Economics 331bThe Dilemmas of Nuclear Power

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- Electricity is the shmoo* of the energy world.

- It can do (just about) everything.- Nuclear power was forecast to

be “too cheap to meter.” (Lewis Strauss, chairman Atomic Energy Commission, 1954)

“Shmoos are delicious to eat and eager to be eaten. If a human looks at one hungrily, it will happily jump into a frying pan, after which they taste like chicken, or into a broiling pan, after which they taste like steak. When roasted they taste like pork, and when baked they taste like catfish. Raw, they taste like oysters on the half-shell.” (Wikipedia)

The rising share of electricity in energy

3Source: EIA. Primary energy in electricity as share of

total.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1950 1960 1970 1980 1990 2000 2010

Prices of different energy carriers

4Source: EIA and other.

Source Unit Price per unit Price per 10̂ 6 Btu

Natural Gas  10̂ 3 cubic feet 14.19$ 14.19$

Home heating gallon 2.39$ 17.31$

Gasoline gallon 1.90$ 13.76$

Electricity  kwh 0.089$ 26.08$

Thermal Coal short ton 24.00$ 0.96$

Electricity generation, US, 2007

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Energy SourceGenerator

Nameplate Capacity Percent of totalNatural Gas and other gases 452.1 41.56Coal 336.0 30.89Nuclear 105.8 9.72Hydroelectric Conventional 77.6 7.14Petroleum 62.4 5.74Pumped Storage 20.4 1.87Wind 16.6 1.53Wood and Wood Derived Fuels [a] 7.5 0.69Other Biomass [b] 4.8 0.44Geothermal 3.2 0.30Other 0.9 0.08Solar Thermal and Photovoltaic 0.5 0.05Total 1087.8 100[a] Wood/wood waste solids, wood waste liquids, and black liquor.[b] Biogenic municipal solid waste, landfill gas, sludge waste, agricultural byproducts, other biomass solids, other biomass liquids, and other biomass gases.Source: EIA, http://www.eia.doe.gov/cneaf/electricity/epa/epat2p2.html

Key uncertainties in nuclear power

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Item Uncertainty

Fuel: natural uranium Supply curve

Capital cost (cost per kwe) Construction costRegulatory constraints

Discount rate Overall cost of capitalRisk premium

Catastrophic accidents Frequency and severityAcceptable risk

Long-term storage Where and acceptability

Proliferation Potential risks of diversion of fissile material

Projected costs of different generation types

IEA, Projected Costs Generation Electricity, 2005, Paris, p. 46.Note: highly dependent on assumptions about discount rate and fuel cost.These also exclude all external costs (externalities).

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How to calculate “levelized costs”

Levelized cost = constant cost that would lead to required return on investment

LC = pfuel * fuel rate + O&M + (r + δ + ρ)* pkwe * capacity factor

where

pfuel * = price of fuel

fuel rate = quantity of fuel per kwh

O&M = operations, maintenance, storage, other

r = real riskfree interest rate

δ = depreciation rate

ρ = risk premium

pkwe = price per kilowatt electric capacity

capacity factor = fraction of year in operation8

More Detailed on Financial CalculationsThere are two different approaches in calculating costs:

1. Social costs (using some normative discount rates): used in Stern Report, cost-benefit analyses for government programs, IEA estimates, etc.

2. Private costs (using market rates, tax rates and depreciation, risk premiums, etc.): uses in MIT Report, by bank analysts, some energy modeling.

The private costs approach:- Assume some traditional leverage ratio, market

interest rates, current depreciation practices, etc. - Then calculate a “break-even price” that just makes

hurdle return.

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The corporate finance of the private approach

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Assume a debt ratio of λexponential depreciation of δ, no inflation. Risk - free (T - bond) rate is r, risk premium on utility debt is ρb, required return on utility equity is ρb, profits tax rate is τ.

We want to calculate a capital recovery factor, z, which is the equivalent of the user cost of capital in macro.The present value of the investment is zero when z is given by:

This means that the annual rental per dollar of capital is 19 cents.

External costs

Major issue is that pollution and other external costs of electricity production are inconsistently regulated and prices:

- Air pollution (SO2, …)- Climate change (differs by country)- Routine releases- Catastrophic accidents (Three Mile Island, Chernobyl,

liquefied natural gas [LNG], …)

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Overview of estimating externalities

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Energy consumption

Emission (pollution of SO2, CO2, release of radioactivity, …)

Energy services (kwh,

vpm, …)Distribution in atmosphere, carbon cycle,

climate system, …

Exposure (human health, agriculture,

structures, ecosystems

Valuation:Lives lost x

p(life) +Illnesses x p(illness) +Ecosystem

harms x p(eco)

13Source: Muller, Mendelsohn, 2007; Muller, Nordhaus, Mendelsohn, 2008.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Coal Petroleum Natural Gas Nuclear Hydroelectric

Pric

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ost p

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wh,

200

2External cost and wholesale price, power, US

Wholesale price of power

External costs of generation (air pollution, mining accidents, reactor meltdowns, …)

14Source: Climate priced at $30 per ton C. Electricity at 8.4 cents per kwh. Muller, Nordhaus, Mendelsohn, 2008.

