5 In spite of this, the European Commission, which considered the sovereign loan instrument to be state aid, accepted financial support under certain conditions at the start of 2017.

2.7 Hanhikivi, Finland (hybrid model)

The Hanhikivi project in Finland is still in its initial phase. This is a hybrid of the Mankala model, market financing and Rosatom driven BOO. In order to reduce dependence, by law, the project had to be over 60% owned by shareholders from the EU or the EEA. Rosatom owns 34% of the shares in the project company Fennovoima and is also the builder of the project. It obtained the shares from German company E.On, after E.On decided to drop the project because of bad financial perspectives and its own turn away from nuclear power following the German nuclear phase-out. Nine percent of the shares had not been taken up, however, and EU ownership had fallen just under 60%.

In order to meet the legal obligations, Fennovoima accepted a new owner, Croatia-based Migrit Solar, for 6% of the shares. It appeared, however, that Migrit was a front-company for Russian oligarchs with relations to the Russian firm Titan 2, the main contractor and Rosatom partner for Hanhikivi. It was also deemed impossible that a company with capital of €26,000 would be able to finance around €500 million in a nuclear project. After this had been discovered, Migrit had to withdraw. In reaction, the Kremlin put the Finnish state utility Fortum under pressure to take these shares. It basically threatened to have Fortum's Russian assets worth around US$9 billion taken away from them. Under that threat, Fortum reluctantly accepted participation in the project.

The participants in the Mankala construction are to find finance for their participation on the market. Because of the financial risk of the project, several of them would like to leave – among others the Municipality of Helsinki, which is participating with another municipality in one of the shareholders of Fennovoima. If this shareholder would leave the project, EU ownership would once again fall under 60%, threatening the license.

It is also questionable whether the participants will be able to get sufficient funds for their participation, because banks will look at the total risk pattern of the project.

3. Different financing models

3.1 Liberalised market versus regulated market

It is slowly becoming clear that nuclear power cannot be financed in liberalised markets. The overnight costs of construction deliver too high electricity prices. This is already virtually independent of interest rates for the necessary capital, but mainly related to the high construction costs per se. These construction costs depend on the high level of nuclear safety that needs to be guaranteed, which means that there is little space for cost reductions. Also, because of the high up-front capital costs, national differences in regulation, and site-specific differences, it appears to be virtually impossible to create economies of scale and each new build project appears to be as expensive as the first of the kind. Everywhere where the state makes clear that nuclear projects cannot count on subsidies or other forms of financial support, projects are cancelled. This included recently the Czech Republic (Temelin 3,4), Bulgaria (Belene restart II), Sweden (plans for new capacity), the Netherlands (Borssele 2), Slovenia (Krsko 2) and others, including several projects in the United States.

Countries that are currently constructing new nuclear still have a largely regulated market (Hungary, Slovakia, Belarus, Bangladesh, India, China, UAE), or have reintroduced regulation instruments (the UK (Contracts for Difference, state guarantees), Finland (Mankala)).

Others with a regulated market have shied away from the enormous financial risks for the public purse as well as other risks that are attached to nuclear projects (for instance Philippines (Bataan), Vietnam, Indonesia, Taiwan, South Korea).

Conclusion: New nuclear projects have no chance in liberalised markets, because they have become uncompetitive. In regulated markets, they can only be introduced with a large amount of state aid and other guarantees that socialise risks, whereas potential profits often remain privatised (for example the UK and France).

3.2 Who carries the risk?

A basic question in financing models is: "who carries the risks?".

In a turn-key contract, the risks for time overdraws, budget overdraws and mistakes is carried by the construction company. This happened in the case of Olkiluoto 3 in Finland. The client – the operator – only carries the risk of lost income due to potentially late delivery.

Also in the case of BOO(T), the loss risk is on the table of the construction company, who also is the owner of the project. How large that risk is depends in this case in how the electricity prices are regulated. Rosatom negotiated a guaranteed price for part of its output from Akkuyu in Turkey, which reduces risks as long as construction cost and time can be kept under control.

In the case of Hinkley Point C, the French operator EdF negotiated a deal in which in principle it is guaranteed a profit between 10% and 15% on the investment without running too much of the risk itself. This risk is carried by the UK government and the British rate-payers in the form of guaranteed prices, a government guarantee for part of the construction costs and a political guarantee not to axe the project before the end of its technical lifetime. Still, there are a host of risks that remain on the shoulders of EdF, leading to a severe credit downrating after the contract was signed.

In the case of sovereign loan financing, the risk is largely on the shoulders of the recipient country and the state budget. For countries with a relative small economy like Hungary, that risk could theoretically make the country insolvent when the worst comes to worst (in this case a short-call of the Russian loan with interest and penalty after a failure to re-pay the first tranche).

The risks are there (see part 4), and when construction is finished, the construction costs mean that someone has to pay for the difference between real costs of nuclear power and what the market – regulated or liberalised – will pay for the electricity.

3.3 Market based loans

When financing of nuclear construction has to be financed through the market, there are three types of financing available: project financing, corporate financing and bond financing.

These loans are sometimes supported by (sovereign) export bank guarantees, like the US ExIm Bank. Such support leads to lower interest levels, but does not intervene too much with the other risks that are discussed in this briefing. Blocking these kind of export guarantees, like recently successfully done for instance for German Hermes guarantees for involvement in new nuclear build projects, will increase construction costs.

3.3.1 Project financing

In project financing, banks and other investors provide finance for the project against the project itself as collateral. This is the highest level of risk for financiers, which means that on one hand interest rates will be relatively high, enlarging the costs of the project; on the other hand, investors are more critical about the risks attached to the project. These not only include financial risks (the risk of not returning the loans and interest), but also reputational risk.

After the debacle of the Belene project in Bulgaria and the loss of control over the risks in the Mochovce 3,4 project in Slovakia, banks and other institutional investors have basically stopped project financing of nuclear construction projects. These loans are also the most vulnerable for public campaigning, because the link is direct and visible.

3.3.2 Corporate financing

EdF (Flamanville and Hinkley Point C) and Slovenské Elektrarne (Mochovce 3,4) are examples where corporate financing is used to secure the cash-flow for the construction of new nuclear capacity. The collateral for loans is the entire company and for that reason interest rates are lower than in the case of project financing, which reduces the already far too high costs of the project somewhat. However, the risk for the utility is much bigger – if the project fails, the entire company will bleed. Also, it appears to be possible for anti-nuclear campaigners to explain that investments made over this line still end up in the nuclear project and therefore there is still an increase in the reputational risk for the involved banks / investors. This led in the case of Mochovce 3,4 to a cancellation of an €850 million (US$1 billion) corporate loan to Slovenské Elektrarne.

3.3.3 Bond financing

Bonds can reduce the risk a bit further, and it is more difficult to link the name of banks to the management of bonds. In the case of Mochovce 3,4, ENEL decided to bring the project inside a much larger bond issuing in the United States that was oriented on the general investment programme of the company. Because the Mochovce 3,4 project was only a small part of the entire investment programme, it was not mentioned in the prospectus, so investors were not aware of the special risks attached to this programme and those risks were more or less hedged by the return on the other investments. Even where ENEL later had to basically write off its entire investment into the finalisation of Mochovce 3,4 (the over-largest part of the total investment), this did not influence its bottom line too much. This does, of course, not make Mochovce a cost-effective investment, but rather an invisible one, largely cross-financed in the end by the clients of ENEL.

3.4 BOO(T)

BOO stands for Build, Own, Operate. The BOO financing model was introduced by Rosatom in order to get the construction contract for a four-reactor nuclear power station in Turkey. It has since used the model in different forms in Hanhikivi (Finland) and proposals for other projects. The advantage of this model for the recipient country is that it is not running any risk because of delays and budget overdraws. In the case of Akkuyu in Turkey, the BOO agreement is linked to a guaranteed price for part of the delivered electricity (the guarantee of return for the investor Rosatom). This price is higher than the market price in Turkey, but it is also stable. The rest has to be sold on the market. That means that Akkuyu most likely is going to run a loss, but that loss will be in the books of Rosatom and not on the shoulders of the Turkish rate or tax payer.

The reason for Rosatom offering such a model is therefore not economical but purely political. Turkey basically has sold part of its sovereignty over the site of Akkuyu to Russia for the period of around a century and Russia perceives the inevitable losses as a good political investment.

The T in BOOT stands for Transfer. In the initial agreement between Turkey and Russia, Russia promises to take back the spent fuel from Akkuyu. Currently that is not allowed under Russian legislation, which only allows import of radioactive waste for reprocessing, with return of resulting wastes to the country of origin. It is to be seen to what extent Turkey will have to take care of the radioactive waste of Akkuyu, or whether Russia will consider that its own property and sovereign responsibility.

3.5 Fixed prices (Contracts for Difference) and guarantees

The instrument of fixed prices was initially used to spur the development of innovation of renewable energy sources in countries like Denmark, Germany, Spain, Portugal and the Czech Republic. So-called feed-in tariffs were successfully leading to a steep decrease in production costs of wind turbines, photovoltaic cells, concentrated solar heat power and geothermal energy. The philosophy behind this support is that nascent technologies cannot compete on the market yet and a guaranteed return of investment will accelerate innovation.

Nuclear energy is not a nascent technology, however. It has ripened over 70 years of development and during that time has always benefited from subsidy streams that dwarf the amount of money invested over the last decade in renewable feed-in tariff systems.

The United Kingdom was desperate to restart nuclear construction and came with the model of guaranteed feed-in tariffs for nuclear. They called it Contracts for Difference and in order to prevent these from being squashed under EU law on market discriminatory grounds, they installed them for all low-carbon generation, argued with the necessity to meet CO2 reduction targets – a common goal for the EU. The so-called strike prices – the guaranteed feed-in price – were to be different per project. For renewable energy, they were to be valid for a period between 10 and 15 years (depending on project and generation source), for the first nuclear project at Hinkley Point C in Somerset it was to be for 35 years. With the Contracts for Difference, the government guarantees the strike price. As long as the market price is under the strike price, the government pays the difference to the utility, when the utility gets on the market a higher price than the strike price, it pays back the difference to the government. The strike price for Hinkley Point C was set at £92.5 per MWh (US$120 / MWh). This is between two and three times the current wholesale market price for electricity in the UK, which means that if the market is still offering this price level when Hinkley Point C comes on grid, the government may have to pay as much as US$55 / MWh to operator EdF as compensation. Although it is, of course, impossible to predict electricity price levels in, say, 2040, the difference today is so large that it can be expected that also in the longer term Hinkley Point C will have to be paid for the difference rather than paying itself.

The Contracts for Difference – in spite of the high level – were not sufficient to compensate the risk that EdF was taking with the construction of Hinkley Point C. The UK government had also to guarantee part of the investment costs and give a political guarantee to compensate for all lost profit in case the reactor for whatever reason other than mismanagement by EdF is to be closed before the end of its technical lifetime of 60 years. In this way, it was initially thought that EdF would have a reasonable return on investment of around 10 to 15%. Of course, the terms of the Contracts for Difference are inflation corrected.

It is important to note that Hinkley Point C is also a BOO project – EdF is constructor, owner and operator. We have already argued that that puts a large risk on the shoulders of the operator, which in the case of EdF is not compensated by any political gain as in the case of Rosatom. That is the reason that the UK government had to offer a financial set-up that would hedge the risks for EdF as much as possible.

The Contracts for Difference model puts the risk for delays and budget overdraws fully on the plate of the constructor/operator, similar to a turn-key project. In order to spread that risk, EdF sought and won permission to seek participation of 30% by Chinese nuclear utility CGN in the project. At the moment, investment cost estimates have already risen by 15% against the initial already very high ones. When estimates rise further, it is to be seen whether EdF will be forced to seek more support or might lose the support from CGN it already gained.

The United Kingdom also gave a credit guarantee for €10 billion (US$13 billion) of the investment costs. When EdF has problems covering its investment cash-flow, it is likely to call on this guarantee, which enables it to benefit from lower interest rates.

3.6 Sovereign loans

Because of the sheer impossibility to have new nuclear projects financed by the market, and the far too high risk of Contracts for Difference and other subsidy schemes for their much smaller state budgets (in comparison with the UK), countries like Belarus, Hungary and Bangladesh are financing their new nuclear projects with a sovereign (country to country) loan from Russia with a credit guarantee from the Russian export credit bank. In this way, they can benefit from relatively low interest rates, but they become, of course, financially dependent on Russia.

Because of the currently low interest rates world-wide and especially in Europe, the interest benefit is not very large. The sovereign loan leaves the risk not to be able to get sufficient return on investment in the hands of the recipient country. That means that one way or another, the investment needs to pay off market-wise, or the state becomes liable. In the case of Paks II, the financial analyst group CANDOLE Partners calculated that there is no way that the project can become market viable.5 The only way for Hungary to make this work is then either to regulate its electricity market in such a way that the consumers of Paks II electricity will pay higher rates than in the surrounding markets (market closure and regulation leading to a competitive disadvantage) or that the difference is covered by the state budget (which will lead to higher taxes).

