Inquiry into the prerequisites for nuclear energy in Australia

Submission 258

Inquiry into the Prerequisites for Nuclear Energy in Australia

Simon Holmes à Court

Senior Advisor
Climate and Energy College
Melbourne University

16 September 2019

Thank you for the opportunity to provide input into the Inquiry into the Prerequisites for Nuclear Energy in
Australia. I will address a number of matters relevant to the terms of reference.

I am available and willing to meet with the committee to discuss these matters.

1. Current nuclear product offerings are a poor fit for the Australian market.
Just three years ago, the South Australian Nuclear Fuel Cycle Royal Commission (SANFCRC) effectively determined
that nuclear energy did not make economic sense in South Australia:

This negative economic impact arises because nuclear power does not offer a source of electricity
generation that can deliver a commercial rate of return through private investment alone. This outcome
is indeed consistent with the business case analyses, which showed that while a nuclear power plant
investment does not yield a commercial rate of return under any circumstances, an investment in
combined cycle gas turbine does, even under the strong carbon price scenario.

While the assumptions that underpinned the analysis do vary somewhat from state to state, the variance is not
sufficient to tip the balance in favour of nuclear power development in any region of Australia. It is noteworthy
that the ‘Strong carbon price’ scenario assumed a carbon price in excess of $150 (in 2015 dollars) in 2040.

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 Inquiry into the prerequisites for nuclear energy in Australia
Submission 258

Modelling undertaken by global engineering firm Parsons Brinkerhoff found that each of six different nuclear
configurations would deliver power for costs in the range of $180–$246/MWh, significantly ​above​ the estimated
price of electricity under a range of future assumptions.

There has been no significant ‘good news’ for the nuclear sector since the 2016 SANFCRC, however there are
indications that conditions have deteriorated. The May 2019 International Energy Agency report ​Nuclear Power in
a Clean Energy System​ showed that the construction costs of nuclear power plants in the US and Western Europe
has increased significantly in recent experience.

It would be fair to assume that current nuclear technologies have become more expensive since 2016. Meanwhile
the cost of alternatives, namely renewable energy, has become significantly cheaper, with the effect of reducing
future price scenarios.

Nuclear power was uneconomic in 2016 and the economic argument for them in Australia has only worsened
since.

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 Inquiry into the prerequisites for nuclear energy in Australia
Submission 258

2. The only prospect for nuclear power in Australia is Small Modular Reactor
technology.
The only nuclear project under construction in North America is the construction of two Westinghouse AP1000
reactors at the Alvin W. Vogtle Electric Generating Plant in Georgia. The project budget has currently run up to
US$25bn for a total of 2.2GW of new generation — the equivalent of about AUD $16bn per gigawatt.

While this is just one data point, other nuclear builds in Western democracies such as Flamanville in France,
Olkiluoto in Finland and Hinkley Point C in the UK are being built for not dissimilar cost. Roughly speaking, these
are decade-long builds.

Before deregulation, a government may have been in a position to make a $16bn investment decision that
wouldn’t begin to generate a single watt of power for a decade, however privatisation has brought a new set of
investment parameters.

It is noteworthy that the market capitalisations of Origin Energy ($14bn) and AGL ($12.4bn) are both less than the
rough cost of a single 1000MW nuclear power plant — and there’s plenty of reason to believe that the first
nuclear power station in Australia would cost more than in the US where labour rates are lower and a nuclear
supply chain already exists.

Even our largest power companies would struggle to finance a nuclear power station of the type currently on
offer and it is inconceivable that they would ‘bet the farm’ on a single project that has the potential to blow out in
both time and cost and sink the owner.

Many representations will be made to this Inquiry that Small Modular Reactors (SMRs) are where the opportunity
lies, and it is true that if the nuclear sector can deliver mass produced reactors that can be installed in, say, two
years with a minimum investment of under, say, $1bn and if the final product can produce energy at a cost
comparable with other technologies, then the product will likely be of interest to energy investors.

3. Small Modular Reactor technology is not yet commercially ready.

Unfortunately, SMRs do not yet exist at a level of commercial readiness suitable for deployment in Australia.

The Australian Renewable Energy Agency frequently evaluates new technologies and uses a framework adapted
from NASA — the Technical Readiness Level scale. Projects generally start with basic technology research (level 1)
and gradually, through research, development and deployment, mature through to system test, launch and
operations (level 9). Only as a technology becomes highly mature does it start to mature through a Commercial
Readiness Index scale.

A technology can’t generally be considered commercial until it has reached the top of the CRI scale, and become a
‘bankable asset class’. Programs like ARENA and the CEFC have been essential to accelerating technologies
through the TRL/CRI process, however there is only very limited scope for shortcuts.

