Severance: Nuclear Power Makes No Business Sense

At a quiet lakeside retreat house in Potsdam, Germany, 35 people met this month to discuss the future of nuclear power.

Guest blogger and nuclear economics expert Craig Severance was one of the attendees. He discusses his presentation in this repost. Severance is co-author of “The Economics of Nuclear and Coal Power” (Praeger 1976) and a former Assistant to the Chairman and to Commerce Counsel, Iowa State Commerce Commission. Last year, Severance did an Exclusive analysis for CP on the staggering cost of new nuclear power.

Among us were representatives from governments, academia, think tanks, the nuclear power and utility industries, and independent writers and researchers. We came to talk, and not necessarily to agree. Nevertheless, the discussions were brisk and a wealth of valuable information was shared. The Brookings Institution and the Global Public Policy Institute with support from the European Commission sponsored the conference, entitled “Towards a Nuclear Power Renaissance? Challenges for Global Energy Governance”. (The insights I share below are my own perspective. The conference followed rules where each of us is free to publish our own talk and perspectives but cannot report on what others said, so as to promote the free exchange of ideas.)

Potsdam Historically Significant. Potsdam seemed particularly appropriate for such an important conference. Though it is a relatively small community 24 km southwest of Berlin, it has served an important role in history. It was the home of the Prussian kings until 1918, a place where decisions could be made in an idyllic setting. These same qualities attracted the Allies after WWII to meet in Potsdam to determine the future of Germany and postwar Europe. Today, it has become an important scientific and research center.


Nuclear Power Decisions Will Determine Much. Though nuclear power may seem a limited issue — related only to energy, and only one of several energy sources at that — the decision whether to pursue nuclear power may prove to be the most important decision now before world leaders. Consider the following:

  1. Capital Needs. Expanding nuclear power requires enormous amounts of capital, For instance, some members of the U.S. Congress have said the U.S. should build 100 more new nuclear power plants. Yet, building 100 new nuclear power plants would require a capital investment of at least one trillion dollars, and this would still meet only only a fraction of U.S. energy requirements. In the throes of a world financial crisis, will economies have the resources to devote such enormous resources to just one industry? Where will the funds come from? Will other energy priorities such as energy efficiency, the Smart Grid, and expansion of renewables be eclipsed by nuclear power’s needs? Even more broadly, is it ethical or wise to devote so much of an economy’s total resources to just electricity production? For instance, do we really want the elderly who now struggle to pay $100/month electric bills to now have to find a way to pay $200/month? Or, would it be better to limit the share of resources devoted to electricity by helping electric customers cut their usage? Also, on the societal level, capital is limited. In many developed countries key needs such as roads and bridges, public water and sewer systems, basic scientific research and development, and schools are all falling into decay because of a lack of capital investment. In developing countries, these key infrastructures are not yet even in place.
  2. Climate Change. Amory Lovins of the Rocky Mountain Institute has said for many years that the pursuit of nuclear power will make climate change worse— because adopting it as a climate protection strategy simply won’t work. It will be too expensive and too slow to get the job done. This would not be such a disaster (many things don’t work) if nuclear power didn’t take all the money away from doing the things that actually do work. Also, as Dr. Benjamin Sovacool of the Lee Kuan Yew School of Public Policy published here in 2008, nuclear power “is in no way carbon free or emissions free” even though it is better than coal, oil, or natural gas. Because of carbon emissions needed for uranium mining and milling, uranium enrichment etc., Dr. Sovacool concluded after reviewng 103 studies on the topic, that nuclear power produces significantly more emissions than renewable energy technologies. Putting most of your money into a technology that is more costly, slower, and less effective is a strategy for failure — and climate change is an issue where the world cannot afford to fail.
  3. Employment. Finding a solution to crippling unemployment is now an urgent matter for many countries. We cannot “stimulate” forever — it is crucial that limited capital resources are invested most effectively. Investments in efficiency and renewables will create more jobs than investing in new nuclear power plants. The jobs created in new nuclear power are so highly technical there may not even be a trained nuclear work force available to fill those jobs. As reported by the World Nuclear Industry Status Report 2009, the nuclear industry is already facing critical shortages of the nuclear engineers needed to keep today’s existing fleets of nuclear power plants operating safely, let alone having the added staff needed to expand. It is not nuclear engineers who are out of work — there aren’t even enough ot them — but the construction workers we all know in our own families and communities. Jobs are needed in every community, not just a few concentrated locations where a massive new power plant may be built. Efficiency and distributed power sources spread more new jobs, to those who need them, in more places.
  4. Economic Dependence . America, most of Europe except Russia, and in fact most countries of the world other than oil exporting nations are all suffering from a major drain on their economies due to the need to pay for imported energy. Nuclear power won’t help most countries become energy independent, because only a handful of nations in the world possess significant uranium resources. Nuclear power is actually just another form of imported energy. Is it wise for a country to invest tens or hundreds of billions of dollars in new power plants that depend on fuel imports from often unstable countries, and countries within the former Soviet sphere of influence? Efficiency and renewables (and for some nations natural gas) utilize a country’s own resources. Keeping dollars from leaving a country can create just as much economic activity as bringing new dollars in.
  5. Military Security. America and the EU nations have invested major military resources to protect access to imported oil. Nuclear power does little or nothing to reduce oil dependence to lessen the need for the military resources devoted to oil. Far worse, however, is that nuclear power creates stark new military security threats of its own that may require investment of major military resources to keep terrorists and weapons-intent countries from building nuclear weapons. Nuclear power grew out of the nuclear weapons program, and the nuclear fuel cycle still produces the elements — uranium and plutonium — which can be used to make nuclear weapons or radioactive “dirty bombs”. The nuclear industry argues that any nation or terrorist does not need a nuclear power plant to make a bomb, they just need uranium enrichment. This is true. However, the only “legitimate” reason to enrich uranium is to use it in a nuclear power plant. The continued promotion and sale worldwide of “civilian” nuclear reactors thus gives nations the excuse to operate uranium enrichment programs, as we have seen in Iran. In addition to this looming threat of new nuclear states, an even more frightening prospect is that weapons grade material will fall into the hands of terrorists. Terrorists are not deterred by Mutually Assured Destruction as are nuclear states. Some nations are separating out the plutonium from spent nuclear fuel and mixing it into new fuel, and also stockpiling huge quantities of plutonium. The unused fuel containing plutonium is shipped to nuclear plants, making it vulnerable to attack in transport. The large plutonium stockpiles may also be attacked with the purpose of either seizing the material for bomb making or contamination of populations with radiation. Western nuclear plants cannot explode with an atomic Hiroshima-style blast. However, the continued sale and use of nuclear power plants may allow those intent on creating such horrendous destruction to gain access to exactly the materials they need..

