How Nuclear Safety Undermines Nuclear Economics
Failed EPR and AP1000 reactor projects have brought giant energy companies to their knees, and even pro-nuclear lobbyists now acknowledge that the industry is in crisis. Jim Green, editor of the Nuclear Monitor newsletter, takes stock of the crisis in the global nuclear sector and concludes that the industry’s likely response, a retreat from post-Fukushima efforts to strengthen safety standards, risks making a bad situation worse.
The crisis over Toshiba that is it hitting the headlines is part of a much deeper crisis in the global nuclear sector. The venerable Japanese company is far from the only nuclear player
in crisis. Take France. The French government is selling assets so it can prop up its heavily indebted nuclear utilities. Électricité de France (EDF) announced in 2015 that it would sell €10bn of assets by 2020 to rein in its debt, which now stands at €37.4bn. EDF is being pressured by the French government to purchase parts of its bankrupt sibling Areva, which has accumulated losses of over €10bn over the past five years.
French EPR reactors under construction in France and Finland are three times over budget ‒ the combined cost overruns amount to about €15bn. Bloomberg noted in April 2015 that Areva’s EPR export ambitions are “in tatters“, and now Areva itself is in tatters.
‘Nuclear dark ages’
These latest dramas occur against a backdrop of deep industry malaise, with the only hope of growth now resting squarely on the shoulders of China. A February 15 piece in the Financial Times said: “Hopes of a nuclear renaissance have largely disappeared. For many suppliers, not least Toshiba, simply avoiding a nuclear dark ages would be achievement enough.”
Toshiba and Westinghouse are in deep trouble because of massive cost overruns building four AP1000 reactors in the US ‒ the combined overruns are about €11.6bn and counting. The saga is detailed in Bloomberg pieces titled ‘Toshiba’s Nuclear Reactor Mess Winds Back to a Louisiana Swamp‘ and ‘Toshiba’s Record Fall Highlights U.S. Nuclear Cost Nightmare‘.
Toshiba said on February 14 that it expects to book a €5.9bn writedown on Westinghouse, on top of a €1.9bn writedown in April 2016. The losses exceed the €5.1bn Toshiba paid when it bought a majority stake in Westinghouse in 2006.
Many thousands of staff, skilled across a range of disciplines, need to be trained and employed if the nuclear power industry is to move ahead (or even survive)
The four AP1000 reactors are the only ones under construction in the US. “There’s billions and billions of dollars at stake here,” said Gregory Jaczko, former head of the US Nuclear Regulatory Commission. “This could take down Toshiba and it certainly means the end of new nuclear construction in the US.”
Bankruptcy looms for Toshiba, with the banks circling and the risk heightened by the likelihood of further delays and cost overruns with the AP1000 reactors in the US, and unresolved litigation over those projects.
‘Too much of a mess’
Toshiba says it would likely sell Westinghouse if that was an option ‒ but there is no prospect of a buyer. The nuclear unit is, as Bloomberg noted, “too much of a mess” to sell. And since that isn’t an option, Toshiba must sell profitable businesses instead to stave off bankruptcy. The company plans to sell most ‒ perhaps all ‒ of its profitable microchip business to prop up the nuclear carcass and avoid bankruptcy.
The company might get €12.3‒16.1bn by selling its entire stake in its microchip business, said Joel Hruska from ExtremeTech. “That would pay off the company’s immediate debts,” Hruska said, “but would leave it holding the bag on an incredibly expensive, underwhelming nuclear business with no prospects for near-term improvement.”
Toshiba plans to exit the high-risk reactor construction business and focus its nuclear business on design, equipment supply and engineering services.
One site where the nuclear problems come together is Moorside in the UK. A Toshiba / Engie consortium was planning to build three AP1000 reactors there, but Toshiba wants to sell its stake in the consortium NuGen in the wake of its massive losses from AP1000 construction projects in the US. Engie also reportedly wants to sell its stake in the consortium, and the French government has already sold part of its stake in Engie … to help prop up EDF and Areva! Deck-chairs are being shuffled.
Cumbrians Opposed to a Radioactive Environment (CORE) commented: “KEPCO is itself still emerging from a major scandal that surfaced in 2012 involving bribery, corruption and faked safety tests for critical nuclear plant equipment which resulted in a prolonged shut-down of a number of nuclear power stations and the jailing of power engineers and parts suppliers.”
“Nuclear safety always undermines nuclear economics. Inherently, it’s a technology whose time never comes”
Plans for six AP1000 reactors in India may not survive the Toshiba/Westinghouse meltdown either. The project is now almost impossible according to Reuters’ sources. India is said to be one of the countries leading the ‘nuclear renaissance’ but hasn’t seen a single reactor construction start since 2011.
Toshiba’s demise would not greatly concern the nuclear industry if it was an isolated case, but it is symptomatic of industry-wide problems. Nick Butler from Kings College London wrote in a Financial Times online post: “Toshiba is just one company in the global nuclear industry, but its current problems are symptomatic of the difficulties facing all the private enterprises in the sector. Civil nuclear power involves huge up-front capital costs, very long pay-back periods and high risks that are compounded by a lack of experience, especially in managing nuclear construction projects after a long period with few new plants. For all those reasons, private investors avoid the sector and prefer to put their money where they see faster and safer returns.”
‘Rapidly accelerating crisis’
The nuclear industry and its supporters have responded in varying ways to the crises facing nuclear utilities and the industry’s broader malaise. Some opt for head-in-the-sand delusion and denial. Others are extremely pessimistic about the industry’s future. Others paint a picture of serious but surmountable problems.
