The Hidden Cost Factor

By whittling down the costs of handling radioactive wastes in a nuclear power plant, NPC is distorting the actual tariff structure, and desirability, of such units.

Costing exercises of power projects usually focus around capital costs. A project is considered viable if its capital costs compare favourably with other options.

By that yardstick, nuclear power may not compare too unfavourably against thermal or hydel projects. According to Nuclear Power Corporation (NPC), a government of India enterprise that builds and runs nuclear plants in the country, the base cost per megawatt for nuclear power today is Rs 4.5-5, crore though Crisil estimates put it closer to Rs 6.5 crore. The figure for a thermal plant would typically around Rs 4 crore.

 

Its not these differences that are important, however. What is crucial is that in nuclear power stations, there is an aspect to its operational costs which has almost been ignored. And this is one aspect that would make a significant difference to the cost of electricity generated from nuclear power.

The storage and disposal of radioactive wastes from nuclear plants is an expensive process. So far, these costs have been grossly understated in the costing structure drawn up by NPC. The company does not provide the relevant data, and so, many costing studies undertaken in the past have either been forced to ignore these costs, or they have had to go along with the figures supplied by the Department of Atomic Energy and NPC.

Today, nuclear power is in vogue again in India. The government is inviting private investors to set up nuclear power plants in the country. The local authority, NPC, is lining up massive investments, targeting an installed capacity of 20,000 Mwe (megawatt-electrical) by 2020, as compared to the existing capacity of 1540 MWe today.But before committing massive investments to nuclear power projects, the true costs of nuclear power should at least be understood. This can only be done by mapping out the existing tariff and cost structure of nuclear plants in India, and estimating the additional, hidden costs that have to be factored into any realistic tariff model for nuclear power.

The benchmark for these calculations has been cost estimates worked out in Western countries. One fact that has to be kept in mind is that waste disposal costs vary a lot depending on the capacity and type of nuclear plant. Even so, it is possible to at least work out the magnitiude of such costs. So far, there have been no figures on this, whatsoever.

And working with extremely conservative estimates shows that proper accounting for waste disposal costs would add more than 15 per cent more to the tariff rates.

Power mechanics

What are the mechanics adopted for the pricing of power in India?

Tariffs are worked out on a return on investment basis. After working out operational costs, and based on a negotiated rate of return on project costs with the Central Electric Authority, tariff rates are worked out for each power plant.

Ususally, power plants work with a two-part tariff structure. Thermal or hydel plants are shut down or switched on as the demand for power fluctuates. So, there is a component in the tariff structure to enable recovery of certain fixed costs. Of course, the variable realisation depends on the power generated.

The dynamics of nuclear power generation, on the other hand, is a little different. The technology does not allow power generation to be reduced or increased as peak demand changes. So, these plants meet only the base load requirements of the grid. Nuclear power stations, therefore, work with a single part tariff.

In any case, the objective of any pricing model is to recover all operational costs while ensuring an adequate rate of return on investment costs.

Until recently, the pricing for nuclear power stations was done on the basis of the following parameters - fuel consumption, heavy water, operations & maintenance(O&M), depreciation and decommissioning charges. To these charges, a 12 per cent return on capital employed was further loaded to recover project costs. As a result, tariff rates for an older plant like Tarapur worked out to Rs 1.01 per unit of electricity sold, and for new plants like Kakrapar, it was Rs 2.37 per unit. (These are early 1995 figures.)

Last year, some tariff revisions were made. Inventory costs for fuel and heavy water for six months, and an R&D levy has also been loaded into the tariff model. And the returns are now computed on equity rather than on capital employed - a 12 per cent return for older plants (Tarapur, Madras and Rajasthan), and 16 per cent for Narora, Kakrapar and upcoming power plants.

The net result has been an upward revision of 20 per cent in the tariffs of the western region, 28 in the case of the northern region, and 65 per cent in tariffs in the southern region of the country. While these escalations reflect the cost of nuclear power generation more accurately, it is still not quite apparent where the allocations towards waste storage and disposal have been made.

