The Hard Landing For Nuclear Power

HYPE is very much like a drug induced high – makes you feel you are floating on air as long as it lasts, but the landing can be quite hard. For those hyping up the nuclear renaissance, the landing is proving hard indeed. The current costs of nuclear plants are not $2000 per KW as predicted earlier by the nuclear lobby, but “double to quadruple earlier rough estimates (Wall Street Journal, May 8, 2008 — New Wave of Nuclear Plants Faces High Costs). If we take the current rate of the dollar, it means the current cost of nuclear plants in the US are of the order of Rs 30-35 crore per MW, or six to eight times the cost of coal-fired plants. At this costs, the cost per unit considering just the fixed cost and no fuel or operating costs, will be between Rs 7 to Rs 8 per unit. And to this we have to add the cost of fuel, which is typically about 25 per cent of the cost per unit. At these costs, the nuclear renaissance is fast disappearing in the US and other western countries, with only India as a possible dupe for the western nuclear industry.

For the readers of these columns, it must be quite a shock that even our earlier figures of imported nuclear plant capital costs have been so far out from the figures we are seeing today. We had earlier indicated that nuclear power would be around Rs 11 to 12 crores per MW, taking into account the interest during construction. Even then, we had concluded that imported nuclear plants were not a good choice in terms of cheap electricity. So what has changed in the last year or so when we had made these estimates? Why are the figures we are seeing today so much higher?

Our earlier figures were based largely on what the manufacturers of nuclear plants had stated as the cost of their equipment. The figures they were talking about then were in the range of $2,000 per KW. What we are seeing now are the actual plant costs, as utilities file their plans with the regulatory authorities in the US and negotiate the final prices with the vendors. The shock for everybody is that the new plants are found to be around $7 billion for a 1,100 MW reactor or a whopping $ 7,000 per KW. This is the figure that Georgia Power has negotiated for two new units for its Vogtle Plant. Georgia Power has contracted to pay $14 billion for two Westinghouse AP1000 units, each of 1,100 MW capacity. Florida Light and Power has submitted its figures to the Florida Utilities Commission and has indicated that each of its two units will cost between $6 to $9 billion. The only reason that despite these prices, some companies are interested in building these plants, are the $20 billion subsidies that the Bush Energy Plan provides for the early nuclear birds in the US. But even after all these massive subsidies, it is very doubtful that these plants would actually take off. The investors have not forgotten the earlier days where routine price and time overruns for nuclear plants earned the nuclear industry a bad name. It was in the same Vogtle plant that the costs of the earlier two units had ballooned to ten times their initial estimates. This time around, the costs have almost quadrupled even before the construction of the plant has even started. More the things change, the more they are the same, at least for the nuclear industry.

BALLOONING COSTS LED TO FAILURE

For those who know the reality of nuclear power, the nuclear industry’s failure in the US was not due to environmental opposition after the Three Mile Island accident or the Chernobyl disaster. Undoubtedly, they also contributed to the fall of nuclear power in the 80’s. But the real culprit was the ballooning costs of new plants along with their taking decades to build. It was the investors that pulled the plug on nuclear power, and not so much the people. The peoples’ resistance started to build when the electricity bill was hit by high cost of nuclear power. But by that time, the writing was already on the wall – nuclear power was just too expensive compared to other sources.

The US has not licensed a new plant for the last 29 years. The last plant it commissioned was in 1996. Those pushing the imported reactor line here, have argued that the French plants are more economical and are a success story compared to their US cousins. So let us look at the French story as it is being played out today.

It is true that France, lacking any other source of fuel, decided to invest in nuclear power in a big way. It is similar to the reason why Japan chose to build a number of nuclear plants. These were policy decisions taken for energy security reasons, and not because nuclear power was cheap. Even so, let us look at the French technology and its costs today.

Areva, France is building two nuclear plants in Western Europe today. One is the Olkiluoto-3 plant in Finland and the other in Flamanville, France, both of 1600 MW capacity. The Finnish plant initially was ordered for $4.4 billion and has already seen a cost overrun of more than 25 per cent and time over run of 2 years in the first two years of its construction. Already, there are huge commercial issues between the owners and Areva regarding who is to foot the additional cost bill. At these costs, the cost per MW is in the range of Rs 20 crore per MW or about 4-5 times that of coal-fired plants. This is of course better than the US figures quoted above, but hardly inspires too much confidence in these plants.

