This is a good, in depth article, with a lot of detail. It mentions costs of decommissioning, but sort of handwaves a bit when it does so. One of the problems of being early adopters of nuclear is...
This is a good, in depth article, with a lot of detail.
While cost overruns are certainly a concern, I don't think the article explores public sentiment about nuclear enough. I think policy makers would be more able to push for nuclear if they knew it...
While cost overruns are certainly a concern, I don't think the article explores public sentiment about nuclear enough. I think policy makers would be more able to push for nuclear if they knew it would generate votes.
A bigger issue though, is that energy is controlled by private companies. The article makes clear that government intervention is probably necessary for new plants, but if the companies keep the profit, what is the benefit for the government?
I have the same issue with public transport too. I think there are some industries that fundamentally need strong government intervention to be maximally useful for the people (rather than trying to squeeze them for profit), and I think we don't have a good balance at the moment.
A government isn’t supposed to make a profit. It’s supposed to fund things that provide services to the people. Often this is through government contractors, who are allowed to make some profit,...
A government isn’t supposed to make a profit. It’s supposed to fund things that provide services to the people. Often this is through government contractors, who are allowed to make some profit, but hopefully not too much. It’s a negotiation.
Similarly for utilities. These companies are usually regulated monopolies that are allowed to make some money, but not too much. I believe investors have often thought of utilities as a safe but boring investment.
Sometimes not so safe, though. If the company goes bankrupt (like happened recently with PG&E in California), the shareholders typically lose all their money. That’s what shareholders are for, to take that risk so that bondholders and (if comes down to it) taxpayers don’t have to. It’s only a limited buffer because a company can lose more money than the shareholders put in.
(Another way to find someone else to bear the risk is to buy insurance. Insurance policies have limits, though.)
A problem with nuclear power plants is that it’s possible to lose enormous amounts of money if something goes wrong, and that’s not even due to accidents. Construction is extremely expensive and delays or interest rate increases make it worse. All that expense needs to be paid for by someone and no money is made until the plant goes online.
Some of the reasons for this are under government control, though, because changing government requirements are often the cause of the delays.
So I think in the end, you’re right, the government has substantial control over how it goes. Maybe it should be in charge of the project, and contractors just do work for the government?
But that means taxpayers are on the hook for all costs if the project does badly. Is it fair that if the project administrators screw up, taxpayers (who have no choice and only limited input) bear the cost?
Solar panels and windmills are cheap and low-risk in comparison, financially speaking.
Other examples of projects with similar perils are healthcare buildings (hospitals in particular) and toll roads. Often these privately-funded projects find outside sources of capital investment...
A problem with nuclear power plants is that it’s possible to lose enormous amounts of money if something goes wrong, and that’s not even due to accidents. Construction is extremely expensive and delays or interest rate increases make it worse. All that expense needs to be paid for by someone and no money is made until the plant goes online.
Other examples of projects with similar perils are healthcare buildings (hospitals in particular) and toll roads. Often these privately-funded projects find outside sources of capital investment through bond sales, firms specializing in capital financing, and whatever government subsidies or incentives the project qualifies for. They face the same risks of cost overruns from poor project management, supply shortages, changes in labor and material costs, bad weather, and so on. Yet when these projects seriously over-run their budget and schedule, they may turn to state and local governments to help make up the deficit on the basis that these projects are often intended to be public-facing services.
I would argue that we need to be more realistic in these large-scale projects and stop pretending that tax-payers won't be shouldering the costs down the line. So we should support projects that are necessary in the long term and stop letting companies run up a bill and then file for bankruptcy. Perhaps we can be more discerning when choosing what projects to fund at all. Especially for toll roads that often over-estimate their viability as a profitable enterprise. Those toll roads sometimes get turned over to the state which then must absorb the costs of maintaining the road anyway. Plus the state might absorb some of the fallout from the company failing for bankruptcy and the loss of the intended tax revenues that they had expected in addition to the loss of the state's initial subsidies in the project. Tax-payers lose out in at least three ways when that happens.
