Economics of Nuclear Energy

I would like to begin this brief exposition with a bizarre fairy tale that was confected by two well known energy experts, Amory Lovins and Joseph Romm, and published in Foreign Affairs (1992-93), which is the prestigious journal of the (United States) Council on Foreign Relations. It goes like this:

For example, the Swedish State Power Board found that doubling electric efficiency, switching generators to natural gas and biomass fuels and relying upon the cleanest power plants would support a 54 per cent increase in real GNP from l987 to 2010 – while phasing out all nuclear power. Additionally, the heat and power sector’s carbon dioxide output would fall by one-third, and the costs of electrical services by nearly $1 billion per year. Sweden is already among the world’s most energy-efficient countries, even though it is cold, cloudy and heavily industrialized. Other countries should be able to do better.

I called that statement completely wrong the first time I saw it, while in my new energy economics textbook (2007) I suggest that it and similar contributions are misleading bunkum. For example, there are a number of questions that must be answered in detail before biomass can unambiguously be classified a large- scale fuel of choice for the near or distant future. As for renewables such as solar and wind, and probably hydrogen, they will undoubtedly increase in quality and quantity, but it will not be at the expense of nuclear.

As David Schlageter pointed out in the important forum EnergyPulse (2008), “Renewable energy sources only supplement the electric grid with intermittent power that rarely matches the daily electrical demand.” He continues by saying that “In order for an electric system to remain stable, it needs large generators running 24/7 to create voltage stability. Wind and solar generation are not on-line when needed to meet  energy demand, and therefore to help decrease system losses.” In the promised land of wind energy, Denmark,  voltage stability is attained by drawing on the energy resources of Sweden and Germany (and perhaps Norway). The Danes pay for the imported electricity, but not for the stability – which they would do in the great world of economic theory.

Every member of the nuclear booster club, to include myself, should make it his or her business to  memorize the quotations in the previous paragraph, because they provide an excellent contradiction to the tiresome delusion that it is economically feasible to largely supplant nuclear energy with  ‘renewables’. They also suggest why – with electric demand  on the verge of increasing faster than supply in many parts of the world – more  nuclear capacity is now scheduled for introduction than at any time during the past 3 decades.

DEEPER MEANINGS

For those readers who have been exposed to secondary school algebra, the above reference to things like voltage stability is superfluous. Sweden and Norway produce, on the average, the lowest cost electricity in the world. Norway, however, generates almost all its electricity with hydro, which is generally recognized as the lowest-cost power source, while Swedish electricity is produced in almost equal amounts by hydro and nuclear. As I show in a forthcoming paper (2008), with this as a background, elementary algebra indicates that the unit cost of Swedish nuclear power is equal to the unit cost of Norwegian (and Swedish) hydro. This is not a welcome conclusion for  many pseudo-scholars.

But what about nuclear waste, which is repeatedly portrayed as a malicious and unavoidable cost of nuclear based electricity because, ostensibly, it will have to be locked up for hundreds of thousands of years? An argument that is sometimes presented however  is that the cost of disposing of nuclear waste is balanced by the benefit of no carbon-dioxide (CO₂)  emissions from nuclear facilities. For instance, the International Energy Agency (IEA) has calculated that for France – the country with the largest production of nuclear energy (as a per cent of the total output of electric power) – the average person is responsible for 6.3 tonnes of carbon dioxide, which e.g. is one-third of the U.S. average.

The cost-benefit trade-off mentioned just above is probably worth remembering, however I prefer for  students (and anybody else) to inform me   that France  intends to treat  its ‘waste’ as  a potential fuel, and to explain why.  (A similar strategy has been proposed in the UK by their energy minister.) For that reason a law has been passed in France stipulating that toxic waste is to be stored in such a way that it can be comparatively easily accessed and recycled if, at some point in the future, “new” technologies appear which will allow it to be used as a satisfactory  input in  the  nuclear fuel cycle.

The latter provision is, as the reader might guess, partially intended to appease or possibly bewilder nuclear skeptics, because technology is already available for recycling this ‘déchet’, and in the event that the price of newly mined and processed uranium escalates, it would almost certainly be utilized without further debate. Of course, as noted by many comments to EnergyPulse,  few persons who work with or near uranium believe that there will be a shortage of this commodity in the foreseeable future, even if the forthcoming nuclear  revival eventually assumed the dimensions of a Manhattan Project.

There are occasionally long discussions of the cost of nuclear relative to the cost of  renewables in the technical literature. An item that frequently appears  is the capacity factors of windmills and solar generators. In simple terms,  the capacity factor gives the amount of energy (in e.g. kWh) that is actually obtained, as compared to that made available if maximum output (= ‘nameplate’ capacity  x  time) were realized. It appears that in the U.S. wind generation works at maximum efficiency about one-third of the time, but this is confusing. With capacity factors between 0.25 and 0.35, the energy actually obtained as a percentage of maximum  energy is less than one-half for many long  periods.

