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The economics of nuclear energy.
What is true and what is false in the Italian debate.

di - 23 Febbraio 2011
      Stampa Stampa      Segnala Segnala

New investments are necessary both to repair it, so to speak, and to modernize it. Moreover, if we consider the effort in terms of money and technology that the leading European countries are putting into the construction of a ‘smart grid’, the necessity of investing in our grid becomes indeed urgent. To participate from the start into the building of a smart grid will probably prevent from running into higher costs later, but also, and more important, it will not let our country lag behind in technology, because a smart grid incorporates a lot of it.

The second question is concerned with the structure of the energy market, namely with its liberalization process, which is still under way. It was started on the usual assumption that a competitive free market will bring about costs and price reductions, and although Italian households haven’t yet seen this result, the hope is still there. The task ahead is to further liberalize the market and wait for the reduction in costs, which will necessarily follow since Italian costs are currently higher than the European average. Now, while the terms under which the ‘renaissance’ of nuclear energy in Italy will take place are not yet finalized, from what is apparent so far this renaissance will likely reduce, not increase, the still limited competition in the energy market. Three points are worth mentioning, representing three types of government intervention. The first is the Decree Law n. 31, 2010, which provides firms investing in nuclear power with financial and insurance protection against the risks of delay in plant construction and operation. The second provision comes in the form of nuclear producers being given priority in the dispatch to the grid, while the third one, still rather unclear, involves selling prices. This last provision seems to really go against any useful market function because the idea is to protect nuclear producers against changes in the demand for energy and also against price changes from other energy sources. Actually, the special features of nuclear industry do not seem to be compatible with a free competitive market, this being true not only in principle/theory but also in practice, as signalled by the US experience. Thus a decision has to be made, either to rely on a liberalized energy market, which will (probably) not lead to nuclear energy production, or to go for nuclear renaissance on political reasons, and therefore envisage government interventions aimed at making such renaissance possible, which would be limiting free competition in the energy market even further. In the latter scenario no reduction in tariffs (selling prices) can be expected because competition is not at work. Moreover, even if construction costs are mainly financed by the taxpayer, consumers of electricity are not going to gain because nuclear industry leads, for its very nature, to a monopolistic market which does not pass down (possible) cost reductions to selling prices. This is what the economic theory of monopolistic markets teaches us, and the fact that at the global level three companies (AREVA, WESTINGHOUSE, ROSACOM) are practically making up the whole nuclear market is the empirical confirmation of the functioning of nuclear industry.

In conclusion, if there are advantages for Italy in turning to nuclear energy, they are not on the economic side. The energy market liberalization process is not compatible with nuclear energy, costs reductions are not at all granted when the costs of production of a reactor are realistically accounted for (and we did not address the issue of the waste disposal costs because a specific study of the industrial processes involved would have been necessary), and, finally, our country will be not less dependent from imports, as suggested by another much repeated but equally false argument. The reason for this is not only the fact that we do not possess uranium (it may be considered of little importance because its price volatility would be practically irrelevant, as reported in the last column of Fig.1), but chiefly the fact that we do not possess the industrial capability for enriching it and will therefore continue to be dependent from a foreign equally concentrated market.

References

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

Alberto Clo (2010), Si fa presto a dire nucleare, Il Mulino.

Commission of the European Communities (2008), ‘Commission Staff Working Document. Second Strategic Energy Review. An EU Energy Security and Solidarity Action Plan. Energy Sources, Production Costs and Performance of Technologies for Power Generation, Heating and Transport’, COM (2008) 781 final.

European Environmental Agency, EEA (2008), ‘EN35 External costs of electricity production’, available on http://www.eea.europa.eu/data-and-maps/indicators/en35-external-costs-of-electricity-production-1

Longo A., Markandya A., Petrucci M. (2008), ‘The internalization of externalities in the production of electricity: Willingness to pay for the attributes of a policy for renewable energy’, Ecological Economics, 67, 140-152.

MIT (2003), Study on the Future of Nuclear Power, p.40.

Uranium Market Outlook, December, 2010.

Weitzman Martin L. (2009), ‘On modeling and interpreting the economics of catastrophic climate change’, The Review of Economics and Statistics, vol XCI, n. 1

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