Title Standing Committee on the Environment and Energy
09/10/2019
Prerequisites for nuclear energy in Australia
Database House Committees
Date 09-10-2019
Source House of Reps
Parl No. 46
Committee Name Standing Committee on the Environment and Energy
Page 15
Questioner CHAIR
Phillips, Fiona, MP
Gillespie, David, MP
Pitt, Keith, MP
Steggall, Zali, MP
Zimmerman, Trent, MP
Responder Mr Pritchard
Prof. Wilson
Mr Irwin
Mr Hill
Mr Parker
Mr Marar
System Id committees/commrep/ddfef922-b8a8-4990-a181-b96cb466fed8/0002


Standing Committee on the Environment and Energy - 09/10/2019 - Prerequisites for nuclear energy in Australia

HILL, Mr Barrie, Associate, Nuclear for Climate Australia

IRWIN, Mr Tony, Technical Director, SMR Nuclear Technology Pty Ltd

MARAR, Mr Satyajeet, Director of Policy, Australian Taxpayers Alliance

PARKER, Mr Robert, Founder, Nuclear for Climate Australia

PRITCHARD, Mr Robert, Executive Director, Energy Policy Institute of Australia

WILSON, Professor Stephen, Board Member, Energy Policy Institute of Australia

CHAIR: I welcome representatives of Nuclear for Climate Australia, the Australian Taxpayers Alliance, SMR Nuclear Technology and the Energy Policy Institute of Australia to give evidence today. Although the committee does not require you to give evidence under oath, I should advise that this hearing is a legal proceeding of the parliament and therefore has the same standing as a proceeding of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now ask you to make some brief opening statements, either each of you or at least one person per organisation. Who would like to start?

Mr Pritchard : I am happy to start. I'd like to emphasise at the outset that Australia should be pursuing a vision of the future, and it should be using its brains and leveraging all of its natural resources to futureproof its power system, but it isn't. Australia has a double-barrelled energy security problem. Our first problem is that we import three times as much oil as we produce ourselves. An upheaval in the international oil market would disrupt our oil-dependent industries, including our transport and defence industries. Our second problem is one entirely of our own making: we've banned nuclear power generation, the only OECD country to do so. Our energy policy debate has become distorted by ignorance and histrionics. I therefore welcome this opportunity to appear before this inquiry for a sensible discussion. All of our generation options should be considered, including nuclear, which has an operating life of up to 80 years. Nuclear is the only zero-emissions option that does not depend on the weather. It's also the perfect partner for renewables.

Critics of nuclear are, however, running a scare campaign against nuclear and making false assertions. The first is the obsolete view that the Chernobyl disaster proved that nuclear power is unsafe. In 1996 the international Convention on Nuclear Safety was introduced following a review of the events of the Chernobyl disaster. It requires that countries that generate nuclear power should follow international best practice. International best practice is not something that is fixed in time; it's constantly evolving. And that's the requirement under the international convention. The convention is enforced in Australia by our nuclear regulator, ARPANSA, from whom the inquiry has already heard. Compare that with the 1.35 million deaths by motor vehicle accident that occur around the world each year, just to put it in some sort of perspective. That doesn't mean that our regulatory system can't be improved. There is a compelling argument that ARPANSA should be governed by a representative directorate instead of its CEO alone. The members of that directorate could include representatives of the states and territories, industry and the community. It's an issue that I'd warmly recommend that this inquiry consider. There's a second false assertion, that there is nowhere to store spent fuel. That's simply wrong. There are many sites available for underground storage. The third false assertion is that nuclear is too costly. However, modern small modular reactors are cheaper than traditional technology and are likely to be competitive in a properly functioning market. The fourth main false assertion is that nuclear takes too long to build. However, solving a long-term problem requires a long-term solution. The Snowy Hydro scheme took 25 years to build. It will take 10 years for an SMR, and an SMR will last for 60 to 80 years. I suggest that Australia should also look at China, which is now planning to build 290 new nuclear reactors by 2050.

