When will nuclear add up?

It was economics that killed the nuclear industry and economics that could revive it. Is that good news for the industry?

Will Europe and the USA start investing again in nuclear power? The debate is in full flow and it is worth looking again at why the first rush to build nuclear came to such a sudden end.

The accident at Chernobyl in 1986 certainly put the final nail in nuclear’s coffin and it caused an immediate end to the nuclear programme in Italy and Austria. But the real slowdown in the industry had begun years before Chernobyl, and years before the Three Mile Island accident hit the headlines in 1979. As figures from the US Nuclear Energy Institute make clear (see Figure 1), enthusiasm for nuclear power in its largest market, the USA, was fading by the mid 1970s and by the latter half of the decade orders and construction permits had slowed and many orders were being cancelled. The reason was that the economics were simply not as attractive as they first appeared. That’s not entirely bad news for the industry; it suggests that if the economics worked, nuclear would be in favour again. The question for 2005 is: is nuclear economic?

Figure 1. US nuclear units ordered and permitted Source: Nuclear Energy Institute
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There is good news from the US. Many of its plants are providing better returns than ever before, due in part to better operation. For example, scheduled maintenance outages that in decades past could run up to and over a hundred days are now around the 40-day mark (see Figure 2). Some operators do even better and European plants can schedule outages less than 20 days. So the plants are making power – and income – for much more of the time. And since deregulation began in the US power market in the 1990s almost all the nuclear plants have changed ownership, so it seems the question of whether a private utility would ever invest in a nuclear plant has been answered with a firm positive.

Figure 2: US nuclear refuelling outage days Source: Nuclear Energy Institute
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The bad news comes from the UK. British Energy has struggled to get good performance out of its aging plant, and struggled equally in getting a good return from the privatized market, which in its new incarnation rewards flexible and reliable suppliers. British Energy found itself selling into the spot market just as prices tumbled, and looking for replacement power to fill long term contracts as prices were rising.

The real bad news for nuclear? Power markets are tending towards the British model.

Utilities are changing too. Publicly owned monoliths with a huge captive customer base to serve could look with an eye to the far future. Nuclear, like hydro, has a huge capital cost but relatively low running and fuel costs, and over a 40-year lifetime with captive markets that can look like a good deal – over 60 years it looks even better. But that kind of certainty is rarely available now. Players in the UK market have complained, for example, that forward price curves provide no basis for investment further than five years in the future. That can make it hard to invest in a gas turbine plant that can be built in less than two years – hardly as long as the public enquiry required to agree a licence for the UK’s last nuclear plant, at Sizewell B. Add to that five or six years of construction and it begins to look like a long time before nuclear electricity is being sold and investors are getting a return on their investment. What is more, since Sizewell B was built, technology has moved on. Building an identical station would mean using a design that is tried and tested, but one that is rooted in the early 1980s. Turning to more modern technology would mean licensing a new design – another time consuming and expensive process.

This problem has not been solved in the US. The nuclear stations that have changed hands have been sold as operating stations, offering immediate income for buyers and likely to do so for decades. But the US does have a programme that should put the building blocks in placed for a revived industry. It has streamlined the licensing procedure and is developing and licensing new advanced reactor designs. But in the process it has invested billions of US government dollars, a route hardly likely to be acceptable in Europe.

Private nuclear appears to be working in Finland. But in reality the new Finnish plant uses a structure successfully employed at another of the country’s nuclear units: major energy users set up a not-for-profit company and effectively sign cost-plus power purchase agreements for the life of the plant. It is not a market-based approach and – perhaps surprisingly – has not been copied elsewhere.

Nuclear may be back on the agenda, but in deregulated power markets it is the potential investors that need to be convinced that it is a good deal. What might they be looking for? A licensed design; a site; a reliable construction schedule; a long term power purchase agreement; a waste site; even a regulatory regime giving some benefit for providing CO2-free power. In most countries I make that none out of six. There is a long way to go.

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