Carbon charges make nuclear cheapest choice

06 May 2008

Carbon dioxide charges and federal incentives would increase nuclear energy's cost competitiveness against other generation options making it the USA's most competitive source of new generation in the long run, a study by the Congressional Budget Office (CBO) has found.


Nuclear Power's Role in Generating Electricity, a newly published study from the CBO, assesses the future commercial viability of advanced nuclear technology. It compares the costs of new baseload electricity generation from nuclear and others in the light of the possible effects of carbon dioxide emission constraints and also incentives favouring advanced nuclear technology offered under the 2005 US Energy Policy Act (EPA). In keeping with the agency's mandate to remain objective and impartial, the study draws conclusions but makes no recommendations.


With carbon dioxide (CO2) charges of about $45 per tonne, nuclear would become competitive with conventional fossil fuel technologies even without other incentives. At the same carbon price, nuclear generation would also become competitive with existing coal power plants, so utilities would be likely to choose nuclear to replace existing coal plants where possible. However, in the absence of carbon charges or incentives, the study found that conventional fossil fuel technologies would probably remain the least expensive source of new generating capacity.


EPA incentives would make nuclear technology competitive for new baseload capacity even in the absence of CO2 charges, but CBO warned that because of the fixed amount of funding behind some such incentives their impact would be diluted as the number of nuclear projects increased. "CBO anticipates that only a few of the 30 plants currently being proposed [in the USA] would be built if utilities did not expect carbon dioxide charges to be imposed," the report cautions.


Countering uncertainties


If the costs of new nuclear construction proved to be higher than anticipated or the price of natural gas was to fall to 1990s levels, EPA incentives alone would not be sufficient to make new nuclear competitive, the CBO found. Such uncertainties would be less likely to deter investors in the presence of carbon charges, but a carbon charge of over $80 per tonne of CO2 would be needed for nuclear to remain competitive in such scenarios. (To put this into perspective, European Union allowances (EUAs) for carbon dioxide emissions in Europe are currently being traded at around €25-28 ($38-44) per tonne, according to the European Climate Exchange.)


As the CBO study focuses only on widely available baseload capacity it does not address renewable energy technologies it describes as "intermittent" or baseload technologies such as hydro or geothermal that can only be used in a limited number of locations.