Nuclear not the cheapest path for Australia: OECD

www.smh.com.au
March 27, 2010

NUCLEAR power will be the Western world's cheapest option for electricity in an age of significant carbon charges, but Australia will be one of the few exceptions, a global study has found. In a stunning conclusion, the study by the OECD and the International Energy Agency found that even with a carbon charge of $US30 ($A33) a tonne, it ill be cheaper for Australian generators to burn black coal and send the emissions into the atmosphere than to turn to gas or other low-emission alternatives.

And even on the optimistic assumption that carbon can be captured and stored for $US17.50 to $US25 a tonne, it will be cheaper, it found, for generators in most of Australia to keep sending carbon up the chimney than to adopt carbon capture and storage. The study, Projected Costs of Generating Electricity: 2010, compares the long-term cost of new state-of-the-art generators using different power sources in different countries - assuming a price of $US30 a tonne for carbon emissions. In general, the plants are expected to be commissioned by 2015, although carbon capture and storage technologies are assumed to come later.

The study was carried out by the Paris-based IEA and its cousin, the OECD's Nuclear Energy Agency, using data supplied by governments - or, in Australia's case, the Energy Supply Association of Australia. It essentially asks the question: which technology will be best for a carbon-constrained age? Not surprisingly, it concludes that there is no one-size-fits-all answer, with the best choice varying from one region to another. But three strong conclusions stand out:

• For the Western world in general, including the success stories of Asia, nuclear power will be the cheapest source of electricity in a world of carbon pricing. This is particularly true for Japan and Korea - Australia's two biggest customers for coal in 2008-09.
• For Australia and the United States, geothermal energy offers the cheapest source of future electricity, at least at the power station gate, but that could be a long way from the transmission lines and the consumers.
• In most countries, including Australia, gas is generally not competitive as a source of base-load power - assuming interest rates remain low. But if financing costs were to double from the assumed discount rate of 5 per cent, the flexibility and low capital cost of gas-fired power would see it replace nuclear as the best choice.
• 'Renewable energy is generally not competitive, other than large hydro projects in the few countries where they are still possible, and biogas and wind in the US. While solar energy costs are expected to fall sharply over the next decade, the study warns that it could be 20 years before solar is a financially attractive option.

For Australian investors, the real head-turning stuff could be the projections of energy costs in Japan and Korea - on 2008-09 data, our two biggest customers for coal. If these figures are right, it's not new coal loaders we'll be needing, but new conveyor belts for the drums of uranium oxide. In Japan, the study estimates, assuming a 5 per cent discount rate, a new nuclear plant would produce electricity at a cost of $US49.71 a MW hour. Power from a new coal plant would cost $US88.08, with gas more expensive still.

In Korea, the gap would be even wider, with nuclear costing $US29.05 a MW hour and coal $US65.80. The study attributes this to Korea's low construction costs and its experience in building nuclear stations. It would be a different story in China, which is assumed not to have carbon pricing. Its massive hydro schemes supply the world's cheapest power, with coal and nuclear more or less equal in cost. No nuclear power options were costed in Australia, since none have been proposed. Without them, Australia stands to lose its cheap energy advantage, as even Japanese nuclear energy would be cheaper than any of our coal options.

There were also surprising conclusions for Victoria, with the study estimating that brown coal with carbon capture and storage would be a cheaper source of power than gas. But if the discount rate for projects is raised towards 10 per cent, gas or dirty brown coal would be the best options in Victoria, and dirty black coal or geothermal in the rest of Australia.