TCS Daily


'Greenpeace Go Home'?

By Jan Arlid Snoen - July 11, 2002 12:00 AM

OSLO -- A majority in the Finish parliament recently allowed a fifth nuclear reactor to be built. The Green Party has left the broad-based government as a result.

But in the streets of Helsinki demonstrators held banners with the somewhat unusual slogan: "Greenpeace go home". Opinion polls show that a substantial majority of the business-minded Finns support the decision.

The French government was the last to authorise a new nuclear plant back in 1991. Many countries have in principle decided to shut down their nuclear plants before the end of their economic lifetime, and some have even started to implement decommissioning. Finland's Swedish neighbours in 1999 shut down a reactor at Barseb├Ąck and are due to close the other one next year, although there is some doubt whether this decision actually will be implemented. The paradoxical situation might arise that Finland is building new nuclear capacity at the same time Sweden is shutting down perfectly good reactors.

After the Three Mile Island and (especially) Chernobyl accidents, nuclear power fell out of favour in Europe. Safety concerns overrode all other considerations. There are signs that this situation is slowly changing. No major nuclear accidents since Chernobyl has helped, but more importantly, geopolitical aspects of security of supply has been on the rise for the last couple of years. In the last year, the Bush-Cheney Energy Plan (Reliable, Affordable and Environmentally Sound Energy for America's Future), the British Energy Review and the EU commission Green Paper Towards a European Strategy for the Security of Energy Supply, all put more emphasis on securing energy supplies, in light of increasing Middle Eastern dominance in the oil markets. The events of September 11 only strengthened such concerns. For all practical purposes, nuclear power is a domestic energy source, as fuel can easily be stored for future consumption. On the other hand, nuclear plants make attractive terrorist targets.

Climate change considerations have also intervened on the side of nuclear power. Renewables are unlikely to satisfy the need for additional electricity capacity. Projections show that the EU is very unlikely to reach its Kyoto target. As a matter of fact, Britain is alone among the member states to be on target. To add more natural gas and especially coal capacity would make the targets even more distant. Nuclear power thus becomes more attractive, at least in terms of delaying planned decommissioning and upgrading of existing facilities. New plants have a long lead time and cannot help much towards reaching the first Kyoto targets in
2008-2012. Even the fifth Finnish reactor is not likely to come on stream before the end of the decade.

Finland is experiencing unrelenting consumption growth. More electricity is needed both for general consumption and for the expanding pulp and paper and other heavy industries. Finland has always been uneasy about its reliance on Russian gas and, to some extent, electricity imports. These concerns for security of supply were a primary motivation behind the construction of the first four reactors in the late 1970s. Plans to build infrastructure for gas imports from Norway have always stranded on high costs. Another option is to import electricity from the Nordic neighbours, and ultimately, as the European market becomes deregulated and integrated, from the European continent. In the short run, this seems attractive, as deregulation in Europe reveals over-capacity and prices are falling significantly below cost of new capacity. On the other hand, major investments have to be made in expanding transmission capacity, and in the medium and long run, excess capacity in Europe is likely to be swallowed by consumption growth, and prices are likely to rise again.

The Finnish politicians therefore have opted for expansion of nuclear power. It is a widespread misconception that the political go-ahead automatically means that the reactor will be built. While it is true that the main political obstacles are removed, it will be up to the independent company TVO, where private owners control the majority stake, to make the investment decision.

The cost of nuclear power consists of three major parts - construction, operating and maintenance (including fuel) and decommissioning/waste disposal. Safety concerns have increased all three components, although fuel costs are falling. Basically, nuclear power has higher investment costs, but lower or similar operating costs, compared to fossil fuels.

Estimates of total costs of new nuclear power in Finland vary considerably. A much referenced study from the Nuclear Energy Agency/IEA put the total costs at (1996) $5,6 cents/kWh given a 10% discount rate, or 3,7 cents/kWh at a 5% discount rate. In this study, new nuclear plants would have higher costs than natural gas in all the surveyed countries, given a 10% discount rate.

TVO refers to a Finnish study that calculates costs to be as low as €2,15 cents/kWh, based on a 5% discount rate, prompting the question of why TVO's owners should be satisfied with a 5% return on their capital. There are few other international studies that indicate prices below €3 cents/kWh. According to the World Nuclear Association, total average cost in the U.S. was $3,91 cents/kWh in 2000. Lately, the wholesale price in the Nordic electricity market has been in the lower end of a €2-2,5 cents/kWh range. Prices are likely to have risen somewhat at the time the fifth reactor may come on stream, but an investment decision now would be a huge financial gamble for TVO.

Finland has been part of the deregulated Nordic electricity market since 1996, and the rest of the EU is slowly deregulating their markets. Thus, electricity sector investment decision will increasingly be market induced. It is unlikely that Finland or any other European government will subsidise nuclear power outright, or lighten safety regulations. If we do not believe the unusually low cost estimates of the Finnish study, the revival of nuclear in Europe thus is dependent on substantially higher wholesale electricity prices.

This may be brought about by continued increased demand, combined with restrictions or extra costs (in the form of a carbon tax or a greenhouse gas trading scheme) on fossil fuelled power plants as part of a policy to reach the Kyoto targets. The nuclear industry, once the main villain of the green movement, is now seizing every opportunity to portray itself as the saviour of the environment, and argues that coal and gas should pay for their environmental costs, as nuclear power to a large extent already does. That nuclear battle is far from won yet.

 

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