Wednesday, May 31, 2006

The 'economics' of nuclear power in Australia

If you listen carefully to the new debate over nuclear power you can hear the sound of furnace doors being opened and bundles of the Treasury’s $100 notes being loaded on to shovels.

The Prime Minister says he wants to find out whether nuclear power is economically feasible in Australia. He must know that it is not a commercial proposition. There have already been enough reports prepared for his Government telling him so.

The most recent, prepared by a British scientist sympathetic to the nuclear industry for the Australian Nuclear Science and Technology Organisation (ANSTO) finds that any private operator who attempted to build a nuclear power plant in Australia would produce electricity ‘at a cost that is significantly higher than would a new coal-fired or gas-turbine power station.’

In many places overseas it is a different story. For countries that don’t have ready access to coal, are densely populated and are rapidly industrialising, then nuclear power might well be the ideal (perhaps, the only) commercial solution.

So what will the Australian Government do?

Well, I fear that it’ll do what it’s done before — notwithstanding its proclaimed commitment to the free market.

Back at the start of the 1980s, media moguls including the late Kerry Packer became fascinated with the idea of a national communications satellite. They wouldn’t build it or fund it themselves — as a business proposition, it made no sense. But persuading the Government (Malcolm Fraser Prime Minister, John Howard Treasurer) to part with its own money to ‘position Australia well for the future,’ the moguls played with the new technology for which they could never make a sound business case.

A decade later the government-owned aussat was $400 million in debt and derided as a piece of ‘space junk.’ The Hawke Government couldn’t give it away — literally. In order to persuade the firm that became Optus to take it off its hands, the Government threw in a domestic telephone licence.

AUSSAT was built and launched at a time when Australia was about to be covered by a web of cheaper-to-use optical fibre cable. In order to ensure that AUSSAT had paying customers the Government forced the ABC to use it exclusively to transmit its programs between Australian cities. But the economics of doing so were horrendous. Even after the ABC had paid for all of the transmission costs, the cost of an extra receiving dish was sometimes still more than the cost of using optic fibre cable.

I worked at the ABC during the 1980s and remember one instance when the ABC got around the spirit of the Government’s requirements by installing a cable between Sydney and Wollongong rather than buying yet another satellite receiver.

Smart people knew that AUSSAT made no financial sense. But it suited them for taxpayers to take the plunge and then take the bath.

Smart people are at it again.

The report prepared for ANSTO finds that a privately-owned nuclear power plant could only make money if the Government contributed 14.3 per cent of the cost of building it, and then paid 21.4 per cent of the electricity bills for the first 12 years. It’s a finding based on best-case assumptions. The interest rate used in the calculations is one of the lowest on record (that for 2002-2003), the plant is of a type not yet built, and it is assumed to be far cheaper than have been previous nuclear power plants.

It wouldn’t surprise me if the Government bites again.

Some of the arguments for it doing so are incredibly thin. The report for ANSTO says that a nuclear power plant would improve the security of electricity supplies ‘by adding diversity to Australia’s sources of electricity.’ This makes about as much sense for a nation built on top of a near-inexhaustible supply of coal as does the claim that Iran needs nuclear power in order to diversify away from oil.

It is correct that a nuclear plant might become more economic relative to coal-fired plants if the Government imposed a tax on carbon emissions and allowed carbon trading — something it has said it is not yet ready to do.

But if it did do so, all sorts of other actions might become more economic as well — among them the installation of technology to cut or offset the emissions from coal-fired power plants.

The market would decide. And my tax dollars would be safe.

Wouldn’t that be something?