It might also be useful  to cite some figures for the cost of nuclear relative to gas and coal. The Economist (July 9, 2005) presents  estimates from several sources for average electricity costs. For German utilities the Union Bank of Switzerland (UBS) gives 1.5 cents/kwh for nuclear, 3.1-3.8 cents for gas, and 3.8-4.4 cents for coal. Similarly, they give 1.7 cents/kwh for nuclear in the US, 2 cents for coal, and 5.7 cents for gas. The International Energy Agency [IEA], employing a discount rate of 5%, argues that nuclear is $21-31/Mwh, while gas ranges from $37-60/Mwh. Other sources (e.g. Massachusetts Institute of Technology [MIT] and Britain’s Royal Institute of International Affairs) disagree, however I specifically make a practice of ignoring everything originating with the energy economists of  MIT and the RIIA, especially the latter, and advise everyone reading this to do the same.

So much for  cost, but what about price of nuclear electricity – especially to private enterprises and households? In the case of Sweden, the low cost of nuclear and hydro power, and fairly smart regulation, made it possible to provide electricity to the industrial sector at perhaps the lowest price in the world. This being the case, nothing is more offbeat than hearing about the “subsidies” paid the nuclear sector. Cheap electricity meant the establishment of new enterprises, and just as important the expansion of existing firms. The tax income generated by these activities, and used for things like health care and education, more than compensated taxpayers (in the aggregate) for any ‘subsidies’ that might have been dispensed by the government.

An antithetical situation may prevail for wind and biofuels. In Germany the energy law guarantees operators of windmills and producers of solar energy an above-market price for power for as long as 20 years. This is an explicit  subsidy, although it may be both economically and politically optimal  due to the reduction in greenhouse gas emissions. More important, inexpensive electricity for plug-in hybrids is made available.

A more complex subsidy involves the exploitation of  biofuels. Research newly carried  in the United States, and reported in the influential journal Science, claims that almost all biofuels used today result in more greenhouse gas emissions than conventional fuels if the pollution directly and indirectly caused by producing these ‘green’ fuels is taken into consideration. In addition, there would be a substantial loss of ‘consumer surplus’ throughout the world due to a likely increase in food costs. Some of the  intricacies of this important issue have been examined on an elementary level by Clay Ogg (2008).

In these circumstances, it might be argued that France’s total acceptance of nuclear power makes a great deal of sense. As noted in the Financial Times (October 6, 2006), nuclear power has provided “an abundance of cheaply-produced electricity, made the country a leader in nuclear technology worldwide and reduced its vulnerability to the fluctuations of the turbulent oil and gas markets.” France can also supply some electricity to neighbouring countries, which helps counterbalance the short sighted and unthinking foolishness being promoted  by the European Union’s directors and its Energy Directorate.

STRANGE BEHAVIOR

I’m a social scientist, Michael. That means I can’t explain electricity, or anything like that,  but if you want to know about people I’m your man.  ----J.B. Handelsman in Cartoonbank.com (The New Yorker Collection, 1986) 

My situation is somewhat different, Michael. I knew enough about electricity to work on power lines for the U.S. Army during a brief period, and later to design terminal installations for the U.S. Navy, but although I have taught social science (i.e. economics) in 14 universities, I am still unable to understand why so many people are willing to risk the economic futures of themselves and their families because of the drivel being put into circulation by persons with a psychotic hatred of technological  excellence, although they are quite capable of enjoying its material advantages.  Something to be aware of here is that the rich will never be without reliable and plentiful energy, regardless of its availability or lack thereof  to the less fortunate. One of the reasons that they will never be without  it is that they are fully aware of its importance.

Perhaps the clearest argument for nuclear power has been presented by Rhodes and Beller (2000), which is similar to the basic contention of this article.  They say that “Because diversity and redundancy are important for safety and security, renewable energy sources ought to retain a place in the energy economy of the century to come.” The meaning here is clear, especially if you add that we probably will never possess what is known in intermediate economic theory as the optimal amount of nuclear power. But they do state that “nuclear power should be central….Nuclear power is environmentally safe, practical and affordable. It is not the problem – it is one of the solutions.”

 REFERENCES

• Banks, Ferdinand E. (2008). ‘Economic theory and nuclear energy: an elementary introduction’. 321 Energy  (Forthcoming).

• ______. (2007). The Political Economy of World Energy: An Introductory Textbook. Singapore, London and New York: World Scientific.

• ______. (2004). A faith based approach to global warming. ‘Energy and Environment’. (637-852).

• ______. (2002). ‘Some aspects of nuclear energy and the Kyoto Protocol’. Geopolitics of Energy (July-August).

• ______. (2000). Energy Economics: A Modern Introduction. Dordrecht And Boston: Kluwer Academic.
  

