Thursday, January 1, 2009

Gaging Future Changes in Nuclear Construction Costs

The future inflation of construction costs would appear, at the moment seem to be impossible to project. First the great housing crash of 2008 may not be over yet.  Millions of American home owners owe more on their homes than can be recovered by the sale of the homes.  As unemployment grows, and home owners will be unable to make payments on their mortgages. With mortgage default, the homes ownership passes back to banks that will be unable to recover mortgage costs, and indeed will have difficulty finding buyers .  With the contraction of home sales, more homes will go on the rental market.  This will deflate rental cost.  As rental costs go down people who mortgages are "under water" may simply walk away from high mortgages homes and move to lower cost rental homes.  Thus there is significant potential down side leverage in the housing economy.  

A continued housing collapse would in turn would continue to put pressure on the banking sector of the national and international economies, and thus further Bank bailouts may be needed.   The insolvency of banks would make obtaining credit under any circumstances difficult if not impossible.  And the unavailability of credit would have a depressing effect on both the American and the world economy.  

A second long term impact on the economy will come from the increase of savings.  Wage earners have at the moment taken a terrific hit to their retirement savings.   There will be no easy recovery from this hit.  In addition to shortfalls for retirement plans, we can project a long term greater insecurity about asset appreciation.  Both of these factors point to a higher savings rate, with more saving going into "safe" investments.  More savings means less consumption.   Less consumption means less economic growth or an economic contraction.

Thirdly, governments world wide have created a great deal of money to deal with the economic crisis of 2008. Economists note that unless that money supply can be contracted during a recovery, the result will be significant inflation.   Given these factors we may be facing stagflation, or an outright prolonged depression at worst.   

Given the unpredictable economic outcome for the great crash of 2008, it is simply impossible to project future costs on new power generation projects.  At the moment inflationary pressures on construction costs have eased.  The price of raw materials for power plant production - steel, cement, cooper, etc. - dropped substantially in 2008.  Many future construction plans are being set aside,  and with the lowering of construction demand labor costs will go down as well.  This all would suggest a deflation construction costs for new power generation facilities, even in the face of rising over all inflation.  Thus the most likely outcome for the cost of nuclear power will be lower rather than higher construction costs.  

In addition, the probable increase in the savings rate may mean that more money is available for investment in new power facilities.    It is unlikely that the true ratio between the cost of base power and power on demand between  nuclear and renewables is unlikely to change.   At present and for the foreseeable future nuclear power will offer lower cost base power and power on demand than renewables can. 

Update: To get an idea about the magnitude of the economic events of 2008 lewd, 6.7 trillion dollars in wealth was lost to the American economy last year. The Fed government added an astonishing $8.5 trillion to the money supply. This was a major historical event, and its full implications will unfold for years.

From Dec. 2007 to Nov. 2008, 2.7 million Americans lost their jobs, raising the total number of unemployed to 10.3 million (6.7 percent), according to the US Department of Labor's November report on unemployment. Reportedly 500,000 Americans lost their jobs in November.

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