4. Risks to be taken into consideration

4.1 LCOE

Levelised Cost of Electricity. The nuclear lobby loves to argue that nuclear can compete with other sources on the basis of LCOE. There are a few problems here, however. The LCOE is always calculated on the basis of pre-construction estimated costs (what I would call the advertisement costs), which appear to balloon during construction. The LCOE does not always include remediation costs, financial decommissioning uncertainties and financial back-end (waste) uncertainties. Then they are for new Generation III and III+ reactors calculated on the basis of 60 years of operation on a load factor of around 94%. Given the fact that there is no practical experience with modern Generation III+ nuclear reactors, there is a certain risk in assuming such a high availability factor, when average availability factors in the industry so far are 5 to 10 percentage points lower. The current fleet furthermore shows a slow but certain reduced load factor for ageing reactors, which means that the average availability is going down over time, which also influences the LCOE. On top of that, the LCOE is very dependent on financing costs and over a long period that is very difficult to estimate, whereas the LCOEs of for instance renewable alternatives are calculated over a much shorter life-span (up to 25 years, often 15 years), which gives less uncertainty. The LCOE does not include costs caused by non-foreseen incidents – including those in other reactors of the same, a similar or even completely different design anywhere on the globe (often resulting in lower availability factors). Conclusion: LCOE is an indicator, but not a very precise one and compared to alternatives, the uncertainties all are to the disadvantage of nuclear technology.

4.2 Market development

The instrument of Contracts for Difference, but also many of the calculations behind the return on investment for sovereign loan financed projects, is based on predictions of market development. These are more often than not based on an increase of electricity price, resulting from a decreased availability of fossil fuels and increased carbon price. However, already today in countries with high renewable penetration (Denmark, Germany, Portugal, Sweden, Norway) we see that the steadily falling prices of renewables are influencing the spot market and increasingly also the wholesale market. There is a good case to make for the expectation that electricity market prices will remain stable for quite some time to come. To be on the safe side, most serious financial analysts therefore do not imply a strong increase of electricity prices.

4.3 Risk of severe nuclear accidents

Fukushima has once again shown that an accident in one nuclear reactor means an accident for all nuclear reactors. Most nuclear reactors in the world faced extended shut-down periods to learn lessons from the Fukushima catastrophe and most of them needed additional investments in risk reduction. The entire Japanese fleet was shut down for years and only a fraction of the original fleet will return to service. This has put most of the utilities in Japan in huge financial trouble. It is impossible to predict if we ever will see a similar catastrophe. The chance of it can definitely not be excluded. And if it happens, it will also influence the financial picture of every other nuclear reactor. And, of course, for the reactor(s) and investors directly involved in the accident, the financial picture will be devastating. Still, the chance of another nuclear accident somewhere in the world is never included in financial assessments of new nuclear reactors.

4.4 Breaking time schedules, cost overdraws, unexpected costs

As far as I could assess, no nuclear project since the Chernobyl catastrophe has been delivered on time and on cost. Even recent claims concerning Chinese and Korean construction projects do not hold up. Sometimes because basic information (initial construction time and cost estimates) is not available, sometimes because there are known delays in those projects as well.

Although it is not always clear to everybody, longer construction times do mean higher costs – if only because of loss of electricity production, but also because of longer necessity of personnel and machinery, storage costs, etc.

Apart from that, delays are often symptoms of problems during construction – problems that include changes in design, replacement of parts or even larger parts. These also lead to extra costs.

Next to that, there are delays because of regulatory demands. These inevitably lead to changes in design and therefore also extra costs. An example is the need for improved robustness of the reactor building and auxiliary buildings against seismic influences. The Hungarian Paks II reactor will have to withstand a ground acceleration of 0.34 g. The original design as implemented in Leningradskaya II (Sosnovy Bor) and Astravets (Belarus) only foresees robustness against 0.12 g ground acceleration. Such an adaptation is major and will require redesign, more concrete and rebar, and more equipment. Simply for that reason, Paks II cannot cost the same as Astravets. Who is going to pay those costs is another question. It can be a risk for Rosatom, but that might translate in cost increases down the line for Hungary. The cost increases in the Belene project in Bulgaria were partly due to understatement of real costs from the side of Rosatom, partly because of necessary redesign of parts on the basis of requirements from the nuclear regulator and the specific site characteristics.

Next to cost increases during construction, there are unforeseen cost increases during decommissioning that will have to be covered by the operator, unforeseen cost increases in waste management, and updates and changed insights regarding how liabilities need to be covered.

Concerning the latter, currently in most countries nuclear liabilities are capped at an amount of between around US$50 million to US$3 billion. The real costs of the catastrophe at Fukushima are in the order of magnitude of US$200 billion or more, and the French nuclear research institute IRSN estimated the costs of a severe accident in France at over US$400 billion. In the three years after Fukushima, around US$100 billion of cash flow was needed for compensation and clean-up work, which was largely covered by the state. In case such insights are politically translated into more adequate allocation of liabilities and necessary financial reserves (or insurance levels) for operators, this might increase operational costs considerably and undermine the return on investment.

The issue of suppliers' liability is one that is formally excluded, but every time there is a severe accident, it is revisited. Suppliers' liability is an issue that can suddenly come on the table and confront nuclear suppliers with a very large risk.

4.5 Political risks (inc. international relations and dependency issues)

The example of Rosatom shows clearly that cash-flow for international investments is dependent on political priority. When there was tension between Turkey and Russia because of the downing of a Russian aircraft that had flown through Turkish air space, investments directly stopped. That would be a very definite risk for any participant in the project (like the Turkish companies interested in taking a 49% stake in Akkuyu, but also for their financiers). In general: the more political the project, the larger the risk for extra delays and related cost increases, including the risk of full abandonment of the project.

Also, the level of dependence on one player – either political, commercial or financial – introduces risk. The virtual bankruptcy of Areva led to new delays for Olkiluoto 3 and Flamanville 3. Also, too large dependency on one bank can lead to extra costs and/or delays – many large infrastructure projects ran delays during the banking crisis of 2008.

4.6 Influence of proliferation developments and security risks

The issues of nuclear weapon proliferation and nuclear security are seldom discussed in public. Nevertheless, every incident in which nuclear material or key-knowledge disappeared (for instance the case of the Pakistan scientist Abdul Qadeer Khan) and every incident in which, for instance, terrorist subjects have been related to nuclear installations (for instance recently in Belgium) will be leading to adaptations in the operation of nuclear power stations. Every major incident may lead to the need for large investments.

4.7 Contract and financial model risks

Unclarities in contracts have also led to large increases in costs. An example is the construction contract for the Belene nuclear power plant, which appeared not to include the costs for turbines.

Also issues about exchange rates and inflation correction can suddenly increase costs. There was unclarity about which inflation rate should be calculated for the Belene project – the Russian (several tens of percents) or the Bulgarian / Euro inflation rate (only a few percent).

Changes in the financial model can also lead to delays and extra costs.

4.8 Reputational risks

When a project has vulnerabilities, this can have a negative backlash on the reputation of financiers and investors. It can shed doubt on due diligence and lead to downgrading of credit ratings. Environmental organisations can highlight issues like seismic risks, lack of transparency, safety weaknesses, lack of independence of the nuclear regulator and others that may harm the reputation of any company or bank related to the project.

4.9 Conclusions about risks

Every financier should and in many cases will be highly aware of the risks of nuclear projects. The more market dependent, the more important the above-mentioned risks will be. But also state actors have to be aware of their credit ratings – for instance the French credit rating was influenced by the poor credit ratings for Areva and EdF after a host of scandals.

Still, this awareness is hardly ever complete. It is especially lacking with institutions that have been embedded in the industry for too long (for example the bank BNP Paribas – formerly the largest nuclear bank in the world – needed to be confronted with information about nuclear related risks in two campaigns before it became more aware of them), or when the issue is new to key decision makers. There is always a lack of awareness of the depth of the risk factors in the nuclear industry. Bankers and politicians too often hide themselves behind "but there are risks in everything".

For those reasons, it makes sense to increase the risk-awareness among all key stakeholders in the nuclear decision lines: managers, bankers, and politicians.

References:

1. See among others: Schneider, Mycle, Antony Froggatt et al., The World Nuclear Industry Status Report 2017, Paris (2017) Mycle Schneider Consulting; www.worldnuclearreport.org/-2017-.html

2. www.worldnuclearreport.org/World-Nuclear-Industry-Status-as-of-1-January...

3. IAEA, Nuclear Power Reactors in the World – 2017 Edition, Vienna (2017); www-pub.iaea.org/books/IAEABooks/12237/Nuclear-Power-Reactors-in-the-World-2017-Edition

4. www.reuters.com/article/slovakia-enel-mochovce/slovakia-says-mochovce-nu...

5. Ondrich, Jan, Martin Beniak, NPP Paks II – Economic Feasibility, Impact on Competition and Subsidy Costs, Prague (2016) Candole Partners; www.greenpeace.org/hungary/Global/hungary/kampanyok/atomenergia/paks2/NP...

Nuclear Monitor #851 - 20 September 2017

Nuclear Monitor Issue: 
#851
20/09/2017
Full issue

To read this issue of the Nuclear Monitor, use the article links below (in orange), or to download the full issue as a PDF use the link above.

Please subscribe to Nuclear Monitor at www.wiseinternational.org/nuclear-monitor/subscribe-nuclear-monitor

In this issue of the Monitor:

  • A detailed report by Jan Haverkamp on nuclear financing models.
  • A summary of the 2017 edition of the World Nuclear Industry Status Report.

Nuclear power crisis deepens, broadens

Nuclear Monitor Issue: 
#841
4631
12/04/2017
Jim Green ‒ Nuclear Monitor editor
Article

The nuclear power crisis escalated dramatically on March 29 with the announcement that US nuclear giant Westinghouse, a subsidiary of Japanese conglomerate Toshiba, had filed for bankruptcy protection.1 The Chapter 11 filing took place in the US Bankruptcy Court for the Southern District of New York, and marks the start of lengthy and complex negotiations with creditors and customers and the US and Japanese governments.

The companies are in crisis because of massive cost overruns building four AP1000 nuclear power reactors in the southern US states of Georgia and South Carolina. The combined cost overruns for the four reactors amount to about US$11.2 billion and counting.2

The crisis escalated again on April 11 when Toshiba released partial, unaudited financial figures. Toshiba's statement said there is "substantial doubt about the Company's ability to continue as a going concern".3 Toshiba reported a net loss of ¥647.8 billion (US$5.9bn) for the Oct.‒Dec. 2016 quarter, mainly because of a US$6.3bn writedown on Westinghouse. Shareholder equity stood at negative ¥225.6 billion (US$2.05bn) as of Dec. 313 and Toshiba expects equity of negative ¥620 billion (US$5.67bn) as of March 31.4

Adding to the drama, auditor PricewaterhouseCoopers did not endorse the April 11 financial statement and instead submitted a statement emphasizing the risks to Toshiba's future.5 An ongoing inquiry is investigating allegations of excessive pressure by senior Westinghouse management on company staff to understate losses from the AP1000 projects in the US6 and PricewaterhouseCoopers is concerned that Toshiba may not have appropriately reflected those issues in its accounts. Nikkei Asian Review reported on April 4 that with appropriate accounting, Toshiba's liabilities may be found to have exceeded its assets for the second consecutive year, which is the Tokyo Stock Exchange's standard for delisting shares.7

"Toshiba has done everything in its power to gain the understanding of the auditors," chief executive officer Satoshi Tsunakawa said at an April 11 press conference attended by about 200 reporters in Tokyo.5 Toshiba has already twice delayed release of its financial figures, and released unaudited figures on April 11 in the hope of avoiding a stock exchange delisting that would worsen the crisis engulfing the firm, increasing financing costs and exposing it to further lawsuits from shareholders.

But all that can be said about the partial release of hideous figures, accompanied by a disclaimer from the auditor, is that it was the least-worst of Toshiba's options. The company still risks being delisted, with its shares previously designated "securities on alert" due to a profit-padding accounting scandal from 2008‒2014 that was revealed in 2015.8 Miwa Aonuma, a spokesperson for Japan Exchange Group, which runs the Tokyo Stock Exchange, said: "The disclaimer of opinion by the auditor is an additional item that we must evaluate and consider."5

In addition to a potential stock market delisting, Toshiba noted that its special construction license needed for its energy and social infrastructure businesses is at risk because current regulations require companies with such licenses to be financially stable. The company has to renew the permit by the end of December and said that if it fails to "meet the criteria and to renew the license, there will be an extremely negative impact on its business execution."8

Financial figures for the March 2016 ‒ March 2017 fiscal year will not be released until mid-May. Toshiba said on March 29, and again on April 11, that it could end up with a net loss of just over ¥1 trillion (US$9.1bn) for the fiscal year, well over double the estimate of ¥390 billion provided just a month earlier.9 "Every time they put out an estimate, the loss gets bigger and bigger," said Zuhair Khan, an analyst at Jefferies in Tokyo. "I don't think this is the last cockroach we have seen coming out of Toshiba."10

In the meantime, Toshiba is seeking additional bank loans, offering stock holdings and real estate as collateral to lenders.5

Toshiba will still be liable for the existing cost overruns with the four AP1000 reactors in the US but the bankruptcy filing may limit its liability for future cost overruns. Thus Toshiba has somewhat reduced the likelihood of facing bankruptcy itself. However the decision bodes poorly for Westinghouse and the AP1000 projects in Georgia and South Carolina ‒ the future of the company and its reactor projects are in doubt. Ironically, the bankruptcy filing will inevitably lead to further delays and cost overruns with the AP1000 reactor projects ‒ a critical situation has been made worse.

