Friday, November 17, 2006

Switkowski's Nuclear Future

When the former Telstra chief Ziggy Switkowski rises at the Press Club on Tuesday to outline the findings of his Nuclear Energy Review most of the interest won’t be in the findings themselves, but in the reasoning he uses to back them up.

The findings have already been leaked. They are that nuclear power could be commercially viable within 15 years and Australia can go ahead and start planning, safe in the knowledge that by the time a nuclear power station is ready the cost differential with coal will have disappeared.

They are findings that, on the basis of the evidence presented to the Switkowski Review, look hard to justify.

The United States, often regarded at the forefront of the push for nuclear power, hasn’t built a new nuclear plant since the meltdown at Three Mile Island in 1979.

The problem isn’t only community concern about safely and about the ability of plants to withstand a terrorist attack, it’s economics...

BHP Billiton says in its submission to the Switkowski Review that even with the huge reductions in the cost of building plants likely in the years ahead “only few nuclear plants are expected to be built in the United States in the next few years”.

It says those that are built will be constructed “only as a direct result of the US$15 per megawatt hour subsidy and other incentives available under the Energy Policy Act 2005”.

In Australia the economics of nuclear power are even harder to justify.

As Dr Switkowski himself said last month: "Australia is blessed with a couple of things - very low-cost electricity because of access to coal and gas, and has many centuries of coal supply available."

In March this year a British scientist John Gittus examined the economics of nuclear power for the Australian Nuclear Science and Technology Organisation (ANSTO). The plant he recommended was the Westinghouse AP1000, which has yet to be built anywhere in the world. He said that eventually new AP1000’s would come down in price to be as cheap to build, run and decommission as new Australian coal-fired power plants. But he said that until then the AP1000 would produce electricity “at a cost that is
significantly higher than would a new coal fired or CCGT power station”.

He suggested a government subsidy of 14 per cent of the cost of building the plant and 21 per cent of the cost of its electricity for the first twelve years.

BHP puts the problem this way: “The electricity markets in Australia are renowned for their effective market operation and their clear market signals to encourage efficient investment. The Australian market structure helps ensure that only cost-competitive generators are profitable. Under current circumstances, nuclear generation would not be cost-competitive with existing or anticipated new generation assets.”

It says that not only is nuclear power about 13 per cent more expensive than gas for those countries that have access to it, but that “significantly”, it is 6 per cent more expensive than electricity produced by wind “which is also a carbon-free resource in its power production phase”.

BHP acknowledges that if a carbon tax was introduced that roughly doubled the price of coal-fired electricity nuclear power would become attractive. But it says “on these assumptions, many other technologies - wind, solar, clean coal, carbon geosequestration, carbon offsets, energy efficiency, etc. - could also become more competitive”.

BHP Billiton, which operates the Olympic Dam uranium mine in outback South Australia says it has “no intention of entering the nuclear power generation market and its potential investment in the expansion of the Olympic Dam project is not dependent in any sense on the establishment of a domestic nuclear power industry”.

The National Generators Forum, which represents Australia’s existing power generators is equally unconvinced about nuclear power. It has told the Review that even by 2030 nuclear power would still cost twice as much for Australia to make as would power from coal.

It says the reason nuclear power makes commercial sense in Europe and Japan is that coal and gas are hard to get. And because of the dense population in those places coal-fired power stations are dangerous to residents. But in Australia coal-fired power stations are distant from the cities and the coal they burn is cleaner, for example (according to the Forum) producing almost no nuclear radiation as does coal from other countries.

About the only way to make a commercial case for nuclear power or other alternative energy sources is to tax or require a permit for the release of carbon. (A tax is paid to the government; a permit is issued or sold by the government but can then be traded privately.)

And as it happens Australia’s leading proponent of carbon permits and trading is Professor Warwick McKibbin from ANU, who is one of the six members of the Switkowski Review.

Professor McGibbin is an internationally recognised economic modeler. He has calculated that if Australia ratified the Kyoto treaty and introduced carbon trading it would cut the value of our national income over the next 50 years by a mere 0.16 per cent.

John Quiggin from the University of Queensland puts this in perspective. He says 0.16 per cent of GDP is to two weeks' economic growth. “In other words, suppose that we all took it easy for two weeks… and kept producing the same level of output but there was no growth in productivity. Suppose that after the two weeks were finished the economy returned to the previous rate of growth, but that the growth missed in those two weeks was not regained. This would be roughly the impact that McKibbin is modeling,” he says.

It is just possible that on Tuesday the Swikowski Report will provide John Howard with a face-saving way of agreeing to carbon trading, if not signing up to the Kyoto Treaty itself.

The Switkowski Review is examining more than nuclear power. It is also looking at the idea of “adding value” to the uranium Australia exports by turning it into fuel rods; leasing them to overseas power plants and then taking them back for burial in the desert.

As BHP puts it in its submission, some commercial interests have suggested that there is “an opportunity and almost obligation” for Australia to process and rebury its uranium give our stable political political and geological situation.
It is an obligation BHP vehemently rejects saying it “believes that there is neither a commercial nor a non-proliferation case for BHP Billiton to become involved in front-end processing or the development of fuel leasing services in Australia.”

Indeed it says there is an oversupply of fuel reprocessing services worldwide and that most of the end-users of Australian uranium do not want to send it back. It says any attempt to force BHP and Australia’s other uranium exporters into the processing and burial business “would put customer relations and the investments those underpin at risk”.

It notes that traditionally the Australian government has been reluctant to impose “artificial constraints” on Australia’s exports and reluctant to pick winners when it comes to supporting industry.

And that’s what will be so interesting about the Switkowski Report. It will only be able to find that nuclear power industry is viable in Australia with a carbon tax or a system of carbon permits and trading, and those measures would advantage many other forms of power generation as well.

Nuclear power stations are so expensive to build that putting a high efficiency solar panel on every roof in Sydney might be cheaper per kilowatt-hour of electricity produced.

Traditionally trained engineers are uncomfortable with such an idea, because they have become used to a model where electricity is generated centrally and then distributed radially, in the same sort of way as are radio signals. But just as the internet is changing that system for radio, local generation may be changing it for electricity as well.

Many Australian homes now produce power from solar cells or wind and sell it back to the generators, although the generators themselves don’t seem to be encouraging the idea. It is no worse a method of producing power than central distribution, and probably more secure, but it requires a new way of thinking. On the outskirts of Sydney one new apartment development will make its own power from gas, using the waste heat to provide each apartment with hot water. It won’t be connected to the central electricity supply at all.

Nuclear power requires central distribution at its most extreme. Some of its advocates have even suggested that one single nuclear station could supply base load power for entire country, located near the uranium mines in Australia’s center. But the idea that there needs to be a big base load supplier is becoming less fashionable as well. Much of the ‘demand’ for a constant base load is created by power companies that are unable to easily vary their output. They create the demand with variable tariffs and devices such as off-peak water heaters.

A Nuclear Review prepared by an economic rationalist would have behind it no assumptions about the way power should be distributed and would pick no winners when it came to government support. It would recommend a carbon tax in order to cut emissions of carbon, not in order to give a leg-up to a particular technology.

The Treasurer Peter Costello said recently that in his view nuclear power was not presently commercial. “"I don't think it will be in three years; will it be 10 years? Maybe, possibly not. But it will, in my view, become commercial, and when it becomes commercial, someone will build it."

On Tuesday we will find out whether Ziggy Switkowski takes the same approach.