Risky financial assumptions from Nuclear Royal Commission South Australia

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Submission to Joint Committee on Nuclear Royal Commission South Australian Parliament, – Mothers for a Sustainable South Australia, August 2016 http://www.parliament.sa.gov.au/Committees/Pages/Committees.aspx?CTId=2&CId=333

The assumptions underpinning the century-long cost-benefit calculation that this proposal relies upon, are heroic.

Price: There is no market for disposing of HLNW, so the proposed ‘price’ is a guess. It is ‘an illustrative benchmark’ (p 293) – but is critical to the $51 billion profit figure. Experts cannot predict the price of gas, coal or iron ore one year ahead – despite well developed markets for all three. How can a century-long price for something that is not yet traded be sensibly predicted? The price used by the RC is much higher than that suggested by Finnish experience. It is nothing more than a guess.

Cost: There is no existing deep geological storage anywhere in the world, so no experience with what it actually costs. The cost estimate – from transport through to maintenance of the site for 100,000 years – is also simply a guess. The Finns who must dispose of about 6,000 tonnes of their own high level nuclear waste have recently granted construction approval for a deep geological dump at Onkalu – after 40 years lead up. This is the first of its kind in the world – expected to be operational in the 2020s. But until it is built, there is no reliable cost experience for the experimental technology. Further, Onkalu is much smaller than that proposed for SA. What are the costs of something 23 times larger likely to be? Who knows? There are no reliable estimates of what it will cost to transport 138,000 tonnes of HLNW or intermediate waste from, say, Korea to Port Augusta – and then to store it and re-transport it to the far north of the state. Such international transport has not been done before.

A single quote from a nuclear industry insider: As we have pointed out, all these rely on a single consultant report by Jacobs & MCM. Jacobs are industry insiders. They have been in the nuclear industry for 50 years – on projects from construction through to clean up. They have a business interest in the nuclear industries expansion. Jacobs’ website prides itself on ‘ongoing business relationships’ with nuclear industry clients, promising ‘to serve as their advocates and support them in their global aspirations’. They are hired consultants who pride themselves on acting in the interests of their hirers – not for an objective critical viewpoint on behalf of the larger community

The nuclear industry consistently overestimates returns and underestimate risk. For example, academic analysis of the cost of building 180 nuclear reactors up until 2014 (for which cost data is known) found that on average they cost double their original estimates – and most took years longer than expected to build, increasing the costs of finance very significantly (Sovacook, Gilbery and 4 Nugent, 2014). The costs of the US Yucca Mountain deep disposal project also blew out very significantly (prior to it being mothballed). The RC offers ‘sensitivity analysis’ on price, costs and quantity but keeps its analysis within parameters that mean it remains profitable on paper. There are many other plausible assumptions about price, cost and amount of waste received, accidents, and changes in legal, contractual, market or community circumstances that make it not only unprofitable, but potentially extremely costly to Governments – who would own and control the project – and who would have to pick up the tab. The financial risks of the project throw the losses of SA’s state bank debacle into the shade.

What happens if the amount of high level nuclear waste does not eventuate? The economics of the project rely on a minimum quantity of high and medium level nuclear waste. What happens if it does not arrive – for any number of reasons? What if China or the US – or companies from anywhere in the world – enter the market for waste disposal? Both countries – and others – plan to build dumps for their own waste. If this is so profitable, why would they not enter the market to take waste, easily undercutting SA’s price and reducing the quantity in the SA facility – which must achieve a very large share of the international market to be viable, let alone profitable? The nuclear industry consistently overestimates returns and underestimate risk. For example, academic analysis of the cost of building 180 nuclear reactors up until 2014 (for which cost data is known) found that on average they cost double their original estimates – and most took years longer than expected to build, increasing the costs of finance very significantly (Sovacook, Gilbery and 4 Nugent, 2014). The costs of the US Yucca Mountain deep disposal project also blew out very significantly (prior to it being mothballed).

The RC offers ‘sensitivity analysis’ on price, costs and quantity but keeps its analysis within parameters that mean it remains profitable on paper. There are many other plausible assumptions about price, cost and amount of waste received, accidents, and changes in legal, contractual, market or community circumstances that make it not only unprofitable, but potentially extremely costly to Governments – who would own and control the project – and who would have to pick up the tab.

The financial risks of the project throw the losses of SA’s state bank debacle into the shade. What happens if the amount of high level nuclear waste does not eventuate? The economics of the project rely on a minimum quantity of high and medium level nuclear waste. What happens if it does not arrive – for any number of reasons? What if China or the US – or companies from anywhere in the world – enter the market for waste disposal? Both countries – and others – plan to build dumps for their own waste. If this is so profitable, why would they not enter the market to take waste, easily undercutting SA’s price and reducing the quantity in the SA facility – which must achieve a very large share of the international market to be viable, let alone profitable?

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