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No chance for nukes in a penny-pinching world

Globe and Mail: CARL MORTISHED - October 18, 2010

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/carl-mortished/no-chance-for-nukes-in-a-penny-pinching-world/article1761337/

This week, the British government will publish the gory detail of its public sector spending cuts. On Monday, nuclear was given its marching orders. Chris Huhne, the energy and climate change secretary, a Liberal Democrat member of the coalition government and formerly a vigorous opponent of nuclear power, published a new list of eight locations, all sites of existing nukes, where new reactors will be established. He then delivered the killer condition - not a penny of public subsidy will go to finance the proposed nuclear renaissance.

Austerity clouds Europe's green energy dreams:
The government has said this before and the power companies have swallowed it with their own proviso - we can build without subsidy but there must be a price formula. I don't believe a word of it, neither the government's no-subsidy guarantee nor the power company's demurral, and the risk is that the nuclear renaissance in the Western world will fizzle into a long half-life of decline. Instead we will get a fossil fuel renaissance when power companies, driven to panic measures by the imminent and legally-sanctioned closure of old nukes and old coal-fired stations, launch a massive dash for cheap natural gas.

We know this because the government's capital projects are about to be hammered. Other than backing a few high-profile rail schemes, Chancellor George Osborne needs easy wins to make his numbers work after promising to preserve the hugely expensive and wasteful National Health Service. He says he will cut welfare benefits, but after the middle class revolt over the scrapping of universal child benefit, he has to tread warily.

The truth is, there is no money for low-carbon energy. There is no money in it - wind power doesn't make a profit without market rigging - and the Energy Secretary has said there is no government cash for new-build nuclear. The solution awaited eagerly by Éectricité de France, which says it will build four new nukes in Britain, is the carbon price floor. The idea of the British government is that a minimum carbon price imposed on the U.K. power industry will create a playing field with a bias in favour of nuclear and wind, enough of a long-term pricing advantage to give EDF's bankers sufficient comfort to finance the pouring of millions of tonnes of concrete.

It sounds clever but we still don't have a carbon price. EU carbon emission allowances (a permit to emit a tonne of carbon dioxide) trade at about €15 and many analysts reckon that new nuclear needs a minimum price of €60 for an investment to be sensible. Is the government prepared to impose such a price burden on British heavy industry as it emerges from recession?

As the nuclear projects rumble on, arguing for subsidy concessions and the deadline for old reactor closures approaches, one by one the utilities will drop atoms and go for gas molecules. Except for EDF which might, sensibly see profit in exporting more nuclear power to Britain. The French company is building a new French nuke, amid much talk of delays and cost overruns but the site is on the coast in Normandy. You could almost say that it is a plant designed to export power built with a French subsidy to a free market in Britain.

A reader spotted an error in Friday's post when I failed to mention the Taishan nuclear project in China, the second sale abroad of Areva's EPR nuclear reactor design after Finland. I don't think, however, it alters my view that the new generation of nukes is probably too expensive and over-engineered for the penny-pinching world we live in. Areva competed for a contract to build a nuke in Abu Dhabi and lost against Kepco, the Korean firm which offered a cheaper product and today confirmed its win. If it is too expensive for the United Arab Emirates and uneconomic in the United States where Constellation, the EDF partner, has pulled out of a project to build EPRs, where can France sell its nukes?