Slow, [Expensive] and Amazing - Nuclear Power [2/3]
Nuclear power is up to three times more expensive than wind or solar
Summary - Costs of renewables continue to fall incrementally and are at a record low of around €40 per MWh. Meanwhile, conventional nuclear - despite over half a century of industrial experience - continues to see costs rising and is up to three times more expensive at €150 per MWh. Nuclear power plants, especially in the West, are confronted with high construction costs, extreme delays and more stringent safety measures. Whatever the case, the conclusion remains the same: nuclear energy is too expensive and risky for investors.
Make up your own mind with our nuclear cost comparison tool and see how many solar panels you can buy at the same price of a conventional nuclear power plant. Find out how we got to these numbers in the section “The economics of nuclear energy” below.
“Every nuclear power plant loses 5 billion euros during its lifetime”
Probably false, but they’re still bloody expensive
About a year ago, I saw a headline in the Dutch General Newspaper that caught my attention. It stated that every nuclear power plant loses 5 billion euros during its lifetime. Though I am still pretty sure it has to be false, the premise of the article was this.
“Nuclear power has never been profitable anywhere in the world and will continue to be so. The leading German Institute for Economic Research (DIW) in Berlin investigated whether new nuclear power plants can indeed contribute to a clean(er) economy. The answer is negative: all 674 nuclear power plants that were built worldwide between 1951 and 2017 were built with substantial government subsidies. They would never have come about without such support.
"Nuclear energy was never developed for the purpose of generating power on a commercial basis," explains Christian von Hirschhausen, lead researcher of the study. “It was primarily intended for nuclear weapons. For that reason, nuclear energy was and remains unprofitable.”
Christian makes a good point that nuclear power plants were originally designed to create weapons. They would have never been built without much needed government support. Then again, if nuclear power has always remained unprofitable, why have we been doing it for decades after the cold war and continue to do so?
Ever since I read this article, fuelled by a renewed interest in nuclear power to combat climate chaos, I have been dying to get to the bottom of nuclear economics. Join me as we explore construction costs, profit, revenue and all other aspect of this much-debated energy technology.
Before we dive into the high level overviews and expert analyses however, let us first get acquainted with nuclear by simply dipping our toes in the water. Let us take a few examples of nuclear power plants that have been built recently. Or should we say, are still under construction.
Finish, American or British nuclear plants
Doesn’t matter - all sky-high construction costs and delays
Since they first came in vogue in the 1960s, nuclear power plants have only become more expensive. In the 2020s, more than half a century later, there are numerous examples of economically unsuccessful plants with humongous cost overruns during construction.
One is the construction of the Finnish Olkiluoto 3 power station, which started in 2005, but will not be completed until 2022. By that time, the costs have risen from 3 to 11 billion euros. To be fair, the construction is an expansion of the existing power plant and already produces 22% of Finish electricity generation. Still, 11 billion euros is a lot of money and 17 years is a long time when the carbon clock is ticking.
A similar story of cost overruns and delays echoes in the States. Construction costs of the Vogtle nuclear power plant in Georgia jumped from an estimated $660 million to $8.87 billion. This may sounds as a lot of money, but it gets worse. The Vogtle plant was built in 1989. It would have cost $16.2 billion in 2019. This mishap did not stop anyone from spending even more money on it. Two additional units are currently under construction, which have already suffered several delays and cost overruns. Originally estimated at $14 billion, current costs are estimated to be $25 billion. On the flipside, it will be the largest nuclear power station in the U.S. upon completion in 2023. If they complete it on time of course.
Back on the other side of the pond, the new Hinkley Point C power station in Somerset, UK, is expected to cost 22 billion pounds. It is planned to be a massive 3,200 MW plant upon its completion date, which is still far away. The license was granted in 2012, construction started in 2018 and it is expected to be completed in 2023 after which it will remain operational for 60 years. What do you think are the chances they manage to complete on time?
Nuclear construction costs and LCOE
From cheapest to most expensive form of energy in a decade
The above power plants exemplify the trend that is clear for a long time but more apparent since Fukushima. Nuclear power is getting prohibitively more expensive. Then again, they are only a few examples.
They do not represent the nuclear energy industry as a whole and only provide the upfront construction or capital costs. This is the price to build a power plant in euros (or dollars) per kilowatt. Another important parameter in determining the value of nuclear power is Levelized Cost Of Energy (LCOE).
The levelized cost of energy is a measure of the average net present cost of electricity generation for a generating plant over its lifetime. It is used for investment planning and to compare different methods of electricity generation on a consistent basis. Though this may sound somewhat technical, all you need to remember is the lower the LCOE, the cheaper the energy is to produce.
The funny thing about nuclear power costs is that it is not an exact science. Every different source provides a different levelized cost of energy. When you read the fine print, there is quite a bias in how the numbers are presented and the most convenient aspects for that source are emphasized. There is even downright cherry-picking in some cases, excluding good or bad results in the numbers. Nonetheless it is clear that all sources point to the following.
