Nuclear is a 'credible cost competitor', says IMF working paper

It was produced by Nicoletta Batini, lead evaluator in the IMF's Independent Evaluation Office (IEO), with Mario Di Serio, Matteo Fragetta, Giovanni Melina, and Anthony Waldron. IMF working papers do not necessarily represent the views of the IMF, its board or the IEO.

Clear motivation

The motivation for the analysis is clearly stated: Global carbon emissions fell by 6.4% in 2020, but to keep global warming well below 1.5 degrees Celsius, they would need to fall by 7.6% each and every year over the next decade.

Energy consumption contributes to around three-quarters of all anthropogenic greenhouse gas emissions, and to stay within 2 degrees Celsius the world needs to double the clean energy investment it has pledged, according to the paper. At the same time, the world is "fast degrading" all carbon sinks, including oceans, forests and mangroves, and for the Paris Agreement to be achievable, it says that 30% of global ecosystems must be preserved, with a need for 7-10 times more spending on conservation.

Nuclear is clean energy

Uranium is not renewable "on a human timescale", but nuclear power does qualify as a form of clean energy, the paper notes.

"Indeed, nuclear energy ranks among the lowest carbon forms of energy generation, considering both direct emissions and its lifecycle impacts and has emerged as a credible cost competitor of both renewable and non-eco-friendly non-renewable energy," the paper says, adding that research by both the Intergovernmental Panel on Climate Change and the International Energy Agency (IEA) includes nuclear power among the technologies "capable and necessary" for the mitigation of carbon emissions.

Producing electricity exclusively from current forms of renewable generation entails "significant technological challenges", it says, because they are "intermittent, variable and unpredictable" and consequently having limited capacity factors.

Given the scale of clean energy development needed, the storage of renewable energy is also currently not a viable option, it says, because the technology for this is expensive and still under development. Similarly, producing and adapting energy from hydrogen using renewables is "not an immediate option", it says.

Spending on clean energy, like solar, wind or nuclear, has an impact on GDP that is about 2 to 7 times stronger than spending on non-eco-friendly energy sources like oil, gas and coal, the report says.

"From a stimulus point of view, these measures also appear economically sustainable because they end up producing more GDP than they initially demand. By contrast, spending on non-eco-friendly energy generation is found to crowd out other forms of domestic spending to a larger extent," it says.

Big gulf

The paper notes that, in 2019, renewables (excluding large hydro) accounted for about one-seventh of the share of global electricity generation, while nuclear energy accounted for about one-tenth.

"The overall share of clean energy is increasing slowly because of the large, established fossil fuel fleet and the decline in net terms of nuclear installed capacity. Reflecting this, there is currently a big gulf between current green spending in these areas and what the science suggests as the target for global emissions by 2030," the paper says.

It refers to the base-case scenario in Bloomberg NEF’s New Energy Outlook 2019, which shows that, even limiting the increase in global temperatures this century to 2 degrees Celsius would require the gross addition of some 2,836 gigawatts of new non-hydro renewable energy capacity by 2030, which is double what is envisaged under current public and private sector targets - at an estimated cost of USD3.1 trillion over the decade. At the same time, International Energy Agency data show that nuclear capacity globally is estimated to have shrunk by a net 5 gigawatts in 2019, the paper notes, receiving an investment "of a mere" USD15 billion versus an investment of around USD282 billion for renewables over the same year.

Capital expenditure

The working paper uses overnight construction cost (OCC) data from the IEA's World Energy Outlook and data assembled by the OECD’s Nuclear Energy Agency in collaboration with World Nuclear Association and the International Atomic Energy Agency. These are measured by looking at "the real OCC of completed plants", the paper says, "because it is both the dominant component of lifetime costs for nuclear power, and the cost component that varies most over time and between countries."

The OCC metric includes the costs of the direct engineering, procurement, and construction services that the vendors and the architect-engineer team are contracted to provide, as well as the indirect owner’s costs, which include land, site preparation, project management, training, contingencies, and commissioning costs. The OCC excludes financing charges known as 'interest during construction'.

Comparable data

Multipliers the working paper uses related to fossil fuel and renewable energy generation are "fully comparable", it says, because their underlying data cover the same country and time sample. The data on nuclear energy spending on the other hand cover a smaller set of countries and a larger number of years and therefore they are "not strictly comparable", it adds.

The analysis shows that a shock to spending on green renewable energy is "more persistent" than an equal-sized shock to fossil fuel energy spending, and the output response is "much more persistent, hovering well above zero beyond the medium term (five years), while the output response to a non-eco-friendly energy spending shock dies off completely after five years."

Likewise, nuclear energy, spending is more persistent than investment in non-eco-friendly energy, it says, because it tends to generate considerable employment at the local level. Reporting cumulated spending multipliers indicates that spending on nuclear energy has "a large output effect", it says, that is about six times larger than the output effect associated with spending on fossil fuel energy. However, nuclear spending multipliers "lose statistical significance" two years after the shocks, it adds. Building nuclear large reactors takes 5.1 years on average but, unlike renewables, spending is "not sequential" and tends to be more "frontloaded", it says. This fact could explain "the stronger near-term impact and substantial loss of statistical significance".

Investment in nuclear power produces about 25% more employment per unit of electricity than wind power, the paper notes. Moreover, research comparing pay across nuclear, wind and solar direct workforces in the USA in 2017 indicates that nuclear workers earn one-third more than their peers in the wind and solar sectors, and more than twice the mean for power sector employees.