Ziggy’s nuclear meltdown

Nuclear doyen, Ziggy Switkowski, must be quite frustrated. Why doesn’t everyone get it? His beloved solution to climate change and energy security is not just a political hot (dare I say radioactive) potato, and the recently announced $10b Clean Energy Finance Corporation won’t be allocating a single dollar to funding it. His most recent piece on Business Spectator bemoans the fact that while the government is happy to spend $40bn on the NBN or on 12 Collins Class submarines, that a fleet of 10 nuclear reactors is somehow off the table.

As I have previously mentioned, Ziggy’s problem is that since the Hilmer reforms of the mid-1990’s, we no longer centrally plan our energy supplies. Yes, there is still high level oversight creating, operating and monitoring the wholesale market, and controlling the natural monopolies in the supply chain (such as the “poles and wires” businesses), but new entries have been left to the market.

In the early days of the National Electricity Market (NEM), there was substantial oversupply and no capacity needed to be built. But since the supply/demand balance has tightened, new proposals are coming through and have been commissioned. These include new gas-fired generators being built by the major utilities as well as renewable power under the Mandatory Renewable Energy Target (MRET).

What governs the choices here is basic new entry economics. Proponents of new capacity must determine what plants have the least cost Long Run Marginal Cost (LRMC); for only least cost LRMC plant has the opportunity to earn its proponents a decent return on capital over the life of the asset. Anyone can put forward a combined cycle gas plant, a new coal-fired power plant, a nuclear plant, or any other low or high emission intensive plant. What they must do, from 1 July 2012 onwards, is also factor in the carbon price. The new challenge is to provide least cost LRMC, inclusive of carbon.

For the record, I don’t think nuclear should be ruled in or out. It should have to compete in the market place for new entry. The challenge for nuclear (and all other) new entry is to find a site, secure finance, select a sound cost-effective technology and also achieve regulatory approval for the project. If a proponent can do all of that, and come in at a reasonable cost, then great.

The NEM has become efficient by substantially removing government from the decisions of new plants and leaving it to the private sector. This has largely been quite successful. As the Garnaut Review suggested, those areas of the grid that remain substantially government owned are now the ones where we find the highest recent price rises, owing to perverse incentives such as “gold plating” infrastructure.

Why would we go back to a centrally planned system where lobbying the government, for say $40bn, to implement a certain technology, is very unlikely to result in as efficient an outcome an outcome as the open, national grid and market that we already have?

If nuclear can compete then bring it on. Otherwise, what on earth is the point?

Comments

  1. Because gov can consider energy as infrastructure and offer guaranties/low cost of financing over the life of the project.Therefore making projects that have a long term public interest viable.

    Private investors even with grant require the lowest initial cost as possible which is not often in line the best interest of the country.Green projects for example have very high initial cost and the cost of financing them would be ridiculous on a classic ROI without having to jack up the energy price nationally to stupid level ( carbon tax proponents want)

  2. Can you write something about the flaws in the carbon tax plans e.g. Adam Smith has mentioned that for starters that because the % wholesale component of retail electricity prices was wrong a large number of people will not be adequately compensated.

    There was a lot written about the carbon tax before it was released, i.e. before anyone knew the actual details, so now that it is out is the modelling as bad as what AS suggests?

    Also us punters are not going to get any information from the $12 mill advertising campaign, but I did want to make a daisy chain in my living room after seeing one of the ads, so can we have some information and analysis here?

    • Carbon E Coyote

      Didn’t see AS’s comments, but they’re not correct. The rises in prices was calculated as a $/MWh figure, not as a %. You can see that on pp46-47 of the policy document. The chart (Figure 4.3) on p47 is not quite correct because Wholesale Prices are not just baseload prices (around $40/MWh) but also the intermediate and peak and superpeak required to shape to the seasonality and daily profile of household residential load. But it doesn’t change the underlying principle that you calculate the impact of the carbon price as a $/MWh figure (around $20/MWh or 2c/kWh).

      IMO, there’s things in the package that make it less than economically pure and therefore less efficient. For example, I’ve previously mentioned the contracts for closure, the price floor/cap, and that the industry is generally scratching its head to figure out how $10b could be efficiently and effectively deployed under CEFC. But I wouldn’t call them “flaws”; they’re just the design choices that have been made by the MPCCC and the government.

      • I don’t have a link to AS comment handy and don’t recall which article it was in response to but obviously it was after the release of the tax details.

        He said that the modelling forecast a rise in the retail price of 10% based on wholesale being 25% of the retail price when in fact it is 40% of the retail price. In which case retail prices should have been forecast to rise by 16%. Are you saying that analysis is wrong?

        As one of the principals of this website you presumably have means to be able to find his comment (easier than I can). Also find a couple of subsequent comments he made on modelling problems.

