Financial risks associated with investing in nuclear power

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Nuclear power generation technology is a mature technology and is well understood. Construction of a new nuclear plant based on established technology should present no significant technical risk.

Where innovations are made to nuclear power plant designs, these are usually evolutionary in nature, based clearly on existing technology. The nuclear industry has found this approach to be essential because of the difficulty in obtaining authorisation to build novel nuclear plants. Technological risk should, therefore, remain low even where changes to plant design have been instigated.

The most significant nuclear risks lie elsewhere. Nuclear power is capital intensive. The cost of the plant is much higher than that of a fossil-fuelled power plant but the cost of the fuel is much lower. This makes nuclear plant construction extremely sensitive to schedule overruns.

In the USA in the later stages of its development, nuclear power plants were taking up to 10 years to build. Over this period interest rates can change dramatically, fuel costs can change, and perhaps most significant of all, regulations can change.

The introduction of new regulations affecting the construction of nuclear power stations can easily affect the construction schedule by years. Then interest payments escalate. It was the conspiracy of just such factors in the USA which pushed several utilities with nuclear construction programmes close to bankruptcy.

The route around such problems is with standardised designs which can be authorised rapidly and modular construction techniques to ensure rapid construction schedules. If the construction schedule can be kept short then the risk becomes significantly lower. A 1300 MW reactor which was commissioned in Japan in 1996 took little over 4 years to complete. Construction periods of 4 years or less are essential in the future.

There remains the risk of a nuclear accident. There may even be liability in the event of a terrorist incident. Any nuclear power company must attempt to indemnify itself against this possibility. The claims that might be made as a result of a significant release of radioactive material are incalculable but undoubtedly gargantuan.

The cost of nuclear power

Nuclear power is capital intensive and costs have escalated since the early days of its development. This is partly a result of higher material costs and high interest rates but is also a result of the need to use specialised construction materials and techniques to ensure plant safety. In the USA, in the early 1970s, nuclear plants were being built for units costs of $150-300/kW. By the late 1980s, the figures were $1000-3000/kW.

The Taiwan Power Company carried out a study, published in 1991, which examined the cost of building a fourth nuclear power plant in Taiwan. The study found that the cost for the two-unit plant would be US$6.3 billion, a unit cost of around $3150/kWh. The estimate was based on completion dates of 2001 and 2002 for the two units. Orders were actually placed in 1996, with construction now scheduled for completion in 2004 and 2005.

Nuclear construction costs do not take into account decommissioning. This can cost from 9% to 15% of the initial capital cost of the plant. However nuclear proponents argue that when this is discounted it adds only a few percent to the investment cost.

The fuel costs for nuclear power are much lower than for fossil-fuel-fired plants, even when the cost of reprocessing or disposal of the spent fuel are taken into account. Thus, levelised costs of electricity provide a more meaningful picture of the economics of nuclear power generation.

Table 17.2 gives figures from the 1991 Taiwan Power Company study which shows levelised costs of generation of power from different sources, based on a plant with a 25-year lifetime which starts operating in 2000. Nuclear power, at T$2.703/kW, is cheaper than the other sources of power cited. Actual unit generation costs from existing plants in 1997 are provided for comparison. Again nuclear power is the cheapest source, closely followed by coal and hydro.

Table 17.2 Cost of power generation in Taiwan

25-year levelised cost (T$)

Unit generation cost in 1997 (T$)




Coal fired



Oil fired



LNG fired






Note: Levelised costs are based on a 25-year lifetime from 2000 to 2025. Source:Taiwan Power Company.

Note: Levelised costs are based on a 25-year lifetime from 2000 to 2025. Source:Taiwan Power Company.

Taiwan has to import all its fuel so costs for fossil-fuel-fired generation are bound to be high. Where cheap sources of fossil fuel are available locally, the situation will be different. Australia, for example, estimates that coal-fired power generated a pithead plants is cheaper than nuclear power.

A1997 European study compared the cost of nuclear-, coal- and gas-based power plants for base-load generation. For a plant to be commissioned in 2005, nuclear power was cheaper than all but the lowest-priced gas-fired scenario, based on a discount rate of 5%. When the discount rate was put up to 10%, nuclear power was virtually the most expensive option. Other studies have confirmed this assessment.

Coal is generally the source of new generating capacity with which nuclear investment is compared. But the cost of coal, and therefore the cost of coal-fired electricity, depends heavily on transportation costs. These can account for as much as 50% of the fuel cost. Given this sensitivity, the local availability of coal will be a strong determinant of the economic viability of nuclear power. Gas-fired base-load generation in combined cycle power plants is also cheap but similarly sensitive to fuel prices.

While the cost of new nuclear generating capacity might be prohibitive in some parts of the world - but acceptable in others - the cost of power from existing nuclear power plants is often extremely competitive. This is true even where coal and gas are readily available. Thus the Nuclear Energy Institute claims that 2002 was the fourth year for which nuclear-generated electricity was the cheapest in the USA, undercutting power from coal-, oil- and gas-fired power plants. (Hydropower from old plants may well be cheaper still, see Chapter 8.) In support of this, a number of companies are now making a successful business of running US nuclear power stations sold by utilities when the US industry was deregulated. In France too, nuclear power is on average the cheapest source of electricity.

End notes

1 US Department of Energy.

2 There were rumours in late 2004 that Russia was starting work on a breeder reactor at Beloyarsk.

3 World Energy Council, Survey of Energy Resources, 2001.

4 International Atomic Energy Authority.

5 World Energy Council, Survey of Energy Resources, 2001.

6 Refer supra note 5.

7 Nuclear Energy Institute.

8 The US Department of Energy does not classify spent fuel as waste but the Nuclear Regulatory Commission does.

9 US nuclear plants are now winning operating license extensions which will allow them to operate for up to 60 years.

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