• Ogg, Clay (2008). ‘Environmental challenges associated with corn ethanol production’. Geopolitics of Energy (January).

• Rhodes, Richard and Denis Beller (2000), ‘The need for nuclear power’. Foreign Affairs (January-February).

• Romm, Joseph J. and Amory B. Lovins (1992). ‘Fueling a competitive Economy’. Foreign Affairs (Winter).

• Schlageter, David (2008). ‘Comment on  Alan Caruba (‘Congress   conjures up an energy deficit’). www.energypulse.net (Feb. 6, 2008).

          

Comments

[Nukes aregoing theway of thedinosaur]

This is another tired nuclear apologist rant. Just like the wind isn't always blowing and the sun isn't always shining, when the wind and sun are present they provide more energy than we need easily. Clean sources of power like wind and solar can easily displace nuclear "base power" due readily available storage technologies such as electrolysis, flywheels, compressed air, etc. etc.

Sorry, nukes are just a very dirty, very expensive and very dangerous way to boil water.

[Jack Yetiv]

This article is far worse than just an apologist nuclear rant. It presumably comes from an academic, but nothing about it employs academic principles. It's as if the author believes that since he is a professor, just his say-so is support enough for his position.

He dismisses renewables without reasoning, uses 4-year old price data for various power sources even though coal and nat gas have approximately quadrupled in cost during those 4 years while production cost per watt on solar has probably dropped from a peak of $5/watt down to $1.14 (according to FSLR's recent quarterly report).

As an economist, he completely fails to take capital construction costs and insurance costs for nuclear plants, and dismisses waste fuel storage costs by relying on some unnamed future technology that will make those spent fuels less costly to dispose of because they will have some value.

He also fails to put a price on environmental costs, even though there are good data for those from existing cap-and-trade programs.

As to the fact that solar and wind aren't on 24/7, that is certainly an issue, but not at this stage, given that these two sources barely account for 2% of power in the US. And solar in many parts of this country match VERY nicely to the peak-load demand profile (think Arizona max AC power demand occurring when the sun is shining strongly in the afternoon).

By the time we get to 10-20% (at minimum 5-7 years from now, and probably more like 10 years), I believe that the energy storage problem will have been solved.

If you take ALL costs into account, nuclear is nowhere NEAR the bargain suggested in this superficial article, and by the time a nuclear plant is built in the US (10 years), solar's cost will drop by at least another 50%.

Jack

[bluesmoke]

Everyone is entitled to their opinion. What gets me is all these people who complain about nuclear being evil, but when gas hits $4-$5 a gallon, and they realize the green technologies aren't a fix-all, how quickly they will change their tune because they can't afford the lifestyle they were accustomed to and felt they "deserved".

[Tom Jacobs]

I found the article timely and insightful. It is unfortunate that the industry has repeatedly dropped the ball on safety with the resulting long term perception that such plants are and always will be dangerous since the executives in charge of the companies that run them typically do not live on the premises. As a result the great long term benefits of energy independence are forfeited.

I wait with baited breath for flywheels to power my house with solar cells. In the mean time, I will look for all the subsidies I can get for trying.

[ironist15]

The author has it just right. Baseload power is what's most important, and nuclear energy has tremendous appeal. As a health physicist, I can tell you that the nuclear waste storage problem is 99% political and 1% technical. By considering wacky scenarios involving illiterate farmers growing all their food in the desert on top of the waste dump a hundred thousand years from now, "activists" have sought to make spent fuel storage look hazardous. In fact, nuclear waste can easily be stored for many thousands of years in perfect safety. Like the author, I notice that the anti-technology "activists" are quite willing to fly all around the world to act out their morality plays, and then return home to their air-conditioned upper east side condos. Listening to the rhetoric of the "environmentalist... would condemn billions to continuing poverty.

[nakedjaybird]

My oh my oh my, Jack......even you???

Nuclear will be a remaining player. The waste from reprocessed "spent" fuel can and will be handled. As for all the "spent" fuel in storage, it is not "spent"; it's like easy-to-get-to fresh uranium when reprocessed - a real resource.

Hydro is not cheap to construct. And if you take into account all the industries supporting drilling, mining, processing, transporting, converting, etc., oil, gas and coal they are no way simple and cheap - in total, just as complex if not more so than nuclear. So they are all players. And, wind and solar should and will be much simpler players. Their fuel is free. Just convert it to electricity. As for fusion, let it continue on the Sun, far away, and just convert it's output here on earth (around the clock 24/7 somewhere) for free as solar power of one sort or another; free and forever; at whatever effeciency. And let some sun thru to grow biofuels or some sort.

