Is nuclear energy really the ‘cheapest source of electricity’?

The South African government's nuclear ambitions are controversial. But are they likely to provide the country with the "cheapest source of electricity", as claimed by the national power utility's CEO?

The South African government’s nuclear ambitions have been dogged by controversy with questions about the secrecy surrounding procurement discussions and the potential costs involved. But Brian Molefe, the group chief executive of Eskom – the country’s power utility – maintains that nuclear energy will be the “cheapest source of electricity for the country”.

In a statement issued earlier this month, Eskom stated that “South Africa is on the correct path with its nuclear aspirations” and “has committed to building new nuclear power plants in its bid to increasingly diversify its energy mix to lower carbon emissions”.

Molefe has claimed that nuclear energy is cheaper than other sources of electricity supply. “Once the [nuclear] assets have been deployed… they are the cheapest source of electricity,” he said in a recent interview. Elsewhere he was quoted saying: “[Renewable energy sources] are the most expensive… the cheapest source is nuclear.”

Is he correct and is there evidence to support his claim? Molefe isn’t saying. Questions sent by Africa Check to his office over the past three weeks have gone unanswered.

To understand the costs of producing electricity using different energy sources, you need to look closely at how the cost of electricity generation is calculated and how those costs can be compared from one energy source to another.

Levelised cost of electricity

The energy industry uses a standard known as the “levelised cost of electricity” to compare the costs of different energy sources. This is defined as the current cost of producing one kilowatt-hour of electricity from any given energy source (nuclear, coal or renewable energy). It is the average price at which electricity must be sold in order to cover the costs of its production.

This includes the costs of equipment used in producing energy and the cost of building a power plant after the initial investment is made. Additionally, it includes the operations and maintenance costs and the costs of borrowing in order to build the plant. Finally, the predicted rate of electricity consumption (also known as the “projected utilisation rate”) tells us how soon the costs of building the power plant will be paid off.

Comparing costs of different sources of energy

A cost comparison of electricity production from a variety of sources is included in the current Integrated Resource Plan (IRP), a document drafted by the Department of Energy in 2013. It was intended as a blueprint for South Africa’s plans to meet its electricity demand “with the minimum cost to the country”. Although the figures used are not up to date, it allows us to compare costs of different energy sources.

Comparison of levelised cost of electricity based on IRP comparison assuming no changes in technology over time

From this analysis of levelised cost alone, it is clear that nuclear is not the cheapest form of energy for electricity.

Hidden costs of nuclear power

There are many hidden costs in nuclear power generation, says Bruno Merven, a senior researcher at the University of Cape Town’s Energy Research Centre. The risk of lengthy construction delays which result in additional costs must also be calculated.

According to the 2015 World Nuclear Status report, an annual overview of the nuclear energy industry produced by independent analysts, there were 62 reactors at various stages of completion around the world in July 2015. Most had been under construction for an average of seven-and-a-half years. But in more extreme cases in Russia and Ukraine, construction on some nuclear plants had lurched along for 30 years or more.

Also not typically included in levelised cost of electricity assessments is the cost of decommissioning a reactor and disposing nuclear waste, says Roula Inglesi-Lotz an energy economist and associate professor at the University of Pretoria. This would further increase the price of nuclear energy. Even when these costs are not included in calculations, the cost of nuclear investment remains high.

The Energy Research Centre at the University of Cape Town published a study last year analysing the potential socioeconomic risks of South Africa’s nuclear proposals.

The study used computer models to work out how the country’s proposed nuclear strategy would affect job growth, GDP per capita and electricity prices. It found that there was a 94% chance that electricity prices would be higher in 2030 as a result of the commitment to nuclear power, negatively impacting on the country’s economic growth and employment levels. It concluded that there was no economic case to be made for a firm commitment to a nuclear solution to the country’s electricity demands.

Capital costs for nuclear remain high

The Department of Energy’s Integrated Resource Plan includes a comparison of the costs of creating the capacity to produce energy from different energy sources, including nuclear.

Building a nuclear plant is the second most capital-intensive way to produce electricity after solar power. The capital cost for a solar plant is R19,250 per kilowatt of installed capacity, compared to R46,841 for nuclear energy. Nuclear power is, therefore, more than double the cost of a solar plant and nearly three times the cost of a wind farm.

