Nuclear Reality Check, Chapter II – Are the French running a Ponzi scheme?

In some of my recent posts (here and here) I’ve tried to impress upon any nuclear industry cheerleaders, that Post-Fukushima (now a class 7 accident), who happen upon my ramblings, that they need to take a healthy dose of reality.

A further example of the fallacy of nuclear energy, at least as far as economics are concerned, comes from this hard hitting report from CitiGroup, released I might add before Fukushima happened. This is a report written not by Greenpeace, nor Friends of the Earth, nor any other group one could accuse of having “anti-nuclear” bias, it’s written by bankers and economists and it pulls no punches. It is, by the standards of any financial services company (who normally try to avoid saying anything that would upset potential customers), very abrasive and to the point. It bluntly states what people in the anti-nuclear movement have been saying for decades – NUCLEAR POWER IS NOT ECONOMICALLY VIABLE.

Citigroup, make clear that the much vaunted idea, that if we slap a carbon tax on everything it would make nuclear energy economically viable, just isn’t going to cut it (a carbon tax would thought make a whole host on renewable energy options viable, but that’s another day’s post). The report highlights several financial risks associated with nuclear power, construction cost overruns for example (which often run at 50% or more), delays in bringing a plant online (meaning you’re paying interest on a loan for longer, not to mention lost revenue due to the fact the plant isn’t generating electricity), decommissioning costs, waste disposal costs, nevermind the other “unexpected” costs issues with nuclear, i.e sudden needs for safety upgrades, security and of course the effects of any accident. Even the largest company (or bank) does not have pockets deep enough to fund all the liabilities arising from a worst case scenario nuclear accident. In short the only way nuclear power will work financially, is if the government holds the industry’s hand every step of the way, right from the sod turning ceremony to disposal of waste (and one presumes guarding it for the next few millennia). This is backed up by another recent study here from the University of Greenwich (report on that here) and even MIT (news article with link to it here).

Of course getting such harsh realities into the fact-opaque minds of the nuclear cheerleaders is next to impossible. As I’ve shown in previous posts, they are often deluded and somewhat crazy. They’re reaction to such “facts” is not far removed from the reaction of a Creationists to proof of Darwinian evolution…oh! that must be wrong, all part of you’re bias gay/atheist/communist /fascist agenda!

The reaction to the above statement, regarding the utter lack of financial viability of nuclear power, is usually to point to the French…oh! if what Citigroup says above is true, why are the French companies still building nuclear power stations? Why are they prepared to build them in Finland, China, the UK or Italy without any subsidies from government?

The answer to this question boils down to three things – Stealth subsidies, Jobs-4-the-boys and what could well be the biggest Ponzi scheme in history

Part of the problem, I think, is that so many people in the world think that Keynesian economics (and state intervention in industry) is a long since dead and buried concept. For better or for worse, rumours of Keynesian economics death have been greatly exaggerated. Even in supposedly “free market” America such policies are alive and well (see United States of France here), in the form of generous farm subsidies, a Medicare/Medicaid program that amounts to a massive feed trough for the pharmaceuticals industry to wallow in (Obama’s health care system is something else entirely, its actually scheduled to decrease the deficit), over half a trillion dollars a year military budget (mostly spend in swing states), a NASA that’s run as little more than a jobs program by Congress (again mostly in swing states), and in recent years, the effective state subsidising of the banking and car manufacturing industries. Contrary to what you hear from Fox News or the Tea-baggers, the biggest supporters of this vast corporate welfare program are in fact the Republican Party (here and here). It is of course Ironic how the US (and the west in general) can shove law-of-the-jungle Neo-liberal capitalism down the throats of so many countries around the world (and they’re own poorer citizens) while not practicing what they preach.

