Antinuclear

Economics of Coalition’s nuclear modelling are worth nothing

There may well still be good reasons to favour nuclear. But on the basis of this modelling, the economics isn’t one of them

Australian Financial Review, .Steven Hamilton, Columnist, 16 Dec 24

On Friday, the Coalition finally released the economic modelling underpinning its plan to produce more than a third of our electricity via nuclear by 2050.

I approached the modelling – produced pro-bono by Frontier Economics – with an open mind. I have no issue with nuclear power so long as the economics stack up. To date, I am yet to read a convincing analysis in its favour in the Australian context.

Alas, after studying the modelling very carefully, I can confirm it is worth about what the Coalition paid for it.

Most critical reporting has focused on the Coalition’s decision, bundled along with nuclear, to abandon the “step change” scenario the government is counting on, which would see significantly greater electricity generation to support widespread electrification of households, transport and business.

But this is a red herring. While the Coalition’s claim that its plan will cost 44 per cent less than the government’s plan relies on the abandonment of step change, the modelling presents both step change and the Coalition’s preferred “progressive” scenario with and without nuclear power.

Within the progressive scenario, nuclear is claimed to reduce costs by a still-substantial 28 per cent. How does the modelling reach such a conclusion? Through sleights of hand, unrealistic assumptions and sheer physical impossibilities.

The first red flag is the odd choice to conduct all cost comparisons across the entire 2025-2051 period. To understand why this matters, consider that the Coalition’s plan involves two big changes.

First, a big slowdown in the renewables rollout paired with delays to coal closures; second, the transition to nuclear of the remaining coal-fired power beginning in 2035, but mostly in the 2040s.

So the claimed cost reductions over 2025-2051 are not driven primarily by nuclear being cheaper than firmed renewables, but by already-sunk coal-fired generation being cheaper than new firmed renewables.

From 2025-2051, nuclear accounts for just 15 per cent of electricity generated; but in 2051, it accounts for 38 per cent. So while the cost difference for 2025-2051 is 28 per cent, the cost difference in 2051, when both systems are fully up and running and producing near-zero-emissions power, is just 12 per cent. And that’s the comparison that matters.

Of course, we should not pretend the decision to swap renewables for coal in the interim is costless. The modelling shows that this will generate two and a half times the emissions from electricity generation from 2025-2051 than Labor’s plan.

That represents 1 billion tonnes of emissions, and that’s ignoring additional emissions outside the electricity sector. Using the Australian Energy Regulator’s “value of emissions reductions” carbon pricing framework, that’s worth $180 billion in today’s dollars. And we can say goodbye to our Paris commitment.

far more capital investment – nuclear or renewables – will be required under the Coalition’s plan than the modelling claims.

So what is driving the claimed 12 per cent cost advantage in 2051? Two key things.

The capital cost of nuclear is assumed to be $10,000 per kilowatt, which then falls by 1 per cent per year from today despite the fact that the first nuclear plant isn’t due until 2035, and most not until the 2040s. So around $8500 per kilowatt in 2040.

But the Centre for Advanced Nuclear Energy Systems at MIT, in an independent assessment of the cost of the next AP1000 units at Vogtle, Georgia, puts the capital cost at a greenfield site at around double this, and that’s likely conservative.

Moreover, historical experience has shown that nuclear costs tend to rise, not fall, as additional units are built. This alone blows through that 12 per cent cost gap.

But there is a bigger problem. Because nuclear is so capital-intensive, the biggest economic challenge it faces is to operate at a high utilisation or “capacity factor”.

s noted by nuclear advocacy group the Nuclear Energy Agency (NEA): “At high levels of renewable generation, for example, as implied by the EU’s 30 per cent renewable penetration target, the nuclear capacity factor is reduced and the volatility of wholesale prices greatly increases whilst the average wholesale price level falls.”

“The increased penetration of intermittent renewables thereby greatly reduces the financial viability of nuclear generation in wholesale markets where intermittent renewable energy capacity is significant,” they say.

But this is completely ignored in the modelling. It assumes an extraordinarily high capacity factor for nuclear of 90 per cent despite 38 per cent of electricity coming from nuclear and 54 per cent from renewables.

This implies nuclear is prioritised to generate near maximum at all times. But then renewables must be forced to serve only residual demand regardless of whether or not the sun is shining or the wind is blowing, pushing down their capacity factor.

Yet the modelling assumes high renewables capacity factors of 26 per cent for solar and 36 per cent for wind. But the real smoking gun is the fact that these capacity factors do not change with the introduction of nuclear producing 38 per cent of generation nearly 24-7. You might imagine storage could soak up surplus energy, but the modelling assumes far less storage with nuclear but with a similar capacity factor.

In practice, one of two things has to happen. Either nuclear’s capacity factor must be reduced below 90 per cent to something closer to coal’s 60 per cent, or renewables’ capacity factor must be reduced to make room for nuclear. Either way, far more capital investment – nuclear or renewables – will be required under the Coalition’s plan than the modelling claims. Which again blows that 12 per cent gap out of the water.

In summary: there may well still be good reasons to favour nuclear. But on the basis of this modelling, the economics isn’t one of them.  https://www.afr.com/policy/energy-and-climate/economics-of-coalition-s-nuclear-modelling-are-worth-nothing-20241214-p5kydg?fbclid=IwY2xjawHUWzJleHRuA2FlbQIxMQABHdLavxsUUY_GjBH3PWkhXPoaK5h50Pyy9Zu1WWEt2adqfbAkKQ9zrFsJbg_aem_kbpsngTqQ-zFGfa9cL6s4Q

December 22, 2024 - Posted by Christina Macpherson | business, politics