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The Nuclear Dog Whistle.

Fair warning, this article is more political than we usually like to be at Infradebt – but that is unavoidable because a return to the climate wars is the real issue at hand. The ‘Nuclear’ announcement is not about a technology, it’s not about climate change or some vision for the future, the LNP nuclear policy is about winning the federal election next year.


Much ink has been spilt on the Coalition’s recent announcement of their intention to build seven nuclear power stations across the country.    The Coalition has also stated that, whilst committed to the 2050 net zero goals, they may step back from commitments to hit 43% emission reductions since 2005 by 2030 – as much of this reduction relies on decarbonising the electricity sector.


Many, far more informed people than myself, have done the analysis on nuclear as an option. They’ve discussed the merits from the perspective of the economics, the engineering, social and climate objectives.   You might be surprised to learn that Nuclear isn’t new in Australia – in the late 1960s the Federal Government started building a nuclear reactor in Jervis Bay.  Shortly after commencement of construction, following a change in Government, the Australian Treasury completed a cost analysis review and found that Nuclear was twice as expensive as coal. So the Government pulled the pin and abandoned construction – today it makes for a fantastic large beachside carpark. 

Australia’s Last Nuclear Powerplant

Source: Wikipedia


What I want to focus on is the investment environment in the short-medium term as a result of LNP nuclear policy initiative.   Being an investor in renewables is hard – just see this quote from the CEO of Neoen – a renewables developer who have financed more projects to date than most in Australia:


‘Mr Barbaro said returns for Neoen are typically in the “high single digits” – or low double digits for investors with less conservative assumptions – for projects that last 30 or 40 years. “This industry is certainly not for everyone, not for every investor – you need capital, you have returns that are not the highest.” AFR, 24 June 2024.


This quote certainly doesn’t surprise us. We’ve mentioned previously that much of the return (in NPV terms) that these projects expect to receive is in the back end of project lives (that is, in years 10-30).     Renewables investors are effectively taking a view on what will be the new entrant cost of technologies they’re competing against at each point in time over the life of their project.


If the Government of the day plans to build, on balance sheet, largely inflexible generators (this is what nuclear is) what you have is a large, price-incentive, generator entering the market to supply a significant amount of capacity sometime around 2035.    We actually have an indication of what such a generator looks like today – take the Victorian Electricity Grid for the last few months – brown coal generators cannot ramp up and down and so has to dispatch during the day to be available in the evening, so spot electricity prices regularly go negative during the middle of the day.

Source: NEM Review


So, moving back to the future (I’m showing my age), if I’m an investor and I’m relying on a certain energy price in years 15 plus of my project to deliver the required rate of return, how do I think about the potential for the entry of a large, price-incentive, inflexible generator entering the market and dispatching power at ‘low cost’? Why should I take the risk and invest today?


If the Coalition really wanted to implement a ‘firmed’ ‘reliable’ ‘emissions free’ energy solution they might have been better to point to Solar Thermal.  This is an established long duration technology (has anyone seen the movie Sahara?) and could be relatively quicky implemented relative to Nuclear and at a lower cost.

Levilised cost of electricity (LCOE)

 Source: CSIRO, GenCost 2023


My point is not to advocate or promote solar thermal, it’s to point out that the LNP nuclear policy is about not doing something today.


My thoughts – they will never build it.  They never intend to build it.  The point is not nuclear – the point is cost of living now, today. That’s the ‘dog whistle’.   They’ll centre the argument on energy bills implying that the rollout of renewables is the cause of price increases (narrator – it’s not).    The central narrative is that the cost of living is the fault of the current government, that socially progressive policies like the 82% target are the cause, that the solution is actually to do nothing today, for Australia to walk back on its CO2 reduction targets, to focus on something in the future that will never happen.  This will likely resonate – we wrote about inflation and the cost of toll roads last quarter, this quarter the villain for cost of living is renewables.  Nuclear won’t fix it – but it was never supposed to – the key is to get you to focus on the cost of living. 


And it may just well work……


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