Even if Toshiba and Westinghouse survive the unfolding crisis, some of their reactor projects and plans will not. Four AP1000 reactors under construction in China will very likely be completed, but plans for more AP1000 reactors in China seem unlikely to progress, and plans for 6‒12 AP1000 reactors in India will likely be shelved.

Meanwhile, French company Engie has exercised its right to sell its 40% stake in NuGen to Toshiba. Thus Toshiba will be left with 100% of NuGen, the consortium which hoped to build three AP1000 reactors at Moorside, near Sellafield, in the UK. Toshiba wanted to sell its 60% stake in NuGen, and now wants to sell its 100% stake.

The bankruptcy filing and its impact on the future of Toshiba, Westinghouse, and AP1000 reactor projects are detailed in the following articles in this issue of Nuclear Monitor.

A big chill

Beyond the direct impact of the bankruptcy filing on numerous reactor projects around the world, the most important impact of the unfolding crisis is the chilling effect it will have ‒ and is already having ‒ on the nuclear power industry. The AP1000 fiasco in the US ‒ and the even larger cost overruns with French EPR reactors under construction in France and Finland ‒ demonstrate that industry giants can be brought to their knees by cost overruns on just a few reactors.

Governments, energy utilities and companies, banks, and investors will be considerably less likely to gamble on nuclear power in light of recent events. Not many energy utilities and companies are as large, and as capable of absorbing debt, as Toshiba and Westinghouse. Or as experienced: Toshiba has built 20 reactors in Japan (some in joint ventures), and Westinghouse has built 91 reactors globally.2 Yet cost overruns on four reactors have brought these industry giants to their knees. Plans for new reactors are already being reconsidered and abandoned and that will play out for months and years to come.

Nuclear lobbyists freaking out

The French Liberation newspaper said on March 29 that the Toshiba/Westinghouse crisis, and the huge problems facing French utilities EDF and Areva, forebode a lasting "nuclear winter".11

A February 15 piece in the Financial Times said: "Hopes of a nuclear renaissance have largely disappeared. For many suppliers, not least Toshiba, simply avoiding a nuclear dark ages would be achievement enough."12

Nuclear advocate Rod Adams wrote in Forbes on March 27: "Outside of Asia and Russia, prospects for nuclear power plants in the extra-large size range seem to be dimming by the week. It has been several decades since the last project made it through the full distance marathon required to design, site, license, construct and complete a new nuclear power plant [in the U.S.]. The Watts Bar units that are the most recently completed plants in the U.S. were designed, sited and licensed while I was still in grade school – and I am a semi-retired grandfather of six."13

Ted Norhaus from the Breakthrough Institute wrote on March 27 ‒ before Westinghouse's bankruptcy filing ‒ about his prescriptions to forge "a globally competitive advanced nuclear sector ... from the ashes of today's dying industry".14 His innovative, ecomodernist proposal is to take more of your money and give it to the nuclear industry, combined with some vague ideas about "radically reorganizing the nuclear sector" to facilitate "bottom-up innovation, led by start-ups, not large incumbents".

Following the bankruptcy filing, the Breakthrough Institute's Michael Shellenberger said: "I'm freaked out, honestly. If we were building nuclear plants, I wouldn't be so worried. But if nuclear is dying, I'm alarmed."15

Recent articles from the Breakthrough Institute and other nuclear lobby groups have warned of nuclear power's "rapidly accelerating crisis", a "crisis that threatens the death of nuclear energy in the West", "the crisis that the nuclear industry is presently facing in developed countries", and noted that "the industry is on life support in the United States and other developed economies".

Of course those nuclear lobbyists are dramatizing the situation to highlight the importance and urgency of giving more of your money to the nuclear industry. If the nuclear power industry is dying, or if it is dying in the West, that will take some decades to play out. Nonetheless, nuclear power growth can be confidently ruled out in the US, Japan, across EU countries combined, and in numerous other countries and regions for the foreseeable future.

The industry is downsizing and the recent Toshiba/Westinghouse crisis is the sort of convulsion that necessarily attends downsizing. Smart money has already jumped ship: the UK Nuclear Free Local Authorities noted on April 4 that seven energy utilities and companies have abandoned plans to build new reactors in the UK over the past decade.16

Problems heaped upon problems

If the problems with the AP1000 reactor design were largely responsible for the catastrophic cost overruns in the US, the industry might at least console itself that ditching AP1000 technology in favour of a simpler, cheaper design would provide a path forward. But there's nothing intrinsic to AP1000 technology that in any way explains the problems ‒ there's nothing new or complicated about the AP1000 design (whereas the French EPR design has been described as being so complicated as to be "unconstructable"17).

The problems lie not with the AP1000 design but with the huge up-front capital costs of nuclear reactors, long pay-back periods and high risks, compounded by a lack of experience managing nuclear construction projects after a long period with few new plants.18

Perhaps the strongest reason for nuclear lobbyists to freak out is that the long period with few new plants is about to get longer in major nuclear countries ... and the lack of skills and experience could go from bad to worse to unrecoverable. A Reuters special report in 2010 warned about the skills crisis associated with an aging nuclear workforce ‒ a 'silver tsunami' ‒ and the problem is worsening.19

Add to those problems the growing incongruity between gigawatt-sized power plants and dynamic energy markets more amenable to smaller plants that can be built more quickly and at cheaper cost. A recent article on McKinsey.com discusses the proliferation of new energy sources and the fragmentation of energy markets ‒ dynamics that undermine established interests, especially those with gigawatt-scale products.20

And add to all those obstacles the extraordinary costs of nuclear accidents. The Japanese government's official estimate of Fukushima clean-up and compensation costs stands at ¥21.5 trillion (US$195 billion) ‒ four times greater than estimates provided in 2011/12. As Shaun Burnie notes in this issue of Nuclear Monitor, a new assessment from the Japan Institute for Economic Research estimates that total costs for decommissioning, decontamination and compensation could be far greater, ranging from ¥50‒70 trillion (US$454‒635 billion). Costs associated with the Chernobyl disaster have been estimated at a similar figure of US$700 billion.21

Meanwhile, the safety scandal involving Areva's Creusot Forge has escalated with the publication of a damning report by French nuclear regulator ASN ‒ see Pete Roche's article in this issue of Nuclear Monitor. Also in this issue of the Monitor, David Lowry writes about the scandalous mismanagement of a decommissioning program in the UK, which has led the UK government to agree to a £100 million (US$125m) out-of-court settlement.

The nuclear industry may or may not be dying, but it is certainly punch-drunk and in deep trouble. We've previously suggested in the Monitor that, after a growth spurt followed by 20 years of stagnation, nuclear power is approaching a new era, the Era of Nuclear Decommissioning (END). Recent events tend to confirm that the industry is at the beginning of the END.

References:

1. Toshiba Corporation, 29 March 2017, 'Notice on Chapter 11 Filing by Westinghouse Electric Company and its Group Entities, www.toshiba.co.jp/about/ir/en/news/20170329_1.pdf

2. World Nuclear Industry Status Report, 2 Feb 2017, 'Toshiba-Westinghouse: The End of New-build for the Largest Historic Nuclear Builder', www.worldnuclearreport.org/Toshiba-Westinghouse-The-End-of-New-build-for...

3. Toshiba Corporation, 11 April 2017, 'Toshiba Announces Consolidated Results for the First Nine Months and the Third Quarter for Fiscal Year 2016, Ending March 2017', www.toshiba.co.jp/about/ir/en/finance/er/er2016/q3/ter2016q3e.pdf

4. Kana Inagaki, 11 April 2017, 'Toshiba warns of 'substantial doubt’ on staying in business', www.ft.com/content/4a068050-1e9b-11e7-b7d3-163f5a7f229c

5. Pavel Alpeyev and Takako Taniguchi, 11 April 2017, 'Toshiba Warns of Its Ability to Continue as Going Concern', www.bloomberg.com/news/articles/2017-04-11/toshiba-reports-earnings-with...

6. Kana Inagaki and Leo Lewis, 27 March 2017, 'Toshiba nuclear debacle puts governance in spotlight', www.ft.com/content/b4ff5b78-0efd-11e7-b030-768954394623

7. Nikkei Asian Review, 4 April 2017, 'Toshiba shares drop 10% on possible delay in earnings report', http://asia.nikkei.com/print/article/250775

8. Kazuaki Nagata, 11 April 2017, 'Toshiba submits business results without auditor OK', www.japantimes.co.jp/news/2017/04/11/business/corporate-business/toshiba...

9. BBC, 14 Feb 2017, 'Toshiba chairman quits over nuclear loss', www.bbc.com/news/business-38965380

10. Dawn McCarty and Pavel Alpeyev, 29 March 2017, 'Toshiba Projects Record Loss as Nuclear Unit Files for Bankruptcy', www.bloomberg.com/news/articles/2017-03-29/toshiba-s-u-s-nuclear-unit-we...

11. Liberation, 29 March 2017, www.liberation.fr/futurs/2017/03/29/la-faillite-de-westinghouse-symptome...

12. Kana Inagaki, Leo Lewis and Ed Crooks, 15 Feb 2017, 'Downfall of Toshiba, a nuclear industry titan', www.ft.com/content/416a2c9c-f2d3-11e6-8758-6876151821a6
13. Rod Adams, 27 March 2017, 'As Extra-Large Nuclear Projects Struggle, Nimble Creators Devise New Approaches', www.forbes.com/sites/rodadams/2017/03/27/as-extra-large-nuclear-projects...

14. Ted Nordhaus, 27 March 2017, 'The End of the Nuclear Industry as We Know It', https://thebreakthrough.org/index.php/voices/ted-nordhaus/the-end-of-the...

15. Rob Nikolewski, 9 April 2017, 'The bankruptcy shaking nuclear energy to the core', www.sandiegouniontribune.com/business/energy-green/sd-fi-nuclear-woes-20...

16. Nuclear Free Local Authorities, 4 April 2017, www.nuclearpolicy.info/news/as-engie-becomes-the-seventh-internationalen...

17. Carbon Commentary, 22 Oct 2014, 'Cambridge nuclear engineer casts doubt on whether Hinkley Point EPR nuclear plant can be constructed', www.carboncommentary.com/blog/2014/10/22/cambridge-nuclear-engineer-cast...

18. Nick Butler, 15 Feb 2017, 'Toshiba and the options on new nuclear ', http://blogs.ft.com/nick-butler/2017/02/15/toshiba-and-the-options-on-ne...

19. Sylvia Westall, 29 Nov 2010, 'Nuclear's 'silver tsunami'', www.reuters.com/article/2010/11/29/us-nuclear-ageing-idUSTRE6AS1PQ20101129

20. Nikhil Patel, Thomas Seitz, and Kassia Yanosek, April 2017, 'Three game changers for energy', McKinsey Quarterly, www.mckinsey.com/industries/oil-and-gas/our-insights/three-game-changers...

21. Jonathan Samet and Joann Seo, 2016, 'The Financial Costs of the Chernobyl Nuclear Power Plant Disaster: A Review of the Literature', www.greencross.ch/uploads/media/2016_chernobyl_costs_report.pdf

Nuclear economics: Critical responses to Breakthrough Institute propaganda

Nuclear Monitor Issue: 
#840
4630
21/03/2017
Article

The Breakthrough Institute, a US-based pro-nuclear lobby group, has been in the middle of a debate about the economics of nuclear power. The origin of this debate was an article by the Institute's Jessica Lovering, Arthur Yip and Ted Nordhaus, published in the Energy Policy journal last year.1

They compiled overnight construction cost data from a number of countries and concluded:1

"In contrast to the rapid cost escalation that characterized nuclear construction in the United States, we find evidence of much milder cost escalation in many countries, including absolute cost declines in some countries and specific eras. Our new findings suggest that there is no inherent cost escalation trend associated with nuclear technology."

The article attracted scepticism even from nuclear advocates, with former World Nuclear Association executive Steve Kidd writing:2

"The article tries too hard to refute the general contention ‒ based on US and French experience ‒ that the costs of nuclear power stations have risen substantially over time. It incorporates new evidence on the costs of early demonstration reactors in the US and France, and data from a wider number of countries (including Canada, Germany, Japan, India and South Korea), that show a variety of more favourable trends. With the exception of South Korea, these apply only in particular time periods.

"Full data from the UK was conveniently unavailable ‒ the cost escalation record of the 14 AGRs [Advanced Gas-cooled Reactors] was even worse than the US experience in the 1980s ‒ while the escalating costs of the two EPRs under construction in Europe and the four AP1000s in the US are also ignored."

Energy Policy has recently published two detailed responses3,4 to the Lovering et al. article and a rejoinder by Lovering et al.5 US academics Jonathan Koomey, Nathan Hultman, Arnulf Grubler argue that Lovering et al. "use analytical methods that mask nuclear power's real construction costs, cherry pick data, and include misleading data on early experimental and demonstration reactors."3

Koomey et al. take issue with the use of overnight costs ‒ omitting financing and other time-related costs ‒ by Lovering et al.:

"While overnight costs do have a long history, there is simply no economic basis for comparing the costs of reactors without including the cost of capital and the construction duration. A key aspect of nuclear reactors that makes them such high-risk investments are that they are large scale, complex, and predominantly site-built. Hence construction takes years (even in the best case) and can extend over a decade or more. Almost all modern reactor programs analyzed in detail to date have experienced significantly lengthened construction times, which is ignored in the use of overnight construction costs by Lovering et al.

