The Coalition has released the costing of its nuclear power policy, but the analysis from Frontier Economics raises more questions than it answers.

The headline result promises a saving of $263 billion compared to the renewables-only energy approach favoured by Labor.

But this is essentially comparing apples with oranges.

The two parties have based their approaches on different scenarios mapped out by the Australian Energy Market Operator (AEMO).

While Labor is using AEMO’s preferred Step Change scenario, which requires global warming below 2 degrees, the Coalition-favoured Progressive Change scenario involves a slower transition, with the addition of nuclear power.

These approaches yield two different emissions outcomes. By delaying the replacement of ageing coal-fired power stations, the Coalition trajectory is heading for global warming above the globally agreed target of two degrees Celsius.

Further, the Progressive Change scenario also assumes less electricity demand because of delayed electrification of fossil fuel use in sectors such as transport, heating and industry. This would also result in greater overall emissions.

Another important question is, how does the Frontier Economics modelling produce a lower cost for nuclear compared to the cost of renewables?

The answer isn’t clear from the report, which is inconsistent with both Australia’s GenCost modelling (produced by CSIRO/AEMO, it includes additional transmission and storage for renewables), and with similar modelling overseas (e.g. by Lazard).

The report itself refers to some “obvious” reasons why nuclear is cheaper:

• “the expense of replacing coal-fired generation capacity is delayed”

• “while nuclear generation is, by itself, expensive, from an overall system cost perspective, it is less expensive”

• “the operational life of wind and solar plants are [sic] relatively short”.

The first reason ignores the fact that delaying the replacement of ageing coal fired power stations incurs significant additional maintenance costs, and that these plants are prone to outages during increasing extreme heat events.

Even under the slower Progressive Change scenario, coal faces intense competition from cheaper solar and wind, which will further reduce the economic lifetime of these plants. The Coalition is aiming for nuclear power to be operational in the late 2030s, but by then, the vast majority of power generation will be solar and wind. This will eat into the financial viability of both coal and nuclear – particularly in the middle of the day.

AEMO’s recent experience shows that the extra maintenance costs combined with competition from renewables will hasten the retirement of coal-fired power stations by several years.

If it’s uneconomic for coal-fired power station owners to keep their plant going – does the Coalition intend to subsidise them and pay their repair costs?  This would go against the International Energy Agency’s championing for the removal of fossil fuel subsidies.

The second reason taken from the Frontier Economics report talks about the additional systems costs required by renewables – capacity overbuild, storage, transmission and gas backup.

However, the CSIRO Gencost report already includes the first three elements to determine the integrated renewables cost and shows that even for a 90 per cent renewable energy system, solar and wind are still 1.5 to 2 times cheaper than nuclear power.

A similar study by Lazard in the US shows that ‘firming’ renewables with storage is still three to four times more cost-effective than nuclear.  So, without looking under the hood of the black-box modelling by Frontier Economics, it’s hard to understand how this renewable cost advantage could be turned around in favour of nuclear.

The third reason given looks at the lifetime of power plants.

Typically, solar and wind farms last 25 to 30 years, which is about the maximum window investors allow for investments to turn a profit.

While nuclear plants can potentially have lifespans that are twice as long, it comes with additional maintenance costs.  And not all components of a solar or a wind farm need replacement after 30 years to remain efficient.  CSIRO’s GenCost has looked at the issue of plant lifetime and concluded that the difference between nuclear and renewables is not significant.

The one remaining issue is – what happens when the last few percent of the electricity system needs to be decarbonised (beyond the CSIRO’s 90 per cent modelling)?

Alternatives such as vastly overbuilding renewables, carbon capture and storage for gas plants, or producing renewable hydrogen to replace gas, are all very expensive.

Nuclear could potentially play a role here.  Banks of more expensive small modular reactors (SMRs) could potentially be ramped up and down to back up variable renewable energy.

If SMRs do become cost competitive with other options, then there may be a case for removing the legislation which currently prohibits nuclear power. But the timeframe to decarbonise the last few percent won’t be until the late 2040s, almost a decade later than the Coalition’s optimistic nuclear timetable.

One thing is certain – the Coalition nuclear plan will raise the price of electricity simply because it creates policy uncertainty. The type of future investments needed for the energy transition will be made unclear.

Uncertainty creates risk for investors, and that pushes up the cost of finance for energy projects, ultimately leading to higher electricity prices.

By: Emeritus Professor Kenneth Baldwin

This story was originally published on ANU Policy Brief - read the original here.