That means nuclear projects might soon enjoy cheaper financing while companies can classify investments as environmentally sustainable, potentially boosting a perennially struggling sector. However, industry actors have expressed concerns about onerous conditions, including on waste disposal, which, they say, could hold back investments.
Those stipulations reflect ongoing worries about one of the four main pillars of opposition to nuclear energy that have contributed to it failing to reach the potential identified by many when it was developed after World War II, not least by U.S. President Dwight D. Eisenhower in his 1953 Atoms for Peace speech.
Those primary pillars of concern are: safely disposing of radioactive waste, the dangers of the proliferation of nuclear technology and materials, the risks stemming from nuclear power stations, and the costs of nuclear energy production.
Although plenty of opposition remains, pro-nuclear campaigners have made progress in easing most of the concerns.
They have made a convincing case that—especially in the face of the urgent need to constrain global warming—waste disposal is manageable (my country Finland is the global leader), nuclear plants are actually relatively safe, and that concerns over proliferation are largely misconceived. (In 2020, I co-authored a book that covered all these issues in-depth.)
Green plants
These are hardly just views held by a few fringe activists, as they are backed up by science and other evidence.
Hence, the pro-nuclear coalition is diverse and powerful, ranging from the Intergovernmental Panel on Climate Change to Bill Gates and Warren Buffett, two of the world’s richest people. It includes climate science pioneer James Hansen, most of the French establishment, the Chinese Communist Party, Guardian environment columnist George Monbiot (albeit briefly), the Russian government, former Extinction Rebellion spokesperson Zion Lights, holdout infrastructure bill Democrat senator Joe Manchin and, in my neck of the woods, Finland’s Green Party. Recently, ten European countries also wrote a letter to the European Commission making the case for nuclear power to be included in its taxonomy for sustainable activities.
When it comes to whether to maintain existing nuclear plants, they have a pretty much unanswerable case.
Because of the extreme efficiency and low operational costs of nuclear energy, existing reactors are an extremely cheap way of producing clean, reliable electricity. Costs including operations, maintenance, fuel, and decommissioning/waste fund come in around 20 euros per megawatt hour, while offering lots of well-paying jobs for the local community. For comparison, German households paid 321 euros per MWh for electricity in 2021, the highest in Europe.
Most nuclear plants have been built in a way that allows pretty much all parts to be replaced as they wear. The water-cooled nuclear reactors built in the 1970s and 1980s can usually be safely operated for up to six or even eight decades. Some have already been licensed for that. Even longer might be possible, but we will only find out when we get there.
According to a recent study by the International Energy Agency, extending the life of reactors is the most cost-effective way to ‘add’ low-carbon energy production: “Electricity produced from nuclear long-term operation by lifetime extension is highly competitive and remains not only the least cost option for low-carbon generation—when compared to building new power plants—but for all power generation across the board.”
From an environmental perspective, shutting down operational nuclear power plants is highly irresponsible, as it will lead to more coal and fossil gas being burned instead.
From an economic perspective, not extending the lifetime of existing, smoothly running nuclear plants—not to mention shutting them down prematurely—is madness. Yet this is something that, for example, Germany and Belgium are doing.
Levelised cost
When it comes to the costs of new nuclear plants relative to other energy sources, there is still, however, a debate to be won.
Evaluating and comparing the costs of different energy sources is a complicated matter. The usual measure is the Levelised Cost of Electricity (LCOE), which the UK government describes as “the discounted lifetime cost of building and operating a generation asset, expressed as a cost per unit of electricity generated”.
In 2016, the UK authorities estimated that in 2025 the electricity generated from new nuclear would cost £95 per megawatt hour, slightly below offshore wind (£100) but more than Combined Cycle Gas Turbines (£82), and well above onshore wind (£61) and solar (£63).
Yet using LCOE has some severe limitations. First, and perhaps most importantly, it is ill-suited for comparing different types of technologies as it captures little of the value they provide for us. Still, people do this type of exercise all the time. Imagine comparing the cost of a tent to the cost of a house and concluding that we should only build tents to meet our housing needs because they are much cheaper.
Second, LCOE is something of a black box that can output a range of values depending on the assumptions that were entered. These are rarely disclosed in a comprehensible way, partly as they can be complex. Examples of key variables are the price of carbon emissions, the cost of inputs, a plant’s lifetime, maintenance charges, decommissioning costs, and, notably, the value today of energy that will be produced in the future, known as the discount rate. For a relatively long-term front-loaded investment like a nuclear plant—around 60 percent of the LCOE is the capital investment—the latter is critical in assessing value.
Discount rate
A nuclear plant’s main advantages vis-à-vis solar and wind is its incredible energy density (think of Einstein’s famous equation). It also requires fewer material inputs and far less land than other low-carbon energy sources, and produces reliable electricity at full generating capacity 80 to 90 percent of the time.
This compares well with wind, at 30 to 50 percent, and with solar, at 10 to 25 percent, as the sun does not always shine and nor does the wind constantly blow. Additionally, panels and turbines need replacing every two or three decades, while, as discussed, a nuclear plant lasts a lot longer.
However, various financing factors counteract these benefits. A nuclear project has two key elements to its total cost: the investment cost and the cost of capital, and the latter is greatly compounded by construction time. Nuclear power stations normally take five to eight years to build, increasing the pre-operating financing costs compared to, for example, gas turbines, which are quicker to build. Many recent nuclear projects, especially in Europe and North America, have also suffered delays for various reasons, compounding the financing costs further.