Finally, what everyone might agree on instead of arguing about is that Australia should be pursuing a vision of its own future, creating a power system that is itself future proofed. At the same time, there should never be any compromise on safety, which is why I advocate a review of the ARPANSA directorate. Thank you.

CHAIR: Thank you, Mr Pritchard. Do you want to add anything, Mr Wilson?

Prof. Wilson : Yes, I'm happy to make a few comments. I am an energy economist, originally trained as an engineer, and I've worked as a consultant in over 25 countries, so my comments reflect that experience and background right across the energy value chain, from consumption to upstream resources. I thank the committee for the opportunity to appear.

We need to think about nuclear in the context of the market that we have, which I believe we are currently testing to destruction. Our national discussions on energy security are beginning to converge. We're thinking on national security more generally—energy security and national security. Our strategic policy friends often use the word 'doctrine'—Obama Doctrine, Bush Doctrine, Truman Doctrine and back to the Monroe Doctrine. It occurs to me that underneath what we call policy debates in Australia on energy security, affordability and sustainability the often repeated claim that Australia doesn't have an energy policy is really a national debate about a national energy doctrine. I'll come back to that in a minute. But what about nuclear power?

I said publicly last week that without nuclear power generation in the system I believe we'll find that it will be close to impossible to completely decarbonise the Australian economy, but I don't think we'll inevitably get nuclear power generation as a result of that.

There is a tangled undergrowth of popular myths about electricity. I mentioned some of those last week. Bob touched on a few just now, and I'd be happy to make my talk and slides available to the committee upon request. But this morning I think it's worth just touching on two of the popular myths and the uncomfortable realities that accompany them. The big myth is that governments simply need to enact an electricity law to create a well-designed electricity market based on a set of very detailed market rules, establish a market operator and some independent regulatory bodies—and we did all this years ago, and here's the myth—and then governments can just step back, and they'll never need to worry about electricity ever again. A parallel approach has been adopted for gas and, incidentally, for oil. If anyone believes the myth I ask them to show me a government that wins re-election after a major statewide blackout.

In the 1990s almost everybody believed the big myth. I would say that it was actually our settled national energy doctrine, but we just didn't call it that. Unbelievers were very rare. It may even have been a sound doctrine, but we'll never know if it was sound because it was soon undermined by the Renewable Energy Target. My public policy paper for EPIA published in February 2017 discussed that in more detail. But today it seems like almost nobody believes the big myth, but at the same time no-one seriously discusses our loss of faith in the market. In a formal sense our national energy doctrine, as I'm calling it here, remains deeply embodied in our laws and our energy institutions despite almost no-one believing it.

I think we need to resolve this dichotomy before we get down to the nitty-gritty of energy policy and how nuclear fits in. 'Says who?' is the big question—the market or the minister, some experts, a new central planner? I asked in November 2016 at the engineers conference: are we sleepwalking back to central planning? And the question remains. Those who profess full faith in the market seem to believe in a second myth that a price on carbon will elegantly solve all of our problems. It won't, and Jeffrey Ball showed that in Foreign Affairs last year. So I think it would be naive to think that governments in Australia can simply repeal the bans on nuclear power, which would be a great idea, reintroduce some form of carbon price and then expect nuclear power plants to appear. Embracing nuclear power will require a role for the government.

I'll just conclude with three vital points. The first is that we must never forget the basic engineering principle that electrical current must be produced to the millisecond at the moment of consumption, giving an exact balance between power supply and demand. Stable grids are based on that principle. Failure to achieve it leads to collapse and a system blackout. The second point is that we need to solve the investment problem in electricity markets, which was identified by Paul Joskow and Dick Schmalensee at MIT way back in 1983. They wrote that 'we doubt the ability of market prices to provide adequate guidance for investment decisions'. They recently said, 'Nobody else doubted that, really, for a while, but here we are.' I think in Australia we're in a worse place than the US.

Thirdly, I think nuclear power in Australia probably needs a social supermajority, and I think that will naturally lead to bipartisan support. I have a confession: I was quite antinuclear in my 20s. So people can change their minds. I see interesting signs of generational change among my students at the University of Queensland. So if this inquiry can clear the way for a well-informed, warm-hearted, cool-headed public discussion on the role of government in nuclear power and the role of nuclear power in Australia it will have done the country a great service.

