What should Australia do?

Nuclear waste: Environmental problem or opportunity?

Australia as the world's disposal site?

Weapons proliferation

Nuclear safety

Environmental Opportunity

Economics of Nuclear Power - expensive to build, cheap to run

Construction and Nuclear Power

Nuclear renaissances in command and control economies

The opportunities associated with Small Modular Nuclear Reactors

The economic opportunities in the nuclear fuel cycle

What should Australia do?

Ultimately whether nuclear power is suitable for Australia will be determined by technological advances in the near future. Although political leadership will mean it is available as an option if it is necessary to ensure the ongoing prosperity of Australia.

The public policy position should be to enable the deployment of nuclear power in Australia should it prove safe and cost-effective.

Two key steps to enabling nuclear power deployment involve:

• Establishing a national regulatory regime to oversee and monitor any potential deployment of nuclear power; and
• Training nuclear engineers by establishing an equivalent of the previous School for Nuclear Engineering or the Australian School of Nuclear Technology.

Given the potential for commercial Small Modular Nuclear Reactors (SMRs) to be available in 2020, the Federal Government should undertake these two steps immediately.

The costs of establishing a nuclear regulatory framework and developing suitably qualified technicians can be considered as the cost of purchasing a call option on greater flexibility for future energy supply. The value of any option is critically determined by the variability of the underlying asset. Given the uncertainty about the cost of decarbonised energy, purchasing a nuclear call option may prove to be an invaluable investment.

Nuclear waste: Environmental problem or opportunity?

A major concern that many people hold is that nuclear power generates substantial amounts of radioactive waste that will represent a problem requiring thousands of years to resolve. This raises an almost philosophical question about whether it is appropriate to use uranium for energy today while endowing a problem to untold future generations.

Fortunately this concern is not valid.

In the first instance, as Dr Tom Quirk makes clear, existing waste products are a source of potential fuel in the future. They are considered waste at this point because the world lacks sufficient capacity to reprocess spent fuel. If it was reprocessed, the amount of physical waste would drop considerably.

In the second instance, as Professor Brook discusses, there is the potential for the residual waste from existing nuclear power plants (after it has been reprocessed) to be used as a fuel source for the future generation of nuclear reactors.

So potentially Australia can sell unprocessed uranium, be paid to store the waste from existing nuclear reactors, reprocess the waste and sell it, take back the resulting waste a second time, and eventually sell that waste product again. See The economic opportunities in the nuclear fuel cycle for more details.

Australia as the world's disposal site?

Despite having no significant involvement in the nuclear fuel cycle beyond mining the raw material, Australia has already made a number of very significant contributions to the nuclear industry that are used throughout the world (refer to Dr Quirk's chapter). For instance, Australia has made significant technical contributions to enrichment through Silex Systems and the disposal of spent fuel with Synroc.

Unfortunately, Australia's lack of enabling policy has resulted in these technologies going offshore to be developed.

Australia could play a bigger role in enabling the world to respond to climate change and helping ensure non-proliferation through the development of a high-tech repository facility for spent nuclear fuel. Refer to Dr Quirk's chapter.

Weapons proliferation

Australia is a party to the Nuclear Non-Proliferation Treaty (NPT) as a non-nuclear weapons state. The safeguards agreement under the NPT came into force in 1974 and Australia was the first country in the world to bring into force the Additional Protocol in relation to this, in 1997. In addition to these international arrangements Australia requires customer countries to have entered a bilateral safeguards treaty which is more rigorous than NPT arrangements. These treaties have been an obstacle to selling uranium to India. While the United States has managed to reach a safeguards agreement we have not. Refer to Dr Quirk's chapter.

Nuclear power has already achieved widespread deployment and the nuclear genie is well and truly out of the bottle. Currently the nation of Kazakhstan is the world's largest exporter of uranium. Limiting Australia's supply of uranium will have no influence on the proliferation of nuclear weapons.

The biggest contribution that Australia can make to non-proliferation and more generally enhancing the security of nuclear power is by developing a repository for spent nuclear fuel. This is also a significant economic opportunity for Australia See The economic opportunities in the nuclear fuel cycle for more details.

