The Economic Toll of Nuclear Meltdowns

So many people were hurt by and in the aftermath of the mega-quake-tsunami-meltdown disaster that devastated Japan in March. Whole towns were destroyed and some now perpetually unlivable. People were drowned and crushed to death. There are workers and nearby residents from the Fukushima-Daiichi reactors – now passed Chernobyl as the greatest nuclear power plant disaster in recorded history – who are just waiting to die painfully and slowly from radiation exposure. Power shortages and economic chaos have resulted in work flow stoppages, inconvenience and reduced productivity all across Japan… that drew 30% of its electrical power from nuclear generating plants before the meltdown.

But that is the obvious damage that has lingered in the headlines; the underlying economic institutions that have to deal with and pay for the destruction are providing strong suggestions that even developed nations are simply unprepared and unable to deal with the hard dollar costs that follow. On April 4^th, UBS issued a report with this caveat: “At Fukushima, four reactors have been out of control for weeks -- casting doubt on whether even an advanced economy can master nuclear safety.” Who pays for the aftermath? Can anybody really afford the real cost?

That the company that would carry the responsibility for compensating those damaged by the under-designed power plant is facing bankruptcy might threaten the economic sanctity that victims might have otherwise expected. The April 8^th theDeal.com explains: “Tokyo Electric Power Co., the operator of the stricken plants, has been crippled by the event. Shares in Tepco have plunged almost 80% since the crisis unfolded on March 11. The company's debt rating has been slashed as reports of negligence, and thus potential culpability, have emerged… Liabilities of as much as ¥11 trillion ($133 billion), temporary nationalization and possible bankruptcy await Japan's biggest utility if the disaster isn't contained within two years, says Bank of Amer ica Merrill Lynch's Tokyo-based analyst Yusuke Ueda.”

Basic economic principals are changing the landscape as well. Uranium futures fell, and at least one large deal, between an Australian-owned Tanzanian uranium mining company and Russia’s state owned power agency recorded a 12% price-reduction in an existing agreement. But clearly, the cost of building nuclear power plants has to rise simply because there will be new standards and back-up requirements imposed on new facilities, with an expectation that much of this will fall onto existing plants as well. To those in the nuclear power business, they envision politicians demanding stricter standards that are optically appealing to the electorate that are viewed as unnecessary overkill. Countries that were emphasizing nuclear power are indeed looking at alternatives, and while solar and wind power are being developed, there is a vastly greater emphasis on coal and natural gas as a logical fallback. Fossil fuel with concomitant greenhouse risks.

The political backlash, however, is the driving concern from companies that build and operate nuclear facilities. Many believe that such pressures will simply price the nuclear alternative out of the market until energy demands will force governments to lower their standards. Not a good scenario any way you look at it. Germany, a densely populated nation with a vast array of nuclear facilities, is the most obvious case of political turmoil and the country (other than Japan) that has reacted at the most extreme level: “The German government of Angela Merkel, mindful of upcoming state elections and long-standing voter opposition to nuclear energy, suspended a decision to extend the life of 17 [nuclear] plants and ordered seven of them, built before 1980, to be closed for safety checks…. The move failed to save Merkel's coalition government from its own political upheaval. On March 27, voters in the southern state of Baden-Württemberg flocked to the Green Party, tripling its vote and handing it a role as a junior partner in a state coalition with the Social Democrat Party. Merkel's Christian Democratic Union found itself out of power in the state for the first time in 58 years.

“Germany ‘is clearly a country where the future of the nuclear industry is uncertain,’ says Damien Sauer, a partner at M&A adviser Greentech Capital Advisors Securities LLC and former head of M&A at Areva SA, a French maker of nuclear reactors. ‘But I don't think you will see that in many other countries.’… For the most part, the fear in the nuclear industry is not of government-mandated closures, but the likelihood of new and, as some see it, unnecessary safety requirements. These will inevitably add costs to nuclear utilities' operations, potentially making existing plants unprofitable and damaging the investment case for new operations.” theDeal.com.

Some nations, however, are undeterred. Perhaps because it is growing so rapidly or because the central government has both the willingness to take the risk and the resources to manage damage, China is currently constructing 27 new nuclear plants with 90 on the drawing boards. China is also willing to adopt new technologies at a fast clip, even where the techniques are not well-tested with years of online experience” “China is leading the world in the development of a new generation of pebble-bed reactor -- where fuel is stacked in tennis ball-sized spheres of graphite that lower the risk of meltdown -- and in smaller modular reactors, which can be built off-site and then deposited where needed.” theDeal.com.

We need electricity to fuel our lifestyles and to encourage economic growth, particularly in this post-recessionary world. We are witnessing all kinds of climate nasties, from fires raging from drought-stricken lands to powerful hurricanes to rising tides and flooding. We cannot tolerate to much more in greenhouse build-up.

I’m Peter Dekom, and there are no easy buttons, no clear near or medium-term solutions.