You are here

Saudi Arabia's expensive quest for nuclear power

Nuclear Monitor Issue: 
M. V. Ramana and Ali Ahmad − Program on Science and Global Security, Princeton University

In the midst of all the news in recent weeks over the deal with Iran, it would have been easy to miss the news that another Middle Eastern state is moving towards acquiring its own nuclear reactors − Saudi Arabia.

In March 2015, following a meeting in Riyadh between South Korean president Park Guen­hye and Saudi's newly­crowned King Salman bin Abdulaziz al Saud, the Korea Atomic Energy Research Institute and Saudi Arabia's King Abdullah City for Atomic and Renewable Energy (KA­CARE) signed a memorandum of understanding to, inter alia, carry out a preliminary study to review the feasibility of constructing Korean Small Modular Reactors in Saudi Arabia.1 Later the same month, along with Argentina this time, Saudi Arabia set up a joint venture company to develop nuclear technology for Saudi Arabia's nuclear power program.2

Saudi Arabia has had a long-standing, although limited, interest in nuclear technology and these agreements are just the latest developments in that history. Other countries that have signed agreements with Saudi Arabia include France and China. Many more in the nuclear industry are hopeful of profiting from the Gulf country's interest. As Westinghouse chief executive Danny Roderick remarked in 2013, "We see Saudi Arabia as a good market for us."3

The stated arguments for nuclear construction are mostly familiar. As a royal decree from April 2010 put it in the case of Saudi Arabia: "The development of atomic energy is essential to meet the Kingdom's growing requirements for energy to generate electricity, produce desalinated water and reduce reliance on depleting hydrocarbon resources."4

Economic comparison

One further argument that is sometimes offered is economic competitiveness: as the President of KA-CARE stated in 2012, "nuclear energy is in many respects competitive with fossil fuels for electricity generation though the initial capital expenditure might be high."5

This is a somewhat strange argument to be making. Nuclear power has been struggling to compete in electricity markets around the world and it is hardly likely that in a country with no experience in building nuclear reactors, this world wide trend will suddenly be broken. Therefore, we decided to evaluate these arguments by examining the economics of nuclear power in the case of Saudi Arabia.6 Here we summarize our results.

We compared the electricity generation cost from nuclear reactors with three alternatives: natural gas based power plants, solar energy from photovoltaic cells and concentrated solar power stations. What we found was that unless natural gas prices rise dramatically, that would remain the cheapest source of electricity generation − nuclear electricity would be more than twice as expensive than that produced by gas. The reason is simple: the very high capital cost of constructing a nuclear reactor, typically running into several billions of dollars. For example, the latest estimate for one of the three ongoing projects in the United States, in which two new 1,117-MW reactors are being built near Jenkinsville, S.C., is $11 billion.7 Electricity from gas would continue to be cheaper even if a relatively high carbon cost (even above $150/ton-CO2 in some scenarios) were imposed.

This large cost difference also negates the oft-made point about the foregone opportunity cost that is said to result from Middle Eastern countries consuming their natural gas resources instead of exporting these. It turns out that when the costs of liquefying and shipping of natural gas are taken into account, a country like Saudi Arabia should be assured of prices well above the current and historical global average for decades before replacing a natural gas plant with a nuclear reactor becomes an economically sound choice. The downward pressure caused by U.S. shale gas expansion and the volatility of the natural gas market does not allow for reasonable confidence in such a high gas price − certainly not enough to sink in billions of dollars into nuclear reactors and natural gas liquefaction facilities.

But in the case of oil, our analysis showed that it does make economic sense to shut down oil based power plants and replace those with nuclear reactors − or natural gas. But Saudi policy makers may have already realized that and nearly 100 percent of installed capacity in recent years is based on natural gas.

Solar power

The surprising result that came out of our analysis was that solar technologies are very competitive with nuclear reactors. The key point is that it would take at least a decade, quite possibly more, for a country like Saudi Arabia to generate its first unit of nuclear electricity, even if the decision were to be made tomorrow, and solar photovoltaic and concentrated solar technologies have both been experiencing dramatic declines in prices.8 Based on current trends, the cost of electricity from solar plants would become cheaper than from nuclear plants around the end of this decade or soon after in areas like the Middle East with ample sunshine.

