Nuclear fission has attracted dissent from the time of its inception. But the Fukushima disaster has pushed the nuclear industry into stormy waters worldwide. Local resistance and anti-nuke pressure will result in cost escalations for new nuclear power plants, possibly halting the current nuclear renaissance
“No one is likely to invest in a financial black hole, nor build nuclear power plants for environmental reasons, unless they are demonstrably profitable and among the most cost-efficient solutions.”
-- International Atomic Energy Agency
A spectre is haunting the nuclear industry: the spectre of anti-nuclear movements. While nuclear fission attracted dissent from the time of its inception, Fukushima is turning out to be a complete game-changer. In countries like Germany, anti-nuclear history is being written by hundreds of thousands of people hitting the streets in ongoing protests against the world’s most controversial source of energy.
India’s nuclear establishment has so far tried to dismiss these anti-nuclear sentiments as a European peculiarity without any relevance to India. But a closer look shows that the nuclear industry could, in fact, be sailing into stormy waters worldwide. Apart from already existing problems, growing local resistance and anti-nuclear public pressure could massively push up capital and financing costs for new nuclear power plants. If, at the same time, governments can’t politically afford to continue their massive nuclear subsidies, the situation could reach a financial tipping point that could halt the current nuclear renaissance.
The cost of escalation
Nuclear power plants are among the costliest constructions in the world. Total construction costs for a new 1,000 MW nuclear plant range from $2 to $6 billion. With engineering, procurement and construction costs (EPC costs) constituting the largest part of total costs, the overall profitability of a new nuclear plant is highly sensitive to delays in the licensing and construction phase(source: ING study on nuclear financing, 2006).
Cost escalations in the initial project phase normally stem from price inflation and bad calculations. Asian nuclear power plants are, so far, among the cheapest in the world. But with anti-nuclear resentment on the rise, resistance to new plants could push up costs considerably.
In South Korea, for the first time, local residents protested against the construction of a new nuclear plant after the events at Fukushima. In Thailand, villagers from Tha Chana district denied entry to a team scouting locations for the country’s first nuclear plant. Turkey witnessed its first ever anti-nuclear demonstration against the construction of a Russian model nuclear plant at Akkuyu.
In India, the industry’s sights are set on Jaitapur, where Europe’s nuclear primus Areva wants to build the world’s largest nuclear power plant. While there is already fierce opposition, press reports state that the Fukushima factor is giving a boost to local resistance, pushing up costs.
Brahma Chelaney, a former advisor to India’s National Security Council, expects further delays at Jaitapur due to Fukushima. “Everything from the opacity in which the contracts have been signed, without any competitive bidding, to grassroots resistance where people live and don’t want nuclear plants, leads me to believe India’s nuclear programme will be delayed in the wake of the Japan crisis,” Chelaney told the press.
More security -- more costs
Analysts from UBS, the Swiss investment bank consulting the British government on its nuclear programme, believe that Fukushima will hurt the industry’s credibility more than the Chernobyl disaster did, in 1986. With new radiation details leaking from Japan every day, public opinion is beginning to swing against nuclear energy in many parts of the world. Fearing loss of its carefully constructed image, most nuclear actors feel compelled to announce an upgrade in security standards for existing plants and new plants in the pipeline.
Günther Öttinger, Europe’s energy commissioner known for his career-long support for nuclear energy, announced that the European Union’s 143 nuclear plants would be subjected to a ‘stress test’, taking into account risks such as earthquakes, floods, aircraft crashes, terrorist attacks and cooling-system failures. China went one step further and stalled all approvals for new plants for one year, until a comprehensive safety review is finished.
While the Indian Prime Minister Manmohan Singh announced that India too needed to review its safety standards, Srikumar Banerjee, chairperson of the Indian Atomic Energy Commission (AEC) claims that there will be no delays in the Indian nuclear roll-out due to Fukushima.
Nuclear experts expect that enhanced safety standards will considerably push capital costs for new plants. According to the World Nuclear Association WNO, safety systems already account for a quarter of the total capital cost of new reactors. Antony Froggatt, senior research fellow at Chatham House, sees safety costs as a key determinant in deciding the future of nuclear energy. “Utilities are driven by the bottom line. If you have to build more safety barriers then you might reach a tipping point where other energy options become cheaper and nuclear is ruled out.”
Financing as the ‘weak spot’
In order to finance escalating upfront costs, new plants need to have access to large sums of capital. Many environmental groups believe that after the events in Japan exactly this financing could emerge as the nuclear weak spot: “Banks are subject to public opinion. They are exposed to significant reputation-related risks if they fund hugely unsafe anti-people projects,” Arundhati Muthu from Greenpeace India said.
In India, 70% of the capital is financed from debt and 30% from equity. While the Power Finance Corporation announced co-finance to indigenous PHWRs, the Jaitapur project depends entirely on international financing. Although the Nuclear Power Corporation of India Ltd (NPCIL) and Areva claim that international banks will not draw in their horns, there are strong hints that suggest otherwise.
Germany’s two biggest banks, Commerzbank and Deutsche Bank, recently announced that they would not finance the Jaitapur plant citing sustainability problems, reputation risks, and local opposition as reasons.
BNP Paribas, mentioned by the NPCIL as one of the key players of a potential financing consortium, disclosed that they were reviewing their engagement in Jaitapur: “BNP Paribas’s policy on nuclear power will be revisited. In a similar manner, the Jaitapur project will also be reviewed in light of recent events,” a media spokesperson from BNP Paribas Asia told the author.
