Nuclear power – A ladder to the stars, who knows?

In the 1950s, the slogan that nuclear power would become ‘too cheap to meter’ spurred public enthusiasm. Its potential as a solution to energy blackmail, or another 1970s oil shock underpinned further political support.

However, safety concerns about reactor designs and the storage of used nuclear fuel increased, especially after the 1986 Chernobyl accident. The explosion put 400 times more radioactive material into the earth's atmosphere than the atomic bomb dropped on Hiroshima (International Atomic Energy Agency (IAEA)).

A separate concern was that the civilian use of nuclear technology was actually a veiled escalation in the Cold War. Potentially, this dwarfed the impact of power plant accidents. Atomic weapons tests conducted in the 1950s and 1960s put 100 to 1,000 times more radioactive material into the atmosphere than Chernobyl (IAEA).

These concerns led to accelerated phase-out plans for existing plants and bans on new construction in some countries.

Then came a twist – climate change.

For some, any disadvantages of nuclear were now a price worth paying to ensure lower carbon emissions. The eminent scientist, James Lovelock, suggested we could safely bury used nuclear fuel in our gardens, with positive spin-offs not just for biodiversity, but for home heating.

Today, these arguments are being re-run. What are we to think?

Firstly, the nuclear industry goes beyond power plants, involving sectors including medicine and specialised transport. Nuclear development comes with positive and negative risks, as with most frontier research.

Then, we must distinguish between two nuclear technologies. The first is fission, where heavy elements like uranium are split apart. The second is the fusion of light elements such as hydrogen, replicating the physics of the stars. Both processes release enormous amounts of energy.

There are two important differences between fission and fusion:

• Externalities: Fusion does not create long-lived nuclear ´waste.´ However, fission generates unstable nuclei, some of which are radioactive for millions of years. There are many subtleties in this complex area, but overall, fusion creates fewer environmental challenges than fission.
• Funding: Fusion is an experimental technology, while fission has been operational for decades. Thus, they raise different risk/return and funding issues. Fusion requires deep pools of public or private equity; fission also needs debt funding, which lowers its cost of capital, to enhance competitiveness.
  

In practical terms, to meet the shorter-term government carbon reduction targets, the issue is the role of fission. Again, there are two points to highlight:

• Vintage: For existing reactors, up-front capital costs are largely amortized, and operating costs are relatively low. Beyond providing cheap, low-carbon electricity, they help to maintain our nuclear expertise and supply chains.
• New plants: The investment bank Lazard estimates a levelized cost of electricity* for nuclear of $142-222/MWh (in the US). That compares with $74-139/MWh for offshore wind. An ‘onshore wind plus storage’ package is $45-133/MWh. A gas-fired combined cycle range is $45-108/MWh.

In fairness, cost measurement is a slippery concept for long-duration assets, as it is dependent on a range of assumptions including discount rates. The nuclear expert, Francois Lévêque, recommends thinking of cost more like ´weight´ rather than ´mass´ - varying significantly depending on context.

The empirical evidence on new plant construction in Europe and the US is poor and opaque. According to the International Energy Agency, “the construction of large-scale reactors in advanced economies has seen in recent years substantial delays and large cost over-runs.” The UK´s proposed Hinkley Point C (HPC) is no exception.

Overall, iterations of plant designs incorporating new safety and operating features have implied ‘negative learning,’ undermining standardisation. Such a cost trend was also evident as France built out its original nuclear fleet from the 1970s (Lévêque).

An ominous omen emerged last month when the French Court of Auditors said that EDF should defer a Final Investment Decision on the UK´s other new nuclear plant, Sizewell C, until it has reduced its exposure to HPC.

So, the jury is out.

Cost challenges may be eased by small modular reactors (SMRs), with several designs under consideration. Intuitively this is appealing, but SMR economics may yet follow the Lévêque critique - context is everything. For now, it is too early to say.

So, where does that leave us? There are three tentative conclusions in this complex area:

• There is a strong case for making the most of our existing fission reactors on environmental and cost grounds, extending asset lives where possible.
• The economic case for a new wave of fission reactors, large or small, is uncertain, and dependent on geographical and political context. Different governments and regimes will, almost inevitably, reach different conclusions.
• Sceptics of fusion will say it is pie in the sky. However, technical progress sometimes requires imagination and patience. Fusion might yet be our route to the stars - or not - but such uncertainty comes with all pure equity investment.

Further reading: Francois Lévêque – The Economics and Uncertainties of Nuclear Power, Cambridge University Press. 2015.

* Levelised Cost of Electricity (LCOE) is the discounted lifetime cost of building and operating a power plant, expressed as a cost per unit of electricity generated ($/MWh).