The Nuclear Fuel Cycle Royal Commission delivered its report early in May. I submitted my InDaily article on the Royal Commission’s tentative findings to the inquiry for its consideration. I received no acknowledgement, but I know that the article was discussed within the royal commission’s processes. It does not appear to have had any substantive effect on the report.
Having read the relevant sections of the report, I continue to believe that South Australia should not use part of its land mass as a dump for highly radioactive used fuel from overseas nuclear reactors (sp-called “high level waste”) which, in the royal commission’s own words, “requires isolation from the environment for many hundreds of thousands of years”.
The only reason why most South Australians would give a high level nuclear waste dump even a second’s thought is because it is being sold to them as a financial bonanza – a no-risk economic lifeline to a state down on its luck. Something for nothing.
In the summary of its report, the royal commission says that a high level waste dump “could generate more than $100 billion income in excess of expenditure over the 120-year life of the project (or $51 billion discounted at 4 per cent)”. Note that the report says “could”, not “would”.
But, in Appendix J, the report says that “applying a commercial pre-tax discount rate of 10 per cent the net present value of profits to the State would amount to $11.5 billion”. This is a big reduction from the headline number in the summary of $100 billion.
Also in Appendix J, the report says the commission undertook sensitivity analysis of the value of the dump if less of the world market for used fuel were captured and the price was lower. The royal commission concluded that: “Under these scenarios, the project achieved lower profits than the baseline scenario, but remained highly viable.”
On the page following that statement, Figure J.6 shows that at a price for dumped nuclear fuel equal to Swedish costs of constructing a nuclear waste dump, and assuming half or more of the world’s available high level nuclear waste came to South Australia, the dump would have a net present value of profits of about $5 billion.
At a world price for dumped nuclear fuel equal to Finnish costs of constructing such a dump, the dump would have a net present value of profits of only about $2.5 billion.
In fact, if South Australia’s dump could only attract a quarter of the world’s high level nuclear waste, at prices equal to Swedish or Finnish costs of construction (approximately A$1.13m/tonne of heavy metal and A$0.65m/tonne of heavy metal, respectively), our dump would lose money and would have a negative net present value.
The reason why the royal commission says our dump could make more than $100 billion income in excess of expenditure is because a high price to dump used fuel has been chosen of A$1.75m/tonne of heavy metal.
The commission’s precise thinking on this point is worth quoting:
“Based on detailed analysis, the Commission considers that a reasonable baseline price for the purpose of assessing viability would be A$1.75m/tHM for used fuel. This is based on a reasonable baseline ‘willingness to pay’ estimate of A$1.95/tHM less A$0.2m/tHM to account for costs incurred by customers in preparing and delivering the waste to South Australia.
The financial modelling derived the baseline ‘willingness to pay’ figure of $A1.95m/tHM as a mid-point between the estimated highest and lowest willingness to pay.”
The truth, therefore, is that the price that the royal commission has chosen for its “baseline” analysis is a guess, based on its estimates of the costs that some countries might face to dispose of their waste themselves.
Economics I teaches that price equals marginal cost in a profit maximising competitive market – not “willingness to pay”. “Willingness to pay” is some price above the actual market price that varies from buyer to buyer. Only a perfectly discriminating monopoly supplier could charge each country a price equal to their willingness to pay.
We should not continue to entertain the fantasy that we have been given a “Get Out of Jail” card in the shape of building a high level nuclear waste dump in South Australia.
Is South Australia likely to be a global monopoly provider of high level nuclear waste dump services? This is not plausible.
Many countries are going to build geological disposal sites for high level nuclear waste including, as the report notes, Belgium, Canada, Finland, France, Germany, Sweden, Switzerland, the United Kingdom and the United States of America. Four case studies examined by the royal commission itself – Belgium, Finland, Sweden and Switzerland – are located in crowded Europe, confront difficult terrain and heavy rainfall. The United States itself has a huge program of nuclear waste disposal. Further, the global “accessible market” for high level nuclear waste (in the commission’s parlance) excludes India and China.
Why are these countries not going to open up their own waste depositories to other countries? They have already decided to build nuclear dumps for their own purposes and have already found locations. The marginal cost of extending their dumps to take in high level nuclear waste from other countries will be low. They will be able to subsidise their own domestic waste disposal programs by taking in nuclear waste from other countries at a price above or equal to their low marginal cost.
The international price for dumping high level nuclear waste in the market that will form is very likely to be well below the average cost of Sweden and Finland, which are, in turn, far below the price used to predict huge profits from a dump in South Australia. In which case South Australia’s high level nuclear waste dump will be unviable, because it will have to cover all of its costs from sales, not just its marginal costs.
As if anticipating this prospect, the royal commission left itself an “out”, when it said: “The facility would not be developed unless the proponent could secure a pre-commitment of used fuel volumes at a price to fully fund the development of the project”.
I hope that the citizen’s jury that is being chosen to consider whether there is a “social licence” to proceed with a high level nuclear waste dump in South Australia will be allowed to read my articles, let alone have me speak to them. We should not continue to entertain the fantasy that we have been given a “Get Out of Jail” card in the shape of building a high level nuclear waste dump in South Australia.
Real juries hear both the Prosecution and Defence cases in open court. What I fear is that my fellow citizens selected for citizen’s jury duty will get to read and hear only what the State Government wants them to read and hear, so that they will give Premier Weatherill the “social licence” he wants in order to proceed with the dump.
South Australians do not need to mortgage their descendants’ future by building a high level nuclear dump in order to make ends meet. The alleged riches that the dump has been claimed to bring are a mirage, but the long-term risks are not.
As the royal commission’s report itself says: “A person standing one metre from an unshielded used fuel assembly would receive a lethal dose of radiation in a few seconds… used fuel requires isolation and containment from the environment for at least 100,000 years.”
This is safe? I don’t think so.
Richard Blandy is an Adjunct Professor in the Business School at the University of South Australia and a weekly contributor to InDaily.Jump to next article