I think whether taxpayers got a good deal out of it is going to depend on specifics. The original investors spent a lot of money and lost in the end, spending more in the project than it was...
I think whether taxpayers got a good deal out of it is going to depend on specifics. The original investors spent a lot of money and lost in the end, spending more in the project than it was worth. Did they build something valuable nonetheless? Depends on the project.
It’s true that any maintenance needs to be paid for by the new owners. Is it worth maintaining? Sometimes the maintenance costs are too much for what it’s worth, even if you got it for free.
By contrast, with something like California’s high speed rail project, we know that the entire cost of the project was financed by the state and federal government and that will be true even if it’s never finished. (I hope they at least get some nice rail lines for Amtrak out of it.)
Getting things for free is essentially what happened for infrastructure that was built long ago and the original funders and builders long gone and mostly forgotten. This is essentially what inheritance is about. It’s not always a win. You can get superfund sites for free too.
Some reasons why government should avoid running things (vs regulating): Opportunity cost: existing operators would need to be bought out ($$$), then there's annual operating expense. With the UK...
Some reasons why government should avoid running things (vs regulating):
Opportunity cost: existing operators would need to be bought out ($$$), then there's annual operating expense. With the UK unable to even sustainably pay for current government expense - having to cough up for buyouts is the last thing they need
No market signals / no operational discipline / poor incentives -> existing products degrade (see NHS, or Chinese SOEs if you want an example abroad) / attempts at innovation simply fail (the VC/silicon valley ecosystem is built on rapid iteration/experimentation with the strongest rising to the top - invariably producing a better designed enterprise than a single state-run initiative designed by bureaucrats)
Short-term political cycles warp incentive structure. Not directly related, same idea - the central bank (i.e. BoE) was granted independence to avoid politicians using it as a piggy bank to drive short-term electoral incentives at the cost of long-term economic stability. See the 'Barber boom' of the 70s which ended up fueling inflation and culminating in a sterling crisis by 76
You can argue the current setup for many public/private partnerships are suboptimal - I agree strongly (e.g. rail, water). But this doesn't follow that government-run is the best solution. You can probably improve these substantially if you actually had some sharp regulators / avoid regulatory capture. But given the low pay on offer and limited prestige, I wouldn't hold my breath.
PS regarding 'the companies keep the profit' - you can't just look at earnings in absolute terms. The private operator has tied a lot of resources building these plants which it could have sent elsewhere (e.g. to build housing, buy a company, build a factory... whatever). Think of earnings as a return on capital invested to build these plants. Capital is chases maximum returns for a minimal risk - the government's job is to set up a structure to attract someone to put up the cash, and let them earn an acceptable (but not egregious) return, while meeting obligations (e.g. with water - delivering good service and not polluting the rivers).
This is a good, in depth article, with a lot of detail.
It mentions costs of decommissioning, but sort of handwaves a bit when it does so. One of the problems of being early adopters of nuclear is that we in the UK were a it cavalier at building them, and especially about handling waste safely. I feel we need to really understand the shitshow that is Sellafield. https://www.theguardian.com/environment/2022/dec/15/dismantling-sellafield-epic-task-shutting-down-decomissioned-nuclear-site
It's going to cost over £130bn to decommission all the civil nuclear sites, and it'll take over 100 years to do it.
This radio documentary is an interesting listen about decommissioning a nuclear power station: https://www.bbc.co.uk/sounds/play/b04wwgzf
While cost overruns are certainly a concern, I don't think the article explores public sentiment about nuclear enough. I think policy makers would be more able to push for nuclear if they knew it would generate votes.
A bigger issue though, is that energy is controlled by private companies. The article makes clear that government intervention is probably necessary for new plants, but if the companies keep the profit, what is the benefit for the government?
I have the same issue with public transport too. I think there are some industries that fundamentally need strong government intervention to be maximally useful for the people (rather than trying to squeeze them for profit), and I think we don't have a good balance at the moment.
A government isn’t supposed to make a profit. It’s supposed to fund things that provide services to the people. Often this is through government contractors, who are allowed to make some profit, but hopefully not too much. It’s a negotiation.