Michael Shellenberger from the pro-nuclear Breakthrough Institute presents cataclysmic assessments of nuclear power’s “rapidly accelerating crisis“ and a “crisis that threatens the death of nuclear energy in the West“. He notes that: “Nations are unlikely to buy nuclear from nations like the US, France and Japan that are closing (or not opening) their nuclear power plants. (…) From now on, there are only three major players in the global nuclear power plant market: Korea, China and Russia. The US, the EU and Japan are just out of the game. France could get back in, but they are not competitive today.”
That’s good news for the nuclear industries in South Korea, China and Russia. But they might end up squabbling over scraps ‒ there were just three reactor construction starts last year around the world.
South Korean companies have failed to win a single contract since the contract to build four reactors in the UAE. Likewise, China has made no inroads into export markets other than projects in Pakistan and Argentina.
Russia’s Rosatom has countless non-binding agreements to supply reactors, mostly in developing countries. But Russia can’t afford the loan funding promised in these agreements, and most of the potential customer countries can’t afford to pay the capital costs for reactors. Former World Nuclear Association executive Steve Kidd says it is “highly unlikely that Russia will succeed in carrying out even half of the projects in which it claims to be closely involved”.
Pro-nuclear commentator Dan Yurman writes that a “sense of panic is emerging globally” as Toshiba exits the reactor construction industry.
Radical breaks from past designs sometimes work in industries that require little up-front capital, like Internet companies. It’s now clear that they are deadly when it comes to nuclear”
Yurman adds: “After nine years of writing about the global nuclear industry, these developments make for an unusually grim outlook. It’s a very big rock hitting the pond. Toshiba’s self-inflicted wounds will result in long lasting challenges to the future of the global nuclear energy industry. Worse, it comes on top of the French government having to restructure and recapitalize Areva …”
Yurman notes that Westinghouse may struggle to keep its nuclear workforce intact: “Layoffs and cost cutting could reduce the core competencies of the firm and its ability to meet the service needs of existing customers much less be a vendor of nuclear technologies for new projects.”
Likewise, Will Davis, a consultant and writer for the American Nuclear Society, explains the failure of the Japanese/US AP1000 projects and the French EPR projects with reference to the “loss of institutional knowledge, industrial capability and construction capability” over the past generation.
As recent history has repeatedly shown, that loss of capability leads to reactor project delays and cost overruns, and that in turn leads one after another country to abandon plans for new reactors.
Many thousands of staff, skilled across a range of disciplines, need to be trained and employed if the nuclear power industry is to move ahead (or even survive). But utilities and companies are firing thousands of staff and making a perilous situation much worse … possibly irretrievable. EDF, for example, plans to cut 5,200 to 7,000 staff by 2019 (including 2,000 sacked last year) ‒ about 10% of its total workforce.
Ironically, Westinghouse, the villain in Toshiba’s demise, may have made the best strategic decision of all the nuclear utilities. In 2014, Westinghouse announced plans to expand and hopefully triple its nuclear decommissioning business. The global reactor fleet is ageing and the International Energy Agency anticipates an “unprecedented rate of decommissioning” ‒ almost 200 reactor shut-downs between 2014 and 2040.
A future for nuclear power?
A fundamental difficulty for the nuclear industry is that the imperatives for greater safety and reduced costs push in opposite directions. Mark Cooper, from the Institute for Energy and the Environment at Vermont Law School, recently told the New York Times: “Nuclear safety always undermines nuclear economics. Inherently, it’s a technology whose time never comes.”
Beyond platitudes ‒ the obvious need for high safety standards, somehow building up the skills base and so on ‒ it’s difficult to see a way out of the mess.
The industry ‒ or more to the point, nuclear enthusiasts outside the industry ‒ could drop the tiresome rhetoric about Generation IV technology coming to the rescue. Shellenberger may have reached that conclusion, writing recently that: “Radical breaks from past designs sometimes work in industries that require little up-front capital, like Internet companies. It’s now clear that they are deadly when it comes to nuclear.”
And Shellenberger’s comments only refer to APR1000 and EPR projects, which aren’t radical at all. The likelihood of genuinely radical Generation IV concepts coming to the rescue is minuscule in circumstances where the inability to build conventional reactors on-time and on-budget has brought industry giants like Toshiba, Westinghouse, EDF and Areva to their knees.
A retreat from post-Fukushima efforts to strengthen safety standards seems to be where the industry and its enthusiasts are heading
Retreating from post-Fukushima efforts to strengthen safety standards inevitably increases the risk of another Chernobyl- or Fukushima-scale catastrophe. Leaving aside the hotly-disputed health effects from those disasters, the economic costs associated with both disasters was in the ball-park of US$500 billion, and both had devastating impacts on public acceptance of nuclear power.
Yet a retreat from post-Fukushima efforts to strengthen safety standards seems to be where the industry and its enthusiasts are heading. Proposals include weakening safety regulations; abandoning Generation 3/3+ reactors in favour of Generation 2 reactor types (or redefining Generation 2 reactor types as Generation 3/3+); and overturning the established scientific orthodoxy that even the smallest doses of ionizing radiation can cause morbidity and mortality.
How to convince the public to accept reduced nuclear safety standards? In a word: spin. Shellenberger, for example, wants “higher social acceptance” but he also wants weakened safety regulations such as the repeal of a US Nuclear Regulatory Commission rule designed to strengthen reactors against aircraft strikes. He squares the circle with spin and sophistry, claiming (without evidence) that the NRC’s Aircraft Impact Rule “would not improve safety” and claiming (without evidence) that the NRC “caved in to demands” from anti-nuclear groups to establish the rule.
by Jim Green
Dr Jim Green is the national nuclear campaigner with Friends of the Earth Australia and editor of the Nuclear Monitor newsletter, where a version of this article was originally published.