  3. Thanks for the nice post Carbon. Ziggy seems to be in the groove for writing articles spruiking nuclear power. Yesterday he had a small piece in The Australian venting his displeasure of seeing CO2 labelled as a pollutant by the misinformed. Interestingly, it included a small discourse on why greenhouse gases should be welcomed since the global warming trend is actually being welcomed by the denizens of the frozen north! Anyway, I look forward to a follow-up article by Ziggy, as he goes through his periodic table, on “Plutonium is not a pollutant”.

    • Carbon E Coyote

      I agree that CO2 is not a “pollutant” in the traditional sense. Not like say I-131. I prefer to use the terminology of “greenhouse gas emissions” rather than “carbon pollution”.

      But whether you choose to call it a pollutant or not is just a label; it doesn’t change the science.

  4. Yes that’s wrong. The pass through calculations are done as $/MWh and are not based on percentages. Retail prices are around 20c/kWh, they will go up by around 2c/kWh. That works out at 10%.

    • The fact that they have done a calculation based on explicit units doesn’t negate an analysis based on percentages.

      How did they arrive at this 2c/kWh? Why will the retail price go up by 2c/kWh? I presume the answer is because the wholesale price will rise Yes/No?

      Of the 20c/kWh retail price used in modelling does the wholesale price contribute 5c/kWh or 8c/kWh (or some other number)?

      How much will the wholesale price rise by?

      • Carbon E Coyote

        The analysis is that carbon prices are passed through at roughly the average carbon intensity of the pool. Some analysts say it’s more like 85-95% rather than the full 100%. The pool’s avg carbon intensity is around 1 tCo2e/MWh. So for each 1$/t of carbon you get $1/MWh increase in prices. So $23/t becomes around $20/MWh or 2c/kWh (once you factor in less than full pass-through).

        Wholesale prices are currently 6-8c/KWh of the 20c/kWh retail. It varies depending on your load profile and which state you’re in, among other things. So the increase is 25-35%.

        The percentages work out to whatever they are.

      • If not sure if we might be talking apples and oranges here but just for clarity you’re saying the following quote is wrong …right?

        For example, their own report shows wholesale electricity prices rising by 40% in the early years of the scheme (Table 5.14). They then say retail prices will rise by 10% over the same period (Table 5.15). They explain that the lower retail increase is because wholesale energy is only a part of total retail prices, which is true. But let’s see how much using their numbers.

  5. The only thing the greenies will understand is when the power is switched off. Until we get rotational load shedding ie 2 hrs on 2 hrs off the problem will not be fixed.

  6. Has nuclear really been excluded from the CEFC? Under what grounds? Surely they can’t suggest that it isn’t a clean energy source, C02-wise.

  7. Until they have a solution to make safe and/or reclaim spent fuel rods (hint: storing them is not a solution) nuclear power is an exceptionally bad idea.

    • Nuclear reactors are the only ones that will feasibly be able to keep up with our energy needs (sustaining current quality of life) without requiring massive structural change to the grid or relying on environmental attributes of a region (eg. windy area, geologically active area) AND without producing CO2.

      Most common reactors use 1% of the energy in the uranium, however there are reactor designs (fast breeders) that use 99% of the energy and can use spent fuel rods from earlier reactors as fuel. One of these reactors was being built in the US during the 1990s but got canned by Congress (http://en.wikipedia.org/wiki/Integral_Fast_Reactor).

      There are also designs being worked on that are inherently safe, so that the reaction is self-regulating. And what about the fusion work being done at ITER which could give us the technology to supply our increasing energy appetite for at least a thousand years.

      So much work is being done on developing new nuclear technologies it’s wrong for the government to be throwing money at solar, wind, etc. without also giving funding to nuclear research.

  8. Alex Heyworth

    “If nuclear can compete then bring it on. Otherwise, what on earth is the point?”

    Exactly the same can be said about solar (or wind), yet the government is planning to throw billions of dollars at it.

  9. There is a 100 sqm section of desert in South australia called Maralinga that was nuked 14 times, and had approx 300 various experiments. i am sure it absolutly glows. Why cant they store the rods and waste there.

  10. I agree on principle. However, the danger is in socialising the risks. And the underlying issue is that nuclear plants cannot be allowed to simply go to ruin – they have to be decommissioned, even if the entity responsible for the building no longer exists. The lesson in Fukushima is not that nothing built by man is infallible, its that when a nuclear reactor dies from age or misadventure, its very likely that the insurer of last resort is the government.

    And as you say, its also a matter of obtaining the capital in the first place. Given that nuclear reactors are most efficient at very large scales, are inherently expensive per Watt (all that quality assurance is expensive – its why manned space flight is expensive) and given the project management risks, you’re asking an investor to put up the best part of ten billion dollars and take considerable risk and not get a return for nearly a decade. Well, again, the real risk is the government becoming the de-facto underwriter.

    Otoh many renewable technologies become viable at smaller scales and can be commissioned in under 2 years. Much more investor friendly.

    We shall see.

    Also, to compare like with like we need to resolve all the safety issues of nuclear power in no uncertain terms. Meaning remote locations. Meaning higher costs. Give me geothermal any day.