Tuesday, April 5, 2011

Lowering Nuclear Safety and Financial Risks

Although Conventional Nuclear Power Plants are not without their safety risks, they safer than coal and natural gas fired power plants, and safer than solar and wind electrical generation systems. It is very telling that the two likely deaths associated with the Fukushima Dai-ichi accident can be attributed the tsunami, not to the subsequent reactor break down/meltdown. There have been a number of injuries, illnesses of staff, and radiation exposures, but to date there have been no deaths due to Dai-ichi reactor malfunction. In fact including the Daiichi fatalities with the Chernobyl fatalities, Brian Wang's argument still holds, Rooftop solar power is more dangerous than Chernobyl. This is a stark contrast to the thousands of deaths. For example in discussing TVA's Watts Bar Nuclear installation, the UCS Ed Lyman said that a nuclear accident there would lead to
"A release of radioactive material to the environment, leading to the potential for hundreds or thousands of deaths from radiation poisoning and potentially tens or hundreds of thousands of cancer deaths over the long term."
Indeed Lyman argued that an accident at the Indian Point nuclear plant could kill over 40,000 people quickly, and hundreds of thousands more by a slow and painful death due to radiation caused cancer. Thus the magnitude of Lyman's expectations must be compared to the reality of the Japanese experience. Japanese deaths on March 11, 2011 were due to a natural disaster and not a human caused disaster.

The Dai-ichi nuclear accidents did have financial costs. Four reactors were destroyed, and their cleanup will add to the expense. Wall Street will not ignore the cost of scrapping the 4 reactors or the clean up costs. They represent part of the large financial risk that investors see as obstructions to safe nuclear investments. One justification for the proposed government loan guarantees to nuclear projects is the need to calm Wall Street concerns about the risks entailed by nuclear investments. However, anti-nuclear "expert" Mark Cooper argues,
If nuclear reactors cannot stand on their own in the marketplace, they should not be propped up by subsidies.
Of course, the same argument could be applied to renewable energy sources, with similar conclusions, but renewables are not Cooper's target. Cooper, of course, fails to notice that renewables require far more massive government and ratepayer subsidies than nuclear power does, that the levelized cost of renewables generated electricity appears to be higher than nuclear levelized cost, and that the cost renewables does not entirely reflect the cost of making a renewables dominated generating system reliable, while there is not reliability problem for nuclear power.

Anti-Nuclear "expert" Amory Lovins claims,
Investors’ appropriate concerns about the financial risks posed by its high cost, long lead time, and the uncertainty of both have already stifled nuclear investment. Yet the capital markets haven’t yet understood an even greater risk: that nimbler competitors with lower and decreasing costs could grab nuclear projects’ revenues, so even if construction went as planned, the costly nuclear electricity may not sell, let alone continue to sell for the decades required to repay and reward nuclear investors.
Lovins claims that not only are nuclear investments risky, they are also foolish in fighting global warming. Lovins claims,
Every dollar spent on new nuclear power produces 1.4-11+ times less climate solution than spending the same dollar on its cheaper competitors. For a power source merely to emit no carbon isn’t good enough; it must also produce the least carbon per dollar…
But when David Bradish attempted to track down the source of this Lovins' claims, he found that
It looks like the breakdown is on page 22 in the paragraph on Cogeneration. All the data in this paragraph is based on “personal communications” with Tom Casten, Chairman and CEO of Primary Energy. No capital costs were mentioned in the paragraph, instead, only an “all-in electricity price” was given.
Bradish commented,
To me, relying on “personal communications” from 2005 for cost data is just plain weak. Especially since it is proprietary and there’s no way for me to verify it.

Bradish found other Lovins claims equally problematic,
RMI assumes, without references to any sources, that efficiency costs 1-4 cents/kWh. How can RMI claim these numbers without any sources?
Bradish adds,
RMI’s claim that nuclear’s “cheaper competitors” produce “1.4-11+ more climate solution” is grossly exaggerated. Their “11+” number is based on the assumed cost of efficiency of one cent/kWh. Yet, according to EIA data, one cent/kWh is too low. I find it stunning that RMI advocates so much for efficiency, yet they provide no sources on the actual costs!
Bradish points to another, significant falw in Lovins cost estimates,
The RMI paper only discusses CERA’s cost increases for new nuclear plants (from pages 7-10) and fails to note that the “supply constraints, increasing wages and rising materials costs” are affecting all types of power plants, including RMI’s co-generation plants. This trend is important to note because cost estimates older than a year ago are outdated. This further invalidates RMI’s cost estimates that are based on data from older studies.
Critics of nuclear power rarely see that lowering both nuclear financial risks and nuclear costs will be possible. The financial risks can be lowered by decreasing the size of nuclear investments, and this is one of the goals of the Small Modular Reactor (SMR) concept. If a 100 MW SMR costs $400,000,000 to build, while a large 1000 MW reactor costs $4,000,000,000 to build, the investors overall risk monetary is decreased by 10 fold. Furthermore, the project looks more manageable because it is smaller, and likely to be completed in less time.

