The Olkiluoto is an EPR (European Pressurized Reactor[6]) of 1600 MWh, with 60 years of service life, whose construction begun in 2005, after many years of debate, in the Baltic Sea island of the same name, and with 4 billion € production cost at its start. The French Areva is the company in charge of construction, and since it has built around 1/3 of all nuclear reactors in the world its expertise is not questionable. Nevertheless the costs have already reached 5 billion and a three years and a half delay in the construction timetable is acknowledged. Moreover Areva itself says that today’s cost of building such reactor is between 6 and 8 billion. With no need to enter into the specifics of the current disputes among the company, Finland’s government and the financial partners, we can learn just from this experience that at the start costs are known very imprecisely, and that they are constantly increasing, at a substantial rate (approximately doubling in 5 years). A dynamics of constantly increasing construction costs combined with a long and delayed construction time emerge as the typical features of nuclear industry. They must be kept in mind, and this is precisely what the market does. In fact, while in the general debate it seems easy to disregard these aspects and to talk only of the competitive nuclear energy production costs, once the plant has been produced, the market does incorporate the special construction costs’ features, and is reluctant to enter the business, as shown by the USA experience, where in the last 20-30 years no completely new nuclear plants were built[7]. This fact casts doubts on the asserted competitiveness of nuclear energy. In a liberalized energy market, private capital would have flown in if investment had been profitable. According to the mentioned MIT study, ‘nuclear power is much more costly than the coal and gas alternatives even in the high gas price cases,…(therefore), with current expectations about nuclear power plant construction costs, operating costs and regulatory uncertainty, it is extremely unlikely that nuclear power be the technology of choice for merchant plant investors’. An updating of the MIT Study by Du-Parsons[8] has found that construction costs would amount to the double of those calculated in 2003. Looking honestly at the particular features of nuclear industry it emerges that a long service life, between 40 to 60 years, determines a low levelized unit cost of production but also requires such a huge investment and so much delayed returns as to discourage capital inflows. We may conclude that the combination of a high capital intensity with the difficulties in reliably forcasting construction costs, which every country’s experience shows to be generally increasing over the construction period, prevents investment to flow in. Not surprisingly president Obama enters the scene and guarantees loans in an attempt to attract investments. But this means that the structure of the energy market is affected. Government intervention in the form of guaranteed loans, or of a minimum level of tariffs, or of any other ones, will take the risk of investment away from producers and onto the taxpayers. Under such circumstances is hard to regard this market as a competitive one.

We are now in a position to take a closer look at Italy, adding some specific features of our national energy market to the general ones, and revolving around two main questions. We ask first whether we need more power plants to generate energy, and secondly whether we want to proceed with the liberalization of our energy market. The unpredicted economic crisis, started in 2008 and not at all over yet, had the inevitable effect of a fall on the demand for electricity. Just before the start of the crisis the demand was at 353 TWh against a production of 313 TWh, giving way to an import level of 40 TWh. Since then, while demand has not recuperated, new gas power plants have started operation (and other have started construction). In this situation it is completely reasonable to expect that in 2020, the reference year for most of the projections at the international and European level, we’ll probably have excess supply. The demand has been projected to be at around 370 TWh[9] while the share of energy produced by renewable sources will need to be increased up to the level agreed within the European Union (99 TWh). In this optimistic scenario, as far as the demand for energy is concerned, there will be capacity underutilization, which implies higher and increasing unit costs of energy production. It is true that the decision to build new gas power plants was taken under the then internationally prevailing scenario of a projected doubling of the demand for energy in 2030, and that it therefore had its consistency. But that scenario has been proved to be unrealistic, having been constructed on the extrapolation of the growth rate of energy demand experienced in the past few years, with no prediction of a possible set back in the global economy, which instead started in 2008 and has not yet ended. Incidentally, the fact that the 2008 global crisis was completely left out of any prediction greatly weakens the reliability of the global energy market figures that have been circulated, since they do not account for the impact of the crisis on energy demand. A substantial revision of estimates is now necessary. Giving due weight to these facts, i.e. a sluggish demand for energy and an increasing power capacity (the new gas power plants produced and under construction) will lead to the conclusion that no large, if any, new investments in power plants are needed. Rather, what the Italian energy market does need is investment in the ‘grid’. As is largely known, our grid is old and its leakages are above the average.

^Note

6.  Third generation of Pressurized Water Reactor, PWR.↑

7.  MIT, Study on the Future of Nuclear Power, 2003, p.40.↑

8.  Yangbo Du- John E.Parsons, Update on the Cost of Nuclear Power, Center for Energy and Environmental Policy Research, CEEPR, May, 2009↑

9.  In projecting these figures TERNA specifies that the demand for energy will ‘hopefully’ reach such level in 2020.↑

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