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Submission 258

There are no shortage of SMR concepts, but in general they sit low down the TRL scale. A small number may
reach the bottom end of the CRI scale in the coming decade, but at this stage it is difficult to see CRI4 achieved in
the 2020s and CRI6 before the end of the 2030s.

The world of technology development is beset with overly optimistic claims used to drum up media attention and
investment. It is very common for public perception of commercial readiness to run many years in front of actual
progress.

SMRs are not commercially ready and nor will they be for perhaps two decades or more. Given the high level of
public interest, I recommend that CSIRO, in consultation with ARENA and the CEFC, periodically provide an
assessment of the commercial readiness of the leading SMR technologies under development.

4. The nuclear prohibition is a distraction, but maybe worth lifting under the
right conditions.
Energy policy in Australia has been hobbled for at least a decade as hostage to an unnecessary culture war mainly
revolving around carbon emissions. Followers of nuclear technology would argue that the energy culture war
predates the “carbon wars” by decades.

Section 140A of the EPBC, which expressly prohibits nuclear energy, is a touchstone issue in these energy and
climate culture wars. Arguably the prohibition serves no real purpose as there is no currently viable nuclear
power technology (as set out in 1. above) and nor is there likely to be one for at least a decade (as set out in 3.
above).

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Submission 258

Given that the prohibition is not stopping development, it can be argued that the prohibition is purely symbolic.
Conversely, since lifting the prohibition would change nothing, it can likewise be argued that lifting the
prohibition would be purely symbolic.

Removing the prohibition would take clear heads and great political courage across the political spectrum and
would kick off an incredibly complex effort where just 47 words would need to be replaced with hundreds, if not
thousands, of pages of new regulations.

If, however, the lifting of the prohibition could be tied to some form of truce in the energy wars, it may well be a
price worth paying.

It has been suggested that nuclear energy will only be viable in Australia with a carbon price — another
touchstone in the energy and climate culture wars.

Furthermore, it has been suggested that a “grand bargain” might be struck: strike out the prohibition on nuclear
energy in Australia in exchange for a price on carbon.

It goes without saying that much work would need to be done to allay the public’s concerns around safety,
non-proliferation, waste, etc. — highly emotive topics, and in my opinion not worth discussing until until the
broad terms of the “grand bargain” above can be agreed in principle.

6. The abundance of uranium in Australia is not relevant.

Australia is blessed with a multitude of natural resources, including relatively large reserves of uranium ore. Once
mined, most often as a byproduct, the uranium ore is processed into a concentrate powder referred to as
yellowcake. Before it can be used in nuclear reactors the yellowcake must undergo a series of transformations,
including the process of enrichment, before it can be fabricated into fuel suitable for the target reactors.

The processes of enrichment and fabrication are highly specialised and rely upon highly capital intensive
processes that do not exist in Australia. The global supply chain of enrichment is tightly regulated, for good
reason, and has significant excess capacity. It is difficult to foresee any circumstances in which Australia would
develop the capabilities of producing nuclear fuel.

Intuitively the relative abundance of uranium would appear to provide Australia with a nuclear advantage,
however this advantage is illusory when one considers that if Australia were to ever build nuclear power reactors,
the facilities would almost certainly import their fuel.

7. For a low carbon future, nuclear energy might be helpful, but is not
required.
Twelve coal power stations have closed in Australian since 2012. Only 19 coal power stations remain in operation
and most will likely close in the 2030s, towards the earlier part if Australia is to meet its share of keeping global
warming to 1.5°C.

There is a widespread perception that as these ‘baseload’ generators are retired they must be replaced ‘like for
like’ with generators sharing similar generation profile and that only nuclear energy is a drop-in replacement.

Energy transition is a relatively new study of the challenges, opportunities and mechanisms for transitioning our
energy systems from predominantly fossil-fuels to predominantly renewables. A large body of academic work
concludes that not only can modern power grids provide reliable power without ‘baseload’ generation, but in
many markets (including Australia) the cheapest path forward is to use a portfolio of variable renewables with
dispatchable energy sources.

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 Inquiry into the prerequisites for nuclear energy in Australia
Submission 258

The Australian Energy Market Operator’s 2018 Integrated System Plan outlined several paths forward, all of
which demonstrated this finding.

AGL’s 2017 plans for the replacement of the Liddell power station hints at a similar story:

I would urge the committee not to fall into the trap of believing that ‘baseload’ generation is required for a
reliable power system.

As such, the Inquiry should keep in mind that if cheap nuclear ever were to be invented it might be useful, but it is
certainly not necessary for an energy system that delivers affordable, reliable and clean energy.