J’adore le Keynes
…But I digress, of course the biggest supporter of Keynesian economics is by far and away the French. To the French government its nuclear industry is little more than one of a number of Giant welfare to work programs, much like its car, space launch, aerospace and defence industries. These all serve one purpose, to keep Jean-Claude and Pierre in gainful employment and off the dole queue. Granted, better to have French workers doing something productive (even if they do it while running a business at a loss), compared to the alternative…. clearly demonstrated during Thatcher’s reign of error in the UK, which saw the wholesale decimation of the UK economy countrywide, turning once vibrant working class mining and industrial towns into little more than welfare colonies (with heightened rates of crime, drug abuse, etc.). However, I’d question whether what the French are up to was quite what John Maynard Keynes had in mind! – especially as I’d question as whether French cars or nuclear reactors count as something “productive” and useful to society. And there’s also the issue of sustainability. Keynes never advocated deficit spending on a permanent basis, even state supported industries need to pay for themselves eventually.

So in short, the economics of nuclear energy matter little to the French. So long as they get to keep churning out reactors, it’s a case of Je ne comprends pas l’économie! Of course there are two flaws in the French strategy, firstly it will only continue to work so long as the French government keeps signing big cheques for the nuclear industry (and basically ignoring the laws of economic gravity) and secondly they need to keep building reactors. If they stop building for any reason that means the wheels come off their little scheme… and that means big lay offs…and nobody does a strike like the French! So since the 70’s they’ve been continually churning out reactors at a regular basis. Now they’ve got to the stage of getting up to 80%+ of they’re electricity and 40% of their primary energy consumption from Nuclear. Many nuclear cheerleaders look on with admiration at this. Those who know anything about energy security look on with derision. That level of dependency on nuclear is dangerously high. Keen as I am on renewables, I question the wisdom of any country trying to get more than 50% of its electricity (or more than 33% of its total energy) from, say wind or Hydro alone (of course they could get 30% from each, 10% from solar, 8% from Tidal….). This applies doubly so for a relatively risky energy source like nuclear, dependant on a steady stream of Uranium shipped in from abroad. The French are already the largest net electricity exporter in the world, so adding further nuclear capacity would be seriously pushing the bullshit barrier. Any future building in the country will be a case of maintaining existing capacity for reactors taken offline. Hence like any grand scam….sorry! I meant scheme, they need to go international and find more suckers….sorry! I meant customers.

Entre les marques
So enter the Finn’s. There has been an interesting clash of cultures over the Olkiluoto plant, i.e. that of a Finnish utility company that (vaguely) operates in the real world of economics and a French construction company that is oblivious to such issues (see here and here). The Olkiluoto reactor is vastly over budget and a good 3 years late. For TVO (the Finns) this means of course 3 years interest payments on large loans (for a building site) going back to the bank for further loans, and loss of revenue to the tune of a Billion euros (at least!) in electricity sales. Naturally, they’re opinion seems to be that the French should now pay these additional costs. Of course do you’re sums, assume the Finns paying only what the original contract said the reactor would cost (€2.7 Billion Euros), and the French would all but be supplying the Finns with a reactor almost free of charge. Fat chance of that happening I hear you say? Actually I won’t be surprised if the French, eventually, do cave in. After some brinkmanship, of course and making sure that the deal is done nice and quiet mind. After all, Ponzi schemes are like fairies, as soon as people stop believing in them they die. The French want further reactor building contracts in Europe so it wouldn’t do to burn a potential customer.

In Britain the likely buyer of any reactors will be another French company, one that is 85% owned by the French government. Obviously, they’ve decided that buying up Britain’s own bankrupt nuclear industry (which essentially went bankrupt trying to run nuclear power according to the normal rules of market economics) is the best way to generate new customers. The Chinese, USA, Italians and the UAE are all set to follow.

La merde frappe le ventilateur
Of course, like all Ponzi schemes the wheels will eventually come off. Either the French will run out of money or lenders will do the little sum I’m about to do and stop lending to them or countries will stop ordering reactors, or there will be an accident at a French built nuclear plant and all of these things will happen. Then the chickens will come home to roost.