"Given that financing constitutes a significant part of nuclear costs in the real world, and that the very nature of nuclear power as a large scale, capital-intensive technology makes it particularly sensitive to financial risks, a study that ignores return on capital cannot give a true picture of the costs of nuclear power."

Koomey et al. note the overnight cost data presented by Lovering et al. do not even support their conclusions:3

"Analyzing the costs of electricity generation technologies is an exercise fraught with pitfalls. Unfortunately, Lovering et al.'s assessment of nuclear costs made several consequential errors. Their analysis incorrectly omits interest during construction, and thus substantially underestimates the effect of cost escalation over time. ...

"We note that the authors cherry pick data to suit their conclusions. Nevertheless, the presented data itself don't even support their stated conclusions, which is deeply puzzling. While Lovering et al. claim that their data show a more nuanced picture, suggesting that cost escalation for nuclear reactors is not a real problem, their own data for the modern era show the contrary. …

"The article presents graphs for nuclear construction costs in the US, France, Canada, West Germany, Japan, India, and South Korea, but the only country where overnight costs appear to decline over time in the modern era is South Korea. In that case the data do not come from an independent source but from the country's nuclear utility, have not been independently audited, and are not disclosed (and of course do not include interest during construction, as discussed above). As a result, they do not meet the critical scientific criteria of reproducibility and thus utmost caution is advisable in drawing strong conclusions from those numbers.

"Lovering et al.'s results suggest one example of overnight costs decreasing in the modern era, but the most sensible interpretation of their data is that almost all countries showed cost escalation from the 1970s onwards. This effect would be even more dramatic if the authors had included the costs of financing for a full accounting of nuclear construction costs and their historical evolution."

In a separate response, Alexander Gilbert, Benjamin K. Sovacool, Phil Johnstone, and Andy Stirling accuse Lovering et al. of being selective with their choice of data, unbalanced analysis, and biased interpretation.4 They write:

"In conclusion, several methodological decisions limit the applicability of Lovering et al.'s analysis to overall nuclear construction costs. Difficulties concerning the impact of interest rates on total installed costs, the role of time overruns, accounting for independent cost variables, the normalizing of global data, and comparisons with existing energy sources all serve to blunt Lovering et al.'s implied critique of earlier studies. Indeed, several
conclusions in the existing literature remain unrefuted:

  • Nuclear energy displays serious cost escalations both in the form of rising capital costs over time and in cost overruns at individual plants;
  • There are regional and temporal variations in these trends, but similar patterns nonetheless persist across countries and timeframes;
  • Compared to other technologies, the intensity of these cost escalations is highly distinctive of nuclear reactors;
  • Policymakers and energy modelers addressing nuclear energy need to be aware of elevated capital costs, the critical role of interest rates, and the near certainty of cost and time overruns."

Gilbert et al. also write:

"Our own work on the role of cost overruns in nuclear economics yields several points that deserve highlighting. One of them is that almost all nuclear reactors suffer from cost overruns. Another is that nuclear cost overruns occur in all countries. Yet another is that cost overruns are much greater for nuclear than for other energy sources. A final one is that nuclear cost overruns are heavily influenced by interest costs and time overruns. Lovering, et al. do not challenge this picture from the existing literature. Indeed, by failing to address
the roles of interest costs or construction delays, their study effectively ignores some of the most important issues in understanding historical nuclear construction cost trends."

Gilbert et al. also take issue with the public statements made by Lovering et al., which have been even more inaccurate than their quasi-academic article in Energy Policy:

"Lovering and colleagues have repeatedly referred to their data or analysis publicly as reflecting the "real costs of nuclear power", as offering a "complete construction cost history" of the industry, or proving that "nuclear plants can be built quickly, safely, and cheaply". In light of both Lovering et al.'s actual results and our previous criticisms, these characterizations of their study are misleading and inaccurate."4

References:

1. Jessica R. Lovering, Arthur Yip, and Ted Nordhaus, April 2016, 'Historical construction costs of global nuclear power reactors', Energy Policy 91, pp.371–382, www.sciencedirect.com/science/article/pii/S0301421516300106

2. Steve Kidd, 27 March 2016, 'Achieving better nuclear economics – new designs and industry structure?', www.neimagazine.com/opinion/opinionachieving-better-nuclear-economics-ne...

3. Jonathan Koomey, Nathan E. Hultman, Arnulf Grubler, March 2017, 'A reply to "Historical construction costs of global nuclear power reactors"', Energy Policy, Vol. 102, pp.640–643, www.sciencedirect.com/science/article/pii/S0301421516301549

4. Alexander Gilbert, Benjamin K. Sovacool, Phil Johnstone, and Andy Stirling, March 2017, 'Cost overruns and financial risk in the construction of nuclear power reactors: A critical appraisal', Energy Policy, Vol. 102, pp.644-649, www.sciencedirect.com/science/article/pii/S0301421516301690

5. Jessica R. Lovering, Ted Nordhaus, Arthur Yip, March 2017, 'Apples and oranges: Comparing nuclear construction costs across nations, time periods, and technologies', Energy Policy, Vol. 102, pp.650–654, www.sciencedirect.com/science/article/pii/S0301421516306000

Is nuclear power in crisis, or is it merely the END?

Nuclear Monitor Issue: 
#839
4625
08/03/2017
Jim Green ‒ Nuclear Monitor editor
Article

In the last issue of Nuclear Monitor we reported on the crippling debts facing nuclear industry giants1 ‒ French utilities EDF and Areva, Japanese conglomerate Toshiba and its US-based nuclear subsidiary Westinghouse ‒ and on pro-nuclear responses to the nuclear power crisis.2

Is crisis too strong a word? Nuclear advocates and lobbyists are increasingly using that language. A February 22 piece in the online investment publication Seeking Alpha states: "The global nuclear power generation industry is in crisis. The nuclear power companies are not undertaking many new ventures while most of the projects in progress are on the rough patch."3

Michael Shellenberger from the Breakthrough Institute has recently written articles about nuclear power's "rapidly accelerating crisis"4 and the "crisis that threatens the death of nuclear energy in the West".5 Environmental Progress, another pro-nuclear lobby group connected to Shellenberger, has a webpage dedicated to the nuclear power crisis ‒ among other things, it states that 151 gigawatts (GW) of worldwide nuclear power capacity (38% of the total) could be lost by 2030 (compared to 33 GW of retirements over the past decade), and over half of the US reactor fleet is at risk of closure by 2030.6

A recent article from the Breakthrough Institute and the like-minded Third Way lobby group discusses "the crisis that the nuclear industry is presently facing in developed countries" and the reasons why "the industry is on life support in the United States and other developed economies", and asserts that "the era of building large fleets of light-water reactors is over in much of the developed world."7 Another article from the same authors states that the nuclear power "crisis, at bottom, is the result of the industry's inability to adapt to changing economic, institutional, and technological realities."8

As a worldwide generalization, the nuclear power industry can't be said to be in crisis. To take the extreme example, China's nuclear power program isn't in crisis ‒ it is moving ahead at pace. However, large parts of the industry are in crisis. The US nuclear industry is in crisis, with no likelihood of new reactors for the foreseeable future (other than the four under construction) and a very old reactor fleet. Toshiba and Westinghouse are in crisis and their attempt to establish a Japanese/US reactor construction and export industry is in tatters.

The French nuclear industry is in crisis ... its "worst situation ever" according to former EDF director Gérard Magnin.9 The French industry faces multiple serious problems domestically, and its EPR export ambitions are "in tatters" as Bloomberg noted in 2015.10 EDF and Areva would both be bankrupt if not for the largesse of the French state.

No-one would dispute that Japan's nuclear power industry has been in crisis for the past six years, with no end in sight.

Combined, the crisis-ridden US, French and Japanese nuclear industries account for 45% of the world's 'operable' nuclear reactors according to the World Nuclear Association's database, and they accounted for 50% of nuclear power generation in 2015 (and 57% in 2010).11

Countries with crisis-ridden nuclear programs or phase-out policies (e.g. Germany, Belgium, and Taiwan) account for about half of the world's operable reactors and more than half of worldwide nuclear power generation.

The Era of Nuclear Decommissioning (END)

The aging of the global reactor fleet isn't yet a crisis for the industry, but it is heading that way. In many countries with nuclear power, the prospects for new reactors are dim and rear-guard battles are being fought to extend the lifespans of aging reactors that are approaching or past their design date.

Perhaps the best characterization of the global nuclear industry is that a new era is approaching ‒ the Era of Nuclear Decommissioning (END). Nuclear power's END will entail:

  • a slow decline in the number of operating reactors (unless growth in China can match the decline elsewhere);
  • an increasingly unreliable and accident-prone reactor fleet as aging sets in;12
  • countless battles over lifespan extensions for aging reactors;
  • an internationalization of anti-nuclear opposition as neighboring countries object to the continued operation of aging reactors (international opposition to Belgium's aging reactors is a case in point13);
  • many battles over the nature and timing of decommissioning operations;
  • many battles over taxpayer bailouts for companies and utilities that haven't set aside adequate funding for decommissioning;
  • more battles over proposals to impose nuclear waste repositories on unwilling or divided communities; and
  • battles over taxpayer bailouts for companies and utilities that haven't set aside adequate funding for nuclear waste disposal.

As discussed in Nuclear Monitor #837, nuclear power is likely to enjoy a small, short-lived upswing in the next couple of years as reactors ordered in the few years before the Fukushima disaster come online.14 Beyond that, the Era of Nuclear Decommissioning sets in, characterized by escalating battles (and escalating sticker shock) over lifespan extensions, decommissioning and nuclear waste management. In those circumstances, it will become even more difficult than it currently is for the industry to pursue new reactor projects. A positive feedback loop could take hold and then the industry will be well and truly in crisis.

Recent bad news for the nuclear industry

If nuclear power isn't yet in crisis, it is heading that way. Just in the past month there has been a steady stream of bad news for the industry ‒ summarized here.

Of course the most significant news over the past month was Toshiba's February 14 announcement that it was booking a US$6.3 billion (€5.9bn) writedown on its US nuclear subsidiary Westinghouse and exiting the reactor construction industry.1 Reuters reported on March 1 that Toshiba is seeking legal advice as to whether Westinghouse should file for Chapter 11 bankruptcy.15 But even under a Chapter 11 filing, Reuters reported, "Toshiba could still be on the hook for up to $7 billion in contingent liabilities as it has guaranteed Westinghouse's contractual commitments".

Toshiba plans to sell profitable businesses to cover the debts from Westinghouse's multi-billion dollar cost overruns building AP1000 reactors in the US. Toshiba would likely sell Westinghouse if it could find a buyer, but even if a buyer could be found Toshiba would likely be stuck with the mounting debts from the US AP1000 projects due to contractual obligations.

Commercial operation dates for the two AP1000 reactors in Vogtle, Georgia have been pushed back by another three and six months ‒ the new start-up dates are December 2019 and September 2020.16 Originally, completion of the reactors was scheduled for 2016 and 2017. There is plenty of scope for further delays and cost overruns. Already, the combined cost overruns for the four AP1000 reactors in the US (two each in Georgia and South Carolina) amount to about US$11.2bn (€10.7bn).17

Georgia Power, 45.7% owner of the Vogtle AP1000 project, has suspended plans for another nuclear plant in Georgia, with more than US$50 million of ratepayers' money already wasted on the Stewart County project.18

The Nikkei Asian Review reported on February 20 that Toshiba plans to pull out of the plan for two Advanced Boiling Water Reactors at the South Texas Plant.19 The reactors were scheduled to be completed as early as 2016 but work never began and likely never will. Toshiba booked writedowns totaling 72 billion yen (US$638 million at current rates) on the project in fiscal years 2013 and 2014.

The UK pro-nuclear lobby group New Nuclear Watch Europe said in late February that there is a danger that no new nuclear capacity will come online in the UK before 2030, and that the subsidies on offer to support new reactors are insufficient and need to be expanded.20 The lobby group pointed to:

  • delays with the EPR reactor in Flamanville, France and the possibility that those delays would flow on to the two planned EPR reactors at Hinkley Point in the UK;
  • the lack of investors for the proposed Advanced Boiling Water Reactors at Wylfa in Wales;
  • the acknowledgement by the NuGen (Toshiba/Engie) consortium that the plan for three AP1000 reactors at Moorside faces a "significant funding gap"; and
  • the fact that the Hualong One technology which China General Nuclear Power Corporation hopes to deploy at Bradwell in Essex has yet to undergo its generic design assessment.

The Financial Times reported on March 2 that French company Engie booked a €1bn impairment on its nuclear decommissioning provisions in Belgium.21

The start-up dates for two EPR reactors in China's Guangdong province have been pushed back another six months.22 The project is several years behind schedule ‒ construction began in 2009/10 and the original schedule for start-up in 2014/15 has been pushed back to 2017/18.23

On March 1, French utility Areva posted a €665 million (US$700m) net loss for 2016.24 Losses in the preceding five years exceeded €10 billion (US$10.5 bn).25 A large majority of a €5 billion recapitalization scheduled for June will come from French taxpayers.26

On February 14, French utility EDF released its financial figures for 2016: earnings fell 6.7%, revenue declined 5.1%, net income excluding non-recurring items fell 15%, and EDF's debt remained steady at €37.4 billion.27 All that EDF chief executive Jean-Bernard Levy could offer was the hope that EDF would "hit the bottom of the cycle" in 2017 and rebound next year.28 The French government provided EDF with €3 billion in extra capital in 201629 and will contribute €3 billion towards a €4 billion capital raising this year.27,28

EDF is being forced to take over parts of its struggling sibling Areva's operations ‒ a fate you wouldn't wish on your worst enemy. And just when it seemed that things couldn't get any worse for EDF, a fire took hold in the turbine room of one of its Flamanville reactors on February 9 and the reactor will likely be offline until late March at an estimated cost of roughly €1.2m per day.30

And that's just some of the nuclear industry's bad news over the past month ...