Nuclear safety

Detractors of nuclear power may consider the disaster at the Fukushima Daiichi nuclear reactor as sufficient cause to ignore it. However, the Fukushima Daiichi reactor was of 1960s vintage and modern reactor designs have passive safety features that preclude such a scenario occurring. Australia cannot afford to make policy decisions based on technology more than 40 years old. It would be equivalent to critiquing the rollout of the national broadband network based on assessments of the telegraph system.

The modern Generation III reactor designs are efficient and have a high degree of passive safety. For instance, the risk of a meltdown as serious as the Three Mile Island incident in the US (which resulted in no fatalities) has been assessed as extremely low for GE-Hitachi's new Economic Simplified Boiling Water Reactor, compared to earlier designs. Of course to demand zero is to ask the impossible of any energy technology, given the possibility of beyond-design-basis events, and ignores the trade-off involved in fixing other major environmental problems with extremely high probabilities attached. Refer to Professor Brook's chapter.

Furthermore, the Small Modular Reactor designs can be built underground and can incorporate significant passive features that would enable them to withstand the environmental catastrophe associated with Fukushima. A more comprehensive description of the safety features of Small Modular Nuclear Reactors (SMRs) is available in Irwin's chapter.

Environmental Opportunity

Nuclear power is widely used throughout the world and represents one of the most reliable means of replacing fossil fuels. Only hydropower displaces more carbon emissions than nuclear energy, and Australia is already utilising all of its reasonable hydropower resources.

There are significant opportunity costs tied to any decision for Australia to leave nuclear energy to others, and instead focus on a narrow portfolio of unproven low-carbon electricity options. A nation's sustainable energy future depends on choices made today. Some countries in the developed and developing world have already made their choice - for them, nuclear has a clear role, and the only question is, how much? The opportunity cost of not deploying nuclear power is higher carbon emissions. This is a reality that the Germans will quickly discover. Having decided to wind back the deployment of nuclear power, they are planning two-dozen new coal-fired power stations. Refer to Professor Brook's chapter.

Nuclear power also has important environmental benefits that extend beyond mitigating carbon emissions. An important comparison in exporting energy is that shipping 10,000 tonnes of yellowcake is the energy equivalent of shipping 200 million tonnes of thermal coal. Australia's present thermal coal exports are around 100 million tonnes. This requires between 3,000 and 4,000 voyages of bulk carriers through environmentally sensitive regions, such as the Great Barrier Reef. Refer to Dr Quirk's chapter.

Economics of Nuclear Power - expensive to build, cheap to run

Although costs vary both between and within countries, about two-thirds of the costs of generating electricity from a nuclear power plant are accounted for by fixed costs arising from the construction process, with the remainder being fixed and variable operating costs. The main fixed costs are capital repayments and interest on loans.  An allowance for decommissioning costs is also included in this item, although the timing and precise costs of decommissioning lack clarity. Fuel is a relatively minor component of operating costs, because uranium is in relatively abundant supply in terms of current requirements.

Once a nuclear power plant has been built, its construction costs have effectively been "sunk" and it makes financial sense to operate the plant continuously. Currently nuclear power is the cheapest form of electricity production in most OECD countries for existing plants.

For new nuclear power plants their competitiveness depends on several factors, including the cost of alternative technologies, if a country has energy security from other sources such as gas or coal and growth of overall demand.

In general, nuclear power's front loaded cost structure is less attractive to a private investor in a liberalised market that values short-term returns rather than a government-owned utility that has a longer-term perspective.

However, decarbonising the economy and the development of Small Modular Nuclear Reactors (SMRs) has the potential to change the economics of nuclear power.

For a broader discussion of the economics of nuclear power, refer to Professor Owen's chapter.

Construction and Nuclear Power

Historically, the nuclear industry (particularly in the US where there has not been a standard design for nuclear power plants) has been plagued by delayed construction schedules. Since about two-thirds of the costs of generating electricity from a nuclear power plant are accounted for by fixed costs arising from the construction process, this is a significant issue in deploying nuclear power.

