Nuclear economics

In a global economic crisis, the last thing the nuclear energy industry needs is delays on capital spending. Unfortunately, that’s exactly what seems to be happening.

Nuclear-generated electricity is a different value proposition than “conventional” methods. The expense is largely up front. It’s cheaper to construct a coal-burning plant than a modern reactor, because burning gas or coal – even with stringent emissions standards – is a low-tech operation. Nuclear fission is not.

So why bother with nuclear power? Besides zero emissions, that is? Once the infrastructure is in place, nuclear power is comparatively cheap. Fuel costs are a minor proportion of total generating costs. Uranium is plentiful and cheap.

About half of the cost is due to enrichment and fabrication. Allowances must also be made for the management of radioactive spent fuel and the ultimate disposal of wastes. The World Nuclear Organization says even with those costs factored in, nuclear is still cheap.

Unfortunately, the global financial crisis is changing those economics. In Finland, a next-generation reactor could be delayed three years. It’s already $2 billion over budget since construction began in 2005. Part of the problem is labour shortages in a highly specialized industry, and rising material costs.

Even more serious, though is the credit crunch. In October 2008, Raleigh, North Carolina-based Progress Energy said expects to pay more than US $9.3 billion for two nuclear reactors. That’s more than double the estimate of $4.4 billion given just eight months before.

Progress Energy can’t absorb almost $10 billion of capital costs without help, but financial backing is suddenly in short supply. The nuclear industry’s Achilles heel, if you will, is it requires a massive initial investment, anticipating cheaper operating costs down the road.

So what if nobody can afford those initial costs?