According to Greenpeace India, UK-based HSBC is another shaky candidate: “Many banks are reconsidering their investment strategies vis-à-vis nuclear energy. HSBC is one such bank -- its internal teams have suggested that it is no longer a good investment option for the future,” Greenpeace India told the author. Confronted with this claim, HSBC repeatedly declined to comment.
The prospects for official bilateral or multilateral funding are also bleak. According to media reports, the French export credit agency, COFACE, announced that it would wait for the results of an external review of the existing environmental impact assessment study (EIA) before deciding whether to finance Jaitapur.
Urgewald, a German NGO devoted to stopping the participation of European companies and banks in dangerous nuclear projects, expects nuclear financing to become even more difficult after Fukushima. “Fukushima has shown us the total helplessness of nuclear operators in the wake of an accident. I therefore see little chance that a project like Jaitapur will be able to find financing in Europe. The reputational risks are simply too high. Any bank or ECA which considers this project will find itself the target of a major campaign by the European environment movement,” Heffa Schücking from Urgewald said.
Due to immense public pressure, 12 international banks and Germany’s second-largest energy company, RWE, withdrew from plans to build nuclear plants in Bulgaria and Romania. Both projects have until now not been able to find financing.
While other energy projects can apply for financing from multilateral financing agencies, this is not likely to happen for nuclear power plants. Neither the World Bank nor the Asian Development Bank currently finance new nuclear plants.
Experts differ about whether fuel shortages and rising uranium prices could become a challenge for nuclear profitability. While the World Nuclear Association avers that fuel makes up only a “minor proportion of total generating costs,” other experts regard uranium as a cost problem in the making. Christopher Ruppel, senior geopolitical analyst at John S Herold Consultants, says that fuel costs already make up 28% of the operating costs. “If prices don’t moderate, nuclear plants will be somewhat less profitable,” he told CNN.
Instead, with scientists expecting “severe uranium supply shortages in 2020,” and the amount of available uranium-based fuel likely to hit a bottleneck, prices are more likely to skyrocket. The spot prices have been rising for three consecutive years now, with speculation driving them to a record level of more than $60 per pound.
Even more trouble for nuclear profits is quantitative shortages. Without enough fuel, reactors have to run on lower utilisation rates thereby not burning the amount needed for profitable operation. For decades, Indian power plants ran at low utilisation rates of 50-70% due to severe uranium shortages. Although the Indian government claims that the country has 115,000 tonnes of uranium reserves, the World Nuclear Association pitches India’s reserves at a modest 73,000 tonnes. According to Mines Web, an online commodities analysis service, actual current uranium production in India is as low as 450 metric tonnes per year. This is in sharp contrast to the 7,000 tonnes needed for the planned nuclear roll-out, according to the NPCIL’s own figures.
The only way the nuclear industry can counter this problem is by exploring new mines, both in India and abroad. But with uranium mining having immense social and environmental repercussions, it is only a matter of time before local resistance against uranium mining grows. In Jaduguda, Jharkhand and Meghalaya, the Uranium Corporation of India already faces stiff resistance against their mining plans. Günter Wippel from Uranium Network, an NGO specialised in human rights violations and the ecological impacts of uranium mining, predicts a global increase in anti-uranium movements: “Rising uranium prices have led to a large increase in new uranium companies which will do anything to find and explore new uranium reserves. This will certainly lead to more local resistance, as people will resist the destruction of their livelihood.”
This is what democracy looks like
Apart from whirling around carefully forged profit calculations, anti-nuclear movements could also scare away the industry’s most important ally: nuclear energy depends a lot on governmental support. The current mass protests in Europe show that anti-nuclear movements have the political clout to force governments to withdraw nuclear support. Shortly after the Fukushima accident, for the first time in world history, an explicitly anti-nuclear party was elected into office in the German state of Baden-Württemberg. The Greens ousted Chancellor Merkel’s Christian Democrats from office after more than 50 years. Analysts contribute this victory to the ability of the anti-nuclear movement to frame the elections as a referendum against nuclear energy.
The historic election is likely to radiate into the strategic departments of power houses around the world. Once anti-nuclear movements reach a critical mass they can force governments to decide between changing their nuclear policy and losing power. “Wherever governments haven’t understood this, it is going to be the people’s pressure in the streets that will have to demand the change,” Theresia Bauer, vice-president of the Greens in the state assembly concluded.
The NGO .ausgestrahlt, a key player in the current anti-nuclear mass protests in Germany, interprets the recent events as indication of a historic chance: “While the conservative central government used to speak of extending the lifetime of nuclear power plants, all of a sudden it speaks of speeding up the transition towards renewable energies,” Matthias Weyland from .ausgestrahlt observed. Eight of Germany’s 17 plants have already shut down, and, according to Weyland, the anti-nuclear movement isn’t likely to settle for this: “We want all nuclear plants to shut down. If social movements around the world find ways to increase the pressure now, there are chances that a sustainable and ecological energy system can be achieved.”
Facing a powerful state-nuclear nexus that douses any opposition, the nascent Indian anti-nuclear movement does not so far have the power to change the country’s nuclear trajectory. But the combination of very worrying news coming out of Japan and grassroots resistance intermeshed with coordinated anti-nuclear campaigns could very well morph into a powerful force to be reckoned with. Whether its power can reach a nuclear tipping point, only history will tell.
(Ajit Thamburaj is a freelance journalist and political scientist from Germany, currently working out of Chennai. His main areas of coverage are environment, international economy and human rights issues. He can be contacted through his blog www.nowherenotes.wordpress.com)
Infochange News & Features, April 2011