So, emphasize the wind and solar to eliminate the coal and gas for production of electricity AND also to produce much, much more electric so we can electrify existing plus addditional railroads, new electrified transit systems in/around/between major cities and along the US seaboards, and install electrified rail ferries amongst the existing interstate hiway right-of-ways; push hybrids; move fuel oil to solar or electric in all homes: DO ALL THIS TO REDUCE THE GASOLINE AND DIESEL WHICH IS 70% OF CRUDE OIL DEPENDENCY. Sorry big oil. But either become part of the solution or a buggy whip.

[James Levy]

The alliance between the liberal left and OPEC will do everything possible to prevent nuclear power from achieving a renaissance. Every day we delay building more nuclear power plants is another day of billions of dollars going to countries which hate the United States, hate freedom, hate democracy, and despise the example that the United States offers to the world of a government subject to the people, rather than people subject to the government.

As a Republican, my greatest disappointment with George Bush is the fact that he did not order the building of dozens of new nuclear power plants on an emergency program following the attacks by Islamic Fascists on September 11th, 2001. If the Democrats regain the White House in the fall, the nuclear renaissance will be stopped in its tracks. McCain is our only hope. I often suspect that he has embraced the global warming fraud as a cover to better provide support for nuclear power which will truly improve the national security of the United States.

[Lucas K.]

The argument of intermittend power is just a lie, of the nuclear industry. There is no scientific article that says that intermittend power can not be solved, due to fundamental natural laws. Although for nuclear people, it is a fact like E = MC2.

Yes, it is a problem and it will cost money. You have to build a larger power grid and do some other things.

There are several studies that say that you can do renewables. Wind is one of the most intermittend.

But, most renewables are still more expensive than fossil. Why would you solve the intermittend problem, if your fossil alternative is still cheaper?

The German Aerospace showed that large amounts of electricity could come reliable from the Sahara and can be transported to Europe, using CSP. You might not like that, because of other reasons, but it is possible and will be affordable.

So, we have a scientific study that shows the opposite, while the nuclear industry continues to say that renewables are too intermittend, without any scientific backing.

For me, these lies are a reason to doubt more about nuclear power and the statements the industry is telling about them.

I do see future for the nuclear industry, in places where renewables are poor. Such as Sweden and Poland.

By the way, nuclear will become less significant. Total installed new windpower in 2007 was higher than total installed new nuclear power (I did divide the windpower by 3, to get a fair number). In 2013 solar cell production will surpass nuclear, that is predicted (divided by 4 for solar).

So, to the nuke guys, don't be so bullish to renewables, cooperate and look where nuclear has the highest value.

Lucas

[Johnnyb]

If the installed wind power in equal to the installed nuclear power then that only reinforces the argument that wind power sucks, seeing how nuclear power is so much more productive.

I'm a Texan, and all of these idiot wind developers are out here targeting Texas wind. Texans see green money, which is their favorite color, but I am very concerned about the potential ecological damage these things could do locally when they cover hundreds of square miles.

From what I understand about the wind turbines they are really hard on things like bats, hawks, eagles and vultures. Imagine the environmental impact that would be had if these animals were greatly reduced in population! Hawks and eagles kill snakes and rodents that snakes eat. Rodents carry things like the plague, they eat crops and obviously snakes are poisonious. Vultures may not be much to look at, but they keep the land clean by eating animals that have died of disease. Bats might be ugly too, but they eat bugs which eat crops and spread disease. We are the largest beef growing area in the world, and one of the agriculturally most productive areas in the world. With food supplies already running short, what effect do you think will be realized if these wind turbines kill off animals that are vital to our ecosystem, creating a larger niche for rattlesnakes, Coyotes and Rats and prairie dogs? All animals which are destructive to livestock.

Liberals might not give a damn about Texas ecology ot agriculture, but liberals have to eat too, and that food has to come from somewhere.

Nuclear plants would have far less impact of the local environment, than these stupid ugly wind farms and they would use less land. Wind power is just an all round bad idea.

[Mike137]

One aspect of renewable power that often gets swept under the rug is the cost of storing energy and distributing the energy. With the variability of wind and solar large scale energy storage is needed. Batteries, flywheels, compressed air, and pump hydro storage will add significantly to the overall cost. On top of this the distribution of solar power from the southwest and wind from the mid west will require huge investments in the electrical transmission infrastructure. This includes running numerous new high tension power lines around the country. Such costs should be factored in to the total cost of renewable energy.

[DougM]

I agree with Mike137 - people who think we can get all we need from renewables aren't considering the largely unsolved problem of storage.

Re. the original quote about phasing out nukes in favour of a conservation program and more renewable and gas-fired power resulting in an overall decrease in emissions, read it carefully - they postulate a 2x efficiency improvement! Gee, if that's possible, then let's compare their gas-fired future with continued use of nuclear power using the same 2x efficiency gain, I'll bet the emissions decrease is even greater, and to boot they won't be stuck burning increasingly expensive and depleting natural gas.