SMRs also appear to have safety advantages, for example a smaller source term.. Advanced Generation IV reactors may be safer than traditional water cooled reactors both in terms of accident frequency and in terms accident consequences. Lowering accident risks, can be perceived by Wall Street as lowering financial risks, since an accident could lead to repayment default.

Another way to lower financial risks with nuclear power is to lower construction costs. Factory construction, which SMRs facilitate, has the potential to lower nuclear costs, by better utilizing labor resources. Simpler reactor designs with fewer parts also facilitate cost lowering. Some Generations IV reactors have the potential to simplify reactor design, thus lower nuclear costs. Decreasing materials inputs into reactor construction also lowers costs. Both conventional and Generation IV reactors have potentials for lowering materials input. Reuse of existing sites, facilities and structures, can also lower nuclear costs. Finally, but lowering costs and perceived risks, the nuclear plant constructor is in a position to borrow money at a lower cost. Thus contrary to Cooper and Lovins, nuclear costs will not invariably increase.

Wall Street has been just as guilty as nuclear critics in failing to understand the the potential for altering the nuclear risk patterns. Nuclear critics have pointed to a report by Citigroup Global Markets on Nuclear Risk Factors states,
There are five substantial areas of risk faced by developers of new nuclear power stations. Three of those risk areas are so big and significant that if they go wrong, the developer (even the biggest utilities) could be financially damaged beyond repair. These risks can be classed as Corporate Killers. . .
Panning, that is the time and money that go into nuclear plans, into acquiring the nuclear site represents the first risk, because the plan might fall through, but
While annoying for the developers if this turns out to be wasted time and money, in no way would a failed planning application threaten the financial integrity of a utility company.
Similarly, a risk which the report calls "Decommissioning /Waste" is controllable if the right steps are taken. But Citigroup finds that this risk is also manageable through use of
a tax will be paid on each MWh produced (probably as little as £1/MWh). This would effectively limit the risk faced by the developers.
This leaves us with three serious risks. First is construction
Below we give the latest data on the current and future costs of building a new nuclear power station. The latest evidence suggests a cost range of €2,500/kW to €3,500/Kw. For a 1,600MW unit, that means a construction cost of up to €5.6bn. We see very little prospect of these costs falling and every likelihood of them rising further. The cost of the TVO plant in Finland has increased from €3.0bn to €5.3bn since construction started. It has also proven to be very difficult to predict how long a new plant will take to build. The TVO plant is also running three years late. Cost overruns and time slippages of even a fraction seen by TVO would be more than enough to destroy the equity value (and more) of a developer’s investment unless these costs can be passed through somehow. Given the scale of these costs, a construction programme that goes badly wrong could seriously damage the finances of even the largest utility companies.
The second risk factor which Citigroup sees as a problem is power price
Nuclear power stations have very high fixed costs and relatively low variable costs. Their cash flows and profitability are therefore particularly sensitive to the price that they sell their power. As we show later, even at the low end of the build cost estimates, we calculate that a new nuclear station will require €65/MWh (£58.5/MWh) in real terms year in/year out to hit its breakeven hurdle rate. . . . the UK has only seen prices at that level on a sustained basis for 20 months of the last 115 months. It was a sudden drop in power prices that drove British Energy to the brink of bankruptcy in 2003. No nuclear power station has ever been built to our knowledge where the developer takes the power price risk.
The final risk factor which Citigroup calculates is unexpected operational costs.
Because of their high fixed cost base, nuclear stations are also very vulnerable to shortfalls in output due to operational unreliability. A six-month breakdown can cost £100m’s in direct costs and lost output, particularly if the output has been pre-sold. This risk is too great for a single project to bear, in our view, and at the very least needs to be spread across a portfolio of assets.
There are, however, both shorter and longer range solutions to these Citigroup risks. The first and the third risks can be overcome by a government run insurance pool. Reactor constructors pay into the pool, which issues loan guarantees. Initially the guarantees would have to be backed by the government, but as the pool builds up, it would be able to pay off losses either on construction or prolonged operational shutdowns. The rational for this is simple. Just as wind and solar, which are fare more dubious AGW mitigation approaches, have investor risks lowered by substantial government subsidies, the risks entailed by nuclear investments can and should overcome controlled by government action as well. Loan guarantees are a low cost means by which the Government can mitigate the risk of nuclear investors.

