http://www.guardian.co.uk/environment/2009/jan/05/nuclear-energy-rising-costThe UK government's enthusiasm for the construction of nuclear power stations is based on a May 2007 consultation document published by the Department of Trade and Industry (now BERR). This paper argued that nuclear offered a financially viable way of generating electricity, broadly competitive with fossil fuels. It correctly pointed out that the cost of nuclear energy is largely determined by how much a plant costs to build, not by uranium prices or by the price of disposing of nuclear waste.
Since the government's paper, nuclear power has suffered two huge blows. First, the pound has declined in value against the euro. This makes the core components of a nuclear power station more expensive as they are priced in the European currency. Second, the construction of the new nuclear power station in Finland has descended almost into farce as costs have ballooned and progress has slowed. The Finnish power station is much the more advanced of the two new nuclear plants currently under construction in Europe. If Finland is any guide, nuclear power is far more expensive than anybody expected.
Taking these two points in reverse order:
The Finnish debacle
The French nuclear specialist Areva signed a fixed price contract with the Finnish consortium TVO. The value was about €3bn, in addition to the costs that TVO incurred readying the site for construction work and taking the plans through the Finnish approval processes. Areva has since taken several financial provisions in its accounts, reflecting the problems it has faced in completing the work to its initial budget. A provision is a way of recognising that a firm is going to make a future loss on a contract. So, for example, banks make provisions when it is apparent that a loan to a near-bankrupt company is unlikely ever to be repaid.
Areva is largely owned by the French state, although some of its shares are held by investment institutions and others. In the Anglo-Saxon world, having private shareholders would oblige the company to state the absolute size of these provisions. In France it is different and Areva has consistently refused to state their actual size. But the French press recently offered the opinion that total provisions may now be €1.5bn, suggesting that Areva thinks that the total cost of fulfilling the contract is already €4.5bn, a rise of 50% on the initial price.
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