Mapping the True Costs of Nuclear and Renewables

From left: William D. Magwood, János Süli and István Mittler.

Opponents of nuclear power often cite cost as a major counter-argument to building new power plants. Pro-nuclears, on the other hand, claim that renewable energy generation can end up being just as expensive, taking all cost into account.  

Up till now, only nuclear projects have been obliged to assess overall costs from preparation to decommissioning, at least at the beginning of the project. However, a new study by the Organization for Economic Cooperation and Development’s Nuclear Energy Agency, whose world premier was held in Budapest on January 25, looks at the true costs of renewables and also how they can complement nuclear energy.  

“The current markets and policies do not prepare us for the future market,” said NEA Director General William D. Magwood at the report’s launch in Budapest. “The most important conclusion of the study is that you need all your low-carbon options if we want to meet future demand.” But the problem is that massive investment is needed to meet demand and it is almost impossible to make those investments without state subsidies, he added.  

The study is relevant for Hungary in several regards. The country’s long-term energy strategy, published in 2011, is now being updated to keep up with changes in the industry. Hungary is also one of the very few OECD-countries where new nuclear power plants are planned.  

Redesigned Strategy

“We are in the phase of redesigning Hungary’s energy strategy,” said Péter Kaderják, Minister of State for Energy and Climate Policy at Hungary’s Ministry for Innovation and Technology.

“Any input looking at how carbon-neutral and non-neutral sources can co-exist, how their costs bear to one another, what costs we shall look at when designing the energy mix, are very useful.”

Hungary does not need to be convinced about applying low-carbon thinking: the policy already states that energy saving methods and low-carbon technologies need to be applied together to transition to a low-carbon energy industry, Kaderják said. The carbon emission of the Hungary’s electricity sector is not too high, he said. The main message of the study – taking total costs into account – comes across, but it should be applicable to every technology, he added.

The nuclear industry badly needs a good example, he continued. “There aren’t really nuclear power plant constructions in OECD-countries,” he said. Demonstrating an existing project would be the most credible way to support the argument that there is a need for cost-effective nuclear power generation.

“I hope that Hungary will take the lead in this and will serve as a good example and could be a sound reason to promote nuclear energy generation among OECD-members,” he said.

The study takes a good look into the flexibility of energy systems. “Comparing the models in the study with the Hungarian reality, I can say that the Hungarian electricity system is very open and flexible,” Kaderják stated. Market integration and cross-border capacities largely boost this flexibility. So the co-existence of nuclear and more costly variable energy sources in Hungary and the necessary flexibility can be met from non-domestic sources as well.

“I haven’t seen a study [like this] before that would take into account both long-term and short-term factors,” Ambassador-at-large for Energy Security Pál Ságvári said. “I expect it to help the European discourse become more grounded and to create a platform that serves as a starting point to discuss the future energy market,” he added.

Growing Demand

The electricity demands of the housing sector, transportation and industry will only grow in the future.

“When building a new power plant, not only the costs of the plant itself should be taken into account, but also those of the network and social costs as well,” said Attila Hugyecz, chief economic consultant to the Paks 2 project to expand Hungary’s sole nuclear power plant. According to the expert, the ideal energy mix in Hungary – from a security of supply viewpoint – would be 40% nuclear energy and 60% gas and renewables, gas being a transition energy source until new technologies emerge.

When deciding on the country’s energy mix, security of supply should be the single most important consideration, said Kaderják.

“Nuclear energy has been, and apparently will remain, the backbone of security of supply. The question is where we stand with the other pillars,” he added. If one needs to reach a decarbonized energy system bearing in mind security of supply, it can only be achieved by applying high carbon prices, he said. This is also one major recommendation of the study – as this is what helps return investment in nuclear energy and renewables.

The Costs of Decarbonization

Many nations have committed to ambitious goals to limit emissions. Yet the world is not on track to achieve these environmental goals, nor are countries pursuing these policies in a cost effective way, the OECD’s Nuclear Energy Agency concludes in its new report, “The Costs of Decarbonization: System Costs with High Shares of Nuclear and Renewables”. The report highlights that the increased share of variable energy sources has resulted in large inefficiencies imposed on the entire electricity system. These system costs are not properly recognized by current market structures and are currently borne by the overall electricity system in a way that makes it difficult, if not impossible, to make well-informed decisions and investments.