The second in this three-part series looks at how power-purchase agreements increase the cost of electricity for consumers and act as important sources of inflationary pressures in economies.
Recent transactions mediated between host countries and nuclear power companies show how consumers end up bearing the cost of building nuclear power plants as a result of power purchase agreements, which benefit the entrepreneur and reduce their financial risk, but often lead to extremely high electricity costs for consumers.
No official details have yet been given to indicate what the price will be for electricity generated by the El Dabaa plant being built by the Russian state-controlled Rosatom in Egypt. But in 2016, one Egyptian energy expert predicted that prices per megawatt hour – how much it would cost to produce one megawatt of energy for one hour – from El Dabaa would be at least four times higher than from renewable energy sources. Renewable energy prices have fallen significantly since 2016, while nuclear power has become more expensive.
UK consumers will pay exorbitant amounts for electricity from the Hinkley Point C nuclear power plant that EDF has been building for decades after the plant is completed. While construction does not follow the Build-Own-Operate model, in 2016 EDF negotiated with the UK government a 35-year power price linked to inflation to make as much profit as possible. The UK Government’s Public Accounts Committee has conservatively estimated that this transaction will cost consumers an additional $ 40 billion (approximately R615 billion) during the 35 years of the contract, compared to alternative energy sources such as solar and wind.
A similar story takes place in Turkey. Critics have pointed out that the price the government has agreed to pay Rosatom for electricity generated by the Russian seller’s Akkuyu plant will cost the country an additional $ 27 billion over the 15-year period of the power agreement. This is because the price agreed between Rosatom and the Turkish government is significantly higher than the current cost of electricity. A 2019 report by the Union of Chambers of Turkish Engineers and Architects notes that electricity purchased at the plant will be at least 275% more expensive than alternatives.
Despite the signing of such transactions, the long-term financial viability of state-owned core suppliers is questionable. EDF has received significant cash injections from the French government and secured favorable loans from the UK Treasury for Hinkley Point C, but is still forced to sell a third of its stake in the project to China General Nuclear Power Group, as it did in 2016 is done. without money.
And EDF remains in serious financial trouble. It is about $ 52 billion in debt and two major agencies have given it a negative credit rating. The French energy company’s problems stem from delays in the construction of Hinkley Point C, which it says has cost at least $ 4 billion so far, and at other nuclear power plants it is building. The Flamanville 3 project in France is now four times too little budget and ten years too late. In Finland, the Olkiluoto 3 project is also four times larger than budgeted and is only expected to start in 2022, 13 years after the original start date. Further delays at Hinkley Point C and Flamanville 3 are strongly anticipated, which will further plunge EDF into the mud, meaning more bailouts from the French government are likely.
Rosatom has experienced serious problems with the financing of the Akkuyu nuclear power station. In 2016, he tried to sell a 49% stake in the project because it could not raise the necessary capital to complete the plant. After finding no buyers, Rosatom was rescued, at least in the short term, late last year by a $ 400 million loan from another Russian state-owned company, Sberbank. It is surprising that the completion of this plant is also delayed. Originally supposed to be operational by 2019, its completion has been pushed back twice and it is predicted that it will be partially operational by 2023.
That companies such as EDF and Rosatom depend on the willingness of their respective governments to finance their survival is worrying. The economic consequences of the Covid-19 pandemic perfectly illustrate how vulnerable both the world economy and individual economies are to unexpected shocks. Falling electricity sales in France due to Covid-19 lead to intense speculation that EDF will need the French government somewhere in early 2021 a lifeline of distress or financial downfall. It is not clear what will happen to the plants he is currently building if EDF collapses. They may be let down, or taxpayers in host countries may be forced to pay even more for its completion.
These financial problems are often the result of problems that arise during the construction phase of nuclear power stations, leading to delays. A study completed in 2014 revealed the extent of this problem and said that only 3% of the nuclear power stations were built according to schedule. In 2018, researchers from the Center for Environmental Policy at Imperial College London found that the delay in construction between 1955 and 2016 increased the cost of nuclear power plants by 18% above their original budget.
Consumers as cash cows
In fact, the public pays twice for these delays. In enterprise countries such as France and Russia, taxpayers are contributing to the bailout of state-owned enterprises such as EDF and Rosatom. In recipient countries, such as the United Kingdom, Egypt, and Turkey, the public pays through artificially inflated electricity bills.
Instead of reflecting on this double burden, sellers and governments that comply with it are devising new ways to extort even more money from the public. To fund additional nuclear power plants in Britain, the government is now considering a new financing model called Regulatory Asset Base (RMB).
The RMB model basically gives a blank check to suppliers, enabling them to charge customers for electricity during the construction phase of a power station before the station even produces electricity. In addition, it covers suppliers for construction cost overruns of up to 30%, all of which will be paid by consumers. It is proposed that the UK Government will cover any construction cost overrun of more than 30%. In fact, this financing model transfers virtually all financial risks from investors to consumers, through excessively inflated electricity bills or tax transfers to sellers, or both.
In September, it appeared that the EDF indicated that it would only offer the contract for the construction of the proposed $ 25 billion Sizewell C nuclear plant in Britain if the British government accepted the RMB financing model.
A whirlwind of corruption
Another issue that needs to be seriously considered when evaluating the cost of nuclear power is corruption. In a 2013 survey of corruption in the nuclear industry by Richard Tanter of the University of Melbourne, ‘widespread and often deep-seated corruption’ was found in the nuclear industry, saying that national and international government regimes at the core were ‘virtually completely ineffective’.
In recent years, the industry has been rocked by several corruption scandals.
In 2014, a massive corruption scandal involving South Korean nuclear seller Korea Hydro & Nuclear Power, a subsidiary of Korea Electric Power Company, resulted in dozens of employees receiving a cumulative total of 258 years in prison for fraud and corruption. Many of these costs have been related to the supply of counterfeit equipment, some of which is safety-oriented, to nuclear power stations in South Korea and the United Arab Emirates.
In July, five people were arrested in Ohio in the United States, including the speaker in Ohio, for receiving $ 60 million from a nuclear power company in exchange for securing a $ 1.5 billion lifeline for the operator. is.
A month later, Brazilian federal prosecutors charged a subsidiary of EDF and the Brazilian nuclear company Eletronuclear with corruption.
The construction and ongoing maintenance of nuclear power stations is particularly susceptible to corruption for two specific reasons. First, because they are mega-projects, it is very complex enterprises that may involve hundreds of contractors and subcontractors, creating fertile conditions for corruption. Second, these fertile conditions are exacerbated by the secrecy surrounding nuclear power. Although this mystery is presumably designed to stop the spread of nuclear technology or the capture of nuclear material, it promotes an environment protected from investigation and public oversight.
While Africa has no recent experience with the construction of nuclear power plants, other recent mega projects on the mainland include the Lesotho Highlands Water Project, the Lauca Dam in Angola, the Mambilla Hydropower Project in Nigeria and the construction of the Medupi and Kusile power stations in South Africa. Africa – shows how corruption can be entrenched in mainland mega-projects.
In this regard, it is worth remembering that Transparency International’s Corruption Perceptions Index for 2019 found that sub – Saharan Africa was the worst performing region in the world, followed by North Africa. There is clearly good reason to be concerned about possible corruption in any nuclear power transactions concluded on the continent. South Africa’s recent illegal agreement between former president Jacob Zuma’s government and Rosatom shows how real this danger is.
Part three looks at the costs associated with removing nuclear waste, dismantling nuclear power stations and major nuclear accidents.