In addition, the applied discount rate is an important cause of the high costs of capital.
Although a sophisticated financial accounting tool, the discount rate leans on traditional wisdom: “A bird in the hand is worth two in the bush”. Simply put, we value consumption now more than consumption in the future. More technically, the discount rate helps to estimate how much an investment’s future cash flows would be worth in the present.
Discount rates are normally at between three percent and ten percent, with a lower rate indicating a reduced level of risk. Risk increases in deregulated energy markets where there is greater uncertainty about future revenue flows from electricity sales, which has led to more investment being directed to more regulated markets.
Climate capital
If a seven percent discount rate is applied, the electricity produced in 20 years’ time will only have a quarter of its value when brought into the present. Electricity produced after 30 or 40 years will have practically no current value, even though easily half of the nuclear power plant’s lifetime would still be ahead of it. And arguably those will be the most profitable, as the capital investment would be paid back, leaving only the relatively low operational costs for the owner. Essentially, high discount rates discourage large long-term investments.
By raising the discount rate several percentage points, the LCOE of nuclear energy can double. The Intergovernmental Panel on Climate Change Working Group III Chapter 7 on Energy Systems, for example, used ten percent when comparing LCOEs.
Lowering that rate from ten percent to 1.4 percent—the rate used by Nicholas Stern to value the price we are willing to pay now for costs caused by climate change in the future in his landmark 2008 study on The Economics of Climate Change—dropped the LCOE of nuclear from $97 per megawatt-hour to around $42/MWh. That is, by over half.
A 2015 study of 181 plants in 22 countries by the International Energy Agency and the OECD’s Nuclear Energy Agency showed at a discount rate of three percent nuclear energy was cheaper than coal and gas. But when a ten percent rate was applied, nuclear was the most expensive.
It said nuclear power “is the most sensitive to changes in the discount rate” with its LCOE increasing by 349 percent as the discount rate rises from 0 to 15 percent. “This is mainly because nuclear power has a significantly longer construction lead time than other technologies, though higher discount rates do also diminish the benefits that nuclear plants receive from their relatively longer lifespans.” It found, “nuclear plants have long construction times, and so costs are highly sensitive to delays in construction or to changes in the discount rate.”
Unsustainable approach
Discounting might generally be sound economic thinking, but with existential long-term issues like clean energy and climate change, it is highly problematic, as it does not align with the idea of sustainability.
We are supposed to be leaving Earth a better place for our descendants. Yet using even modest discount rates omits consideration of future generations from today’s discussion. It is in fact the core function of discounting. Doing so at relatively high rates leads us to prefer consuming more fossil fuels today, handing us immediate benefits but storing problems for the future.
Indeed, the same sort of arguments is used by those who prefer Stern’s type of approach and oppose the influential work of William Nordhaus on the economics of climate change, as he uses a discount rate of 4.25 percent that, it is said, undervalues the harm caused to future generations by global warming.
Our descendants will be so much richer and technologically advanced than us that it will be trivial for them to handle the climate catastrophe, the argument implies. The question is, are we prepared to bet the planet on an economic model? Further, this argument has no end nor a beginning. In 30 or 50 years’ time, this same logic can be used to kick the can down the road once again—until one day, it is too late.
Risky business
Regardless, for now, nuclear energy in Europe and North America still faces an uphill struggle. In countries with consistent political support and state backing for new nuclear plants, such as Russia and China, build times are shorter and capital costs are reduced—and so more plants are planned; 150 in 15 years in China.
In the UK, which needs more generating capacity but has a relatively market-driven approach to energy, the government is looking at ways to make plants more financially attractive.
With the much-criticised Hinkley Point C, the government agreed to pay a relatively high fixed price of £92.50/MWh for 35 years to the owners, who have assumed all the risk of the project. The authorities say the high cost of the UK’s first plant in almost three decades years is partially justified as the development of supply chains and engineers will pay off during subsequent projects.
The UK National Audit Office found that the fixed price required for Hinkley’s electricity would have been less than £30/MWh if the government had provided loans and taken on the risk.
For the planned Sizewell C, the government moved to reduce capital costs by having the future consumers of electricity contribute to the investment. A study by the Energy Policy Research Group from the University of Cambridge said the model should reduce costs to around £50-60/MWh: “If the risk of excess costs is spread over the 27 million households and other customers taking two-thirds of electricity, each would bear minimal risk and the cumulative cost would be significantly lower.”
Build better
The other big factors in nuclear costs relate to how the industry and projects are managed and regulated. This is shown by South Korea, which actually managed to reduce nuclear construction costs by half since its first reactor in 1971. In the US, costs surged both before and after Three Mile Island.
Current prices of nuclear power capacity vary from the European level of $5,500 per kilowatt to the Chinese of $3,500/kW. A 2020 OECD study on reducing costs found that among the key issues were a need for regulatory stability, commitment to a standardised nuclear programme, investment in supply chains, government support for innovation and development, and government financial support.
Similarly, a 2018 Energy Technologies Institute report on reducing UK nuclear costs suggested that the plant design should be completed prior to starting construction, best contracting and project management practices should be followed and learning incentivised, while project owners should develop multiple units at a single site.
All this means that getting much lower costs for nuclear new-builds in Europe and North America is perfectly possible. But it needs to be campaigned for cannily, planned meticulously, and managed astutely—it will not happen by itself.
