Indo US nuclear deal- part 1- Economics of Nuclear power

The economics of Nuclear Power
Fact: The need for additional power generation in India is clear with huge power shortages for existing customers, increasing consumption, rapid growth and finally greater inclusion
An estimate of demand states existing generation capacity needs to be doubled by 2012(http://www.businessmonitor.com/power/india.html),A columnist states india would need 4 times the current power generated(2006) by 2020 (http://www.saag.org/%5Cpapers15%5Cpaper1433.html).
Given the scale, no single source can satisfy demand. Hydel projects, are acknowledged as the cheapest source of power but are seasonal and given peak summer demand are doubly countercyclical but can form the bedrock of any minimal power generation. Alternate energy like wind power,wave energy, solar can address demand at the margin ( and are heavily subsidized) and good for certain remote areas unconnected to the grid.
That leaves us with coal and nuclear power to examine- with oil fired plants falling off the radar due to high prices ( and clear evidence of poor economics)
India is not endowed with high quality coal reserves and bottlenecks in mining and expected difficulty further land acquisition due to environmental and tribal people resettlement issues (http://www.energybulletin.net/2947.html). This chronic shortage needs to be placed in the context of the country having large amount of proven coal reserves(http://pib.nic.in/archieve/factsheet/fs2000/coal.html). There seems to be some stickyness in exploiting coal resources beyond economics and the reform in mining is overdue. The fact that we import coal from regions like australia involving huge logistics cost clearly indicates a failure of political economy prior to even giving consideration to the impact of environmental laws(http://www.coal.nic.in/eximp.html). The 5 ultra mega power projects are being setup at either the pitheads of mines or in coastal locations again indicating that the prospect of large additional domestic coal supply is poor.
Given the energy demand, the opening up of mining and pit head power generation facilities in jharkhand, orissa etc is a compelling prospect and if not, like oil huge coal imports are likely to burden the indian economy.


Nuclear power in india has been on a starvation diet due to unavailability of fuel. The bottleneck very similar to coal lies in mining with existing reserves proving sufficient for a 10 fold increase in the program. Historically being a capital scare country, the huge capex needed for nuclear power plants made them difficult for the resource scarce state to fund and with only modest ambitions for the nuclear arsenal, there was no political will behind large scale diversion of resources.The low burn rates in nuclear could signify an attempt at creating a huge stockpile of fissile material for the next stage- fast breeder reactors which require large amount of plutonium to create MOX fuel but which over a 5-10 year term produce further plutonium and if fuel roads are clad with thorium, additional u233 fuel to be used in phase 3, thorium-u233 reactors. A very nice description of indian fuel requirements and its availability is clearly put forth in this fantastic paper by Ashley Tellis- must read (http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=18443&prog=zgp)

now given the fact that even prior to this nuclear deal, two mines - in manipur and AP have been approved and national interest can be clearly invoked to quell protests and ensure additional supply of fuel. Infact india can choose not to import nuclear fuel if it chooses to is clear after reading Ashley's report.

Assuming India decides to preserve its fissile material for its breeder and thorium reactors, the depletion of stock might prove unacceptable to the strategic program and could be one of the unstated but compelling factors behind India signing this deal. Once the breeder reactor technology becomes mature, india will place/build more facilities within safeguards to get assured fuel supplies without compromising its strategic program.

moving from strategic compulsions to more economic ones. How does power from nuclear plants compare with coal. Here is a comparison table-http://www.uic.com.au/nip08.htm
Electricity cost (US cent/kWh)

	MIT 2003	France 2003	UK 2004	Chicago 2004	Canada 2004	EU 2007
Nuclear	4.2	3.7	4.6	4.2 - 4.6	5.0	5.4 - 7.4
Coal	4.2		5.2	3.5 - 4.1	4.5	4.7 - 6.1
Gas	5.8	5.8, 10.1	5.9, 9.8	5.5 - 7.0	7.2	4.6 - 6.1
Wind onshore			7.4			4.7 - 14.8
Wind offshore			11.0			8.2 - 20.2

A more detailed split up of costs is also available-http://www.nucleartourist.com/basics/costs.htm

Item	Cost Element	Nuclear	Coal
		$/Mw-hr	$/Mw-hr
1	Fuel	5.0	11.0
2	Operating & Maintenance - Labor & Materials	6.0	5.0
3	Pensions, Insurance, Taxes	1.0	1.0
4	Regulatory Fees	1.0	0.1
5	Property Taxes	2.0	2.0
6	Capital	9.0	9.0
7	Decommissioning & DOE waste costs	5.0	0.0
8	Administrative / overheads	1.0	1.0
Total		30.0	29.1

when these figures are corrected for india, the fuel costs of both are expected to be higher,with coal bearing higher labour and admin costs. the regulatory fee aspect is unclear in indian context and not applicable as per my opinion. So broadly nuclear power is comparable with a slightly lower cost bias once.
The cost of a pound of uranium has increased 5 fold since 2003 and one would intuitively expect derail the prospect of this industry but this chart helps clarify the very low sensitivity of power cost to fuel cost for nuclear power- a Finnish study in 2000 also quantified fuel price sensitivity to electricity costs:



The context for nuclear power has also changed- there is a huge surplus of capital and the prospect of extraordinarily large global money supply is increasing (http://www.agaryshilling.com/- read his comments on a future possible deflation and dollar carry trade to add to the yen carry trade)
Cost of decommisioning a nuclear plant is 10-15% of capital cost and can be absorbed by a significantly larger indian economy in the 2040s.

So if there is such a compelling logic- why hasn't the western world signed up to kyoto and put in power plants is a question which is a topic by itself and will form the basis of another post. Broadly post chernobyl public appetite for anything nuclear was pretty much nil and the post 9/11 political will has been found to reduce dependence on energy supplies from the middle east and electricity and renewable fuel will form the bedrock for future energy generation/transportation/heating for the western economies.(http://www.investors.com/editorial/editorialcontent.asp?secid=1502&status=article&id=272670579568835 and http://news.oneindia.in/2007/08/20/no-new-uk-nuclear-power-likely-before-2020--poyry-1187634850.html)

So, by signing the nuclear deal India will keep an option open in addition to using its coal based generation capacity and also preserve the stockpile for its strategic program and for the 3 phased nuclear program.

Irrespective of the prospects of nuclear energy, due to the politically sensitive nature of nuclear energy, a huge chunk of incremental power generation capacity in india is expected to come from coal, with older plants being refurbished to reduce emission and if ever a global carbon emissions cap comes into force, increasing the direct cost of emissions from vehicular traffic will prove deeply unpopular and indirect cost increase by means of taxing power generation will prove more likely.