See my thoughts on the economic impact of Swiss nuclear phaseout in today’s Wall Street Journal.
Nuclear Exit Comes With Costs
Switzerland’s Reliance on Reactors Means Switch to Other Sources Will Be Expensive
By GORAN MIJUK
ZURICH—Going green isn’t cheap, as Switzerland is about to discover.
Earlier this year, in the wake of the meltdown at the Fukushima nuclear plant in Japan in March, the Swiss government and parliament decided to get out of nuclear-power generation by 2034.
Switzerland has been a net exporter of electricity during the past few decades, profiting from the production of cheap nuclear energy and huge hydropower reserves. This has helped it build a strong machinery and engineering industry, nursing industry giants such as ABB Ltd and Sulzer AG, which benefited from stable and reliable electricity supplies.
But since the country’s five nuclear-power plants generate about 40% of its electricity, the switch-over to other forms of power generation is going to be costly.
“According to our initial estimates, we expect investments of some 100 billion Swiss francs ($108 billion) to replace the reactors,” says Sabine von Stockar from Energiestiftung Schweiz, a renewable-energy think tank. This, Ms. von Stockar says, doesn’t include the cost of dismantling the plants, which she expects could reach 1 billion francs to 5 billion francs for a single reactor, depending on its size and age.
The Swiss Federal Office of Energy puts the cost of dismantling the reactors and disposing of nuclear waste at around 20 billion francs. Swiss consultancies Infras and TNC Consulting, which conducted a study on behalf of environmental groups such as Greenpeace, expect investment of around 65 billion francs to be needed by 2035. The Infras and TNC estimate doesn’t include the cost of decommissioning the reactors.
The Swiss decision came in response to rising popular fears about nuclear energy following Fukushima. While Swiss lawmakers have kept the door open to re-introducing nuclear power if the technology can be made safer, environmental groups have lauded the move and believe the phase-out can be managed without jeopardizing the economy. But utilities, business groups and economists fear the switchover risks curbing growth.
“Phasing out nuclear power in Switzerland will have harsh consequences for economic and job growth due to the very likely large increase in electricity prices,” says Margo Thorning, chief economist at the American Council for Capital Formation, a U.S. think tank.
Because of the high proportion of Switzerland’s power derived from nuclear generation, Ms. Thorning expects the economic impact to be deeper than in Germany, where nuclear energy makes up only some 25% of the country’s electricity mix and which had also announced a withdrawal from nuclear power in the wake of Fukushima.
Felix Brill, an economist at Zurich-based consultancy Wellershoff & Partner, says, “It is difficult to assess the economic impact of a phase-out because of the many long-term legal and technical variables.” But some researchers have come up with estimates. A study conducted by the Centre for European Economic Research, a state-funded German consultancy, found that a comparatively fast phase-out over 20 years could dent Switzerland’s gross domestic product. The consultancy calculated that should reactors go offline in suc
h a short time-frame, GDP growth could be slowed by 0.4 percentage point a year for a period of more than 30 years because of higher electricity prices. A researcher at ETH Zurich, Switzerland’s leading technology university, calculated that electricity prices could rise some 77% within the next 15 years if nuclear energy is replaced by renewable energy sources.
Environmentalists, however, expect price increases to be digestible. Stefan Batzli, head of the Swiss non-profit Agency for Renewable Energy and Energy Efficiency, says the country can produce all of its electricity needs from renewable sources by 2030, with the bulk stemming from hydropower, followed by solar and wind energy, part of which will have to be imported. But to achieve this goal, consumers need to reduce consumption by some 15%, something he expects can be achieved by using the most energy-efficient electric devices. “The U-turn will cost money. But it is worthwhile as Switzerland will become less dependent on other countries,” Mr. Batzli says.
Others even expect a boom for renewable energy firms that offer efficient electricity solutions. A study by consultancy McKinsey found that Switzerland could create some 16,000 new jobs in the sector, which on a global scale is expected to attract investments of some 540 billion francs by 2020. Engineering giant ABB has already moved deep into the field. “These factors create opportunities for us to supply more intelligent products and systems,” says Peter Leupp, head of ABB’s power systems division.
Large Swiss power utilities, which produce and distribute electricity, such as Axpo Holding AG, which, until this summer, were working on plans to build new nuclear facilities, disagree with this view. They warn that Switzerland’s energy security is at stake and that the country could face power bottlenecks that may lead to price rises and business interruption. Axpo Chief Executive Heinz Karrer has repeatedly warned that “Switzerland’s energy independence is at risk and that the government’s decision will bring high costs for citizens.”
Alpiq Holding AG, the country’s largest utility, which runs the Gösgen nuclear plant and has a sizeable stake in another nuclear power station, is preparing for a worst-case scenario. Just weeks after the government decided to discontinue nuclear power, the company embarked on a hefty restructuring and warned in October it will post a net loss this year because of heavy asset impairments. In September, Alpiq started a search for a new chief executive. Analysts expect a renewable-energy specialist to replace current interim CEO Hans Schweickardt in the next few months.
Competitor Axpo, the second-largest utility, which is currently hammering out a new business plan for the post-nuclear era that is likely to include massive cost cuts, is embracing the change too. Reflecting the new reality, the state-owned utility elected Martin Graf, a vehement anti-nuclear politician, to join its board, where he will represent the Zurich government, which holds a stake in the firm. “I am personally convinced, that Switzerland can survive without nuclear power,” Mr. Graf says. “In fact I am sure it will thrive with a purely renewable strategy.”
But the task of revamping Switzerland’s energy landscape is gargantuan even though 60% of the country’s energy production already comes from renewable hydropower sources. Wind and solar energy currently contribute only 0.2% of Switzerland’s energy consumption, while electricity from biogas and wood makes up about 1.9%. Several efforts to use geothermal energy, in which deep holes are drilled into the ground to tap underground heat, failed because of earth tremors or lack of the underground water that is needed to keep facilities running profitably. Likewise, efforts to upgrade several hydropower stations to produce more electricity have failed because of environmental concerns.
For this reason, Switzerland may have to compromise and stretch out the decommissioning phase for its nuclear plants to 2050, and also use carbon-dioxide-emitting gas-powered facilities, energy firms and researchers say. Konstantinos Boulouchos, professor for energy technology at the ETH, says that in such circumstances a nuclear phase-out is “possible and economically supportable.” However, experts warn that much will depend on the legal framework and subsidies, which the government has yet to hammer out.