Australia mines and exports uranium. However, so far Australia has rejected nuclear power inside its own borders.
A great deal of the debate about nuclear power in Australia during the month since the Coalition announced its plan to install nuclear reactors in seven states has been about cost. (The Liberal–National Coalition, commonly known simply as the Coalition or the LNP, is an alliance of center-right to right-wing political parties that forms one of the two major groupings in Australian federal politics.)
However, some things matter more to electricity users than the average price they pay for electricity. For big industrial consumers who either buy their power wholesale, or renegotiate their fixed-term price contracts frequently, it is critical that the wholesale price remains fairly steady.
Nuclear power plants produce power at a fairly steady pace. This leads to a more steady market price. Power systems built around wind and solar produce cheaper power. However, wind and solar have more uncertain output and much greater variability in price.
This greater variability can be reduced to some extent by adding storage such as pumped hydro and large-scale batteries. However, to the extent that it remains, uncertain prices make investments in power-hungry projects harder to justify. The bigger the uncertainty, the more investment moves to other firms, other less energy-intensive industries and other countries. This trend has been confirmed in a study of the behavior of thousands of Chinese firms between 2008 and 2018.
The preliminary results from a project using data from Queensland were presented during Australian Energy Week last month. These results suggest that higher volatility in wholesale electricity prices reduces the share price of listed firms in the metals and mining industries. Intraday price volatility has increased by a factor of two over the past five to ten years. This has cost the companies that suffered it five percent of their share market value.
The metals and mining industries are assessed at about twenty-seven billion dollars, meaning a five percent reduction in share price corresponds to fifty dollars each year.
Since nuclear power can generate electricity regardless of the weather or time of day, an advantage it has is lower price volatility. This can be seen by investigating what has happened in other countries when a sizeable proportion of the nuclear capacity has been taken offline. Here are two examples.
The first example is from Germany which shut down three nuclear reactors on December 31, 2021. This cut Germany's nuclear power capacity in half overnight. Shutting down the reactors pushed up price volatility by five percent to fifteen percent.
The second example is from France. There, stress corrosion cracking was discovered in several reactors and in April 2022, it had shut down twenty-eight of France's fifty-six reactors. This resulted in France experiencing a few extreme price spikes, which also drove up the volatility.
In nearby southern Sweden and Poland, price volatility fell ten percent to twenty five percent during the same period.
As wind and solar installations keep expanding across the globe, it is highly likely that electricity wholesale price volatility will climb further. If Australia continues to refuse nuclear power, it important to ask what else it can do to keep price volatility in check.