Nuclear Power Makes No Business Sense. The above problems are very serious in nature. To address them however may require some simple common sense. What is the purpose of nuclear power: simply to boil water to make kWh’s. It is not the only way to make kWh’’s. Thus, if nuclear power makes no business sense, and there are alternatives to nuclear power, the problems noted above can be avoided except for existing plants. We won’t need to make things worse by builiding new nuclear power plants.

Free market economies eventually pick winners and losers. There are clear indications the financial markets have already picked new nuclear power as a loser. Those who watch the financial news on nuclear power have seen major institutions state again and again that new nuclear power makes no economic sense and is too risky to garner private investment or the support of private lenders. Major cautionary reports have been issued by Moody’s, Citi, and Simmons & Co, among others.

Remember: Promoter’s Business Plans Always Look Good. Some may wonder why they can hear nuclear promoters’ numbers that show new nuclear power is economical, yet the financial industry remains so skeptical. The reason is simple: all promoters in any industry know they must develop business plan proposals that look good. That is the job of the promoter.

Due Diligence Asks the Right Questions. It is the job of the lender or investor to be skeptical of any promoter, and to put a proposal to the test by a process known typically as the “Due Diligence” process.

Core questions asked in the Due Diligence Process include:

  1. Does the proposal actually meet customer needs?
  2. Can the company afford the project?
  3. Are Cost Projections Reliable?
  4. Assessment of the Competition
  5. Are Revenue Projections Reliable?

Due Diligence for New Nuclear Power. This was my contribution to the Potsdam Conference — a paper showing a sample analysis of new nuclear power as a “business proposal” and applying the five “Due Diligence” tests above. The presentation is posted here.

The conclusion is that new nuclear power does not meet any of the five tests, so it would fail as a business proposal. The financial institutions mentioned above seem to have come to the same conclusion. New nuclear power likely cannot succeed as a business proposal and thus would require massive government support.

This begs the question however — should not Due Diligence also be applied to the proper use of taxpayer monies? If so much is at stake for the U.S. and the world, should the U.S. really be leading the way in throwing taxpayer monies at an industry without asking the right questions?

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