CHAIR: Thank you, Professor.

Mr Irwin : Thank you for inviting me today. I'm a chartered engineer. I worked in the UK for 30 years operating large nuclear power plants. In 1999 I moved to Australia, joined ANSTO and was the first reactor manager for the commissioning and early operation of ANSTO's new OPAL reactor. I'm now a consultant and I'm an honorary associate professor at the ANU where I lecture in nuclear reactors and the nuclear fuel cycle.

SMR Nuclear Technology is an Australian consultancy established in 2012 to advise on the deployment of nuclear power, particularly SMRs, in Australia. We've monitored developments of SMRs worldwide for many years. Our first focus is always on safety. We look for a design that doesn't require external electrical supplies, water supplies or operator intervention and that would survive even a Fukushima-type situation. Following that we look for designs that are feasible and suitable for Australian conditions. This requires them to be reliable, flexible, have low emissions and be affordable. SMRs tick the boxes for reliability, flexibility and whole-of-life-cycle low emissions. So I suggest that the main question is: are they affordable? I'd be happy to answer questions on costs, and we've already started that discussion.

So what would we get with nuclear power in Australia? I think the first important one is that we would get energy security. It's normal for a nuclear power plant to keep a two-year fuel supply onsite. A couple of rooms this size would supply two years of fuel, so it's a very dense energy source. That is a fuel pellet. The fuel pellet is equal to a tonne of coal. Two of them would supply a whole household for a whole year. So it's a wonderful energy source, and it's the only low-emission source that's not weather dependent. We also get diversity. We can't rely on one energy source. We thought coal was the best mix, and it was until climate change came. We now think variable wind and solar is the best mix, but we're getting problems with intermittency. So I think we really need diversity. And we need reliability. It's more essential than in the past because we now are a completely electrical nation. We rely on electricity. What we saw in the UK recently and in South Australia is that if you get a grid failure, while you can restore the grid in a reasonable time, the knock-on effects for transport and people are really unacceptable. So reliability is becoming very, very important. You also get price stability, because the fuel is only a very small part of the ongoing costs, unlike something like gas.

You also get a very small environmental footprint. For the whole area, we're talking about 18 hectares for 720 megawatts for a small module reactor compared to 550 hectares for a small 150 megawatt solar plant—and material is a lot less. We've already heard that it's 10 times more for wind per megawatt than it is for nuclear. It's also a pathway to reductions in other areas. SMRs could produce direct process heat, so we wouldn't have to go through the electricity path; we could start decarbonising the rest of industry, which renewables can't do directly. Of course there's also transport. We've got to electrify transport, which is going to require more. Importantly, it would be a whole new industry for Australia. It would be a whole new area. It would mean new jobs, particularly for regional areas. There are examples worldwide of the economic benefits you get from having a nuclear power plant in your area.

Our submission has addressed each of the topics in your terms of reference, and we've suggested some of the necessary prerequisites. Thank you, and I'll be pleased to answer any questions.

CHAIR: Thank you, Mr Irwin. Do you want to add anything, Mr Hill?

Mr Hill : No. I emphasise that today I'm supporting Nuclear for Climate Australia, not my own submission. But I would add, for the benefit of the committee, that my path to nuclear energy started with the Australia-New Zealand team that went to the UK in the sixties to train in nuclear engineering. I was the youngest engineer there. I had the opportunity to design, construct and operate a small nuclear power station that we would see today as a modular, factory-built nuclear power station. In 1968, the Australian government decided not to go ahead with nuclear power, and I joined the Australian mining industry. Most of my work in the mining industry had to do with design and construction. It was very large-scale construction, but it was all based on economics, which I learned as part of my training in nuclear power. Just about all of our work started with engineering but was finalised by the economics of power plant design.