Different countries have different approval processes, regulatory regimes and political systems, all of which impact on risk from the investors viewpoint. Construction delays, for example, can significantly increase interest payments during construction. Thomas (2005) reports that: "Forecasts of construction costs have been notoriously inaccurate, frequently being a serious underestimate of actual costs and - counter to experience with most technologies where so-called 'learning', scale economies, and technical progress have resulted in reductions in the real cost of successive generations of technology - real construction costs have not fallen and have tended to increase through time." This lack of scale economies is not surprising given the lack of orders for new generation reactors.

The challenges associated with constructing nuclear power plants in liberalised economies is why, of the 62 reactors being developed as of September 2011, 26 are being built in China, 10 in Russia, six in India, five in South Korea and just three in OECD countries.

For a more comprehensive discussion of the construction challenges of nuclear power refer to Professor Owen's chapter.

Nuclear renaissances in command and control economies

The construction risks (link to appropriate CEDA Snapshot) and the cost of capital are such that the nuclear renaissance is likely to occur in command and control economies such as China and Russia rather than liberalised economies.

Most nuclear plants currently operating in OECD countries were built in an era when the power generation sector was a regulated monopoly, which meant the cost of capital was relatively low, as it was backed by government guarantee. In addition, any increase in costs during construction could be clawed back from consumers in the form of higher prices arising from the full cost recovery nature of the sector pricing regime. (This meant there was little investment risk for the builder of the nuclear power plant). Refer to Professor Owen's chapter.

Although the political will to expand nuclear capacity appears to be present in many OECD countries, privately-owned electric utilities do not appear to be in a position to comfortably support the expansion of nuclear power. In contrast, state-owned power companies in China, India, South Korea, and Russia have aggressive nuclear expansion plans in place. As a consequence, of the 62 nuclear reactors described as being "under construction" worldwide as of September 2011, there were 26 in China, 10 in Russia, six in India, five in South Korea and just three in OECD countries.

The opportunities associated with Small Modular Nuclear Reactors

In the past it may have been politically and economically expedient to ignore nuclear power. However, the developments in Small Modular Nuclear Reactors (SMRs) may make it very appropriate for Australia's energy needs while future generations of nuclear power reactors may provide incredible sources of clean energy with high levels of safety. SMRs represent a new stage in nuclear reactor design and have the capacity to provide an economically competitive method of electrical power generation.

Historically nuclear power plants have been built larger and larger. This trend was an attempt to obtain economies of scale in deployment to overcome the high fixed construction costs. As a consequence, modern nuclear power plants incurred substantial financial costs and required large, well connected electricity grids. There were limited options for deployment of such energy generators in Australia.

The possible uses for SMRs in Australia include powering Australian Defence Force sites, remote mining locations, large industrial sites requiring reliable, competitive cost electricity or process heat supplies, desalination plants, water treatment plants, recycling schemes or irrigation systems and baseload electricity supply for small grid systems.

A major advantage of SMRs is their passive safety. No electrical supplies or pumps are required to cool the reactor, as this is achieved by natural convection and gravity coolant feed. This feature ensures the reactor will remain safe under severe accident conditions. This also reduces the capital and maintenance costs compared to large power reactors and fundamentally changes the economic equation in favour of SMR nuclear power generation.

For a broader discussion of SMRs, refer to Irwin's chapter.

The economic opportunities in the nuclear fuel cycle

There is a substantial opportunity for Australia to play a more fundamental role in the global nuclear fuel cycle. Australia's twin stabilities of political and geographic systems make it uniquely placed to hold nuclear waste material.  This would not be a global dumping ground but a sophisticated storage facility of relatively little material. Furthermore, technological developments in nuclear reactors may result in future generators using the waste products of current reactors as fuel.

So the economic opportunity for Australia is to sell uranium, then be paid for its storage and, eventually, be able to sell today's waste product as a fuel source for the next generation of reactors. This could be a lucrative industry built on world-leading technology developed in Australia. It would also make a positive contribution to reducing the possibility of nuclear weapons proliferation and a major contribution to global mitigation of carbon emissions.

For a more comprehensive discussion of the economic opportunities in the nuclear fuel cycle refer to Dr Quirk's chapter.


Australia's Energy Options series

Australia's Nuclear Options is part of CEDAs Australia's Energy Options research.

The next two policy perspectives and release dates are as follows:

• Renewables and efficiency, released 15 May 2012.
• Unconventional energy sources, released 30 August 2012.

View the report