The energy paper’s peculiar logic about nuclear power

Crikey's Bernard Keane has a look at energy minister Martin Ferguson's inexplicable obsession with expensive and unnecessary nuclear power- The energy paper’s peculiar logic about nuclear power.

Energy Minister Martin Ferguson’s long-awaited energy white paper — released yesterday in draft form — adopts a peculiar approach to domestic nuclear power.

As befits the product of a Labor government, it makes clear nuclear power is off the agenda for the time being. “The Gillard government unambiguously does not support the use of nuclear energy in Australia,
noting that at present there is no necessary social consensus over this technology nor is there currently a compelling economic case …” the draft says.

If you subscribe to all those theories about how Ferguson is a secret agent of the uranium industry, you might almost see in that phrasing an attempt to suggest that, but for the lack of a “social consensus”, nuclear power would be on the table for consideration.

But there’s more: the draft goes on to suggest that, in the event “new low‐emissions baseload energy or energy storage technologies” can’t be commercialised over the next 15 years, a long-term switch to nuclear might need to be reconsidered. And in doing so, the draft is realistic:

“Given the long lead times for plant approval and construction and for development of appropriate regulatory frameworks, this would necessitate a decision to move ahead considerably in advance of expected deployment — lead times would be at least 10 years, with 15 years more probable. If this were the case, such a decision would need to be taken by the latter part of this decade if deployment was required by 2030 or 2035.”

That is, to get a domestic nuclear power industry up and running by the 2030s we’d have to be making decisions in the next few years about developing a skills base and a regulatory framework and starting construction on reactors that on average take nine years — but can take up to 20 — to build.

But there are some flaws and inconsistencies in the draft’s analysis of the issue.

It uses International Energy Agency data to argue that global use of nuclear power will increase from 6% to 7% over the next 25 years. “The Fukushima nuclear incident in Japan in 2011 is not expected to significantly affect nuclear growth in the medium to long term, although some countries may be prompted to diversify their energy base with natural gas, coal and renewables,” the draft concludes. But as we pointed out back in May, Fukushima has prompted several countries, including India and China, to pause and review their nuclear industry development plans, or in some cases abandon nuclear power altogether.

Moreover, nuclear power will actually decline as a source of power in the overall global energy mix because most of the world’s 439 nuclear reactors were built decades ago and are now nearing the end of their life cycles. In January, there were 60 new reactors under construction worldwide — nowhere near enough to replace the reactors that will be shut down over the coming decade. Nuclear power is an ageing, shrinking energy source globally.

That’s a mere detail, though, compared to the strange twist in logic the draft uses about nuclear power. The draft commendably urges state governments to privatise energy generation and distribution assets:

“The Australian government notes that government ownership of energy assets may act as a barrier to effective competition, particularly where new entrants may not have sufficient certainty around their ability to compete with public businesses in the energy markets. This can arise from private investors not being certain that the decision‐making by government businesses is fully commercial and that the projected returns are in line with the risks they are bearing, or from the potential for governments to intervene to deliver particular budget or reliability outcomes. An appropriate focus should be given to ensuring competitive neutrality in the interim, with continued privatisation remaining the preferred policy goal.”

Well put. This elicited the odd sight of the notionally free-market Labor Queensland and Liberal NSW governments angrily rejecting the idea of privatisation. But that logic vanishes when it comes to its proposals regarding nuclear power. Nuclear power is so astonishingly expensive to construct — it is easily the most expensive possible form of power generation, with sources such as Moody’s rating agency and The Wall Street Journal estimating construction costs at $7000-8000 per kilowatt-hour — and reactors take so long to build and are so prone to cost blowouts that nuclear power is beyond the capacity of the private sector to fund. Instead, either direct government funding or government loan guarantees for billions of dollars are critical to reactor construction.

That is, while the draft paper urges governments to get out of power generation and distribution, its “fallback” option of nuclear power requires a massive intervention by government in the power generation sector.

This is why it’s particularly amusing to see federal Coalition types such as Greg Hunt spruiking nuclear power when the two things critical to it — a carbon price, to make coal-fired power more expensive, and a heavy government role in power generation — are anathema to them.

Subsidies or loan guarantees aren’t the only form of state intervention when it coms to nuclear power. The costs of cleaning up the aftermath of a nuclear catastrophe are potentially huge and the subject of greater focus since Fukushima. “What is changing is our view of the sheer magnitude of liability associated with an event risk occurrence,” Moody’s concluded in April this year, while noting that the industry had an overall strong safety record. Moody’s had already issued a warning about the financial risks associated with nuclear power in 2008. Governments are ultimately the ones who will pick up the bill for cleaning up after nuclear accidents.

And none of that factors in the cost of storing nuclear waste securely for tens of thousands of years.

There’s one other flaw in the draft’s reasoning on nuclear power. Nuclear power has lower operating costs once it is built than many other forms of power generation — at least assuming the cost of uranium doesn’t get out of hand. That means the overall costs of nuclear power — combining construction and operation — are more competitive than would be the case based on construction alone.

But according to a 2008 US analysis by financial advisers Lazard, nuclear power overall is more expensive in megawatt-hour terms than wind, biomass, geothermal and gas combined-cycle, and about the same cost as solar thermal. Of these, geothermal and biomass are both baseload power sources, and baseload solar thermal (which also high construction costs, but even lower operating costs than nuclear) is already in operation in Spain. The draft’s carefully-constructed scenario in which renewable baseload capacity can’t be commercialised at a cost below that of nuclear power already looks highly improbable.

All of which begs the question of exactly why the draft makes such an effort to propose a backstop role for nuclear energy?