I recently retired as director of engineering for ANSTO. During the period I was there, we constructed the OPAL research reactor. I was not directly in control of that operation, but let's say I mentored the two project managers over that period and worked very closely with Tony on the commissioning and safety aspects. Subsequent to that, I was asked to establish Jacobs Australia, their commercial operations in Australia. They were previously in defence, but I started the commercial side. I have a big background in consulting on engineering as well.

CHAIR: Thank you, sir.

Mr Parker : I was a civil engineering project manager and consultant for 35 or 40 years. My general brief was to bring projects in on time and to budget, so I was very much what you'd call a business guy in civil engineering and construction. Then I moved into some of the larger hydropower projects in the world and dams internationally—dams such as Son La in Vietnam, which was a very large hydropower project. During this period—and it was about 14 years ago—I founded a climate change group in the Southern Highlands of New South Wales. Initially, I thought that intermittent renewables were the way to go, and I advocated for those within our community. As time went on and I understood more about energy and the provision of it, I felt that nuclear energy had a lot of merit. I went to the ANU and did a masters in nuclear science so that I had a better grounding in the technology if I was going to promote this.

The primary purpose of Nuclear for Climate Australia is not to be involved with nuclear as much as to address the issue of climate change. This requires a reduction in our economy-wide emissions of at least 90 per cent by 2050, which is why, in the previous testimony, I put out the pie chart.

Along the way, I've drawn inspiration from a number of people. One in particular is Dr James Hansen, who's often known as the 'grandfather of climate change science'. He was a director of NASA's Goddard space institute and is a professor at Columbia University. Last year, he stated:

A carbon fee is crucial, but not enough. Countries such as India and China need massive amounts of energy to raise living standards. The notion that renewable energies and batteries alone will provide all needed energy is fantastical. It is also a grotesque idea, because of the staggering environmental pollution from mining and material disposal, if all energy was derived from renewables and batteries. Worse, tricking the public to accept the fantasy of 100 percent renewables means that, in reality, fossil fuels reign and climate change grows.

So the search has been on for the most realistic means to build nuclear energy in Australia. Together with my colleagues, such as Mr Barrie Hill, we have examined programs in France and the United States, and with Dr Robert Barr and Barrie Hill we looked at North Asia and settled on the South Korean nuclear industry. South Korea has a record of building their plants on time and to the required price. We visited their industry last May. Mr Hill will describe more on that industry later on.

From that visit we arrived at a ballpark cost of A$6,200 per kilowatt, installed, which is in line with their established record. We incorporated that into the comparative model that we spoke about earlier. This model calculates the levelised cost of energy for each generation source, but, importantly, it then calculates the systemised levelised cost of energy for the whole NEM system. This incorporates costs from all generation sources, plus storage, devices and extra transmission costs above and beyond those required to supply a current, more compact system. It also calculates the carbon abatement cost of a generation mix from a base reference cost. Models were run for a range of scenarios involving various amounts of nuclear energy, renewables and fossil fuels. I might add that the most economic route we found was a mix of nuclear with solar PV through the day, and using pumped storage and hydro and a small amount of gas, and that got us down to 50 grams of carbon dioxide. In essence, we've found the systems based on renewables grew steadily more expensive than those incorporating nuclear energy as the emissions reductions intensified. We're not going exclusivity here; we're talking about trending of different generations through the mix. At 90 per cent renewables, the system cost was over three times higher than one which incorporated nuclear energy. The nuclear energy system has an emissions intensity of 50 g of carbon dioxide per kilowatt-hour, while those for the renewables were a bit higher. These results were in line with separate analyses carried out by OECD reports using researchers at MIT who looked at the Texas system.

Our key findings have been that, firstly, the current NEM pool prices support nuclear energy using one-gigawatt-size nuclear power plants at discount rates greater than six per cent. It is therefore suggested that the South Korean nuclear power plants be investigated in more detail on a government-to-government basis. Secondly, the OECD 2019 study concludes that the diversity of energy sources drives down total costs of energy in a low-carbon system, whereas taking options such as nuclear off the table creates extra costs to society. Thirdly, the impacts of decarbonisation targets on the optimal investment policies are not linear, and some targets may yield a share of a particular technology—for example, wind—that under more stringent targets may not be present in the optimal mix. It is therefore important that decarbonisation policies are not based on prespecified shares of low-carbon resources in the mix but rather achieving the end result of CO2 goals. Thank you.

