Following on yesterday’s announcement that the restart of the Bruce A reactors is $ 300 million over budget, there’s an interesting article in today’s Globe and Mail on the reluctance of banks to assume the risks involved in financing nuclear projects.
The article discusses the reluctance investment firms to assume the full risk of financing nuclear construction projects. To acquire financing, responsibility for cost over-runs and performance problems will need to be transferred to the rate-payers.
That’s exactly the type of agreement Bruce Power reached with the McGuinty government in 2005 for restarting the Bruce A reactors. Bruce Power and the McGuinty government assured ratepayers that there would be no cost over-runs, but transferred the liability for such problems to the ratepayer or governments.
Three years later we learn that the public assurances by Bruce Power and the government that there would be no cost over-runs were wrong, and rate-payers are on the hook for cost over-runs.
Looking ahead we can expect both Bruce Power and Ontario Power Generation to be looking for some way of transferring the risks of building new reactors at the Bruce and Darlington sites onto rate-payers or tax-payers.
David McLellan of the Centre for International Governance Innovation, is quoted in the Globe story as saying: "In competitive electricity markets, new nuclear plants may not be financially attractive to private investors without government action to tilt the economics in nuclear's favour, at least for first-of-a-kind plants." Otherwise put, despite promises of being affordable new nuclear plants will need subsidies to make them viable.
McLellan’s think tank released a report yesterday entitled The Economics of Nuclear Power: Current Debates and Issues for Consideration, which reviews several studies on the cost estimates for new nuclear plants.
What’s notable about the report is how inconclusive it is. One reason for this is that all the cost estimates were given for new nuclear plants are produced by nuclear vendors who have an obvious incentive to under estimate their costs. We won’t know the real cost until some jurisdiction volunteers to be a guinea pig and tries to build a prototype reactor.
Of course, one thing the nuclear industry wishes to avoid in predicting the future costs of building reactors is its past performance. Greenpeace International released a report last year that surveyed the cost over-runs and delays experienced by nuclear projects, as well as the hidden costs arising from the questionable safety and reliability of new reactors designs. It’s a dismal history.
This week’s announcement that Bruce Power is behind schedule and over-budget should remind not to believe promises from the nuclear industry that it won’t happen again.