References:

1. Nuclear Monitor #838, 21 Feb 2017, 'Nuclear industry for sale ‒ renovator's dream?', www.wiseinternational.org/nuclear-monitor/838/nuclear-monitor-838-21-feb...

2. Nuclear Monitor #838, 21 Feb 2017, 'Pro-nuclear perspectives on the nuclear industry crisis ‒ 'an unusually grim outlook'', www.wiseinternational.org/nuclear-monitor/838/nuclear-monitor-838-21-feb...

3. 22 Feb 2017, 'Exelon Will Survive The Nuclear Crisis', http://seekingalpha.com/article/4048161-exelon-will-survive-nuclear-crisis

4. Michael Shellenberger, 13 Feb 2017, 'Why its Big Bet on Westinghouse Nuclear is Bankrupting Toshiba', www.environmentalprogress.org/big-news/2017/2/13/why-its-big-bet-on-west...

5. Michael Shellenberger, 17 Feb 2017, 'Nuclear Industry Must Change ‒ Or Die', www.environmentalprogress.org/big-news/2017/2/16/nuclear-must-change-or-die

6. www.environmentalprogress.org/clean-energy-crisis

7. Josh Freed, Todd Allen, Ted Nordhaus, and Jessica Lovering, 24 Feb 2017, 'Is Nuclear Too Innovative?', https://medium.com/third-way/is-nuclear-too-innovative-a14fb4fef41a

8. Josh Freed, Todd Allen, Ted Nordhaus, and Jessica Lovering, 28 Feb 2017, 'Do We Need An Airbus for Nuclear?', https://medium.com/third-way/do-we-need-an-airbus-for-nuclear-7f1d2afcea8b

9. Adam Vaughan, 29 Nov 2016, French nuclear power in 'worst situation ever', says former EDF director, www.theguardian.com/environment/2016/nov/29/french-nuclear-power-worst-s...

10. Carol Matlack, 17 April 2015, 'Areva Is Costing France Plenty', www.bloomberg.com/news/articles/2015-04-16/france-s-areva-falters-in-rea...

11. WNA, 1 March 2017, 'World Nuclear Power Reactors & Uranium Requirements', www.world-nuclear.org/information-library/facts-and-figures/world-nuclea...

12. David Lochbaum, 2004, 'U.S. Nuclear Plants in the 21st Century', Union of Concerned Scientists, www.ucsusa.org/assets/documents/nuclear_power/nuclear04fnl.pdf

13. Nuclear Monitor #834, 24 Nov 2016, 'Belgium: Legal action to close Tihange 2 reactor', www.wiseinternational.org/nuclear-monitor/834/nuclear-news-nuclear-monit...

14. 31 Jan 2017, '2016 in Review: The nuclear power renaissance ‒ blink and you'll miss it', Nuclear Monitor #837, www.wiseinternational.org/nuclear-monitor/837/nuclear-monitor-837-31-jan...

15. Reuters, 1 March 2107, 'Toshiba asks law firm to advise on potential Westinghouse bankruptcy cost: sources', www.reuters.com/article/us-toshiba-westinghouse-idUSKBN1684B8

16. WNN, 24 Feb 2017, 'Vogtle operation dates rescheduled', http://world-nuclear-news.org/C-Vogtle-operation-dates-rescheduled-24021...

17. 2 Feb 2017, 'Toshiba-Westinghouse: The End of New-build for the Largest Historic Nuclear Builder', www.worldnuclearreport.org/Toshiba-Westinghouse-The-End-of-New-build-for...

18. Dave Williams, 2 March 2017, 'Georgia Power suspends work on proposed Stewart County nuclear plant', www.bizjournals.com/atlanta/news/2017/03/02/georgia-power-suspends-work-...

19. Nikkei Asian Review, 20 Feb 2017, 'Toshiba pulling plug on US nuclear reactor plan', http://asia.nikkei.com/Spotlight/Toshiba-in-Turmoil/Toshiba-pulling-plug...

20. NucNet, 27 Feb 2017, 'Former Minister Warns Of 'Real Danger' Facing UK Nuclear Projects', www.nucnet.org/all-the-news/2017/02/27/former-minister-warns-of-real-dan...

21. Michael Stothard, 2 March 2017, 'Engie reports drop in profits as it books €3.8bn in impairments', www.ft.com/content/5467e21c-ff1c-11e6-96f8-3700c5664d30
22. WNN, 22 Feb 2017, 'China revises commissioning dates of EPRs', http://us1.campaign-archive1.com/?u=140c559a3b34d23ff7c6b48b9&id=6c7280d...

23. Stephen Stapczynski and Aibing Guo, 15 March 2016, 'China's Areva-Designed Nuclear Reactors to Start Up in 2017', www.bloomberg.com/news/articles/2016-03-15/china-s-areva-designed-nuclea...

24. Michael Stothard, 1 March 2017, 'Areva posts €665m net loss in 2016', www.ft.com/content/e38738f3-a4b5-3b90-9c2b-4ec975a60157

25. Mycle Schneider, Antony Froggatt et al., 2016, 'World Nuclear Industry Status Report 2016', www.worldnuclearreport.org/IMG/pdf/20160713MSC-WNISR2016V2-HR.pdf

26. Geert De Clercq, 1 March 2017, 'French group Areva's 2016 loss narrows, received no claims over Creusot foundry', www.reuters.com/article/us-areva-results-idUSKBN1683H0

27. Michael Stothard, 14 Feb 2017, 'EDF earnings hit by low electricity prices and nuclear problems', www.ft.com/content/3f9978ae-f289-11e6-8758-6876151821a6

28. Geert De Clercq, 14 Feb 2017, 'EDF targets positive cash flow ahead of French, UK nuclear projects', http://uk.reuters.com/article/uk-edf-results-idUKKBN15T0LJ

29. Paul Brown, 2 Dec 2016, 'Taxpayers face bill for nuclear crisis', http://climatenewsnetwork.net/taxpayers-bill-nuclear-crisis/

30. Adam Vaughan, 21 Feb 2017, 'EDF faces £1m a day bill to keep French nuclear reactor offline', www.theguardian.com/business/2017/feb/21/edf-faces-1m-a-day-bill-to-keep...

The astronomical cost of new subsidies for old reactors in the U.S.

Nuclear Monitor Issue: 
#832
4591
19/10/2016
Tim Judson ‒ Executive Director, Nuclear Information & Resource Service
Article

The Nuclear Information & Resource Service (NIRS) has covered the unfolding story of the US nuclear power industry's clamor for new subsidies and bailouts since it started in 2014. Purely as a spectator sport, it might have been entertaining to watch the country's largest utilities go from proclaiming a "Nuclear Renaissance" a decade ago to peddling the message that "Nuclear Matters".1

But there is just too much at stake to treat it like a game. The utility industry's ramped-up efforts to block renewable energy and horde billions of our clean energy dollars to prop up old nukes risks both climate and nuclear disaster.2 Most of these proposals have been failing, thanks to the dogged persistence of grassroots activists and clean energy groups – and the outrageous sticker price of subsidies the industry needs. In fact, earlier this month, the two-year saga of FirstEnergy's US$8 billion nuclear-plus-coal bailout plan seems to have ended, with what amounts to a consolation gift to a couple FirstEnergy utility companies.3 Still an outrageous corporate giveaway, but no subsidies for nuclear or coal, even after it seemed like a done deal a few months ago.

But New York Governor Cuomo's decision in August to award a 12-year, US$7.6 billion subsidy package to four aging reactors ‒ including reversing Entergy's decision to close the FitzPatrick reactor in January 2017 ‒ has put wind into the industry's sails.4 Even that chapter isn't over, with lawsuits already being filed and several more expected.5 And environmental groups last week launched a new campaign to get Governor Cuomo to smell the coffee and cancel what will not only be the largest corporate give-away in the state's history, but relegate clean energy to second-class status behind old nukes.6

The lingering uncertainty hasn't stopped the industry PR and lobbying machines, though ‒ after all, billions of dollars in free money is at stake! Exelon, FirstEnergy, and other companies touted New York as a national model, and began urging states from Connecticut to Illinois to follow suit. Having to get each state to line up is going to be a tall order. In addition to FirstEnergy's failed Ohio bailout, Exelon hasn't been able to sell a much smaller five-year, US$1.5 billion subsidy in Illinois. And nukes in Connecticut and New Jersey are still making millions in profits each year, without heaping billions more in subsidies onto ratepayers' utility bills.7

So the industry has started pushing for a national bailout.8 NIRS thought we should take a look at what that might cost. Later this month, we will publish a report showing that a federal nuclear subsidy based on the EPA's estimate of the social cost of carbon would be massively expensive: up to US$280 billion (€255bn) by 2030. Even if it were only applied to reactors that are already becoming unprofitable ‒ more than half of the nukes in the country, according to a recent report9 ‒ it would total at least US$160 billion.

Please sign the NIRS petition

NIRS is launching a petition to the next President urging the new administration to say no to a national nuclear bailout, and to end subsidies for nuclear and fossil fuels. We hope you'll sign the petition and help us get to our goal of 100,000 signatures. Whoever wins the election in November needs to know that another nuclear bailout isn't going to fly with the American people. To sign the petition please visit www.tinyurl.com/nirs-petition

References:

1. https://safeenergy.org/2014/10/14/why-nuclear-matters-doesnt-matter/

2. https://safeenergy.org/2016/03/17/the-nuclear-industrys-game-plan-2/

3. www.utilitydive.com/news/updated-ohio-regulators-scale-back-firstenergy-...

4. https://safeenergy.org/2016/08/02/new-york-just-proved-why-bailing-out-n...

5. www.politico.com/states/new-york/city-hall/story/2016/10/national-advoca...

6. www.stopthecuomotax.org/

7. www.njspotlight.com/stories/16/08/04/new-jersey-unlikely-to-follow-new-y...

8. https://gain.inl.gov/SitePages/DOE%20Congressional%20Event.aspx

9. www.nytimes.com/2016/07/20/business/energy-environment/how-renewable-ene...

Nuclear advocates fight back with wishful thinking

Nuclear Monitor Issue: 
#810
4493
09/09/2015
Michael Mariotte − President of the Nuclear Information & Resource Service
Article

It must be rough to be a nuclear power advocate these days: clean renewable energy is cleaning nuclear's clock in the marketplace; energy efficiency programs are working and causing electricity demand to remain stable and even fall in some regions; despite decades of industry effort radioactive waste remains an intractable problem; and Fukushima's fallout − both literal and metaphoric − continues to cast a pall over the industry's future.

Where new reactors are being built, they are − predictably − behind schedule and over-budget; while even many existing reactors, although their capital costs were paid off years ago, can't compete and face potential shutdown because of operating and maintenance costs that are proving to be too high to manage.

Not surprisingly, the nuclear industry is fighting back. After all, what other choice does it have? But a major new report by established nuclear advocates indicate that the only ammunition left in their arsenal is wishful thinking. The study, 'Projected Costs of Generating Electricity', is jointly produced by the International Energy Agency (IEA) and its sister organization in the OECD, the Nuclear Energy Agency (NEA).1

It's an update of a study last produced in 2010 and despite the headlines being pushed by the industry, which claim nuclear power is economically competitive with other generating technologies, it doesn't actually say that at all. But perhaps that's to be expected by an organization now headed by former US Nuclear Regulatory Commissioner William Magwood and devoted to the promotion of nuclear power.

As Jan Haverkamp of Greenpeace International explains:

"You can see the NEA's bias very clearly in slide 112 (part of the public presentation on the report's release), where the title is: "Nuclear: an attractive low-carbon technology in the absence of cost overruns and with low financing costs" ... which shows clearly where the problem is. To call this "attractive" but then sidelining two of the inherent financial issues with the resource is tendentious to say the least. Apart from not including costs like those for clean-up after severe accidents, an insecure cost idea of waste management, and a preferential liability capping scheme with government back-up."

Exactly. If you assume there are no economic problems with nuclear power, then it looks just great. The problem is that in real life, nuclear power's financing costs are not low − they are extremely high because nuclear reactors are considered, for good reason, by investors to be very risky undertakings. One reason they are risky, and thus incur high financing costs, is that they are notorious for their cost overruns.

As if to slap its Paris-based companion the NEA in its face with cold reality, Electricite de France underscored new nuclear power's fundamental economic problems, announcing that the EPR reactor it is building in Flamanville, France, is another year behind schedule and its cost is now projected at triple its original 2007 estimate.3

The IEA/NEA study calculates the levelized lifetime cost of electricity for reactors based on a 60-year lifespan at an 85% capacity factor, even though the study itself admits the global capacity factor in 2013 was only 82.4% and has dropped a bit since the 2010's study reference point of 2008. So the study thus assumes a lifetime that no reactor has yet reached, and that many reactors globally will not even attempt to reach (see below), at a capacity factor higher than has been attained and when the trend is in the opposite direction. Even manipulating the numbers like that, however, only gets the IEA/NEA back to its starting point of needing both the unattainable low financing costs and absence of cost overruns to make new nuclear appear economic.

