How competitive is nuclear energy?

The economic competitiveness of nuclear energy will be crucial for determining its future share in world electricity production. In addition, the widespread liberalization of power markets, in particular in OECD countries, reinforces the role of commercial criteria in technology selection . The recently published IEA/NEA study on Projected Costs of Generating Electricity: 2010 Edition (IEA/NEA, 2010) provides important indications regarding the relative competitiveness of nuclear energy in OECD member countries as well as in four non-OECD countries (Brazil, China, Russia and South Africa). The results highlight the paramount importance of discount rates and, to a lesser extent, carbon and fuel prices when comparing different technologies. Going beyond this general finding, the study also shows that the relative competitiveness of nuclear energy varies widely from one major region to another, and even from country to country. While the study provides a useful snapshot of the costs of generating electricity with different technologies, it does not provide an absolute picture of the competitiveness of nuclear energy. Like any study, Projected Costs of Generating Electricity makes a number of common assumptions about discount rates as well as carbon and fuel prices. In addition, its calculations are based on a methodology that is referred to as the levelised cost of electricity (LCOE), which assumes that all risks are included in the interest or discount rate, which determines the cost of capital. In other words, neither the electricity price risk for nuclear and renewables, nor the carbon and fuel price risk for fossil fuels such as coal and gas, receive specific consideration. The decisions of private investors, however, will depend to a large extent on their individual appreciations of these risks. The competitiveness of nuclear energy thus depends on three different factors which may vary greatly from market to market: interest rates, carbon and fuel prices, and the volatility of electricity prices. These factors are discussed in this article. In conclusion, the real competitiveness of nuclear energy cannot be determined once and for all in the abstract. It is clear that in an environment with low financing costs, high carbon prices and stable electricity prices, the competitiveness of nuclear energy is manifest. On the other hand, in an environment with high financing costs, low or absent carbon prices and volatile electricity prices, the economic case for nuclear energy is harder to sustain. Both observations also apply to renewable energies, which just as nuclear energy are high fixed cost, low-carbon technologies. Following the above observations, in order to bolster the long-term competitiveness of nuclear energy, the nuclear industry and governments would need to: 1. develop financing mechanisms with the help of long-term investors that keep financing costs at a minimum; 2. help establish, perhaps in co-operation with the renewable energy industry, a stable, long-term carbon price; 3. help create, again possibly in cooperation with the renewable energy industry, market conditions that minimise electricity price volatility. So far the industry and governments have just begun to address the first point. The sector's long-term competitiveness will, however, also depend on progress made in addressing the second and third