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Brazil and the Iran nuclear deal

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You should not evaluate the Iran nuclear deal without reference to data like these:

  • Price paid by Brazil for utility solar power in the October 2014 auction : R$ 215.12 per megawatt-hour  = $68.38 at current exchange rates;
  • Price paid by Brazil for wind power in the April 2015 auction:  R$177.47 per MWh = $56.41.

Why pick Brazil? Recent deals have been struck elsewhere at much lower prices. A company controlled by Warren Buffett has signed a 20-year solar PPA in Nevada for $38.7/MWh, beating the previous record for a plant in Dubai signed in January for $59.8/MWh  (the Nevada deal includes the ITC tax break, worth at most $20/MWH). The LLNL reports that prices for wind PPAs in the US interior in 2013 averaged $25/MWh, again with a tax break, taking the pre-tax price up to about $40. There’s no reason to think that wind prices have risen since.

Iran is unlikely to get these best prices, the fruit of deep and efficient markets. Brazil is medium inefficient and medium protectionist, with stiff local content conditions for getting low-interest finance from the state investment bank BNDES. It has developed an extensive supply chain in wind, but not yet in solar. It’s reasonable to think that Iran could get similar prices to Brazil for an extensive wind and/or solar programme. It should also look at Mexico, Turkey, India and Thailand for realistic benchmarks.

The point is that Iran has absolutely no hope of getting remotely similar prices for civilian nuclear power. You may say: ah, the Iranian nuclear enrichment programme is really aimed at nuclear weapons, not civilian reactors. But it is being advertised by the government, and sold to the Iranian people, as a peaceful civilian one.

But as such it’s a huge waste of money. The output of the prospective Hinkley C EPR in Britain is now advertised at £92.50/MW at 2012 prices, indexed, plus other valuable guarantees. In the USA, the EIA, wearing rosy spectacles, cites an LCOE for new nuclear of $86.1 per MWh; but the schedule and construction costs of Vogtle 3 and 4, with the more buildable AP-1000 design, are slipping badly. An honest nuclear LCOE, based on real not paper construction experience, must now be well north of $100/MWh.

With every year that passes, this gap will become more and more obvious to the Iranians. At the ten-year horizon for new civilian power plants, Iran can meet its electricity needs from wind and solar (with natural gas and hydro for backup) at probably half the cost and at much less risk. On a five-year horizon, the nuclear option does not exist at all.

An expenses-paid trip by Buffett to Tehran would be a good investment by Kerry. Moniz was invaluable in the negotiations as a card-carrying nuclear physicist, but by the same token he’s part of the dwindling club of pro-nuclear old-timers, which Buffett is not.

 
(Recycling a post from 2012, but why not? It still makes sense to me.)

Comments

    • The British government screws up. What's new? Constant changes in policy virtually guarantee foul-ups and high costs. Besides, policy favours solar – inherently rather inefficient in northerly and cloudy Britain – and discourages onshore wind for NIMBY reasons, except in bonny Scotland. The UK overpays for offshore wind compared to Denmark and Germany. Iran's insolation is twice Britain’s, and on a par with Nevada and Brazil’s Nordeste.
      SolarGIS-Solar-map-World-map-en

    • And Hinkley Point C is expected to cost £24.5 billion, including an £8 billion or so cost overrun already, and possibly violating EU rules on state aid.

      The problem is that moving away from fossil fuels is expensive (at least in terms of upfront costs), no matter how you cut it. Coal is, quite literally, dirt cheap.

      • Lazards' 2014 chart of unsubsidized LCOEs in the US gives a range of $66 – $151 per MWh for new coal, well above wind at $37 – $81 and comparable to utility solar at $60 – $86. The "dirt cheap" paradigm is no longer true for new coal. It remains true for old amortised plants – which is why the EPA regulations, in effect forcing them to pay a part of their huge externalities, are essential.

  2. James,

    It is not clear to me what conclusion you are drawing.

    Is it that:

    1. Iran must be more interested in weapons than in civilian nuclear power.

    2. Iran is simply being foolish by pursuing civilian nuclear power.

    3. Iran has been foolish not to give up its nuclear program long ago in exchange for relief from sanctions, since that program has no real value.

    4. Something else.

  3. I follow the CW that the enrichment programme has a primarily military-diplomatic purpose, as a threat to or deterrent of Israel. My take was perhaps explained better in the earlier, longer post. Independently of what you think about Iran's nuclear weapons, the civilian goal or pretext is the soft underbelly of the project. Civilian nuclear power makes less and less sense economically as time goes on and renewables get ever cheaper, and nuclear more expensive. It therefore looks a Clever Plan for those trying to stop the military nuclear programme to try to undermine the civilian one, using knockdown and quite objective economic arguments. In time this will weaken popular as well as technocratic support for enrichment. Iran is not a full democracy, but public opinion and elections do matter.

  4. My take is that assertion of their rights under the NPT (a peaceful nuclear program, some enrichment, nuclear research) has become a touchstone of sovereignty for almost all Iranians. Given that the US and others have developed a collective hysteria about an Iranian weapons program, it has then become a useful tool with which to pry other recognitions of Iranian sovereignty (eg sanctions, taking war talk off the table). In both, the Iranians have pretty much succeeded. So they are now free to turn to solar. But they will keep the civil nuclear program as a badge of pride.

    This only makes sense if you see it through Iranian eyes – the rightful bearers of an ancient high civilisation robbed, occupied and jailed for demanding their rightful place. Think China and Unequal Treaties.

  5. Hong Kong utility China Light & Power says their nuclear power cost HK 47 c/kWh (~USD $60.64 MWh) in November 2013.

  6. Late to the game and nothing to add, except for this: I understand moderating comments is a chore, but comments are one of the joys of this site, along with James' and Keiths' thoughts. Thank you.

    Best,

    D