Second of the three European EPR ( Evolutionary Power Reactor) #nuclear projects - #France#Flamanville - will be shortly connected to the grid. The projects caused many controversies due to long delays… but they are getting completed:
🇫🇮 Olkiluoto 3 ✅ connected in 2023
🇫🇷 Flamanville ✔️ finished, will be connected by end of 2024 : 🇬🇧 Hinkley Point C 🕓 will be completed by 2027
The moment these projects get connected, they start delivering gigawatt-hours of low-carbon electricity to the grid, which is desperately needed for #ClimateChange prevention and mitigation.
Each of these has been criticised for delays (which is factually true but unfair) and “huge cost” (which is unfair and untrue).
Talking about the total investment cost in case of clean electricity sources that may live up to a century is a popular manipulation but what matters is LCOE.
It’s the cost of investment and operations divided by value of electricity produced over its life time. In case of nuclear power LCOE is quite low, in the range of $60/MWh because the relatively big initial costs is divided by decades of delivery of huge amounts of power. This is exactly the same case with very costly off-shore wind farms (e.g. the Doggerbank project) or huge solar farms (e.g. Ouarzazate in Morocco).
The reasons for delays are… complex. This article[1] by Joris van Dorp is probably the best explainer to why exactly Hinkley Point C was delayed so much. It’s a mix of reasons, starting from “first of kind” scale of the project to prohibitive and often absurd safety requirements lobbied after Fukushima by countries who saw an opportunity in replacing EU nuclear by Russian fossil gas. And they were absurd, for example because you don’t get earthquakes and tsunamis on the La Manche Channel.
And the reasons are complex, for example due to general UK attitude to funding infrastructure projects - they exclusively opt for private funding, which means the investors need to get a direct financial profit. Most people see the absurdity of private ownership of UK water utilities (which leads to no investments in the network and dumping of sewage into rivers by underregulated companies) but nobody sees the same absurdity in funding the electricity grid (which is in turn overregulated).
LCOE is the cost of investment and operation divided by energy output over its total life time.
Looking at only the investment leads to biased results as the operation and dismantling of a nuclear power plant are quite expensive. Therefore the idea of calculating the LCOE exists in the first place.
@kravietz well if you maintain the claim that the LCOE of a nuclear power plant is $60/MWh, then maybe you could explain your readers why the British pay EDF something in the range of £130/MWh in the case of Hinkley Point C
And HPC £130/MWh is a specific business arrangement for a specific contract in a specific country for a specific company building it and operating according to a specific business model. But the consequence of the very definition of median is that there’s also projects with LCOE much lower than $60/MWh, for example for Olkiluoto 3 it was around 40 EUR (and that was including all the delays etc), because Finland secured a very rigid contract where the supplier was paying for any losses while UK seems to be mostly interested in pleasing foreign investors.
But using this case to bash nuclear power in general makes just as much sense as bashing public water utilities for how troubled British water companies are.
@kravietz I am not bashing anything, I am just pointing out that certain claims in your text don't make sense.
You claim that OL3 has a LCOE of €40/MWh, where did you take this figure from? Because:
Production cost for the OL3 reactor alone is estimated at 49 €/MWh, as OL1-2 had a production cost of app. 18 €/MWh during 2016-2020, prior to OL3 entering service.[66]
You are right, it was not LCOE but production cost - I think your quote comes from Wikipedia article, where it was previously described as LCOE but must have been refined as production cost since I’ve last seen it.
Still, the median value in the range of $65 (IPCC 2014) and $69 (NEA 2020) still holds.
My point was more in that neither UK nor US are good examples due to their obsessive fixation on private funding and ownership of the plants. Neither example should be generalised on the nuclear power in general, because it has nothing to do with nuclear power or water utilities themselves, but is caused by specific market failures in these countries.
@kravietz So I don't know which country you live in but here in central Europe, we have seen massive price hikes in everything concerning construction.
So the claim that a ten year old figure "still holds" is quite a daring one.
Would you like to explain us through which mechanism the insistance on private funding drives up the LCOE?
Private funding implies loan rates which must ensure investor’s profit and commercial-driven discount rates. External costs (externalities) are typically ignored by commercial funding, unless enforced by regulation.
But the discount rate has a dramatic impact on the LCOE especially as these projects usually span decades. This is discussed in great detail in the latest NEA report (2020), Chapter 5, page 84 (chart taken from there).
The result of using private funding of long-term infrastructure projects - and it’s the same case for nuclear as for hydro or wind or PV farms - is that for most of their life they’re just paying out the interest, which can take up to 60% of the total cost project.
In general, for socially beneficial infrastructure projects the recommended discount rate is in the range of 1-3% (with commercial often reaching 15%). One such case for nuclear power is discussed here:
It was built for the UK and I don’t need to add it was duly ignored 😄 But the same logic was applied to renewables, because it makes just as much sense for any technology that leads to decarbonisation.