The liabilities the French are accumulating with their nuclear industry are quite troubling. As much as €1.5-3 Billion per reactor installed (that’s the cost over and above what they get back in revenue, the two EPR’s currently under construction in Europe come in at between 5-6.8 Billion Euros to build, but they’ll probably only be paid at most 3 Billion for them). http://www.independent.co.uk/news/uk/home-news/defects-found-in-nuclear-reactor-the-french-want-to-build-in-britain-808461.html
http://www.neimagazine.com/story.asp?sectioncode=132&storyCode=2058903

Note, that anything you here regarding the Chinese EPR reactors doesn’t apply. If the 5 year plan says that the reactor will be build in 46 months and cost 3 Billion, then that’s exactly what they’ll report happened….even if it actually takes twice as long and costs 3 times as much! This is a fact of life as regards communist governments. The French have every incentive to go along with that.

Assuming the French build at least 40 EPR’s to replace existing kit when it expires, plus say 10 or so abroad, that’s a good € 100-200 Billion subsidy to the nuclear industry, never mind we assume a similar subsidy already paid out to support the existing fleet of reactors. Then there are running costs. Difficult to say how much that’s costing them as no EPR is yet operational. For the interim we’ll be kind and assume revenue neutral (i.e electricity sales cover the costs of running the plant), but I stress that this assumption could be wrong.

Then there are the costs of decommissioning. The first of the French reactors to be decommissioned, Brennilis, is causing a mild flutter. Despite its tiny 70MW output, its decommissioning costs now hover around the € 480 million mark. Translate that into a per MW basis gives use some disturbingly high figures (480m/70 = € 6.85m/MW). This is well above what the nuclear industry have been regularly saying as to nuclear decommissioning costs of around $0.5m/MW (or € 0.75m/MW). That said, the Nuclear industry have a habit of being off by quite a bit in their cost estimates, especially the French, so not really a huge surprise. If the figure for Brennilis was applied across the entire French nuclear fleet (48,000 MW of installed capacity built) you get a decommissioning cost estimate of € 329 Billion! Now one could say I’m being unkind, Brennilis was a small one-off and unique gas-cooled reactor, the bulk of the PWR’s should be much cheaper to decommission….or then again they could be a lot higher, we’ll have to see. But even if we assume costs a quarter this level, that’s still another € 82 Billion or so euro hole that’s due too be burnt in the French pocket. Of course those 40 EPR’s will want decommissioning eventually also, although that invoice won’t land on Le Presidente desk for a good few decades, even so it will be for another €115-460 Billion that the French will have to shoulder. Then there’s the other “one off” reactors, principally they’re Fast Reactor programs, add say €10-20 Billion for those, COGEMA La Hague (my guess at least € 40 Billion…and that’s on the low side! as I’m assuming it won’t be anymore than the costs of decommissioning Selafield, of course as COGEMA is a much larger and complex site the decom costs could be many multiples higher than I’m assuming), their liabilities related to mining back in Niger (a similar sized mine in Canada is costing $ 5 Billion or around € 7 Billion), final geological storage (my guess, given the amount of waste they’ve generated, plus what the EPR’s will add is in line with the Yucca mountain facility which had a price tag of $ 96 Billion or €130 Billion at cancellation, thought ultimately it could go higher than even this). Add it all up and we’re talking about a minimum of around € 280 Billion onto the French national debt, a worst case scenario of just over one Trillion Euros, assuming I stress, no accidents (in which case you’re guess is as good as mine!).

Now in le grande scheme of things you could say that 280-1,100 Billion Euros ain’t a lot compared to the current French debt mountain of 4,400 Billion euros (and climbing). But even the lower figure is more than enough to function as the straw bale that breaks the French camel’s back. It’s substantially more than the financial bailout most countries have had to apply to recover from the recent financial crisis and that was widely seen as pushing the boat out. And don’t forget we’ve only totalled up liabilities associated with the French civil nuclear program, ignoring their military nuclear liabilities and current Fusion energy research liabilities. While it would be unfair to include these in any discussion about civilian nuclear power, they are still there and will also have to be paid for by the French taxpayer…or not!

