After 50 Years, Nuclear Power is Still Not Viable without Subsidies, New Report Finds


The CANDU Bruce Nuclear Generating Station is the second largest nuclear power plant in the world.

The CANDU Bruce Nuclear Generating Station is the second largest nuclear power plant in the world.

Value of Subsidies Often Exceed Price of Nuclear Energy Produced; Obama Administration Wants to Nearly Triple Loan Guarantees

WASHINGTON (February 23, 2011) – Since its inception more than 50 years ago, the U.S. nuclear power industry has been propped up by a generous array of government subsidies that have supported its development and operations. Despite that support, the industry is still not economically viable, according to a report released today by the Union of Concerned Scientists (UCS). The report, “Nuclear Power: Still Not Viable Without Subsidies,” found that more than 30 subsidies have supported every stage of the nuclear fuel cycle, from uranium mining to long-term waste storage. Added together, these subsidies often have exceeded the average market price of the power produced.

“Despite the fact that the nuclear power industry has benefited from decades of government support, the technology is still uneconomic, so the industry is demanding a lot more from taxpayers to build new reactors,” said Ellen Vancko, manager of UCS’s Nuclear Energy and Climate Change Project. “The cost of this technology continues to escalate despite billions in subsidies to both existing and proposed plants. Instead of committing billions in new subsidies that would further distort the market in favor of nuclear power, we should focus on more cost-effective energy sources that will reduce carbon emissions more quickly and with less risk.”

Pending and proposed subsidies for new nuclear reactors would shift even more costs and risks from the industry to taxpayers and ratepayers. The Obama administration’s new budget proposal would provide an additional $36 billion in federal loan guarantees to underwrite new reactor construction, bringing the total amount of nuclear loan guarantees to a staggering $58.5 billion, leaving taxpayers on the hook if the industry defaults on these loans.

The key subsidies for nuclear power do not involve cash payments, the report found. They shift the risks of constructing and operating plants — including cost overruns, loan defaults, accidents and waste management — from plant owners and investors to taxpayers and ratepayers. These hidden subsidies distort market choices that would otherwise favor less risky investments.

The most significant forms of subsidies to nuclear power have four principal objectives: Reduce the cost of capital, labor and land through loan guarantees and tax incentives; mask the true costs of producing nuclear energy through subsidies to uranium mining and water usage; shift security and accident risks to the public via the 1957 Price-Anderson Act and other mechanisms; and shift long-term operating risks such as radioactive waste storage to the public.

The report evaluates legacy subsidies that helped build the industry, ongoing support to existing reactors, and subsidies available for new projects. According to the report, legacy subsidies exceeded 7 cents per kilowatt-hour (¢/kWh), well above the average wholesale price of power from 1960 to 2008. In effect, the subsidies were more valuable than the power the subsidized plants produced.

“Without these generous subsidies, the nuclear industry would have faced a very different market reality,” said Doug Koplow, the author of the report and principal at the Cambridge, Massachusetts-based consulting firm, Earth Track. “Many of the 104 reactors currently operating would never have been built, and the utilities that built reactors would have been forced to charge ratepayers even higher rates.”

The industry continues to benefit from subsidies that offset its operating costs, which include uranium mining, cooling water, accident liability insurance, waste disposal, and plant decommissioning. The exact value of these subsidies, however, is difficult to ascertain. According to the report, ongoing subsidies range from 13 percent to 98 percent of the value of the power produced. Even at the low-end however, subsidies account for a significant portion of nuclear power’s operating cost advantage over competing energy sources.

Subsidies to new reactors could significantly exceed those enjoyed by the existing fleet. In addition to benefiting from ongoing subsidies to existing plants, the Energy Policy Act of 2005 introduced a new suite of subsidies for nuclear power. The report estimates that these subsidies could be worth between 4.2 and 11.4¢/kWh, or as much as 200 percent of the projected price of electricity when these plants are built.

“All low-carbon energy technologies would be able to compete on their merits if the government established an energy-neutral playing field and put a price on carbon,” said Vancko. “Investing in nuclear power carries the unique risks of radioactive waste storage, accidents, and nuclear weapons proliferation that must be fully reflected in the technology’s costs, which is not the case today.”

Based on these findings, the report recommends that the federal government reduce subsidies to the nuclear power industry. If subsidies are necessary, the government should award them competitively to the most cost-effective low-carbon energy technologies. The report also recommends that the government modernize liability systems for nuclear power and establish regulations and fee structures for uranium mining, waste repository financing, and water usage that fully reflect the technology’s cost and risks.

“After 50 years,” said Koplow, “the nuclear industry needs to move away from government patronage to a model based on real economic viability. The considerable operational and construction risks of this power source need to be reflected in the delivered price of power rather than dumped onto taxpayers.”

MORE RESOURCES

For more information about recent congressional proposals to increase nuclear subsidies see UCS’s 2010 issue brief, “Billions of Dollars in Subsidies for the Nuclear Power Industry Will Shift Financial Risks to Taxpayers.”

