EU Energy Policy Blog

In late May, Citigroup released a report titled New Nuclear – the Economics and Politics concluding that prospects for equity investors has further deteriorated.

It lists rising nuclear construction costs and more positive long-term prospects for availability and price of natural gas among the reasons why the nuclear option remains an expensive proposition. While the Citigroup’s study is primarily focused on the UK and the continental Europe, the implications are equally applicable to the US.

Citigroup reckons that it is unlikely for a new reactor built in Europe to cost less than €3,000/kW based on a €4.8 billion price tag for a 1,600 MW station. Moreover, these costs have been – and continue to be – rising, so the ultimate cost can conceivably be considerably higher. Adding €18/MWh for operating costs and making further assumptions on construction to begin in 2013 and the plant to be completed by 2019, it figures a new nuclear reactor would need a price of €76.7/MWh to break even. This compares with €63/MWh for new coal plant, €65/MWhr for new gas-fired plant and somewhere in between for offshore wind farm. Clearly, without additional government subsidies or something else – perhaps a price on carbon emissions – few private investors would choose the nuclear option over alternatives, especially considering the large lump-sum upfront investment and the long and uncertain construction period associated with nuclear projects.

For the nuclear option to have a fighting chance, Citigroup reckons one needs a carbon price of €80 per tonne, well above its current price of around €15. Citigroup’s advise to private investors is to stay clear of nuclear option until there is clarity on the price of carbon – and that may be a long wait (see article on fate of climate change negotiations in this issue).

The numbers may be different for the US, but the nuclear option rarely comes up as the most cost-effective, unless a hefty price is assigned to carbon – and that is even less likely for the US than for Europe. The latter at least has an existing market price for carbon due to its emission trading scheme (ETS). Moreover, in the US, as in Europe, the issue of nuclear waste continues to dent prospects for a nuclear revival.

Any hope for a permanent waste repository evaporated after the US Department of Energy (DOE) canceled plans for Yucca Mountain nuclear waste repository in Nevada last year. The industry, which continues to pay $770 million a year towards a fund for this purpose, is now considering to stop making the payments – the matter has gotten hopelessly mired in regulatory and legal hurdles. Ellen Ginsberg, the Nuclear Energy Institute’s general counsel – a nuclear lobbying group based in Washington, DC, says, “We don’t want to pay any more fees until the government has a waste plan.” In other words, no waste pickup, no fees. Sounds reasonable.

F.P. Shioshansi

This post is extracted from EEnergy Informer, July 2010 issue.

This entry was posted on Wednesday, June 30th, 2010 at 11:34 am and is filed under Nuclear Power. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.