The question of nuclear in Australia’s energy sector

21 December 2023 5 min read

This explainer was updated on 20 September 2024 to clarify assumptions for large-scale nuclear costings included in GenCost 2023-24 report.

As Australia works towards emissions reduction targets in the transition to net zero, we know the electricity sector has a major role to play. We also know it makes sense to assess a full range of technologies: some new and emerging, some established and proven.

In this context, a debate around nuclear power has been reignited. Some proponents want nuclear to be considered as an option for decarbonising the electricity sector. 

Despite nuclear power being a component of electricity generation for 16 per cent of the world’s countries, it does not currently provide an appropriate solution for Australia’s net zero target. 

Here’s why: 

• Nuclear is not economically competitive with renewables and the total development time in Australia for large or small-scale nuclear is at least 15 years.
• Small modular reactors (SMRs) are faster to build, but are commercially immature at present.
• The total development time needed for nuclear means it will not play a major role in electricity sector emission abatement, which is more urgent than abatement in other sectors.

Understanding GenCost calculations

GenCost is a leading economic report by CSIRO in collaboration with the Australian Energy Market Operator (AEMO) to estimate the cost of building future electricity generation and storage, as well as hydrogen production in Australia.

The annual process involves close collaboration with electricity industry experts. There are opportunities for stakeholders to provide pre-publication feedback, ensuring the accuracy of available evidence.

Paul Graham, our Chief Energy Economist and lead author of the report, said GenCost is an open and public process.

"The report's data is not just for AEMO planning and forecasting; it’s also used by government policymakers and electricity strategists who require a clear, simple metric to inform their decisions," Paul said.

"To facilitate a straightforward comparison across different technologies, the GenCost report conducts a levelised cost of electricity analysis. This method calculates a dollar cost per megawatt hour (MWh) over the economic life of the asset, incorporating initial capital expenses and any ongoing fuel, operation, and maintenance costs."

The latest GenCost 2023-24 report released on 22 May 2024 found renewables continue to have the lowest cost range of any new build electricity generation technologies.

Estimating the cost of large-scale nuclear in Australia

While nuclear generation is well established globally, it has never been deployed in Australia.  

Applying overseas costs to large-scale nuclear projects in Australia is not straightforward due to significant variations in labour costs, workforce expertise, governance and standards. As a result, the source country for large-scale nuclear data must be carefully selected.

The lowest costs occur in countries such as South Korea that have delivered a continuous nuclear building program over many years. Costs tend to be higher in countries with intermittent building programs.

GenCost based its large-scale nuclear cost estimations on South Korea’s successful nuclear program and adjusted for differences in Australian and South Korean deployment costs by investigating the ratio of new coal generation costs in each country.

The large-scale nuclear costs reported in GenCost can only be achieved if Australia commits to a continuous building program, following the construction of an initial higher-cost unit. Initial units of all first-of-a-kind technologies in Australia are expected to be impacted by higher costs. A first-of-a-kind cost premium of up to 100 per cent cannot be ruled out.

Capital cost assumptions

GenCost recognises the difference between the period over which the capital cost is recovered (the economic life) and operational life of an asset.

GenCost assumes a 30-year economic life for large-scale nuclear plants, even though they can operate for a longer period. It is standard practice in private financing that the capital recovery period for an asset is less than its full operational life, similar to a car or house loan. For power stations, warranties expire and refurbishment costs are due around the 30-year mark. As a result, we use a 30-year lifespan in our cost calculations.

After the GenCost 23-24 report was released, nuclear proponents have clarified they will seek to achieve longer capital recovery periods, closer to the operational life, by using public financing. The GenCost project team may give this proposal consideration in future releases.

Current figures for Small Modular Reactors (SMRs)

The Carbon Free Power Project was a nuclear SMR project in the United States established in 2015 and planned for full operation by 2030. It was the first and only project to receive design certification from the Nuclear Regulatory Commission, an essential step before construction can commence. In November 2023, the project was cancelled following a 56 per cent increase in reported costs.

Despite being cancelled, this project was the first to have provided cost estimates for a real commercial venture with detailed data. Until now, most sources were for theoretical projects only.

"The main area of uncertainty with nuclear SMR has been around capital costs," Paul said.

"This new data means we can be more confident about the current capital costs of nuclear SMR and the data confirms it is currently a very high-cost technology.

"We don’t disagree with the principle of SMRs. They attempt to speed up the building process of nuclear plants using standardised components in a modular system and may achieve cost reductions over time. However, for now, the technology is yet to be deployed commercially."

Time is running out for the energy transition

Nuclear power has an empty development pipeline in Australia. Given the state and federal legal restrictions, this is not surprising.

But even if nuclear power was more economically feasible, its additional pre-construction steps, particularly around safety and security, limit its potential to play a serious role in reducing emissions within the required timeframe.

If the Carbon Free Power Project had proceeded in the US, it would have taken 15 years from launch to full operation in 2030. This timeline suggests that if a similar nuclear power project was initiated in Australia in 2025, with political and community backing for legislative change, full operation wouldn’t commence before 2040.

"The electricity sector is one of our largest sources of emissions and delaying the transition will make the cost of addressing climate change higher for all Australians," Paul said.

"The electricity sector must rapidly lead the transition to net zero, so other sectors like transport, building and manufacturing can adopt electrification and cut their emissions."