Nuclear is OK if it makes economic sense. But Mr Dutton, in Australia, it doesn’t

A strange dynamic has developed where smart people think it’s the smart-person position to be pro-nuclear. But these people are confused. Rather, it is the smart-person position to be open to nuclear for Australia—but then to conclude it makes absolutely no sense in practice.

Sadly, this appears lost on the federal opposition, which has decided that its one bold, politically contentious position at the next election will be to replace our fleet of ageing coal-fired power generators with nuclear plants.

Peter Dutton has put nuclear power at the centre of the Coalition’s energy policy.

It claims this is economically sensible. But, as two economists with extensive experience in energy economics and no horse in the race, we can assure you it isn’t.

We believe a thoughtful person should be able to hold these ideas in their mind simultaneously: nuclear power is a great thing for the world and is underutilised—but it would be a massive own-goal for Australia to go down that path today.

To understand why, first some basic economics of electricity generation, using the most conservative figures and assumptions possible.

Nuclear power plants should be built only in places where it makes sense, such as this plant in France.Credit: Bloomberg

Sources of electricity differ in the nature of their costs (upfront costs, operating and maintenance costs), their operating lifetime, the maximum energy they can produce, and the energy they produce at any time.

To compare apples with apples, a commonly used metric is the “levelised cost of electricity” (we’ll call this “cost”), which accounts for all of these factors.

Coal has high fixed costs (to build the plant) and, when it’s able to maintain a stable output, low variable costs (coal, labour, wear and tear). But since renewables began feeding into the grid, producing wind energy when it’s windy and solar when it’s sunny, coal has been forced to ramp up and down to match.

This has pushed up its variable costs and forced it to spread its high fixed costs over a much lower economic output. Indeed, on sunny and windy days when coal is surplus to capacity, coal plants have been willing to pay for users to take their electricity to avoid the cost of shutting down. As a result, coal now has a high cost of around $160/MWh.

Nuclear has even higher fixed costs, but similarly has low variable costs (including the enriched uranium fuel). In the US, the official cost estimate for new nuclear is $136/MWh.

It’s worth noting Lazard – one of the world’s top financial advisors in energy – puts the cost higher at $274/MWh. According to a 2006 report commissioned by John Howard, Australia can expect to pay a 10-15 per cent premium for its lack of experience. To achieve these numbers, however, the reactors must run at close to maximum output.

On Tuesday, Opposition Leader Peter Dutton said: “Labor sees nuclear power as a competitor to renewables. The Coalition sees nuclear power as a companion to renewables.”

The trouble is that nuclear is a terrible companion to renewables. The defining characteristic of being “compatible” with renewables is the ability to scale up and down as needed to “firm” renewables. Countries like France can only make nuclear work by exporting large amounts of energy when it’s surplus to demand.

Even if we don’t build a single new wind farm, in order to replace coal in firming renewables, nuclear would need to operate at around 60 per cent average utilisation (like coal today) to keep capacity in reserve for peak demand. This alone would push the cost of nuclear beyond $225/MWh. To replace gas as well, the cost skyrockets beyond $340/MWh.

And there’s simply no good reason to go down such an expensive path when we have the great fortune in Australia of a far cheaper and perfectly reliable alternative.

There have been remarkable cost reductions in wind and solar in recent decades. Today, even accounting for transmission and firming requirements, renewables can deliver electricity at $115/MWh, by far the cheapest source of energy.

And credible modelling shows our grid can handle very high renewables penetration. The Grattan Institute confirmed that at least 90 per cent renewables (we are at 37 per cent today) is achievable without much additional cost. And AEMO, the energy market operator, has modelled our energy system with fossil fuels reduced to just 1.4 per cent by 2050 while maintaining reliability.

The greater the renewables penetration, the more reliable they become as shortages in one location are offset by surpluses elsewhere. The small gap that remains at any time can be filled by a combination of gas, batteries, and pumped hydro.

By suggesting we transform our energy system around nuclear for the sake of less than 10 per cent of our electricity emissions, the opposition is effectively asking Australians to pay the highest carbon price in the world.

That’s not to mention the need to develop a whole new regulatory architecture and skilled workforce, wait 10–15 years for the first plant to be built, overcome inevitable local opposition, and for what?

We went from a Liberal Party opposing climate action in favour of the cheapest energy source to one favouring climate action via the most expensive energy source. Where is the rational Liberal Party that wants to harness markets to address climate change at minimum economic cost?

Steven Hamilton is an assistant professor of economics at the George Washington University and Luke Heeney is a graduate researcher at the MIT Centre for Energy and Environmental Policy Research.

Get a weekly wrap of views that will challenge, champion and inform your own. Sign up for our Opinion newsletter.