As for that 60-year lifespan, while most U.S. reactors already have received license extensions allowing their 60-year operation, that is not the case globally (nor is it at all clear that a piece of paper allowing operation will be sufficient on either an economic or safety basis to enable operation). And a new report from a company called Globaldata projects that the number of reactors expected to seek license extensions globally will decline until 2025 (at least).4 Globaldata senior analyst Reddy Nagatham said: "This will be most notable in Europe, where the capacity of NPPs starting PLEX operations is expected to drop almost sevenfold from approximately 8.3 GW this year to 1.2 GW by the end of 2025."

Of course, the shorter a reactor's lifetime, the higher its lifetime cost of electricity will be.

As Greenpeace's Jan Haverkamp points out, the IEA/NEA appears to have a specific endgame in mind: "This study clearly targets the Paris COP [UN climate conference in December 2015] and tries to instill the idea that nuclear needs to get subsidies in the form of credit guarantees and price guarantees and then that will be the silver bullet."

And that brings us back to that more familiar refrain from the nuclear industry: give us more ratepayer bailouts and more taxpayer subsidies and everything will be just fine. The problem for the industry is that fewer and fewer people are singing that song.

Small modular reactors and Generation IV reactors

Nor should the industry look for help from the trendy new kids on the block: small modular reactors (SMRs) and Generation IV technologies. The report predicts that electricity costs from SMRs will typically be 50−100% higher than for current large reactors, although it holds out some hope that large volume production of SMRs could help reduce costs − if that large volume production is comprised of "a sufficiently large number of identical SMR designs ... built and replicated in factory assembly workshops." Not very likely unless the industry accepts a socialist approach to reactor manufacturing, which is even less likely than that the approach would lead to any significant cost savings.

As for Generation IV reactors, the report at its most optimistic can only say: "In terms of generation costs, generation IV technologies aim to be at least as competitive as generation III technologies ... though the additional complexity of these designs, the need to develop a specific supply chain for these reactors and the development of the associated fuel cycles will make this a challenging task."

So, at best the Generation IV reactors are aiming to be as competitive as the current − and economically failing − Generation III reactors. And even realizing that inadequate goal will be "challenging." The report might as well have recommended to Generation IV developers not to bother.

Another problem with the report is that the IEA − perhaps at the urging of the NEA − simply assumes that the electrical grid of the future will be the same as it is today, despite the rapid pace of change across the world but especially in the IEA's European home base.

In fact, if there is a real takeaway from the report, it is from the headline on the IEA's website rather than any nuclear publication: 'Joint IEA-NEA report details plunge in costs of producing electricity from renewables.'5

Yes, while the nuclear industry has been attempting to frame the report as good news for nuclear power, the real findings of the report are in the stunning drop in renewables costs. Onshore wind, according to the report, is the cheapest power source of any examined. Solar power, except residential rooftop, is increasingly competitive and will drop further, unencumbered by the high financing charges and cost overruns experienced by nuclear.

It's good to see IEA say something favorable about renewables. As we reported last year, the organization has been notoriously wrong on the deployment of renewables over the years, greatly underprojecting their growth and compiling a simply embarrassing record.6

References:

1. International Energy Agency (IEA) and OECD Nuclear Energy Agency (NEA), 2015, 'Projected Costs of Generating Electricity':

Media release: www.iea.org/newsroomandevents/news/2015/august/joint-iea-nea-report-deta...

Executive Summary: www.iea.org/Textbase/npsum/ElecCost2015SUM.pdf

Purchase full report: www.iea.org/bookshop/711-Projected_Costs_of_Generating_Electricity

2. www.iea.org/media/presentations/150831_ProjectedCostsOfGeneratingElectri...

3. WNN, 3 Sept 2015, 'Flamanville EPR timetable and costs revised', www.world-nuclear-news.org/NN-Flamanville-EPR-timetable-and-costs-revise...

4. Phil Allan, 2 Sept 2015, 'Fukushima fallout leading to decline in nuclear generation', www.energyvoice.com/otherenergy/86661/fukishima-fallout-leading-to-decli...

5. IEA, 31 Aug 2015, 'Joint IEA-NEA report details plunge in costs of producing electricity from renewables', www.iea.org/newsroomandevents/news/2015/august/joint-iea-nea-report-deta...

6. Michael Mariotte, 17 July 2014, 'IEA "experts" not particularly expert', http://safeenergy.org/2014/07/17/iea-experts-not-particularly-expert/

One deep underground dump, one dud

Nuclear Monitor Issue: 
#801
4460
09/04/2015
Jim Green − Nuclear Monitor editor
Article

There is only one deep underground dump (DUD) for nuclear waste anywhere in the world, and it's a dud. The broad outline of this dud DUD story is simple and predictable: over a period of 10−15 years, high standards gave way to complacency, cost-cutting and corner-cutting.

The Waste Isolation Pilot Plant (WIPP) in New Mexico, USA, is a burial site for long-lived intermediate-level waste from the US nuclear weapons program. More than 171,000 waste drums have been stored in salt caverns 2,100 feet (640 metres) underground since WIPP opened in 1999.

Earl Potter, a lawyer who represented Westinghouse, WIPP's first operating contractor, said: "At the beginning, there was an almost fanatical attention to safety. I'm afraid the emphasis shifted to looking at how quickly and how inexpensively they could dispose of this waste."1

Likewise, Rick Fuentes, president of the Carlsbad chapter of the United Steelworkers union, said: "In the early days, we had to prove to the stakeholders that we could operate this place safely for both people and the environment. After time, complacency set in. Money didn't get invested into the equipment and the things it should have."1

Before WIPP opened, sceptical locals were invited to watch experiments to assure them how safe the facility would be. Waste containers were dropped from great heights onto metal spikes, submerged in water and rammed by trains.1 Little did they know that a typo and kitty litter would be the undoing of WIPP.

On 14 February 2014, a drum rupture spread contaminants through about one-third of the underground caverns and tunnels, up the exhaust shaft, and into the outside environment. Twenty-two people were contaminated with low-level radioactivity.

A Technical Assessment Team convened by the US Department of Energy (DoE) has recently released a report into the February 2014 accident.2 The report concludes that just one drum was the source of radioactive contamination, and that the drum rupture resulted from internal chemical reactions.

Chemically incompatible contents in the drum − nitrate salt residues, organic sorbent and an acid neutralization agent − supported heat-generating chemical reactions which led to the creation of gases within the drum. The build-up of gases displaced the drum lid, venting radioactive material and hot matter that further reacted with the air or other materials outside the drum to cause the observed damage.

Kitty litter

The problems began at Los Alamos National Laboratory (LANL), where the drum was packed. One of the problems at LANL was the replacement of inorganic absorbent with an organic absorbent − kitty litter. Carbohydrates in the kitty litter provided fuel for a chemical reaction with metal nitrate salts being disposed of.

The switch to kitty litter took effect on 1 August 2012. LANL staff were explicitly directed to "ENSURE an organic absorbent (kitty litter) is added to the waste" when packaging drums of nitrate salts. LANL's use of organic kitty litter defied clear instructions from WIPP to use an inorganic absorbent.3

Why switch from inorganic absorbent to organic kitty litter? The most likely explanation is that the problem originated with a typo in notes from a meeting at LANL about how to package "difficult" waste for shipment to WIPP − and the subsequent failure of anyone at LANL to correct the error. In email correspondence, Mark Pearcy, a member of the team that reviews waste to ensure it is acceptable to be stored at WIPP, said: "General consensus is that the 'organic' designation was a typo that wasn't caught."3

LANL officials have since acknowledged several violations of its Hazardous Waste Facility Permit including the failure to follow proper procedures in making the switch to organic litter, and the lack of follow-up on waste that tests showed to be highly acidic.4

Ongoing risks

The heat generated by the rupture of drum #68660 may have destabilized up to 55 other drums that were in close proximity. A June 2014 report by LANL staff based at WIPP said the heat "may have dried out some of the unreacted oxidizer-organic mixtures increasing their potential for spontaneous reaction. The dehydration of the fuel-oxidizer mixtures caused by the heating of the drums is recognized as a condition known to increase the potential for reaction."5

The Albuquerque Journal reported on March 15 that 368 drums with waste comparable to drum #68660 are stored underground at WIPP − 313 in Panel 6, and 55 in Room 7 of Panel 7, the same room as drum #68660. WIPP operators are trying to isolate areas considered to be at risk with chain links, brattice cloth to restrict air flow, mined salt buffers and steel bulkheads. Efforts to shut off particular rooms and panels have been delayed and complicated by radiological contamination, limitations on the number of workers and equipment that can be used due to poor ventilation, and months of missed maintenance that followed the February 2014 accident.6

An Associated Press report states that since September 2012, LANL packed up to 5,565 drums with organic kitty litter. Of particular concern are 16 drums with highly acidic contents as well as nitrate salts. Of those 16 drums, 11 are underground at WIPP (one of them is drum #68660), and the other five are in temporary storage at a private waste facility in Andrews, Texas.4

Freedom of Information revelations

The Santa Fe New Mexican newspaper has revealed further details about problems before and after the February 2014 accident, based on material from a Freedom of Information Act request.3

The New Mexican reports that LANL workers came across a batch of waste that was highly acidic, making it unsafe for shipping. A careful review of treatment options should have followed, but instead LANL and its contractors took shortcuts, adding acid neutralizer as well as kitty litter to absorb excess liquid. The wrong neutralizer was used, exacerbating the problem.3

One of these waste drums was #68660. Documents accompanying the drum from LANL to WIPP made no mention of the high acidity or the neutralizer, and they said that it contained an inorganic absorbent.3

The decision to take shortcuts was likely motivated by pressure to meet a deadline to remove waste from an area at LANL considered vulnerable to fire. Meeting the deadline would have helped LANL contractors' extend their lucrative contracts to package waste at LANL and transport it to WIPP.3

For two years preceding the February 2014 incident, LANL refused to allow inspectors conducting annual audits for the New Mexico Environment Department (NMED) inside the facility where waste was treated, saying the auditors did not have appropriate training to be around radioactive waste. The NMED did not insist on gaining access because, in the words of a departmental spokesperson, it was "working on higher priority duties at the time that mandated our attention."3

There were further lapses after the drum rupture. The New Mexican reported:

"Documents and internal emails show that even after the radiation leak, lab officials downplayed the dangers of the waste − even to the Carlsbad managers whose staff members were endangered by its presence − and withheld critical information from regulators and WIPP officials investigating the leak. Internal emails, harshly worded at times, convey a tone of exasperation with LANL from WIPP personnel, primarily employees of the Department of Energy and Nuclear Waste Partnership, the contractor that operates the repository."3

Several months after the rupture of drum #68660, an LANL chemist discovered that the contents of the drum matched those of a patented explosive. Personnel at WIPP were not informed of the potential for an explosive reaction for nearly another week − and they only learned about the problem after a DoE employee leaked a copy of the chemist's memo to a colleague in Carlsbad the night before a planned entry into the room that held the ruptured drum. That planned entry was cancelled. Workers in protective suits entered the underground area several days later to collect samples.3

"I am appalled that LANL didn't provide us this information," Dana Bryson from DoE's Carlsbad Field Office wrote in an email when she learned of the memo.3

The DoE employee who first alerted WIPP personnel to the threat was reprimanded by the DoE's Los Alamos Site Office for sharing the information.3

Contamination

Inevitably the clean-up has faced problems due to radioactive contamination in the underground panels and tunnels, and delays in routine underground maintenance because of the contamination. The Santa Fe New Mexican reported on some of these problems:

"In October, when a fan was tested for the first time since the accident, it kicked up low levels of radioactive materials that escaped from the mine. Waste drums that normally would have been permanently disposed of within days of their arrival at WIPP instead were housed in an above-ground holding area for months and leaked harmful but nonradioactive vapors that sickened four workers. A chunk of the cavern's ceiling crashed to the ground after the contamination delayed for months the routine bolting that would have stabilized the roof."1

Another problem is that workers are entering underground areas that are not being monitored for carcinogenic volatile organic compounds. Monitoring of these compounds, a condition of WIPP's permit from the state of New Mexico, has not been taking place since February 2014 because of limited access to contaminated underground areas.5

Don Hancock from the Southwest Research and Information Center said:

"They have no intention of starting to do the volatile organic compound monitoring in the underground at least until January of 2016. They fully intend to keep sending workers into the underground with no intention of following this requirement. It's in violation of the permit, and the Environment Department should say so."5

Fines

The NMED has fined the DoE US$54 million (€49.2m). The Department identified 13 violations at WIPP, and imposed penalties of US$17.7 million (€16.1m). The Department identified 24 violations at LANL, and imposed penalties of US$36.6 million (€33.3m).7 The DoE is appealing the fines.8

The DoE says that any state fines it pays for the WIPP accident will come from money appropriated to clean up nuclear weapons sites in New Mexico. A 2016 budget year summary presented in February by DoE's Office of Environmental Management says: "Any fines and penalties assessed on the EM [environmental management] program would be provided by cleanup dollars, resulting in reduced funding for cleanup activities."8

NMED Secretary Ryan Flynn responded:

"Essentially, DoE is threatening to punish states by doing less cleanup work if states attempt to hold it accountable for violating federal and state environmental laws. States like New Mexico welcome federal facilities into our communities with the understanding that these facilities will respect the health and safety of our citizens by complying with federal and state laws."8

The NMED is working on a new compliance order that could include fines of more than US$100 million (€91.1m). Flynn said:

"We've indicated all along that if DoE is willing to take accountability for the events that caused the release and work with the state then we'd be willing to release them from any further liability at Los Alamos and WIPP. If DoE is not willing to take accountability for what's occurred, then they are going to face significant additional penalties."9

A February 22 editorial in the Albuquerque Journal states:

"It would behoove the DoE to quit poisoning the well when it doesn't have another option for disposing of this kind of waste underground. ... So the DOE should start paying up and playing fair with the only game in town."10

Greg Mello from the Los Alamos Study Group said that an increase in weapons spending proposed by the Obama administration would pay "all the NMED-proposed fines a few times over."8

Clean-up costs

Costs associated with the February 2014 accident include clean-up costs, fines, and costs associated with managing the backlog of waste at other sites until it can be sent to WIPP. Total costs will be at least US$500 million (€455m).1

WIPP is unlikely to be fully operational until at least 2018 according to federal Energy Secretary Ernest Moniz. "We are targeting 2018 but I have to admit that that remains a little uncertain; the key project is the new ventilation system and that is still undergoing engineering analysis," Moniz said in February.