CHAIR: Mr Marar.

Mr Marar : The Australian Taxpayers Alliance is a 75,000-member grassroots advocacy group fighting for taxpayers. Essentially, we'd like to see Australians keep a bit more of their own money and we'd like to see regulations on government policy in place that give taxpayers value for their money don't hold back the prosperity of our businesses and industry or our competitiveness. Our interest in this inquiry stems from three broad things. Firstly, we think it's fundamentally unconscionable that, when we have this resource available—uranium and thorium; we sell uranium to countries all over the world who benefit from it and use it for their civilian energy industry, but we ourselves are denied the use of our own resource, and that's fundamentally, in our view, quite unfair.

Separate to that, when electricity prices soar, as they have in the last 20 years ago, to a significant degree because of government interventions which have put in place some perverse incentives and pick winners by subsidising certain energy sources over others, that has led to the state of the grid that we have today, where prices are volatile and a lot of our base-load generation is being driven into premature retirement. That ultimately functions like a tax on jobs, on investment, and on pensioners, who have to turn their heating off in the middle of winter, and a lot of our members are quite upset by this. I think it's strange and unfair that in the United States the average family pays in their electricity bill half of what we pay and the average business pays about a third of what we end up paying in Australia. Of course that has implications for our manufacturing, for our industry and for our small businesses, especially with regard to jobs in the rural economy, for example. It makes us less competitive, and that's not correct.

It's our belief that tackling climate change and reducing emissions shouldn't have to clash with allowing people to maintain decent and good living standards. I think we've seen repeated federal and state elections where people have been moved by the idea that their energy bills might be driven up and their cost of living might go up significantly in response to dealing with a climate policy. But now we have in front of us one of many options—but certainly an option we should at least consider or have available on the table—that is able to satisfy a lot of the factors that other options aren't able to satisfy. You get reliable power. You get it cost effectively, depending on what regulations are in place. And it's clean. I should point out that there is a mistake in the submission at point 17. I mention that nuclear has a fraction of the carbon emissions of solar or wind. Wind is, I believe, slightly less or about the same, but that doesn't account for the fact that wind right now usually has to be firmed up with fossil fuel, whereas nuclear is able to provide reliable base-load power.

To some degree this debate has been poisoned by people being advocates for renewables, people being advocates for nuclear and people being advocates for the fossil fuel industry. What we really should have is a technology-neutral approach. If we have the aim of emissions abatement then all of the options should be on the table—especially those which have the potential to lower prices rather than increase them. Now, some people might say that only one in six countries in the world have a nuclear reactor. Well, most countries are quite small. If you look at the G20 countries, you see that only six of them don't have a reactor and, of those six, Turkey is getting into nuclear power as we speak and Italy imports 10 per cent of its electricity from France, where 70 per cent plus is generated through nuclear. And yet in Australia, where we have some of the world's biggest reserves, we deny ourselves the opportunity.

People complain. They say it will take so long to build the plant and we don't have the expertise and regulations in place. Well, in the 1990s China didn't have a single nuclear reactor anywhere. By 2017 they were a leading exporter of technology. They acquired the knowledge and the skills, initially through foreign investment, but local workers were able to adapt that knowledge and move on from there. South Korea is a leading exporter of technology. They recently completed a major project in the United Arab Emirates.

In terms of looking at what not to do, we have Germany and Japan. Japan decided in the wake of Fukushima that they would abandon nuclear and they would effectively shut down all their plants, so they went from 22 per cent to two per cent of their energy being nuclear. The result is that their power bills shot up massively and their reliance on fossil fuel—actually Australian natural gas—shot up significantly. The people who ended up suffering the most from this were the Japanese consumers. The people who ended up winning were fossil fuel companies, to the point where the current Japanese government's official policy is to go back to nuclear. In Germany they went down a similar trajectory, and again their prices have shot up and their emissions have shot up. They're relying on coal and natural gas to provide a significant amount of energy. They're importing natural gas from Russia, which is creating a national security risk.

