📈 Chartpack: The nuclear conundrum [Part 2]

How do you solve nuclear’s technoeconomic problem?

Hi, Azeem here.

Last week,

Chantal Smith

explored the role of nuclear power in our journey to net zero. In this second part open to🔒paid subscribers only🔒she investigates nuclear’s technoeconomic hurdles, and whether small modular reactors are a viable option to solve them.

Enjoy!

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In the first part of this Chartpack, we established that nuclear fission has a somewhat bad public image, due to past nuclear accidents, the problem of nuclear waste, and Cold War associations. We showed that it is a comparatively safe technology that emits very little carbon. While renewable energy and energy storage are making great strides, to achieve decarbonisation goals we likely need nuclear energy. 

So, why aren’t we rushing to build new nuclear power plants as part of the transition to net zero? It comes down to the cost and archaic methods of scaling nuclear capacity. In this Chartpack, I’ll examine nuclear’s technoeconomic hurdles and explore the path forward with a new generation of nuclear power.

What’s the technoeconomic problem?
According to Levelized Cost of Electricity (LCOE)¹ calculations by the International Energy Agency (IEA), nuclear energy isn’t cost-competitive with solar photovoltaics (PV) and onshore wind. In addition, the IEA tends to overestimate the future costs of solar PV and batteries, so the difference between renewables and nuclear will likely be even greater. What nuclear does offer is stability churning out power even on dark nights and windless days, but at a higher cost.

Why is a 70-year-old technology like nuclear power still so expensive, and does it need to be?

The chart below reveals a little of what is hidden within the LCOE metric used to compute the average cost of generating electricity from a specific power source over its lifetime. The construction of a new plant is prohibitively expensive due to the high upfront costs required. For instance, a single large-scale reactor is capable of generating more than 1,600 MW of power, but according to the IEA, the cost of constructing such a reactor can exceed $10 billion. The upfront costs are high partly because the plant does not generate revenue until it is entirely operational. Only when a nuclear plant’s operational life is extended, the IEA argues, is it competitive with renewables. This I find unlikely; the cost of renewables will continue to drop fast, while extending the lifetime of a nuclear plant and decommissioning it remains an expensive and difficult process. In addition, the IEA assumes a Weighted Average Cost of Capital (WACC, or the cost of money) of up to 8%. Yet in the current environment, WACC is likely above 8% for most projects, especially in emerging markets².

The steep initial costs coupled with the scale of construction make these plants a high-risk investment, which limits who can undertake such projects. This eliminates the benefits of competition. Often, they require governmental support, adding a layer of bureaucracy to an already ultra-regulated industry.