Don Hancock doubts that the 2018 timeline can be met. Salt mines exist across the world, he said, but reopening a contaminated salt mine following a radiological release is unprecedented and the government has no model to follow.11

Earl Potter, the former Westinghouse lawyer with a long association with WIPP, told the New Mexican that he doubted whether WIPP could continue if another radiation leak happened during the recovery process. "We can survive one," he said, "but two, I don't think so."1

References:
1. Patrick Malone, 14 Feb 2015, 'Repository's future uncertain, but New Mexico town still believes', www.santafenewmexican.com/special_reports/from_lanl_to_leak/repository-s...
2. Technical Assessment Team, March 2015, 'Investigation of Incident at Waste Isolation Pilot Plant'
Summary: http://energy.gov/sites/prod/files/2015/03/f20/TAT_Fact_sheet%2032615%20...
Full report: http://energy.gov/sites/prod/files/2015/03/f20/MARCH%202015%20-%20FINAL%...
3. Patrick Malone, 15 Nov 2014, 'LANL officials downplayed waste's dangers even after leak', www.santafenewmexican.com/special_reports/from_lanl_to_leak/lanl-officia...
4. Jeri Clausing / Associated Press, 4 July 2014, 'U.S. lab admits violating nuke-waste permit', www.sltrib.com/sltrib/world/58150394-68/waste-lab-wallace-acidic.html.csp
5. Patrick Malone, 29 Nov 2014, 'Emails raise questions about risks to WIPP workers sent underground', www.santafenewmexican.com/news/local_news/emails-raise-questions-about-s...
6. Lauren Villagran, 15 March 2015, 'Roof collapses pose safety risk for workers at WIPP', www.abqjournal.com/555711/news/roof-collapses-pose-safety-risk-at-wipp.html
7. WNN, 8 Dec 2014, 'Fines follow WIPP incidents', www.world-nuclear-news.org/RS-Fines-follow-WIPP-incidents-0812147.html
8. Mark Oswald, 20 Feb 2015, 'DOE says any fines for WIPP leak will come from clean-up money', www.abqjournal.com/544461/news/doe-says-any-fines-for-wipp-leak-will-com...
9. 10 Feb 2015, 'New Mexico Considers More Fines Over Nuke Leak', www.nytimes.com/aponline/2015/02/10/us/ap-us-nuke-repository-recovery.ht...
10. Albuquerque Journal Editorial Board, 22 Feb 2015, 'Editorial: Balking at fines won't help DOE reach a nuke solution', www.abqjournal.com/544790/opinion/balking-at-fines-wont-help-doe-reach-a...
11. Meg Mirshak, 24 March 2015, 'New Mexico group doubts WIPP repository will reopen by deadline, leaving waste stranded at Savannah River Site', http://chronicle.augusta.com/news/metro/2015-03-24/new-mexico-group-doub...

The European Commission's nuclear decision threatens our clean energy future

Nuclear Monitor Issue: 
#793
4426
30/10/2014
Jan Haverkamp, nuclear expert consultant at Greenpeace Central and Eastern Europe.
Article

The authorisation by the European Commission of massive subsidies for the UK's Hinkley Point C nuclear project is an enormous set-back for the country's development of a sustainable and clean energy future. Not only that, it may well stall the development of renewable energy and energy efficiency in large parts of Europe for the next decade.

Strong nuclear lobbies in countries like Bulgaria, the Czech Republic, Finland, Hungary, Lithuania, Poland, Romania and Slovakia are pinning their hopes for survival on the Hinkley project. The chance to funnel large sums from state coffers and consumers' pockets to these megalomaniac pet projects will cause frantic activity in those countries where old, centralised energy systems are still popular with politicians.

Plans for 19 new nuclear reactors in Europe are based in the east of the European Union. Excluding the 12 reactors planned in the UK, there are none so far in Western Europe. It's hard to believe that even multi-billion euro hand-outs could change the atmosphere in countries like Italy, Spain, Belgium, Germany, Sweden and Switzerland, who are all phasing out their nuclear fleets.

There is a small risk that this will lead to new operating nuclear reactors. Nuclear power has priced itself out of the market in Europe with massive construction costs (5000 € / kWe or more). It's simply impossible to find sufficient financial backing unless countries are willing to sell themselves out completely to Russia's Rosatom and Vladimir Putin's financial and energy moguls, as Hungary and Finland are currently doing.

More disturbing is the threat of the discussion about energy efficiency and clean (and cheaper) renewable energy sources being pushed into the margins again. Europe needs to start urgently harvesting its abundant reserves of clean energy and plans for new nuclear reactors stand in the way.

The one non-nuclear country in the midst of it all, Austria, has announced it will fight the Commission decision in the European Court. It stands a good chance, because this deal breaks too many EU rules. As my colleague, Greenpeace EU legal adviser Andrea Carta, says: "It's such a distortion of competition rules that the Commission has left itself exposed to legal challenges. There is absolutely no legal, moral or environmental justification in turning taxes into guaranteed profits for a nuclear power company whose only legacy will be a pile of radioactive waste."

Reprinted from: www.greenpeace.org/international/en/news/Blogs/nuclear-reaction/the-euro...

EU state aid victory

Nuclear Monitor Issue: 
#771
02/11/2013
Article

The European Commission (EC) has ruled out creating specific State Aid guidelines for nuclear power; guidelines which would facilitate increased public funding of nuclear power programs. A draft of new guidelines by the EC specifically addressed the possibility of allowing public support for nuclear power. However, that proposal has been withdrawn after protest from some European governments − e.g. Austria and Germany − and a strong civil society campaign.

A spokesperson for EU Competition Commissioner Joaquin Almunia said the decision not to proceed with guidelines for nuclear power did not make it illegal to use public money to help finance nuclear power: "This simply means that state aid notifications by member states will continue to be assessed directly under (EU) treaty rules and the standard in this field will be determined by the Commission's case practice.".[1]

European Commission spokesperson Antoine Colombani said on July 23: "State aid for nuclear power is currently not prohibited by EU rules: member states' plans in that respect are notified to the commission and assessed directly under the Treaty rules, in the absence of specific commission guidelines in this sector. The purpose of this assessment is to check that such subsidies do not unduly distort competition in the EU single market, as member states are of course free to make their own choices when it comes to nuclear power."[2]

Colombani noted that the EC is planning to adopt guidelines on state aid for energy and environmental protection next year. While the establishment of guidelines facilitating increased state aid for nuclear power has been excluded for now, the pro-nuclear forces will likely continue lobbying.

The inclusion of guidelines for state aid for nuclear power may have made it easier for the UK to secure EC approval under competition laws for the subsidies it is offering to EDF and other partners in the Hinkley Point C nuclear power project. However there are many variables and unknowns, and Hinkley will be a test case for the EC. A spokesperson for the UK Department of Energy and Climate Change said: "The Commission's draft guidelines have not been published yet. It is already possible to seek approval for aid for new nuclear, whether this is explicitly provided for in the new guidelines or not."[3]

State aid to renewable energy sources and energy efficiency is covered by an exemption in current guidelines for environmental state aid dating back to 2008.[4]

A draft report by the European Union Energy Director-General indicated that in 2011, 35 billion euros were spent on public subsidies for nuclear power, compared to 26 billion for fossil fuels and 30 billion for all types of renewable energy sources combined. The figures were not included in a subsequent draft.[5]

Several countries in central and eastern Europe are planning to expand or introduce nuclear power.[6] Speaking on behalf of the governments of four of these countries − Poland, Czech Republic, Hungary and Slovakia − Hungarian prime minister Viktor Orban made a stridently pro-nuclear speech in mid-October. The statement cautioned against over-regulation of nuclear power and called for the EU's stance on state aid for energy projects to be reconsidered "because in our view, nuclear energy is being discriminated against." He said the four nations "expect the European Union to facilitate the increase of Central Europe's nuclear capacity, rather than impede it."[7]

References:
[1] www.utilityweek.co.uk/news/rules-gap-makes-hinkley-point-c-test-case-for...
[2] www.ft.com/cms/s/0/acef27e8-eb1f-11e2-9fcc-00144feabdc0.html *
[3] www.reuters.com/article/2013/10/09/uk-britain-nuclear-aid-idUKBRE9980H82...
[4] www.energypost.eu/index.php/state-aid-for-nuclear-are-you-kidding/
[5] www.my-voice.eu
[6] www.dw.de/nuclear-power-on-the-rise-in-eastern-europe/a-17177810
[7] www.world-nuclear-news.org/NP-Dont_impede_our_nuclear_V4_tells_EU-151013...

More information:

 

In brief

Nuclear Monitor Issue: 
#717
08/10/2010
Shorts

EU: ITER budget 2011 cut.
Members of the European Parliament's budget committee on October 4, voted to cut planned funding for the ITER experimental nuclear fusion project in 2011. The budget committee adopted an amendment to cut the ITER budget by 57 million euro to Euro 304.76 million (US$419.77 million) in 2011 in a revision to the EU's research budget. The week before, the parliament's rapporteur on the budget, Polish center-right MEP, Sidonia Jedrzejewska, said it was difficult to find cuts in the research budget because of very tight limits in the long-term budget and the need for proposed increases in areas like entrepreneurship and innovation and other energy-related projects. MEPs agreed to compensate for increases in expenditure in these areas by making equivalent cuts in the ITER budget, based on the assumption that the fusion project, which is running behind schedule, would not need all the funds allocated to it in 2011. This did not go far enough for the Green group, which wants the ITER program scrapped. "The least costly option would be to abandon the project now before the main construction has started at all. All the more so, given the massive doubts as to the commercial viability of nuclear fusion, which even optimistic analysts agree will not be commercially functional before 2050... We are deeply concerned that the Council is planning to throw an additional Eur1.4 billion into the black hole that is the ITER budget in 2012 and 2013," German Green MEP Helga Trupel said.
Platts, 5 October 2010


Canada: 60 million for electricity not produced.
The people of Ontario paid Bruce Power nearly Can$60 million in 2009 to not generate electricity for the province. According to the Toronto based CTV news station, a deal between the nuclear generator, a private company, and the Ontario Power Authority (OPA) sets out a guarantee for a certain amount of power to be purchased -- even if it's not needed; the socalled ‘surplus baseload generation’. The OPA agreed to pay Bruce Can$ 48.33 (US$ 47.67 or 34.48 euro) for each megawatt hour of electricity that was not needed. In 2009, demand for electricity was down in Ontario, largely as a result of the recession. This meant Bruce's nuclear reactors weren't operating at full capacity. As a result, the OPA paid Bruce power Can$ 57.5 million for about 1.2 terawatt hours of electricity that was not produced. A terawatt is a million megawatts. An OPA spokesperson said the arrangement is like having a fire station: “they aren't needed all the time, but one must still pay to keep it open”. A Bruce Power spokesperson said the company is simply fulfilling its side of the deal.
CTV Toronto, 21 September 2010


Australia: no NT Government support for Angela Pamela mines.
Australia’s Northern Territory Government would not support the establishment of a uranium mine at Angela Pamela, 20km south of Alice Springs, it said 27 September. Paladin Energy Ltd, which holds an exploration licence for the Angela and Pamela uranium deposits with joint-venture partner Cameco Australia, says it is “surprised” by the announcement. Although the project is still at the exploration phase, Paladin says it has already spent “many millions of dollars,” relying on encouragement and positive support from the government.  Chief minister Paul Henderson said that the close proximity of the mine to tourist centre Alice Springs “has the very real potential to adversely affect the tourism market and the Alice Springs economy.” According to Nuclear Engineering International, the decision does not mean that the government is against development of uranium mines elsewhere. Ultimately approval for the establishment of a uranium mine will be the responsibility of the Commonwealth Government.
Nuclear Engineering International, 29 September 2010


Kuwait: opposition to nuclear fantasies.
A Kuwaiti lawmaker questioned plans by the oil-rich Gulf emirate to build a number of nuclear reactors for power generation and demanded information about the expected costs. In a series of questions to Prime Minister Sheikh Nasser Mohammad al-Ahmad al-Sabah on September 22, the head of parliament's financial and economic affairs panel, Yussef al-Zalzalah, asked if sufficient studies have been made on the issue. He also demanded to know the size of the budget allocated for the project and what has been spent so far. In its drive to develop nuclear energy for peaceful use, particularly to generate electricity, the Gulf state set up Kuwait National Nuclear Energy Committee (KNENEC) in 2009 headed by the prime minister. The emirate has signed memoranda of cooperation with France, the United States, Japan and Russia and, in April, upgraded its deal with France to the level of a full agreement.