A loan insurance pool is a short run means of controlling the loan related risks of nuclear constructors. Longer run means would involve a number of changes in the way reactors are built, and by the introduction of a radical new nuclear technology, that involves a complete redesign of the reactor. As for the price risk, this is a puzzling point, because all alternatives to nuclear power, either carry unacceptable carbon related problems that present even bigger risks to potential investors, political risks or actually will cost more, and lead to even higher electrical costs than would be the case with nuclear power. It seems unlikely than any of the acceptable electrical generation options from the carbon emissions perspective will cost less than nuclear generated electricity.

From a slightly longer range perspective, the small reactor approach will offer substantial relief quite aside from the loan guarantee insurance pool. In a recent Toronto Star columnTyler Hamilton pointed to small reactors as a potential solution to the loan risk problems of nuclear financing. Tyler quotes American Nuclear Society President, Tom Sanders, who argued that small reactors would do for reactors
what Henry Ford did for cars
Hamilton commented:
The result is that economies of scale are replaced by economies of volume that come from assembly line manufacturing.
Factory built reactors could be shipped in large componants by truck, rail or barge, and assembled on reactor construction sites, with what Hamilton calls a,
Lego block approach.
Other cost saving ideas include building
them in a factory setting using robotic assembly, . . . The reactors would be low maintenance, have passive safety features, and would be buried underground.
Hamilton did not mention recycling old coal fired power plant sites, an approach that could save tens or even hundreds of millions of dollars in side development costs. I have been told that Babcock & Wilcox, the only surviving American Owned reactor manufacture plans to to use all of these money saving approaches. B&W plans to cluster small reactors, rather than to build big reactors. Reactor owners could add more reactors to the cluster as electrical demand increases.

Small reactors would cost proportionately less than large reactors, and thus their financing is not a "bet the farm" proposition. A cluster of small reactors can be purchased one at a time, as it the purchase of each becomes easily affordable. There is a hidden economic advantage to the small reactor - coal yard approach. Grid expansion costs, often associated with the construction of large reactors can be avoided. The construction of new high tension power lines, need to reach electrical customers from some new large reactor projects, and large scale renewables projects, can cost up to $3 billion dollars. Coal fired power plants already have grid hookups available. All you have to do is swap out generation sources.

The small reactor cluster also is an effective counter to the the operational risk problem. If one reactor goes down for a prolong period of time, there would still be a stream of income from the other reactors in the cluster.

Clearly then both the anti-nuclear critics of nuclear power as well as the Wall Street critics are wrong about the potential risk that nuclear investors face. Nuclear manufacturers and constructors have options which offer investors far more certainty about repayment. It is up to the nuclear industry to offer investors such opportunities, and up to investors to understand how to lower their risks.


Martin Burkle said...

Do you think that clustering 6 or 8 small reactors is inviting some of the problems demonstrated at Fukashima cluster. A problem with one reactor can cause a problem with the other reactors in two ways:
1. A hydrogen explosion at one reactor can cause physical damage to one of the sister reactors.
2. A problem at one reactor can cause the other reactors to be inaccessible. After days of no attention the sister reactors could add to the problem.
Most of the designs place the clustered reactors much closer together than the Fukashima reactors. Some designs even share walls.
Do you think clustered reactors need to have a separate cluster risk assessment?

Charles Barton said...

Martin, First SMRs that are 1/10th the size of conventional reactors, are in a number of respects safer than conventional reactors. In addition, I am not the only person who thinks that underground reactor housing would improve reactor safety, including safety in the event of an explosion at a near by reactor. Underground housing would isolate a troubled reactor, and thus would allow other clustered reactors to continue operations. Thirdly if you switch from water cooling/moderation to say salt cooling/moderation you eliminate the possibility of steam and hydrogen explosions.

Cyril R said...

Solar is also very risky financially because the market is 90+ percent dependent on hefty government subsidies. This makes the entire market dependent on government decisions and strategy. Nuclear is much less dependent on such financing, it is typically subsidized less than 5% and only new plants get 20-30 percent subsidies in the US. In the form of tax breaks and loan guarantees. Solar gets that too, and much more such as 600% market rate subsidies (Germany) and big lump sum transfer subsidies in the US and other places.

Like George Monbiot said recently: anti-nuclear people use double standards. 30% market rate subsidy for nuclear is not ok but 600% market rate for solar is fine, because rich people can get richer over the backs of the averagejoe who cannot afford tens of thousands for a solar installation.


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