Levelized cost of energy for nuclear range between $50 - $150 per MWh, with most sources pointing towards the higher ranges.
The capital expenditure required to construct nuclear power plants is massive, in the order of $4000 - $8000 per kW.
Profitability of a nuclear power plant is highly (!) dependable on the interest rate on the capital expenditure, or discount rate.
What does this last point mean exactly? We explore that in the next section.
> World Nuclear Industry Status Report 2020
This report claims the levelized cost of energy for conventional nuclear power rose from $117/MWh in 2015 to $155 by 2019. Solar and wind reached $40 and $41 per MWh respectively. Estimated capital or construction costs for nuclear are estimated at $4200/kW. The results are graphically displayed below, which shows nuclear energy compared to other forms of renewables (which are more than three times cheaper).
These people seem to be somewhat biased against nuclear however, whereas the World Nuclear Association is a more nuclear friendly source.
> World Nuclear Association
The World Nuclear Association claims that “Nuclear power is cost competitive with other forms of electricity generation, except where there is direct access to low-cost fossil fuels. System costs for nuclear power (as well as coal and gas-fired generation) are very much lower than for intermittent renewables. Nuclear power plant construction is typical of large infrastructure projects around the world, whose costs and delivery challenges tend to be under-estimated.”
Although it appears as if this text was written by a non-native English speaking boomer (very much in favour of nuclear) they do admit construction costs are underestimated. Their figures range from $2,157/kW in South Korea, to $2,500 in China and $6,920/kW in Slovakia. They also state that in 2019, Électricité de France (EDF) estimated that the cost of building six new EPR2 units in France in the late 2020s would be at least €56 billion, or €5,700/kW. Furthermore they seem to hit a snare on the costs that is not seen in many other places.
Levelized costs of energy are highly dependent on discount or interest rate (more on this in the subsequent section). With a 3% discount rate, they claim levelized costs of energy for nuclear can be as low as $27.4/MWh in Russia. Slovakia has the highest costs going up to $146/MWh. The results are shown in the below table. What is striking in this graph, is the fact that only ‘nuclear states’ are selected plus Slovakia.
In any case, we do not have to plough our way through massive and lengthy reports or scroll through endless websites. We can simply watch a few movies and be done with it, right?
> Youtube
YouTube allows us all to become nuclear experts in minutes. Several short videos provide a great indication of nuclear capital costs in which they refer to various sources, among others the world nuclear industry status report. Especially Matt Ferrell’s video on “Small Modular Reactors” and the “Economics of Nuclear Energy” by Real Engineering portray the basics on nuclear energy economics very clearly.
Their estimates on construction costs range from $5,500 to $8,100 per kW and levelized costs are in-between the estimates provided by the World Nuclear Association and the World Nuclear Industry Status Report at around $75 per MWh.
The economics of nuclear energy
How does a nuclear power plant make or lose money?
In the end, there is only one question that occupies the mind of an investor. Does my investment make more money than it costs? Though nuclear power plants are special in many regards, they are not excluded from this question.
Consequently, we need to put ourselves in the shoes of an investor in order to understand how a nuclear power plant makes money. We will use the video from Real Engineering below to showcase the money flows.
We already know that the “average” 1 GW plant will easily cost €6 billion, probably a lot more. This amount of money is typically financed by many investors to reduce risk. We will simplify it a little.
Suppose you want to build a nuclear power plant. For sake of convenience, we assume you know how to build one and magically receive all the permits you need to start building straight away. Lucky you! The next step for you would be to get your hands on a few billion to get you started.
Now let us suppose you manage to find investors – like Bill Gates or Warren Buffet in our previous blog for example – who are willing to lend you 1 billion euros at an interest rate of 3% which you need to pay back in 25 years. This is a pretty sweet deal and quite similar to how a mortgage works. Except for the fact that your troubles have only just begun.
As we already know, nuclear power plants take a long time to build. In the best case, you will need to loan 1 billion euros each year for 6 years until construction is complete and your plant can start making a profit. That’s not all. It will take roughly 16 years (!) before you break even and start making more profit than what you have spent.
Tell me, would you be willing to invest in something that will not break-even for 16 years, if you are lucky?
To summarize, the road to profitability for a conventional nuclear power plant is long, hard, and the risks for an investor are huge. Does that mean it is the end of the atomic age? Perhaps not.
Nuclear power needs to be smaller, cheaper, safer
It’s clear, nuclear power needs to adept or die.
We are already living in a world where the costs of installing renewables is cheaper than keeping (some) nuclear power plants running. One example is the Diablo Canyon power plant in California, which is being shut down despite the fact that the plant was built to operate for decades more.
If the nuclear industry is to remain relevant, nuclear power needs to become smaller, cheaper and safer. And that is exactly what is happening at the moment.
In the next part of our series on nuclear power, we will explore the world of science-fiction. Small Modular Reactors, Thorium Reactors, Molten-Salt Beds, Nuclear Fusion... We will take a deep dive into all these “miracle solutions” for energy and determine whether a nuclear renaissance is upon us.