@kravietz the financial market is among the most liquid and competitive.
If you say that the state should finance the construction of a nuclear power plant at discount rates lower than the free financial market offers, then you are actually saying that the tax payer should lend his tax money at sub-market levels. It is a subsidy that is not visible in the cost of electricity output, still it is there. And this subsidy should be made part of the LCOE.
From this point of view, even a different in VAT rates are a form of subsidy 🤷 But I would argue that talking of “market levels” doesn’t make sense here until you factor in externalities - such as air pollution or carbon emissions. And taxes like carbon tax are a way to factor in these externalities back into the consumer price of the product. But if you accept that notion, then the subsidy is exactly the same mechanism applied to products with potential to reduce externalities, such as low-carbon energy sources.
construction of a nuclear power plant
No, I don’t limit this to nuclear power plants but to all carbon-removing sources.
@kravietz you are right if you say that the state distorts the market by not pricing pollution adequately.
Depending on the country, this can be said for taxation in general: polluting is cheap, hiring workers is expensive, from the climate point of view, it is nonsensical.
But if you are saying that, in the example of OL3, the Finish state should have given Areva a multi billion loan at 1% interest, I am very sorry, that would be a huge blunder.
Why Finland should give a loan to anyone? Quite the opposite, the state should hire a company building a plan (wind, solar, nuclear) and pay out of its state budget. There are many different solutions here, such as state-guaranteed loans, if the plant is owned by a state-owned enterprise. But state taking a commercial loan at say 20% APR to build a power plant that boosts the whole economy is just absurd.
@kravietz if the government gives out a loan to the contractor, then the contractor becomes a supplier and debtor at the same time, which is a very undesirable situation.
What's more, the government finances its activities in exactly the same financial market as the contractor. An interest rate of 20% indicates a huge risk premium, it is not the job of the taxpayer to finance activities that are too risky otherwise.
It’s not a “loan” to the supplier, it’s simple payment for job done. I’m not expert in financing of infrastructure projects so I can’t comment on your postulate of rates reflecting risk, but I can certainly see that risk is not the only factor impacting the rates on commercial market. Commercial lenders are after profit, not decarbonisation.
@kravietz "job done" is when the power plant is approved and delivers energy. Everything before that has to be financed. It is up to the contractor to finance his activities, and bear the related risks. He can of course get downpayments from the customer but he will have to provide guarantees in return which again he will have to pay for. Financing such a huge project is expensive but that is normal, that is what we have a finance sector for.
I disagree. A large project can be delivered and paid in stages. Or you can have a state-owned enterprise delivering it. Or any other way that works, because finance system - if for one thing - is 100% a social construct so we have full freedom to shape it as we wish.
The problem with commercial funding is, as I explained before, is that commercial operates on for-profit basis, which means it has to please shareholders in the first place. As result, it prioritises delivering the project at the lowest cost possible. UK is full of bad and very bad examples of how this does deliver projects that are shitty from social perspective — the whole housing market and water utilities serve the primary case studies. UK government is now at the stage of contemplating nationalisation of Thames Water because the investors funnelled all profits out of the company leaving the infrastructure. It was simply not in the interest of all the investment funds to expand sewage network because it was cheaper to dump untreated sewage to the sea.
Well, it’s exactly the same as any other enterprise except the shareholder is the state and thus all citizens, as opposed to some UAE investment funds which is the case for Thames Water.
This has the immediate consequence because it’s the shareholders who make strategic decisions on company’s policy - an UAE investment fund is thus logically more likely to vote for payout of profits, because that’s what is in the interest of an investment fund and it doesn’t give a shit about rivers in England beyond the necessary regulatory obligations. State shareholder may however vote to invest the money into improving sewage processing plants and sewage networks, because that’s what is in the interest of the shareholders.
There’s a second factor in the state-owned enterprises framework - regulations in many countries legally require commercial companies to deliver profit in order to protect commercial shareholders’ interest. A commercial company operating on zero or negative profit may be legally sued for bankruptcy, which, again, is intended to protect commercial shareholders from e.g. dishonest management who generates continued loss while funneling profits out of the company.
But the primary purpose of a hospital or water utility or power plant is not generate profits for foreign investment funds but to provide basic services, critical for survival of the whole society. It is therefore very likely the companies will in many cases operate at zero or negative profit - for example due to pandemics, natural disasters or fuel price fluctuations. In such cases trying to squeeze these companies into the commercial for-profit legal framework leads to absurdities and market distortions as we observe in the US or UK, because we’re just using a wrong legal tool. And of course there does exist a legal tool that allows a company not be required to generate profit - it’s called non-profit organisations.
