About the cost advantage of nuclear energy

Electricity from nuclear energy is considered to be economical and very cost effective, in particular compared to electricity from renewable energy sources like wind, water, sun, biomass or geothermal energy.

There are two main reasons for the relative low cost of nuclear power:

  • Research and development for nuclear applications has been financed by the government, therefore these costs don't get transferred to the cost of electricity produced from nuclear power. However the cost of R&D for renewable energy sources is mostly financed privately and therefore added to the production cost. It is therefore included in the cost of renewable electricity.
  • Nuclear power plants are underinsured for legal liability. The risk for nuclear catastrophes is not carried by the owner of the nuclear power plant, it is carried by the whole nation. Electricity from nuclear power would cost at least twice as much than today if operator companies of nuclear power plants were to insure the plants for the real risks.

Nuclear power plants are generally underinsured

In Switzerland, the department of civil guard estimated the material cost of a catastrophic failure in one of the Swiss nuclear energy plants to be in the order of 2'600 billion Euro (about 3'400 billion USD). However the Swiss nuclear power plants are insured for only 190 million Euro (240 million USD). This means they are insured for legal liability for just 0.007% of the expected material damage if a major crash happened. Practically all these costs needed to be carried by the State of Switzerland.

Internationally, the situation is quite similar: The world-wide standard for nuclear power plants is a legal insurance for liability in the order of 1.4 billion Euro (1.8 billion USD). Most likely the expected material damage of a reactor crash in Switzerland would be similar for any industrialised country. This means that most nuclear power plants are only insured for about 0.05% of the expected material damage. Or to put it the other way round: 99.95% of the cost of a nuclear reactor crash would have to be paid by the respective nation.

 

Why are nuclear power plants underinsured?

It is difficult to understand why nuclear power in contrast to electricity produced by any other process does not have to bear the cost of its own risks and assign it to the product costs. Why is there no transparency of costs in this particular case?

If for example nuclear power plants were to be insured for 300 billions Euro (400 billions USD), the cost of nuclear electricity would be increased by 0.031 to 0.063 Euro (by 4 to 8 US-cents) per kWh. This would increase the current production cost by more than 100% and therefore make nuclear power economically much less attractive compared to electricity from renewable sources. The committee for energy from the National Council of Switzerland concluded „...increasing the legal liability to 300 billions Euro (400 billions USD) ... would basically make it impossible to implement new nuclear power plants."

It is very surprising to see that the nation carries the risks for the operators of nuclear power plants while operators of other technologies to generate electricity have to carry the risks themselves. The cost for electricity from non-nuclear sources does of course include the respective costs for the liability insurance. This is not the case for nuclear power, however. Apparently, nuclear power can only be competitive if the cost of the risks involved are paid by someone else.

 

Why is nuclear power subsidized?

A potential explanation for the above could be the already mentioned investment of the government in research and development of nuclear technology: Once a nation has invested a lot of money in a technology, it is afterwards very difficult to admit failures and stop its utilization. Some „important" people might loose their face, others their job. It is much easier to subsidize the application of the respective technology and officially celebrate it as success.

 

Are the risks of nuclear power plants underrated?

On one hand the atomic industry does not get tired in emphasizing that the risks involved with the operation of nuclear power plants were extremely low. On the other hand the cost to insure these „extremely low" risks cannot be added to the product costs because otherwise nuclear power would not be competitive any more!

This chain of arguments deserves to be looked at more deeply: Nuclear power plants are called to be extremely safe. However, if these „extremely safe" plants had to be insured for liability by an insurance company, the costs would be so high that nuclear power looses its financial competitiveness.

Isn't it normal to pay a low fee for low risks and a high fee for high risks? Why should this be different in this case? It seems that insurance companies - whose core business is to assess risks - judge the risks of nuclear crashes much higher than the nuclear industry and their many lobbyists. This is actually quite concerning.

 

Fair cost comparison for the evaluation of future technologies

In industrialised nations, many existing plants to generate electricity are about to be retired within the next 10 to 20 years. Therefore the evaluation of technologies for generating electricity is quite an important one and will shape the landscape of electrical energy for the next 50 to 60 years.

True costs should be compared, at least for the evaluation of technologies for new plants. The inclusion of full cost of risks also for nuclear power is a must. Otherwise apples are compared to peares.

It is evident that comparing true costs will dramatically reduce the attractiveness of electricity from nuclear plants compared to all other sources. And it can also be expected that the nuclear industry with their strong lobbying organisations will fierily fight against this comparison of true costs.

However atomic energy has been subsidized long enough. It is high time for the use of renewable energies, even more so when a fair cost comparison alone makes nuclear electricity unattractive! In addition to economics, all ecological reasons speak for renewables.

 

Source of data: Helmut Stalder: „AKW sollen für 500 Milliarden haften", Tages-Anzeiger of February 24, 2007, page 3.

Please see also the related article about the cost of electricity from new nuclear power plants