Italy's Nuclear Job

Friday, May 30, 2008

The Italian government, whose public debt of €1.624 trillion is already the world's third largest, seems eager to dig deeper. Last week, recently re-elected Prime Minister Silvio Berlusconi made good on his campaign pledge to recommit Italy to nuclear power. This seemed just the thing to address the country's rising oil and gas prices and growing French electricity imports -- except for one thing: Mr. Berlusconi's promised nuclear power plants are unlikely to ever be built.

Why? Three reasons: skyrocketing construction costs; projected build times of one to two decades; and no identifiable Italian community willing to see a nuclear reactor built in their neighborhood.

Are these dour antinuclear projections coming from the greens? No, just the opposite. The latest industry estimate from E.On, a German energy giant working on a large nuclear power plant in Finland, puts the construction cost at €6 billion per plant. Florida Power and Light, a major U.S. electrical utility, came up with a similar number. That's easily 10 times the construction cost of a modern gas-fired plant yielding the same amount of energy. These numbers, it should be noted, only cover the plant's construction, not nuclear waste management or plant operating expenses.

As Italy's premier from 2001 to 2006, Mr. Berlusconi spent lavishly on public projects and repeatedly failed to meet European Union budget targets. He now claims he will show financial restraint.

Yet the managing director of Enel, the government-backed firm most likely to build and operate the proposed reactors, last week cryptically warned that in order to proceed, his firm would need "new regulation and strong agreement on the plan within the country" -- i.e., government guarantees, credits and subsidies.

It might be argued that some deficit spending now will eventually pay off. In the case of nuclear power in Italy, though, the odds are low. Why? Because it will take decades to find out. Italy has not operated or built a nuclear power plant since it shut them all down after the Chernobyl accident of 1987. This hardly augers well for getting any nuclear program off the ground quickly or for operating them without incident.

Nuclear enthusiasts gloss over this. Just last week, Economic Development Minister Claudio Scajola told the Italian employers' federation Confindustria that the Italian government would lay the first construction stone for a new generation reactor within five years. This sounds pretty good. Enel officials, though, were a bit more cautious. They noted that it would take "seven to 10 years" before they could actually bring a reactor on line. Their key Italian competitor, Edison SPA, was more cautious still. It warned that "the first station would have trouble becoming operational before 2020."

Finally, Italy's nuclear critics were openly skeptical. The fourth-generation reactor that the Italian government has pledged to build has not yet even been fully designed and thus could take 20 to 25 years to bring on line. Bottom line: Italian nuclear reactors won't be much of an answer to any energy problem Italy will be facing for at least a decade or more. What energy supplies and demand will be 10 to 20 years from now, as well as what energy will cost, is anybody's guess. Certainly, Mr. Berlusconi and his government will be long gone by then. On the other hand, the high costs and political opposition to any specific nuclear construction site will be politically significant and immediate.

Why, then, did Mr. Berlusconi make the nuclear announcement now? Like the reduction of taxes on gasoline and diesel -- which Rome also announced last week -- it makes the government look like it is doing something about rising oil and gas prices.

Energy experts, though, suspect something a bit more sinister. The announcement could be part of a long-term effort by the largest European utilities to push out smaller competitors by arranging massive government support for large, expensive nuclear power programs. Italians and Europeans can only hope that this speculation is simply wrong.

The EU is supposed to encourage competition and the elimination of government subsidies in the energy sector. It's never had an easy time promoting this. France indirectly subsidizes its nuclear program heavily. German supports for coal are just as well-known. Germany's and France's subsidies of the Finish reactor project that AREVA and Siemens are building, meanwhile, were recently upheld by the European Commission against several complaints.

The worry is that the EU may end up repressing market competition in the energy sector at the very time Europe will need it the most. The EU, after all, claims it is dedicated to reducing carbon emissions. The key to this is increasing efficiencies to reduce overall energy demand and bringing on the most cost-effective of energy technologies. No amount of planning can determine in advance how to do this while reducing carbon emissions in the cheapest and quickest fashion. Instead, the effective enforcement of market mechanisms is Europe's best hope to guide it through the thicket of decisions -- such as choosing between centralized and distributed electrical systems, new versus old technologies, different sources of natural gas, etc.

It's conceivable that such a competition might favor nuclear power in the future. However, given the EU's projected shutdown of 145 reactors in the next 17 years, the likelihood of any net growth in nuclear capacity in the EU will, at best, be many decades away. In the meantime, Italy and Europe would be wise to stay away from energy investments that no private bank would make without government support. For the moment, that would have to include nuclear.

By HENRY SOKOLSKI. Mr. Sokolski is the executive director of the Nonproliferation Policy Education Center, a nonprofit research organization in Washington, D.C., and editor of "Falling Behind: International Scrutiny of the Peaceful Atom" (Strategic Studies Institute, 2008).

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