However, while nuclear energy is available 90% of the time in a 12-month cycle, solar energy is available during the daytime, approximately only 30% of the time, as energy analysts Mahmood Sonday and ZB Kotze of Top Quartile, a South Africa-based energy consulting firm, point out.

Kotze says Molefe’s claim that nuclear energy is a cheaper option “once the assets have been deployed” is “misleading”. Given that the IRP cost estimates show that nuclear plants are nearly double the cost of other sources of electricity – this cost should not be overlooked.

According to energy analyst Chris Yelland, any capital cost overruns for renewable energy sources (solar and wind) are typically carried by the power plant owners themselves, but the cost of nuclear plants will be borne by paying consumers.

Mix of renewables and gas offer equally cheap source of electricity to nuclear

The Integrated Resource Plan also shows that the price of solar cells is expected to decrease by 44% of their current cost by 2030. For nuclear energy, the cost is expected to decrease by just 4%. By this measure, a nuclear power plant will be nearly five times more expensive than a solar plant.

According to a recent presentation by Dr Tobias Bischof-Niemz, who heads up the Council for Scientific and Industrial Research’s Energy Centre and helped develop the IRP, producing electricity through a mix of renewable energy and natural gas will allow production of uninterrupted electricity to supply 82% of South Africa’s needs. It is also projected to cost roughly the same as nuclear energy sourced electricity for consumers, without the construction costs that a building a nuclear plant will entail.

The presentation – based on an unpublished study – looked at whether a mixture of renewable energy using solar panels and wind, providing intermittent power generation, could be mixed with natural gas technology to provide 8 gigawatts of electricity on an uninterrupted basis. (The current projected output of the nuclear stations will be about 9.6 gigawatts.)

Bischof-Niemz’s study concludes that the cost of energy to consumers would be R1.00 per kilowatt-hour using renewables and natural gas. In the case of nuclear energy, it would be R1.10 per kilowatt-hour.

A separate calculation by Chris Yelland, using the current costs of electricity from the Koeberg nuclear plant near Cape Town, arrived at an estimated R1.52 per kilowatt-hour. According to Yelland’s calculations (based on the levelised cost of electricity), the cost of coal would be R1.19 per kilowatt-hour and for wind and solar would be R0.69 per kilowatt-hour and R0.87 kilowatt-hour respectively.

Conclusion: Nuclear is not the cheapest source of electricity

Molefe’s office did not respond to queries requesting evidence to support his claim. Available research does not show that nuclear energy is the cheapest form of electricity.

According to the IRP comparison, capital costs of building a nuclear plant are second only to centralised solar power – the cost of which is expected to decrease by 44% by 2030. In contrast, the cost of nuclear is expected to decrease by 4% during the same period.

Even if a comparison is made between costs of nuclear energy once the nuclear power stations have been built, the cost of energy to the consumer using a mix of renewable energy sources and natural gas is slightly cheaper than electricity sourced from nuclear power plants using Bischof-Niemz’s calculations.

Comparing costs of setting up power plants for different energy sources, it’s clear that nuclear energy is much more expensive than the alternatives. Even when costs of electricity are compared after the “assets have been deployed” (when the plants are built), the cost of renewables and gas is slightly cheaper and certainly not “the most expensive” option, as claimed by Molefe.

So does this mean South Africa should never consider using nuclear energy? No, according to many of the experts we spoke to. Nuclear power may be useful to any future mix of energy sources especially if South Africa is to achieve its carbon emission targets, says Yelland. Bruno Merven of UCT’s Energy Research Centre believes that “we shouldn’t write off nuclear altogether, as this technology may also develop”.

But a hasty decision to spend vast amounts of money on nuclear plants is “too expensive a bet to get wrong”, argues ZB Kotze of Top Quartile, especially when there are cheaper alternatives available. Expected energy demands are lower than previously thought, due to lower economic growth and the decline of energy-demanding sectors like mining.South Africa does not need to rush its nuclear ambitions and can afford to “proceed slowly” in deciding whether to expand the country’s nuclear energy capacity, says Yelland.

South Africa does not need to rush its nuclear ambitions and can afford to “proceed slowly” in deciding whether to expand the country’s nuclear energy capacity, says Yelland.

Edited by Julian Rademeyer

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