So we have the rare opportunity to learn best practice from the rest of the world. We know that, while in some countries like the USA and England costs have gone up significantly over the past few decades as regulations have been piled on, in places like South Korea they've built safe, cost-effective reactors, and we have that option in front of us to explore and to learn from.

At the end of the day, this debate should be driven by the science. It should be driven by rationality and by fact. We know that a majority of the harms from Fukushima were psychosocial rather than physical, and that study is discussed at length in our submission. We know that, by the latest polling from Roy Morgan, while close to a majority of Australians say yes to nuclear power without any clarification about carbon abatement, when that clarification is added—'Do you support this in order to help us with our carbon abatement goals or climate change policy?'—it goes up to a majority of 51 per cent.

If a country like Japan can go from completely shutting this down in 2012 to now reversing trajectory, realising what works and having learned from their mistake, there's no reason why we can't do the same. What we need is leadership in this country to encourage innovation and not to stand in the way of it. That's the way we're going to adapt to climate change. That's how we're going to have the policies in place to, hopefully, undo some of the negative effects. I think the fact that all of you are here today and open to the idea of lifting this moratorium and having some regulations in place is a good sign of that. I am happy to answer questions.

CHAIR: Thank you. Let me start with a question directed to Mr Irwin and Mr Hill, but others can respond also. One of the terms of reference for us to consider about prerequisites for nuclear energy in Australia is workforce capability. In light of your personal experiences in the industry, can you provide some commentary on the current status of our workforce capability with respect to nuclear?

What would be required in terms of both increase in scope and increase in scale of that capability if we went down the path of nuclear energy?

Mr Hill : Australia has a very good track record of building new technology plants. We've seen the LNG plants go in very quickly. Part of my work in the mining industry has been to introduce new technology to Australia. I see no problem whatsoever. If you put the money in the bank for me tomorrow, I'd have a 200-person team working on a nuclear power station within three months. We have experienced engineers, we have experienced scientists. Most of the engineers who worked for me at ANSTO, for instance, are nuclear trained and are now working on projects all over Australia. They could be easily pulled in. The fact that we don't have workforce capability is a complete myth. The way Australia operates and has operated in terms of the LNG plants and the iron ore projects, particularly the Gorgon project in Western Australia, is an easy demonstration to show how quickly we can mobilise a workforce.

Not every person needs to be a nuclear engineer. We would need, based on the OPAL experience, probably about 10 people with intimate nuclear engineering experience. They would not be designers because we would be using, for the first reactors, a turnkey contractual operation. But we do need people to be able to interpret information, particularly coming from overseas. The majority of the workforce is our normal engineering workforce—civil engineers, electrical engineers, mechanical engineers for most of the plants. The whole construction group does not need to be nuclear engineers.

What I learnt in the UK, and what we also learnt during the OPAL period, was that it takes about two years to train good, well-qualified engineers to understand nuclear technology. There's an old saying which I've used: it takes about three months to pick up 80 per cent of what you need to know, and then another 30 years to pick up the other 80 per cent. Probably in three months you pick up about 80 per cent of the fundamentals of nuclear engineering. But it takes people like Tony and I and others who've kicked the wheels, built the wheels, sat on the control desk and operated a power station to start to understand the real implications of what you're getting into.

So you do need that core group of maybe 10 experienced nuclear engineers, but these people are rare. If we don't have them in Australia—we've probably got about half that number who have got good engineering experience—they're easily picked up from overseas. In the case of the OPAL construction program, we used some overseas experience as well. I would say the bulk of the early engineering team does not need to be nuclear trained, and certainly the bulk of the construction workforce needs no training, but probably a little more emphasis on quality management, which is easily introduced to a workforce.

