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16 March 2017, Gateway House

Nuclear energy hurting balance sheets

Japanese technology giant Toshiba is sinking into a financial morass due to its near bankrupt nuclear power business, Westinghouse. India must recognise the new reality that nuclear energy is no longer financially viable

Fellow, Energy & Environment Studies Programme

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Nuclear energy may end up fatally contaminating the Japanese technology giant Toshiba. On  14 March 2017, Japanese stock exchanges designated Toshiba shares ‘Securities under Supervision’ for inappropriate accounting in the past. The ‘inappropriate accounting’ refers to the 713 billion Yen ($6.2 billion) goodwill impairment for its U.S. subsidiary, Westinghouse, which hopes to build nuclear power plants in India.

Interestingly for India, Westinghouse’s losses are because of cost and time overruns on the nuclear reactors that the company is currently building in the U.S. Toshiba is yet to decide whether Westinghouse should go into Chapter 11 bankruptcy. In anticipation of this financial hit, Toshiba has decided to sell its profitable memory chip business.

Toshiba/Westinghouse isn’t the only nuclear technology company in a financial pit. Areva, a French company,is struggling too, and after years of losses in its nuclear business, it is hoping for a bail-out by its parent government. Here too, one of the problems has been cost and time overruns on power plants that it is building.

The troubles beleaguering  Toshiba and Areva should be a warning to India.

Gateway House has, in the past, pointed out the financial hazards of importing nuclear reactors. The cost of reactors that Westinghouse is building in the U.S. works out to $6 million per megawatt of capacity – against $3 million per megawatt for Russian reactors, and $2 million per megawatt for India’s indigenous designs

India is currently building two new nuclear reactors at Kudankulam (units 3 and 4), which will supply electricity at a cost of Rs 6.3 per unit, if they are completed on time, at cost. Past experience suggests this is unlikely: Units 1 and 2 took 14-15 years, double the time that was originally budgeted. These higher capital costs from Westinghouse’s technology means  electricity from it will cost even more than power generated from Russian units–possibly in double digits.

Meanwhile, there are cheaper and safer options available. In late February, four different developers in India offered to set up a combined 1,000 megawatts of wind farms, which will sell electricity at only Rs 3.46 per unit.  Barely a month prior to this, three other companies offered to set up a combined 750 megawatts of solar power capacity to supply electricity at Rs 3.3 per unit.

Unlike nuclear power plants, which can take over a decade to build, renewable energy projects can start generating power in less than 12-18 months because they are modular. They can start generating electricity and providing returns in phases. A nuclear plant doesn’t generate a single unit of electricity till it is 100% complete; it takes several months to ‘attain criticality’ and  supply stable power to the grid.

India currently gets 7% of its electricity from renewable energy–twice of what nuclear power provides. With new renewable capacity being added every month, this gap is only going to increase.

Setting aside sensitive issues of nuclear liability, renewable energy has already won the financial argument against nuclear power as a credible alternative to coal. The markets have spoken and the investors have made their intentions known. It is time that Indian policy makers and  those in the West accept this new reality and stop promoting expensive, risky technology.

Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.

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