Nuclear Power - Economics

Economics

The economics of new nuclear power plants is a controversial subject, since there are diverging views on this topic, and multi-billion dollar investments ride on the choice of an energy source. Nuclear power plants typically have high capital costs for building the plant, but low fuel costs. Therefore, comparison with other power generation methods is strongly dependent on assumptions about construction timescales and capital financing for nuclear plants as well as the future costs of fossil fuels and renewables as well as for energy storage solutions for intermittent power sources. Cost estimates also need to take into account plant decommissioning and nuclear waste storage costs. On the other hand measures to mitigate global warming, such as a carbon tax or carbon emissions trading, may favor the economics of nuclear power.

In recent years there has been a slowdown of electricity demand growth and financing has become more difficult, which has an impact on large projects such as nuclear reactors, with very large upfront costs and long project cycles which carry a large variety of risks. In Eastern Europe, a number of long-established projects are struggling to find finance, notably Belene in Bulgaria and the additional reactors at Cernavoda in Romania, and some potential backers have pulled out. Where cheap gas is available and its future supply relatively secure, this also poses a major problem for nuclear projects.

Analysis of the economics of nuclear power must take into account who bears the risks of future uncertainties. To date all operating nuclear power plants were developed by state-owned or regulated utility monopolies where many of the risks associated with construction costs, operating performance, fuel price, accident liability and other factors were borne by consumers rather than suppliers. In addition, because the potential liability from a nuclear accident is so great, the full cost of liability insurance is generally limited/capped by the government, which the U.S. Nuclear Regulatory Commission concluded constituted a significant subsidy. Many countries have now liberalized the electricity market where these risks, and the risk of cheaper competitors emerging before capital costs are recovered, are borne by plant suppliers and operators rather than consumers, which leads to a significantly different evaluation of the economics of new nuclear power plants.

Following the 2011 Fukushima I nuclear accidents, costs are likely to go up for currently operating and new nuclear power plants, due to increased requirements for on-site spent fuel management and elevated design basis threats.