Similarly for utilities. These companies are usually regulated monopolies that are allowed to make some money, but not too much. I believe investors have often thought of utilities as a safe but boring investment.
Sometimes not so safe, though. If the company goes bankrupt (like happened recently with PG&E in California), the shareholders typically lose all their money. That’s what shareholders are for, to take that risk so that bondholders and (if comes down to it) taxpayers don’t have to. It’s only a limited buffer because a company can lose more money than the shareholders put in.
(Another way to find someone else to bear the risk is to buy insurance. Insurance policies have limits, though.)
A problem with nuclear power plants is that it’s possible to lose enormous amounts of money if something goes wrong, and that’s not even due to accidents. Construction is extremely expensive and delays or interest rate increases make it worse. All that expense needs to be paid for by someone and no money is made until the plant goes online.
Some of the reasons for this are under government control, though, because changing government requirements are often the cause of the delays.
So I think in the end, you’re right, the government has substantial control over how it goes. Maybe it should be in charge of the project, and contractors just do work for the government?
But that means taxpayers are on the hook for all costs if the project does badly. Is it fair that if the project administrators screw up, taxpayers (who have no choice and only limited input) bear the cost?
Solar panels and windmills are cheap and low-risk in comparison, financially speaking.
Other examples of projects with similar perils are healthcare buildings (hospitals in particular) and toll roads. Often these privately-funded projects find outside sources of capital investment through bond sales, firms specializing in capital financing, and whatever government subsidies or incentives the project qualifies for. They face the same risks of cost overruns from poor project management, supply shortages, changes in labor and material costs, bad weather, and so on. Yet when these projects seriously over-run their budget and schedule, they may turn to state and local governments to help make up the deficit on the basis that these projects are often intended to be public-facing services.
I would argue that we need to be more realistic in these large-scale projects and stop pretending that tax-payers won't be shouldering the costs down the line. So we should support projects that are necessary in the long term and stop letting companies run up a bill and then file for bankruptcy. Perhaps we can be more discerning when choosing what projects to fund at all. Especially for toll roads that often over-estimate their viability as a profitable enterprise. Those toll roads sometimes get turned over to the state which then must absorb the costs of maintaining the road anyway. Plus the state might absorb some of the fallout from the company failing for bankruptcy and the loss of the intended tax revenues that they had expected in addition to the loss of the state's initial subsidies in the project. Tax-payers lose out in at least three ways when that happens.
I think whether taxpayers got a good deal out of it is going to depend on specifics. The original investors spent a lot of money and lost in the end, spending more in the project than it was worth. Did they build something valuable nonetheless? Depends on the project.
It’s true that any maintenance needs to be paid for by the new owners. Is it worth maintaining? Sometimes the maintenance costs are too much for what it’s worth, even if you got it for free.
By contrast, with something like California’s high speed rail project, we know that the entire cost of the project was financed by the state and federal government and that will be true even if it’s never finished. (I hope they at least get some nice rail lines for Amtrak out of it.)
Getting things for free is essentially what happened for infrastructure that was built long ago and the original funders and builders long gone and mostly forgotten. This is essentially what inheritance is about. It’s not always a win. You can get superfund sites for free too.
Some reasons why government should avoid running things (vs regulating):
You can argue the current setup for many public/private partnerships are suboptimal - I agree strongly (e.g. rail, water). But this doesn't follow that government-run is the best solution. You can probably improve these substantially if you actually had some sharp regulators / avoid regulatory capture. But given the low pay on offer and limited prestige, I wouldn't hold my breath.
PS regarding 'the companies keep the profit' - you can't just look at earnings in absolute terms. The private operator has tied a lot of resources building these plants which it could have sent elsewhere (e.g. to build housing, buy a company, build a factory... whatever). Think of earnings as a return on capital invested to build these plants. Capital is chases maximum returns for a minimal risk - the government's job is to set up a structure to attract someone to put up the cash, and let them earn an acceptable (but not egregious) return, while meeting obligations (e.g. with water - delivering good service and not polluting the rivers).