KNNEC secretary general Ahmad Bishara said earlier in September that Kuwait will sign a fifth memorandum of cooperation with South Korea, which last year clinched a multi-billion-dollar deal with the neighboring United Arab Emirates. Zalzalah also inquired about press statements that Kuwait planned to build four 1,000 MW reactors by 2022, and if sufficient studies were made, and demanded documents related to the issue. Bishara has said Kuwait expects electricity demand to double in 10 to 15 years from the current 11,000 MW, which would make the country face a serious power shortage. KNNEC is conducting a series of studies on the cost of power generation by nuclear energy, setting up legal frameworks, reviews on potential sites for nuclear reactors and human resources, Bishara said. These studies are expected to be completed before the end of the year, and then the KNNEC will make the decision if Kuwait is to go nuclear, he said.

It sounds that even in a country where absolutely no civil society exits, there is still opposition to nuclear power.
AFP, 23 September 2010


Greenpeace takes radioactive waste to the European Parliament.
On October 7, Greenpeace delivered radioactive waste to the door of the European Parliament to remind MEPs in their last plenary session before considering a new nuclear waste law, that there is no solution to nuclear waste. Two qualified Greenpeace radiation specialists delivered four radioactive samples in two concrete and lead-lined containers. Dozens of trained Greenpeace volunteers zoned off areas with tape before handcuffing themselves in rings around the containers to ensure their safety.

Four samples of radioactive waste were collected from unsecured public locations: Sellafield beach in the UK; the seabed at la Hague in France; the banks of the Molse Nete River in Belgium; and from the uranium mining village of Akokan in Niger. Despite their danger, the materials are not classified as radioactive waste when discharged or left in the open environment as they stem from so-called 'authorised emissions' or from uranium mining. Yet, when collected and put in a container, the samples are classified as radioactive waste that needs to be guarded for centuries until decayed. Other nuclear waste, such as that waste from decommissioning and spent nuclear fuel, is even more dangerous and must be stored for hundreds of thousands of years. There is no way of securing this waste over such long time periods with guaranteed safety, and it continues to pile up all over the world.

Parliament will consider a nuclear waste law for Europe in November. But early drafts exclude the type of radioactive waste Greenpeace delivered. Immediately upon arrival, Greenpeace informed the Belgian national waste authority, which is responsible for containing such waste.
Greenpeace press release, 7 October 2010

Small Modular Reactors: no solution for costs, safety and waste problems

Nuclear Monitor Issue: 
#717
6091
08/10/2010
IEER & PSR
Article

The same industry that promised that nuclear power would be "too cheap to meter" is now touting another supposed cure-all for America's power needs:  the small modular reactor (SMR).  The small modular reactor is being pitched by the nuclear power industry as a sort of production-line auto alternative to hand-crafted sports car, with supposed cost savings from the "mass manufacturing" of modestly sized reactors that could be scattered across the United States on a relatively quick basis. The facts about SMRs are far less rosy. 

Proponents of nuclear power are advocating for the development of small modular reactors (SMRs) as the solution to the problems facing large reactors, particularly soaring costs, safety, and radioactive waste.  “Small modular reactors” are defined by the US Department of Energy (DOE) as reactors that would produce 300MWe or less and are made in modules that can be transported. Unfortunately, small-scale reactors can’t solve these problems, and would likely exacerbate them.

There has been a proliferation of proposed Small Modular Reactor designs, but none have applied for certification by the Nuclear Regulatory Com­mission (NRC) yet. The NRC says that it expects to receive its first SMR design certification appli­cation in 2012. The factsheet addresses SMR designs for which the NRC may receive design certification applications in FY2011. It does not include some designs that are being researched but that are not on the NRC list, notably the travelling wave reactor. IEER will produce a separate report later in 2010 on this reactor.

Inherently more expensive?
SMR proponents claim that small size will en­able mass manufacture in a factory, enabling considerable savings relative to field construc­tion and assembly that is typical of large reac­tors. In other words, modular reactors will be cheaper because they will be more like as­sembly line cars than hand-made Lamborghi­nis.

In the case of reactors, however, several offsetting factors will tend to neutralize this advantage and make the costs per kilowatt of small reactors higher than large reactors. First, in contrast to cars or smart phones or similar widgets, the materials cost per kilowatt of a reactor goes up as the size goes down. This is because the surface area per kilowatt of capacity, which dominates materi­als cost, goes up as reactor size is decreased. Similarly, the cost per kilowatt of secondary containment, as well as independent systems for control, instrumentation, and emergency management, increases as size decreases. Cost per kilowatt also increases if each reac­tor has dedicated and independent systems for control, instrumentation, and emergency management. For these reasons, the nuclear industry has been building larger and larger reactors in an effort to try to achieve economies of scale and make nuclear power economically competitive.

Proponents argue that because these nuclear projects would consist of several smaller reactor modules instead of one large reactor, the construction time will be shorter and therefore costs will be reduced. How­ever, this argument fails to take into account the implications of installing many reactor modules in a phased manner at one site, which is the proposed approach at least for the United States. In this case, a large contain­ment structure with a single control room would be built at the beginning of the project that could accommodate all the planned capacity at the site. The result would be that the first few units would be saddled with very high costs, while the later units would be less expensive.

The realization of economies of scale would depend on the construction period of the entire project, possibly over an even longer time span than present large-reactor projects. If the later-planned units are not built, for instance due to slower growth than anticipated, the earlier units would likely be more expensive than present reactors, just from the diseconomies of the containment, site preparation, instrumentation and control system expenditures. Alternatively, a contain­ment structure and instrumentation and control could be built for each reactor. This would greatly increase unit costs and per kilo­watt capital costs. Some designs (such as the PBMR) propose no secondary containment, but this would increase safety risks.

These cost increases are unlikely to be offset even if the entire reactor is manufac­tured at a central facility and some economies are achieved by mass manufacturing com­pared to large reactors assembled on site.

Furthermore, estimates of low prices must be regarded with skepticism due to the history of past cost escalations for nuclear reactors and the potential for cost increases due to require­ments arising in the process of NRC certifica­tion. Some SMR designers are proposing that no prototype be built and that the necessary licensing tests be simulated. Whatever the process, it will have to be rigorous to ensure safety, especially given the history of some of proposed designs.

The cost picture for sodium-cooled reac­tors is also rather grim. They have typically been much more expensive to build than light water reactors, which are currently estimated to cost between $6,000 and $10,000 per kilowatt in the US. The costs of the last three large breeder reactors have varied wild­ly.

In 2008 dollars, the cost of the Japanese Monju reactor (the most recent) was $27,600 per kilowatt (electrical); French Superphénix (start up in 1985) was $6,300; and the Fast Flux Test Facility (startup in 1980) at Hanford was $13,800. This gives an average cost per kilowatt in 2008 dollars of about $16,000, without taking into account the fact that cost escalation for nuclear reactors has been much faster than inflation. In other words, while there is no recent US experience with construction of sodium-cooled reactors, one can infer that (i) they are likely to be far more expensive than light water reactors, (ii) the financial risk of building them will be much greater than with light water reactors due to high variation in cost from one project to another and the high variation in capacity fac­tors that might be expected.

Even at the lower end of the capital costs, for Superphénix, the cost of power generation was extremely high — well over a dollar per kWh since it operated so little. Monju, despite being the most expensive has generated essentially no electricity since it was commissioned in 1994. There is no comparable experience with potassium-cooled reactors, but the chemi­cal and physical properties of potassium are similar to sodium.

Increased safety and proliferation problems
Mass manufacturing raises a host of new safety, quality, and licensing concerns that the NRC has yet to address. For instance, the NRC may have to devise and test new licensing and inspection procedures for the manufacturing facilities, including inspec­tions of welds and the like. There may have to be a process for recalls in case of major de­fects in mass-manufactured reactors, as there is with other mass-manufactured products from cars to hamburger meat. It is unclear how recalls would work, especially if transpor­tation offsite and prolonged work at a repair facility were required.

Some vendors, such as PBMR (Pty) Ltd. and Toshiba, are proposing to manufacture the reactors in foreign countries. In order to reduce costs, it is likely that manufacturing will move to countries with cheaper labor forces, such as China, where severe quality problems have arisen in many products from drywall to infant formula to rabies vaccine.

PBMR

Despite 50 years of research by many countries, including the United States, the the­oretical promise of the PBMR has not come to fruition. The technical problems encountered early on have yet to be resolved, or apparent­ly, even fully understood. PMBR proponents in the US have long pointed to the South African program as a model for the US. Ironically, the US Department of Energy is once again pursuing this design at the very moment that the South African government has pulled the plug on the program due to escalating costs and problems.

Other issues that will affect safety are NRC requirements for operating and security personnel, which have yet to be determined. To reduce operating costs, some SMR vendors are advocating lowering the number of staff in the control room so that one operator would be responsible for three modules. In addition, the SMR designers and potential op­erators are proposing to reduce the number of security staff, as well as the area that must be protected. NRC staff is looking to design­ers to incorporate security into the SMR de­signs, but this has yet to be done. Ultimately, reducing staff raises serious questions about whether there would be sufficient personnel to respond adequately to an accident.

Of the various types of proposed SMRs, liq­uid metal fast reactor designs pose particular safety concerns. Sodium leaks and fires have been a central problem — sodium explodes on contact with water and burns on contact with air. Sodium-potassium coolant, while it has the advantage of a lower melting point than sodium, presents even greater safety issues, because it is even more flammable than molten sodium alone. Sodium-cooled fast reactors have shown essentially no posi­tive learning curve (i.e., experience has not made them more reliable, safer, or cheaper).

The world’s first nuclear reactor to generate electricity, the EBR I in Idaho, was a sodium-potassium-cooled reactor that suffered a partial meltdown. EBR II, which was sodium-cooled reactor, operated reasonably well, but the first US commercial prototype, Fermi I in Michigan had a meltdown of two fuel assem­blies and, after four years of repair, a sodium explosion. The most recent commercial prototype, Monju in Japan, had a sodium fire 18 months after its commissioning in 1994, which resulted in it being shut down for over 14 years. The French Superphénix, the largest sodium-cooled reactor ever built, was designed to demonstrate commercialization. Instead, it operated at an average of less than 7 percent capacity factor over 14 years before being permanently shut.

In addition, the use of plutonium fuel or uranium enriched to levels as high as 20 percent — four to five times the typical enrichment level for present commercial light water reactors — presents serious proliferation risks, especially as some SMRs are proposed to be exported to developing countries with small grids and/or installed in remote locations. Security and safety will be more difficult to maintain in coun­tries with no or underdeveloped nuclear regulatory infrastructure and in isolated areas. Burying the reactor underground, as proposed for some designs, would not sufficiently address security because some access from above will still be needed and it could increase the environmental impact to groundwater, for example, in the event of an accident.

More complex waste problem
Proponents claim that with longer opera­tion on a single fuel charge and with less production of spent fuel per reactor, waste management would be simpler. In fact, spent fuel management for SMRs would be more complex, and therefore more expensive, because the waste would be located in many more sites. The infrastructure that we have for spent fuel management is geared toward light-water reactors at a limited number of sites. In some proposals, the reactor would be buried underground, making waste retrieval even more complicated and com­plicating retrieval of radioactive materials in the event of an accident. For instance, it is highly unlikely that a reactor contain­ing metallic sodium could be disposed of as a single entity, given the high reactivity of sodium with both air and water. Decom­missioning a sealed sodium- or potassium-cooled reactor could present far greater technical challenges and costs per kilowatt of capacity than faced by present-day above-ground reactors.

Not a climate solution
Efficiency and most renewable technologies are already cheaper than new large reactors. The long time — a decade or more — that it will take to certify SMRs will do little or noth­ing to help with the global warming problem and will actually complicate current efforts underway. For example, the current sched­ule for commercializing the above-ground sodium cooled reactor in Japan extends to 2050, making it irrelevant to addressing the climate problem. Relying on assurances that SMRs will be cheap is contrary to the experi­ence about economies of scale and is likely to waste time and money, while creating new safety and proliferation risks, as well as new waste disposal problems.

(This is a shortened version of the factsheet on Small Modular Reactors produced by Arjun Makhijani and Michelle Boyd for the Institute for Energy and Environmental Research (IEER) and Physicians for Social Responsibility (PSR), September 2010. It is available at: www.ieer.org/fctsheet/small-modular-reactors2010.pdf)

Contact: Leslie Anderson, +1 703 276-3256
Mail: [email protected]
Or: [email protected]

About: 
Institute for Energy and Environmental ResearchPSR

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