Why nuclear power plant are so expensive, especially in the West

An explanation for a lot of the reason for nuclear power’s high costs can be found in the so-called ‘Baumol effect’. This is named after a US economist who discussed how it is that some sectors of the economy do not improve their productivity, yet sell their services at increasing cost. This includes nuclear power because, as an industry that is, essentially, an exercise in large-scale construction, it does not improve its productivity. In fact, it has been dragged by the need to make it safer away from increases in productivity towards the opposite direction. It became more focused on achieving safety standards rather than improving production efficiency. There’s little potential for production efficiency anyway since it is based on steam generation technology which has long ago achieved all it can. All attempts to build nuclear power plant in the West this century, in the USA, France, Finland and now, it seems in the UK, have involved massive delays and cost overruns. But then large-scale construction projects of all types in the West often suffer the same fate.

Economist Andrew Sissons describes the Baumol effect (see HERE) thus:

‘when productivity rises in one part of the economy — often the manufacturing sector — wages rise in all parts of the economy, even in industries where productivity does not grow. This helps to explain why musicians, hairdressers, economists have seen their wages rise dramatically even if they produce no more output than they did 100 years ago’. He also lists construction as one of the areas where productivity has not risen.

In my book ‘Energy Revolutions’ (see HERE: Pluto Press, page 30), I talk about reasons why nuclear power is so expensive:

‘Among the problems facing efforts to develop new nuclear power plants, there are four big issues. First is the fact that nuclear power plant designers have incorporated safety features designed to minimise the consequences of nuclear accidents, but in doing so the plants have become much more complicated and difficult to build without great expense. A second reason is that large construction projects of whatever type, at least in the West, tend to greatly overrun their budgets.40 In the West, improvements in health and safety regulations to protect construction workers have no doubt played a part in this. A third factor is that, in the West at least, the cheap industrialised labour force that dominated the industrial economies of the past and which could be used to develop nuclear programmes (in the way that France did in the 1980s) has ceased to exist. A fourth factor is simply that renewable energy technologies, especially wind and solar power, can be largely manufactured offsite in a modular fashion and their costs have rapidly fallen, leaving nuclear power increasingly uncompetitive.’

The point, with respect to nuclear power, is that as other parts of the economy improve their productivity, the (massively) construction-based nuclear power becomes more and more expensive. Meanwhile, those energy technologies that have the benefit of improvements through manufacturing and a rapidly expanding market - such as solar pv and batteries - become relatively cheaper. Supporters of nuclear power will always claim that the next plant will be cheaper, but the reverse will happen - it becomes ever more expensive, a consequence of its stagnating productivity. It is claimed that nuclear plant outside the West are being delivered more cheaply. To the extent that might be true it is a simple reflection of the relatively lower wage levels, apart from anything else, in these countries. The cost will go upwards in these countries as wage levels rise.

Advocates of ‘small modular reactors’ get the benefit of wishful thinking that there will be an advance in productivity based on mass manufacturing. But there will be no mass manufacturing. Probably hardly any apart from, if they are lucky, single, demonstration plant heavily underwritten by the state.

The logic of the Baumol effect is indeed that nuclear power is on a path to oblivion through ever-rising costs.