But non-profits are quite restricted in how they operate in order to prevent dishonest commercial companies from masquerading as NGOs, which once again is not suitable for most utility companies. This is why in most countries I know the utility companies are state-owned or municipality-owned enterprises, which gives them plenty of flexibility while preserving shareholders’ control.
@kravietz All your proposals boil down to shifting the cost of building a nuclear power plant to somewhere where you hope it's not part of LCOE any more. I'm sorry to say that it's naive. An SOE providing goods or services as a loss is a government subsidy and therefore part of LCOE. Goods or services provided at "non profit" basis is also a subsidy and part of LCOE. Your rant about government selling out public utilities is not relevant in this context.
somewhere where you hope it’s not part of LCOE any more
No, it’s exactly the opposite. If you make an arbitrary, ideological choice to use commercial funding for any project, you end up inflating its cost by up to 60%. If you instead choose direct government funding, you get lower overall cost and lower LCOE.
@kravietz this is incorrect. As virtually all governments are indebted, they refinance their activities in the comercial financial sector, hence, no government can make money available at lower cost than the rates it gets in the comercial market. Or else it is a subsidy.
Also tax payer money has a cost, that is the opportunity cost of the same money being used for more efficient purposes.
You talk of it as if these were laws of physics, but they aren’t. You are talking about a specific financial practices widespread among governments in Western Europe. The term “subsidy” is a legal one - it isn’t carved in stone either and its definition depends on the legal system.
To give you a simple example: me and my nine friends want to build PV. So every one of us just drops 1000 EUR into a common pot and we buy as much as 10’000 EUR can buy. Which would be roughly 70x 200W panels today or 14 kW(p). But no, here comes Andreas and says “you can’t just buy things, you need to use your money as a collateral for a bank loan! otherwise that would be socialism!” Okay, we go to the bank and we get 15% rate for 5 years, so ultimately we pay 4000 EUR interest which buys us 8 kW, but Andreas is happy because we fed the financial industry!
the same money being used for more efficient purposes
Or less efficient. Depending on the current definition of “efficient” in the light of current political goals. Was Nord Stream 2, DESERTEC or Solyndra money spent “efficiently”?
The fun part is happening as always on the edge between dramatically different political systems - this is precisely how Russia was able to supply fossil gas to EU so cheaply, and this is precisely how China is now able to deliver PV to EU so cheaply. They simply use taxpayer’s money more flexibly than say Germany.
The result is that Germany has killed its own PV industry because it was “too expensive” (due to strict adherence to the paradigm of private funding) and instead is buying PV from China.
Looking at the global PV market, would you say China’s use of taxpayer’s money was “more efficient” or “less efficient”?
@kravietz to put the question differently: if you start investing into nuclear energy today, you will spend billions and invest carbon for at least a decade without the slightest contribution to decarbonization. Is this an efficient way of using resources? It needs to be judged but not by your means because you show that you have never seen how large scale investments are financed.
You’re now evading the discussion on funding and changing topics, but I’m OK with that. I have explained several times that the above arguments for using social discount rate apply equally towards large renewables, nuclear and hydro power projects.
Now, by singling out nuclear you are making the mistake of comparing projects of incompatible size and pretending they’re equal. Of course, it’s much easier to build one 10 MW(p) wind turbine than a 1 GW nuclear power plant. The difference is that the former will deliver 100x less power for 30% of the time during a year on average, so it will ultimately produce ~25 GWh. The latter will output 100x more power 90% of the time, so it will deliver ~7 TWh of electricity.
But if you start comparing equivalent projects you will very soon get very similar numbers in terms of project schedules. For example:
UK Sizewell C nuclear power plant - 3 GW installed power - planned completion 2032
Looks similar, doesn’t it? It does, as soon as you look at installed power only. Because in terms of actually delivered electricity they are very different:
UK Sizewell C annual output 23 TWh
Denmark off-shore wind hub annual output 11.8 TWh
And that’s not all, because a nuclear power plant operates at ~90% capacity factor and is dispatchable (it produces when you want), while wind farm produces when wind blows. Therefore, to get 24/7 electricity supply you need to somehow compensate the variability of wind.
This is the only reason why Germany is now building 10 GW fossil gas (500 gCO2eq/kWh) power plants - to get 24/7 supply while having a large share of renewables. So you can’t just look at the LCOE of wind alone, because it will not supply you power alone - you need to look at the cost of both wind and cost of balancing (gas, nuclear, batteries, hydro etc).
This is why in grids with large share of renewables they started using LFSCOE (levelized full system cost of electricity), which is incorporates all these costs. Selected Bank of America LFSCOE estimates for Germany:
Hmmm weird, because now you seem to very much believe in the current decarbonisation plan involving further increase in renewables and fossil gas which may be in unspecified future replaced by hydrogen?
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