Ratio of External Costs to Electricity Price, Different Generation Types, With and Without Climate

Charge

0%

5%

10%

15%

20%

25%

30%

35%

Coal Oil Gas Nuclear

Without climate externality

With climate externality

Energy Resources by Type

15Source: Energy Primer

1

10

100

1,000

10,000

Oil Coal Nuclear

Yea

rs o

f curr

ent co

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ption

Reserves

Total occurrences

Nuclear basics

16U235 + n → fission + 2 or 3 n + 200 MeV

Controlled nuclear fission for a power reactor

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Fuel Cycle of Nuclear Power

18Source: MIT Study

“Connecticut Yankee” nuclear power station

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20http://www.cleansafeenergy.org/Portals/0/student-pwr.gif

More of the system for a PWR

Major issues in nuclear power

21Source: MIT Study

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Energy

TJ *

Asteroid collision at K-T boundary 1 x 1011

Large nuclear exchange US-Russia 5 x106

Earthquake 9 Richter scale 4 x 106

Thunderstorm (kinetic energy) 6 x 102

Hiroshima sized nuclear weapons 8 x101

Gasoline in planes hitting WTC 1x100

The most unhappy scenarios

108 TJ = world energy consumption

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Major nuclear fatalities

Multiple sources

Category Hiroshima Nagasaki Chernobyl Semipalatinsk Nevada Three Mile Island

Time 6-Aug-45 9-Aug-45 26-Apr-86 1949-1989 1951-1963 1979

Cause Atomic bombing Atomic bombing Nuclear power plant accident of

graphite-moderated

nuclear power reactor

Nuclear weapons tests

Nuclear weapons tests

Partial core meltdown of

LWR

No. of those exposed

About 350,000 immediate

About 270,000 immediate

1.6-9 million About 1 million (non-negligible

doses)

unavailable Small

No. of fatalities About 140,000 About 70,000 Very controversial:

1,000 - 10,000

Unknown 1,000- 15,000 0 - 1

Scope of damage 2-km radius zone plus

2-km radius zone plus

USSR and Europe Eastern part of Kazakhstan

Test sites Limited

Bomb basics

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Source: Global Fissile Material Report 2008

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Uranium Enrichment

Source: Global Fissile Material Report 2008

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The role of enrichment in criticality

Source: Global Fissile Material Report 2008

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Making Plutonium

Source: Global Fissile Material Report 2008

Assembling the critical mass for weapon

28Source: Global Fissile Material Report 2008

29Source: Global Fissile Material Report 2008

Map of nuclear programs

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http://www.isis-online.org/mapproject/worldmap.html

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Key to map

32Source: Global Fissile Material Report 2008

Sufficient for 50,000 warheads.

Nuclear winterEarly studies suggested that nuclear exchange would lead to

global cooling and threaten civilization. These were discredited.

A new round of studies in 2007 used more up-to-date modeling.Conclusion was that even limited nuclear war (say Pakistan-

India) could have devastating global effects:

Fires ignited by nuclear bursts would release copious amounts of light-absorbing smoke into the upper atmosphere. If 100 small nuclear weapons were detonated within cities, they could generate 1 to 5 million tons of carbonaceous smoke particles, darkening the sky and affecting the atmosphere more than major volcanic eruptions like Mt. Pinatubo (1991) or Tambora (1815).

Indirect effects on surface land temperatures, precipitation rates, and growing season lengths (see figure) would be likely to degrade agricultural productivity to an extent that historically has led to famines in Africa, India, and Japan after the 1783–1784 Laki eruption or in the northeastern United States and Europe after the Tambora eruption of 1815. Climatic anomalies could persist for a decade or more because of smoke stabilization.

33Owen B. Toon, Alan Robock, et al., “Consequences of Regional-Scale Nuclear Conflicts,” Science, March 2, 2007, 1224-1225.

Change in growing season from small nuclear exchange

34Owen B. Toon, Alan Robock, et al., “Consequences of Regional-Scale Nuclear Conflicts,” Science, March 2, 2007, 1224-1225.

How to minimize diversion of weapons-grade materials

1. Reduce stocks of weapons-grade materials- Technical way is through reducing fissile stocks- Only serious long-run way is nuclear abolition

2. Safer reactor designs and fuel cycle:- Safe fuel cycles are either “battery type” is hub-and-spoke,

once-through fuel cycle, or complete new fuel cycle.- To prevent widespread dissemination of “dangerous

facilities” and knowledge (particularly enrichment), need international control over fuel cycle and mandatory intrusive inspections.

3. Withering away of nuclear power- This would leave no large-scale non-fossil technology, with

the almost certain prospect of major increases in CO2 emissions and global warming

Red items are either highly controversial or perilous.

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