The question of nuclear in Australia’s electricity sector

9 December 2024 6 min read

This explainer was updated on 09 December 2024 to reflect costings included in the draft GenCost 2024-25 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 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 represent a timely or efficient solution for meeting Australia’s net zero target.

Here’s why:

• Nuclear is not economically competitive with solar PV and wind and the total development time in Australia for large or small-scale nuclear is at least 15 years.
• Small modular reactors (SMRs) are potentially faster to build but are commercially immature at present.
• The total development lead time needed for nuclear means it cannot 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.

It is a policy and technology neutral report and 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 draft GenCost 2024-25 Report released on 09 December 2024 found renewables continue to have the lowest cost range of any new build electricity generation technologies.

One of the factors that impacts the high and low cost range is the capacity factor. The capacity factor is the percentage of time on average that the technology generates to its full capacity throughout the year. Costs are lowest if technologies. such as nuclear, can operate at full capacity for as long as possible so they have more generation revenue over which to recover their capital costs.

Nuclear technology is capable of high capacity factor operation but globally its capacity factor ranges from below 60% to above 90% with an average of 80%. Australia operates a similar steam turbine based technology in coal generation for which the average capacity factor over the last decade was 59% with a maximum of 89%.

The shape of the electricity load and competition from other sources is very different between countries and so our preference is to always use Australian data where it is available. Consequently, we apply the historical coal capacity factors when considering the potential future capacity factors of Australian nuclear generation.

Capital cost assumptions

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.

GenCost estimates of the cost large-scale nuclear are based on South Korea’s successful continuous nuclear building 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 it reported could only be achieved if Australia commits to a continuous building program, following the construction of an initial higher-cost unit or units. 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. These assumptions remain for the draft GenCost 2024-25 Report.

Life of the investment

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 may begin to fall around the 30-year mark. As a result, we use a 30-year lifespan in our cost calculations.

After the final GenCost 23-24 Report was released in May 2024, nuclear proponents clarified they will seek to achieve longer capital recovery periods, closer to the operational life, by using public financing to realise potential cost advantages.

The draft GenCost 2024-25 Report has calculated those cost advantages for the first time (using a 60-year period), finding that there are no unique cost advantages arising from nuclear technology’s long operational life. Similar cost savings are achievable from shorter-lived technologies, even accounting for the fact that shorter lived technologies need to be built twice. This is because shorter-lived technologies such as solar PV and wind are typically available at a lower cost over time, making the second build less costly.

The lack of an economic advantage for long-lived nuclear is due to substantial nuclear refurbishment costs to achieve long operational life safely. Without new investment it cannot achieve long operational life. Also, because of the long lead time in nuclear deployment, cost reductions in the second half of their operational life are not available until around 45 years into the future, significantly reducing their value to consumers compared to other options.

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 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 and currently remains the only project 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.

"The Carbon Free Power Project provided more confidence about the 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, the lack of commercial deployment has meant that these potential savings are not yet verified or realised," Paul said.

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 slow construction and 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.

In the last five years, the global median construction time for nuclear has been 8.2 years. Furthermore, in the last ten years, no country with a similar level of democracy to Australia have been able to complete construction in less than 10 years. Overall, it will take at least 15 years before first nuclear generation could be achieved in Australia.

"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."