Going nuclear

Nuclear energy, once heralded as a clean and limitless source of electricity, has faced significant challenges in recent decades. Largescale nuclear catastrophes, such as Chernobyl and Fukushima, raised serious concerns about the safety of nuclear power plants and led to a decline in public support. However, as the world grapples with the urgent need to reduce greenhouse gas emissions, there is renewed interest in the space.

Here we look at key issues to consider when assessing if the sector is a ‘viable’ long term option for sustainable investment, and what issues need to be addressed.

1. Construction and generation costs: According to most estimates, on a levelised energy cost basis, nuclear power is currently expensive. This is largely due to the significant upfront capital required. Further, increasing fluctuations in daily electricity pricing – where prices are often negative due to the low marginal cost of wind and solar – can severely impact the economics of baseload generation. While this may change in future with electricity growth from data centres – for now uncertainty remains.
2. Difficulties with forecasting: Evidence from new build reactors in the OECD region shows cost and timeframe estimates are very difficult to forecast with any accuracy given construction timeframes can extend across multiple decades. While the industry holds great hope for new technology – such as small-modular reactors (SMR) – this is largely unproven and difficult to assess given data opacity from the limited number of current operating plants.
3. Supply chain concentration: The supply chain for nuclear technology is concentrated, with only a few major players dominating the market. While Australia is the world’s fourth largest producer of uranium ore, it is enriched uranium that is used as a nuclear fuel. This market is monopolised by Russian state owned enterprise Rosatom, which according to various sources has approximately 40% of the world’s uranium enrichment market – creating significant geopolitical risk.
4. Waste management: The safe and long-term storage of nuclear waste remains a challenge. High-level nuclear waste, which is radioactive and has a long half-life (the amount of time it takes for one half of the radioactivity to decay), requires careful disposal. The availability of suitable storage facilities and the long-term costs associated remain difficult to navigate. For example, since 1987 a disposal facility has been planned in Nevada. This was intended to be the long-term storage facility for the American nuclear industry, however, the project has never been completed due to its political opposition.
5. Safety and regulation: Nuclear accidents, such as Chernobyl and Fukushima, have raised concerns about the safety of nuclear power plants. However, the rate of deathsper- terawatt-hour for nuclear energy is small compared to alternative energy sources. Despite this (and while low probability), displacement and associated economic costs of incidents can be much higher. For example, the Fukushima Daiichi nuclear disaster in 2011 led to the evacuation of over 160,000 people and cost an estimated $180 billion in damages.

Death rates per unit of electricity production (per Twh)

Nuclear energy remains a complex and multifaceted issue, with a delicate balance of benefits and risks that are difficult to weigh against each other. However, from an investment perspective, it appears difficult to justify private capital allocation given the inherent difficulties in forecasting coupled with extended payback periods and geopolitical vulnerabilities of supply chains. In this case, government investment is likely required to support the development and further deployment of nuclear energy to address the urgent need for decarbonisation.

Levelised cost of energy by technology type ($US per MWh)