IMPACT OF CURRENT CRISIS

The current financial meltdown has already affected the so-called nuclear renaissance deeply. Money now, as we know, is in short supply as credit has dried up. With financial sector in shambles, not only in the US but all over the world, there is no way that nuclear industry is going to get investors to put in money for new nuclear plants. The reasons are quite simple. Nuclear industry has a history of promising cheap power and delivering very expensive plants. The current experience is very much on par with what has been its earlier infamous history. This brings a huge question mark regarding the risks of nuclear power. That only adds to the very high cost of nuclear plants we are seeing and the already difficult economics of nuclear power, The chances of a new rosy chapter of nuclear industry in the US is effectively over.

Western Europe is no different as many more plants there are slated to be closed down, while very few plants are being proposed. Even UK and France, who have a number of older nuclear plants, are finding the costs of new plants to replace them quite daunting.

Questions have been asked why such a sharp increase in costs of new nuclear plants? While it is true that the increasing cost of raw materials – steel, cement, etc – is a contributory reason to this rise in nuclear plant costs, the major portion of plant costs is not raw material costs. While painting a rosy future for nuclear plants, the equipment manufacturers were projecting only their equipment costs and did not take into account other costs. There are a host of other costs that go into a plant, and not only equipment. These were not factored in. To add to the nuclear industry woes, the number of suppliers of components has come down sharply. For instance, there are possibly only two companies that can deliver the forgings of the size required for the current generation of plants. That also pushes up costs. And perhaps there was a lot of old fashioned fudging earlier to persuade the gullible that nuclear power is economically viable.

What does all this mean for the rest of the world? If we look at the list of nuclear plants being built today, the majority is in China and India – together these two countries are building 19 of the 27 new plants being built. Only three are being built in western Europe and Japan combined. The rest are largely in the CIS states, which have a history of cheaper plants. In China and India, there is an indigenous industry, which can deliver nuclear plants at a fraction of the cost of their western counter parts. This has helped China strike a better bargain for their imported reactors. Even after factoring this in for India, it is hard to imagine that the imported GE or Westinghouse reactors will be even remotely competitive with indigenous PHWR technology, which we are now scaling up to 700 MW. If India is serious of providing a thrust to its nuclear program, it should focus primarily on indigenous PHWRs, followed by Fast Breeder reactors and then the thorium based fuel reactors. Any other route will bankrupt India completely.

GAME UP FOR PRIVATE PLAYERS

The big private players in India, along with the nuclear industry abroad have been rooting for the India-US nuclear deal. They believed that once the deal was through, they could enter nuclear power in a big way. For this to happen, there were two crucial conditions that needed to be fulfilled. The first was that all liability had to be taken over by the government, in the classical way that capital operates. Profits are theirs, the losses and risks should be underwritten by the State. India, which had earlier not agreed with the Convention on Liability, has now agreed to ditto the line exempting all private suppliers and operators from liability for an accident. If a Bhopal type accident happens with a nuclear plant, the suppliers and private operators will not be liable, only the government will. Of course, there has to be a lot of changes to Indian law – the Atomic Energy Act — to give effect to all this and permit private players.

The second issue is financing. The private players believed that there was easy international financing available for nuclear plants. With nuclear equipment makers pitching in, the big bucks were there for the taking – or so the private players believed. The picture has changed radically from that – money is no longer going to be available. Even the private thermal power plants are finding it difficult to affect financial closure, let alone high cost and high-risk nuclear plants.

To add to the woes of private players, there is now a clause in the Electricity Act that demands that all new plants must compete in terms of tariff. Unless this Act is amended, there is no way that private nuclear plants are going to be cost competitive. If there is any chance for nuclear plants in India, the private route is now over, bar the shouting. There are still noises coming out of the private players regarding the possibility of nuclear plants, but privately they all accept that the game for private nuclear power is virtually over.

The only way that nuclear power with imported equipment can continue in India is if the government, under Manmohan Singh, decides to underwrite all its costs and provides a huge subsidy for imported equipment. This is the only way that 10,000 MW of imported reactors, which India has asked American companies to quote for can materialise. A possibility, which the Indian people will have to spike. There is no way a Manmohan Singh government can do today what earlier Congress and BJP governments had done with Enron. One Enron is enough – the country will not accept more in the guise of the India-US nuclear deal.