Where are these costs reflected, really?

The practice

The process of waste handling has two elements. First, the spent fuel and other radioactive waste is put in temporary storage facilties, and at a later date, which could be several decades, a permanent disposal process is carried out. So far, nowhere in the world has this been attempted. One has to, therefore, look at two things. One, whether the temporary storage costs have been properly accounted for. And two, whether an adequate cost provision has been built into the system for eventual disposal of waste.

On both counts, the manner in which these solutions have been attempted have been far from satisfactory. As far as temporary storage costs are concerned, Y.S.R. Prasad, member, Atomic Energy Commission, and managing director, NPC contends: "The cost towards handling and disposal of wastes generated at each station is accounted for in the operating cost and built into tariff charges."

According to R.K. Pachauri, director, Tata Energy Research Institute, who was part of a Department of Atomic Energy- constituted committee to evaluate nuclear power costs, these temporary storage costs are supposedly clubbed under O&M charges, which is roughly 10 per cent of the total cost. NPC has so far refused to divulge figures on actual costs towards storage of waste to anyone.

As for the costs towards permanent waste disposal are concerned, M.R. Srinivasan, member, Planning Commission, and former chairman, Atomic Energy Commission, points out that costs for a permanent disposal of waste can be recovered by offsetting plutonium credit with reprocessing and waste disposal costs. Which is to say that NPC, very conveniently, equates the value of plutonium separated from spent fuel to disposal and reprocessing costs.

In fact,commenting on this practice, a Public Accounts

Committee report in the late eighties had noted: "It is financially improper not to include the waste fuel costs in computing power tariff on the basis of certain assumptions."

Not only is it improper, some of the cost assumptions are also not quite correct. For instance, in 1983, DAE had estimated reprocessing costs at Rs 1800 per kilowatt of installed capacity. Compare this with the lowest estimated cost in US during the same period: $1300, or Rs 16,000 (calculated according to the then prevailing dollar rates.)

And are we anywhere near to actually using reprocessed plutonium? Today, there is just one experimental fast breeder reactor at Kalpakkam. And as for the amount of reprocessed plutonium being used as fuel, last year it accounted for less than 5 per cent of the total fuel requirements at the Tarapur plant. When these plants do start reprocessing spent fuel and it is not clear that they will only then should NPC assign a value to plutonium.

Even then, it is not correct to simply equate the value of this reprocessed fuel against all possible costs to be incurred for reprocessing and permanent disposal of highly radioactive waste. There are instances elsewhere where these costs are separately factored into the tariff rates. In Canada, nuclear stations make provisions for spent fuel long term storage and disposal during the plant's service life

Unsettling conclusions

So, what are the cost allocations should be made towards waste disposal? The most conservative cost estimates in USA today project a waste disposal cost of 1 to 1.5 per cent per unit of nuclear energy generated. This would mean an additional provisioning of 35-36 paise in the existing tariff rates of nuclear plants in India. According to some CRISIL estimates, the O&M charges, which account for waste handling costs, is only five paise per unit.

The implications are unsettling. With an upward revision of more than 15 per cent in tariffs, the case for nuclear power may not be as strong as assumed. A proper cost allocation for waste disposal would mean that tariffs from new and upcoming nuclear plants would be upwards of Rs 2.70 per unit. Compare this with rates from thermal stations which range from Rs 2-2.20 per unit.

Another issue of contention could be decommissioning costs. The world over, estimates for decommissioning costs vary tremendously, from $200,000 dollars to $5,000,000 per megawatt. Though NPC charges a flat levy of two paise per unit, it is difficult to estimate whether this is adequate to meet those costs. The Tarapur plant, and two units at Rajasthan and Madras plants can be expected to come up for decommissioning within the next decade. This could skew the costing structure even further.

Isn't it time that the nuclear establishment in the country is asked to come clean with proper costing estimates for generating electricity from nuclear energy?

But before committing massive investments to nuclear power projects, the true costs of nuclear power should at least be understood.