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Nuclear Does Not Make Economic Sense Say Studies

Julio Godoy

Nuclear power plant Dukovany, Czech Republic. The enormous technical and financial risks involved in the construction and operation of new nuclear power plants make them prohibitive for private investors, rebutting the thesis of a renaissance in nuclear energy, say several independent European studies. (Photo taken by Petr Adamek - Wikimedia Creative Commons License)

BERLIN - The enormous
technical and financial risks involved in the construction and
operation of new nuclear power plants make them prohibitive for private
investors, rebutting the thesis of a renaissance in nuclear energy, say
several independent European studies.

The risks include high construction costs, likely long
delays in building, extended periods of depreciation of equipment
inherent to the construction and operation of new power plants and the
lack of guarantees for prices of electricity.

Adding to these is the global meltdown and the consequent cautious behavior of investors as also fiscal and revenue difficulties of
governments in the industrialized countries, say the studies.

In the most recent analysis on the feasibility of new nuclear power
plants, the Citibank group concludes that some of "the risks faced by
developers ... are so large and variable that individually they could
each bring even the largest utility company to its knees financially."

The Citibank paper, titled ‘New Nuclear - The Economics Say No', lists
five major risks developers and operators of new nuclear power plants
must confront. These risks are planning, construction, power price,
operational, and decommissioning. According to the study, most
governments in industrialized countries today have only "sought to
limit the planning risk" for investors.

But, while it is "important for encouraging developers to
bring forward projects, [planning] is the least important risk
financially," the survey goes on. According to the Citibank group, the
most important risks are construction, power price, and operational.
The paper dubs these risks "the corporate killers."

Environmental activists would add safety issues as another
major risk - both the handling of highly radioactive nuclear waste and
the likelihood of accidents at nuclear power stations.

The Citibank bases its conclusions on estimated costs of construction
and operation and in the necessity of setting too high electricity
prices for consumers, and which have seldom been reached in the past.

According to the paper, the costs of constructing a new
nuclear power plant range between 2,500 to 3,500 euros (3,420 US
dollars) per kilowatt hour.

For an average 1,600 megawatt (Mw) unit, such a range leads
to construction costs of up to 5.6 billion euros (7.6 billion dollars).
"We see very little prospect of these costs falling and every
likelihood of them rising further," the study says.

To meet such costs, the operator would need a guarantee of
constant electricity prices around 65 euros (88.9 dollars) per Mw/hour
for a long period of time.

The Citibank paper cites the British case where prices at that level on
a sustained basis have occurred only 20 months during the last 115
months. "It was a sudden drop in power prices that drove British Energy
to the brink of bankruptcy in 2003," the survey recalls.

Another survey of the so-called renaissance of nuclear power,
carried out by physicist Christoph Pistner for the German Institute for
applied ecology, comes to similar conclusions.

In the paper ‘Renaissance of nuclear energy', Pistner argues
that developers "must finance in advance and for an unusual long period
of time the huge construction costs of a new nuclear power plant."

In an interview with IPS, Pistner said that most power plants
have to be running for at least 20 years to reach the operation period
free of depreciation and impairments costs. Only after this period, a
nuclear power plant starts yielding returns.

In addition, Pistner said, developers of nuclear power plants are
confronted with yet another risk: "The industry disposes of little
references on the buildings costs of new nuclear power plants because
there are very few units in construction."

Actually, there is a new nuclear power plant that serves as a warning
example of the risks involved in such a project: the nuclear power
plant of Olkiluoto 3 in Finland, under construction since 2004.

Although the plant was supposed to have started delivering
electricity in May 2009, its completion was postponed several times in
the past two years. On Feb. 11, the Olkiluoto 3 project manager Jouni
Silvennoinen announced in Helsinki that the plant's start "may be
pushed back further than June 2012, which is the current deadline
confirmed by the equipment manufacturer."

The manufacturer is the French state-owned company AREVA. The plant was ordered by the Finnish company TVO.

Olkiluoto 3 is also facing an explosion of construction costs.
Initially, it was estimated that the plant's construction would cost
three billion euros (4.1) - but now the bills amount to well over 5.3
billion euros (7.2 billion dollars). How much the plant is actually
going to cost remains unclear.

These costs must be added to the revenues losses TVO had budgeted as
electricity sales, but which were never realized due to the non
operation of the plant.

The delays in completion and the explosion of costs have led to
litigation between the Finnish operator TVO and the manufacturer AREVA.

In yet another critical appraisal of the feasibility of new nuclear
power plants, French energy expert Thibaut Madelin says that the
uncertainties linked to the construction costs of such plants have been
magnified by the global financial crisis, which makes such huge
investments unlikely.

Madelin said that construction delays of nuclear power plants
constitute the central argument against them. "You can build a combined
cycle gas turbine with a capacity of 800 Mw in four years, for a
construction cost of some 550 million euros (752.4 million dollars),"
Madelin told IPS.

"But for a nuclear power plant of 1,600 Mw, you need at least
eight years, and a construction budget of up to six billion euros (8.2
billion dollars)," Madelin added. "That means that the investor of a
new nuclear power plant would start seeing some money only eight years
after she invested a huge amount of money."

According to Madelin, "if the construction of a nuclear power
plant lasts more than 10 years, the project becomes a financial
catastrophe." Figures by the International Atomic Energy Agency (IAEA)
say that construction delays jumped from 64 months (more than five
years) to 146 months (more than 12 years) between 1976 and 2008.

In a recent commentary published by the IAEA, Sharon
Squassoni, researcher at the U.S. Carnegie Endowment for International
Peace, also concluded that the financial crisis and the construction
costs constitute almost insurmountable obstacles to the renaissance of
nuclear power.

"The current economic crisis could make financing nuclear
power plants particularly difficult," Squassoni wrote. "Financing costs
account for between 25 and 80 percent of the total cost of construction
because nuclear power plants take much longer to build than

For example, wind plants require 18 months to build, combined cycle gas
turbines need 36 months, but nuclear power plants take at least 60
months, Squassoni noted.

Squassoni warned that the global tightening of risk management
standards in the wake of the current economic crisis could imperil the
nuclear industry, "in particular, because a reactor entails such a
large investment (between five billion and 10 billion dollars per
plant) relative to the typical financial resources of electric

The Citibank paper, referring to the Olkiluoto 3 plant, points
out that cost overruns and time slippages of even a fraction seen by
TVO and AREVA would be more than enough to destroy the equity value of
a developer's investment "unless these costs can be passed through
somehow", an euphemism for state subsidies.

"Given the scale of these costs, a construction program that goes
badly wrong could seriously damage the finances of even the largest
utility companies," the Citibank survey says.

The Citibank survey concludes that without taxpayers money
there is "little if any prospect that new nuclear stations will be
built ... by the private sector unless developers can lay off substantial
elements of the three major risks. Financing guarantees, minimum power
prices, and/or government-backed power off-take agreements may all be
needed if stations are to be built."

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