Keep in mind these costs above will likely peak sometime around the late 2030’s or early 2040’s when they’ll be trying to decommission at the same time as building new reactors. That is around the same time scale as the economic effects of the baby boomer pension time bomb will be peaking , the economic effects of peak oil will be being felt, the impacts of climate change will start to have financial consequences and I suspect (as its own General accounting office figures suggest), around the same time as the United States finally goes bankrupt (with severe economic fallout for the whole world). It is difficult to avoid a scenario that doesn’t involve French national bankruptcy to some degree.

Les Miserables
Of course, the IMF and the EU, which in both cases basically means the Germans, will no doubt ride to the rescue. However, their prescription for the French will be harsh medicine. Namely, all of these French “jobs programs”, the car industry, aerospace industry, the European Parliament in Strasbourg (which will now move permanently to Brussels), the French nuclear deterrent and of course the Nuclear energy industry (including possibly the ITER fusion experiment) will all likely face Madame le Guillotine. Jean Claude and Pierre will be getting Le dernier adieu. Of course this will lead to them having more time to partake in that most French of pastimes – Le émeute (the riot). But on the plus side, they’ll now have no shortage of unreliable French cars to torch!

As always happens when a Ponzi scheme goes tits up it’s the “investors” (or “marks” as they’re more commonly known) who get rightly shafted. Obviously if any country has the French actually building reactors at the time of said collapse expect either a sudden revision in the cost of said reactor installation (dramatically upwards that is!)….or the French workers just disappearing one night and leaving a multi Billion pound hole in the ground. If the French are actually operating reactors abroad, as they currently are doing in the UK, expect a sudden hike in electricity prices as the real costs of nuclear energy are suddenly applied. Pointing out to them that this isn’t in the contract that they signed, will matter little – that contract was valid only so long as the law’s of economic gravity remained suspended. If a French reactor has actually gone into meltdown (either abroad or by scattering radiation all over Europe, noting that in the lead up to this financial crisis that’s a not unrealistic possibility, if they’re having financial problems and decide to start cutting corners) don’t even bother asking for compo, as mon dieu! Je suis treis désolé! may offend. There’ll be no point trying to hold the French feet to the flames over this, as with them likely defaulting on debts left, right and centre, the only way the French could afford now to pay such liabilities would be a matter of robbing Peter to pay Paul (i.e. if the Brit’s try to tap them for compo over a reactor popping its cork in Kent the only way the French could pay is by getting the EU to write out the Brits a cheque….which the Brits will have to contribute towards!).

Now anyone reading this may well say, surely this has to be wrong! For the French to do as you describe would be utterly stupid….and for us to be pumping billions of tons of CO2 into the atmosphere knowing full well the consequences, is that any less stupid? Or how about pumping Trillions into an unsustainable housing boom? or encouraging everyone to go buy big SUV’s when all the indicators are the oil’s running out? As I recall Jared Diamond saying in his book, the collapse of many civilisations can be summed up by a chain of entirely rational short term decisions, which when summed together, turned out to be essentially irrational in the long term. Much like Bernie Madoff the French have proven to be a little too clever for they’re own good and they are now trapped by they’re own strategy. Short of the entire population of France sneaking off and resettling in Canada under assumed names, they’ve no choice now but to play it out till then end (or until the rest of the EU pulls the plug on they’re little scheme). They are not only steaming they’re nuclear ship at full speed straight for the financial Iceberg, but monsieur le présidente is leading a chorus of La Marseillaise from the tip of the bow.

So you’ll excuse me when I say that French “success” in Nuclear power does little to encourage me as too its viability. Indeed, it rather does the opposite. When a group of bankers come out and tell you you’re numbers don’t add up (these are the same guys who missed the sub-prime bubble mind), that’s when you should know you’re snookered.

And if they’re anyone reading this who still thinks nuclear energy is a good financial bet…. I have this friend you see…..we’ve a little investment portfolio thing going.…in…..nuke stuff and magic beans (or something)….just give me £1,000 tomorrow……and I’ll give you back £100 next week and the same the week after…..and after that…..

Fini

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