Nuclear reactors, in contrast, are not becoming cheaper. Some studies9 find evidence of "negative learning" wherein nuclear costs rise as more reactors are constructed.10 Past reactor construction projects have often taken longer and have cost more than initially projected; indeed, significant escalation can be taken as inevitable given the nuclear industry's tendency to under-estimate costs and construction times. The best recent example comes from Olkiluoto in Finland, where just the losses that Areva has accrued when compared to the initial contract price exceeds 5 billion euros.11 Commissioning of the reactor has been delayed by nearly a decade compared to initial projections.

The thirteen years or more that it could take to get the Olkiluoto plant to generate electricity is exceptionally long, but the average period it takes to construct a nuclear reactor anywhere in the world is about eight years. This does not include the time spent before construction on building infrastructure, regulatory activities, and so on. In general, one can assume that it would take a decade or even two for a nuclear plant to go from planning to commissioning.

Small modular reactors

The specific reactor design that was the subject of the recent agreement between Saudi Arabia and South Korea is called the SMART, one of the many designs that are called small modular reactors (SMRs). SMRs, with power outputs of less than 300 MWe, are being promoted by nuclear establishments in many countries.

The term small is used to indicate that the power level is much lower than the average power delivered by currently operating reactors. Modular means that the reactor is assembled from factory-fabricated parts or "modules". Each module represents a portion of the finished plant built in a factory and shipped to the reactor site. Modularity is also used to indicate the idea that rather than constructing one large reactor, the equivalent power output will be generated using multiple smaller reactors that allow for greater tailoring of generation capacity to demand.

SMRs such as the SMART are likely to be even more expensive ways of generating electricity than the large nuclear reactors being built today. Small nuclear reactors are cheaper in absolute terms, but they also generate less electricity. When the two factors − smaller overall cost and smaller generation capacity − are taken together, the cost per unit of electricity for small reactors generated turns out to be higher that for large reactors. This is why reactors became larger and larger over the 1960s to the 1980s/1990s. Thus, it seems likely that SMRs will lose out on the economies of scale that standard sized (roughly 1000 MW) reactors benefit from.

SMR proponents claim that because new reactor designs are different, the comparison with traditional reactor costs is invalid and the scaling law does not hold. They also claim that even if there are diseconomies of scale, these can be compensated by the economic advantages accruing from modular and factory construction, learning from replication, and co-siting of multiple reactors.12

Despite these claims, detailed and carefully conducted interviews showed that even experts drawn from, or closely associated with, the nuclear industry expect these reactors to cost more per kW of capacity than currently operating reactors.13 Therefore, if nuclear power based on large reactors is likely to be expensive, then electricity from the SMART project in Saudi Arabia will be even more non-competitive.

Unless, of course, there are large subsidies involved. In the case of South Korea's deal with the United Arab Emirates, South Korea seems to have subsidized the project substantially; some have estimated the deal with the UAE at being about 20 per cent beneath the industry average.14 Not surprisingly, the deal was criticized within South Korea as commercially weak and that future customers will demand similar terms.15

While there is a long history of systematic under-bidding in nuclear projects, especially in the case of countries with ambitious nuclear programs, this sort of subsidization can be done only for the first one or two projects, and cannot be the basis of a large-scale expansion of nuclear power in Saudi Arabia.

In addition to all the problems of nuclear power, solar power is also very appropriate to Saudi Arabia. There is substantial overlap between the electricity demand and solar insolation patterns16, and there will be little or no need for constructing expensive storage facilities to deal with the fact that the Sun doesn't shine at night.

In summary, the economic case for Saudi Arabia to build nuclear reactors is non-existent unless natural gas prices shoot up or there is some climate agreement that introduces very high carbon costs. To the extent that countries desire to move away from fossil fuels, switching to solar power makes much more financial sense, and one that might seem naturally suited to local conditions.

Now, if only some other Prime Minister or President were to make a visit to Saudi Arabia to meet with King Salman bin Abdulaziz al Saud and explain why solar power might be a better bet than nuclear reactors, small or large.