For more information on nuclear power subsidies, see UCS’s 2009 report, “Nuclear Loan Guarantees: Another Taxpayer Bailout Ahead.”

For information on how the Energy Information Agency systematically undercounts subsidies to many energy industries, see Doug Koplow’s 2010 analysis of the agency’s 2008 report on federal subsidies to the nation‘s energy sector.

The Union of Concerned Scientists is the leading U.S. science-based nonprofit organization working for a healthy environment and a safer world. Founded in 1969, UCS is headquartered in Cambridge, Massachusetts, and also has offices in Berkeley, Chicago and Washington, D.C.

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2 Responses to After 50 Years, Nuclear Power is Still Not Viable without Subsidies, New Report Finds

  1. Alan Burke says:

    See also
    THE ECONOMICS OF NUCLEAR REACTORS: RENAISSANCE OR RELAPSE?

    MARK COOPER
    SENIOR FELLOW FOR ECONOMIC ANALYSIS
    INSTITUTE FOR ENERGY AND THE ENVIRONMENT
    VERMONT LAW SCHOOL

    JUNE 2009

    FINDINGS

    Within the past year, estimates of the cost of nuclear power from a new generation of reactors have ranged from a low of 8.4 cents per kilowatt hour (kWh) to a high of 30 cents. This paper tackles the debate over the cost of building new nuclear reactors, with the key findings as follows:

    • The initial cost projections put out early in today’s so-called “nuclear renaissance” were about one-third of what one would have expected, based on the nuclear reactors completed in the 1990s.

    • The most recent cost projections for new nuclear reactors are, on average, over four times as high as the initial “nuclear renaissance” projections.

    • There are numerous options available to meet the need for electricity in a carbon-constrained environment that are superior to building nuclear reactors. Indeed, nuclear reactors are the worst option from the point of view of the consumer and society.

    • The low carbon sources that are less costly than nuclear include efficiency, cogeneration, biomass, geothermal, wind, solar thermal and natural gas. Solar photovoltaics that are presently more costly than nuclear reactors are projected to decline dramatically in price in the next decade. Fossil fuels with carbon capture and storage, which are not presently available, are projected to be somewhat more costly than nuclear reactors.

    • Numerous studies by Wall Street and independent energy analysts estimate efficiency and renewable costs at an average of 6 cents per kilowatt hour, while the cost of electricity from nuclear reactors is estimated in the range of 12 to 20 cents per kWh.

    • The additional cost of building 100 new nuclear reactors, instead of pursuing a least cost efficiency-renewable strategy, would be in the range of $1.9-$4.4 trillion over the life the reactors.

    Whether the burden falls on ratepayers (in electricity bills) or taxpayers (in large subsidies), incurring excess costs of that magnitude would be a substantial burden on the national economy and add immensely to the cost of electricity and the cost of reducing carbon emissions.

  2. Alan Burke says:

    Here’s an extract from the 2009 Update of the MIT 2003 Future of Nuclear Power

    The track record for the construction costs of nuclear plants completed in the U.S. during the 1980s and early 1990s was poor. Actual costs were far higher than had been projected. Construction schedules experienced long delays, which, together with increases in interest rates at the time, resulted in high financing charges. New regulatory requirements also contributed to the cost increases, and in some instances, the public controversy over nuclear power contributed to some of the construction delays and cost overruns. However, while the plants in Korea and Japan continue to be built on schedule, some of the recent construction cost and schedule experience, such as with the plant under construction in Finland, has not been encouraging. Whether the lessons learned from the past have been factored into the construction of future plants has yet to be seen. These factors have a significant impact on the risk facing investors financing a new build.

    For this reason, the 2003 report applied a higher weighted cost of capital to the construction of a new nuclear plant (10%) than to the construction of a new coal or new natural gas plant (7.8%).

    Lowering or eliminating this risk-premium makes a significant contribution to making nuclear competitive. With the risk premium and without a carbon emission charge, nuclear is more expensive than either coal (without sequestration) or natural gas (at 7$/MBTU). If this risk premium can be eliminated, nuclear life cycle cost decreases from 8.4¢ /kWe-h to 6.6 ¢/kWe-h and becomes competitive with coal and natural gas, even in the absence of carbon emission charge.

    The 2003 report found that capital cost reductions and construction time reductions were plausible, but not yet proven – this judgment is unchanged today. The challenge facing the U.S. nuclear industry lies in turning plausible reductions in capital costs and construction schedules into reality. Will designs truly be standardized, or will site-specific changes defeat the effort to drive down the cost of producing multiple plants? Will the licensing process function without costly delays, or will the time to first power be extended, adding significant financing costs? Will construction proceed on schedule and without large cost overruns? The first few U.S. plants will be a critical test for all parties involved. The risk premium will be eliminated only by demonstrated performance.

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