Mr Irwin : I think there are two parts to the workforce capability: the education and the practical application of the workforce. As far as the education is concerned, we've got a good start now that we've got the new course at UNSW. For the first time since the 1980s we've now got nuclear engineering offered at UNSW. We've been offering a nuclear science course at the ANU for many years, which is what I lecture on. That was really post the Switkowski review. One of the recommendations out of that was to increase the education. The University of Sydney also offered that same sort of course. I think these sorts of courses will grow once the prohibition is lifted and we see a possible career path for people.

As far as the practical side of it, OPAL is a good example. I was reactor manager there, and what we would do with a nuclear power plant is appoint your operating staff at an early stage in the project so they can get involved with all the construction and commissioning. This is where you really gain all your experience. For OPAL what we did was employ young engineering graduates, obviously with no nuclear background at that time, and we trained them in nuclear during the time of the commissioning and early operation, which is where you really gain a huge amount of experience. Once a nuclear power plant is running, it's pretty boring. It sits there and just operates, so you get all your experience during its early operation. What we found is that Australia is a very attractive place to live and there's no problem in attracting engineers from overseas to Australia. Our company is regularly contacted by people asking, 'Do you have any jobs for us?' We don't believe there's a problem in getting enough workforce for a nuclear power program.

Mrs PHILLIPS: It's very interesting to hear the different views. I want to take you back to an article put out by our local ABC on 12 August 2019, talking about one of the sites, Jervis Bay, for the nuclear power station:

In February 1970, the Illawarra Mercury proclaimed:

The power station will be the first of 20 atomic plants costing more than $2,000 million to be built in Australia by 1990.

The reactor will use 500,000 gallons of sea water a day for cooling purposes.

Jervis Bay is a holiday haven. Obviously people go there. It's really big for tourism and jobs. But my question comes back specifically to the evidence of the Australian Energy Market Operator to this committee, which was that firmed renewables were well and truly the most cost-effective form of new energy generation. I'd be keen to get your thoughts on whether you agree with that or not, and why.

Mr Hill : I can start. The short answer is no. We don't agree with it. We have had an incredibly difficult time trying to find out the details of how they put that together. Our colleague, Dr Robert Barr, has analysed what they have done and wrote a submission to AEMO explaining where the issues and problems were, which was completely ignored. His paper shows that what AEMO did was use average numbers for renewable operations. We've heard this morning—I did one exercise for 2017 across all of Australia, talking about industrial sized: wind capability was about 30 per cent and solar capability was about 19 per cent. As was previously explained, averaging simply does not work in engineering. We do not design aircraft, for instance, on an average basis; we design them to land, we design them to climb to great heights and operate and we design them to take off. It's pretty much the same with this particular issue. All the statistics we have available from AEMO on capacity factors show that, for a number of days of the year, there is no wind and there is no solar power. Surprisingly, sometimes these two things go together. For an electricity grid, we cannot afford to let those days go by with no electricity and so we have to design the grid for what we call the whole system, using backup, and that's where my colleague has explained how that backup can be pumped hydro, batteries, open-cycle gas turbines and so on.

The other interesting part about the ISP is that it has coal fired power stations turning off and on every day, and that's just physically impossible. We cannot just turn coal fired power stations on and off every day. It fails a commonsense test. All the work we've done—we haven't tried too hard, but we have tried very hard—with the CSIRO and their gen 18 plan is to get to the bottom of how they did their modelling and what assumptions they used. We've only started to find out, as was mentioned, why this very large number, $16,000 a kilowatt hour, has emerged for some very speculative plant in the future. I was here when AEMO gave evidence, and the keywords I heard in that evidence were, 'We did not do the job thoroughly.' The reason is perfectly understandable: what was the point? Nuclear power in Australia is banned. No-one has engaged with any real seriousness in looking at the issues of nuclear power, because there's no point. There is no outcome, and when there is no outcome, why bother? Maybe it's only the people at the table at the moment who think that is a completely wrong way to go about analysing our future power requirements.

Prof. Wilson : I think it's important to make the general point here that the LCOE, or levelised cost of energy, which is a very widely used metric for comparing different types of power plants, is basically a wet finger in the wind, so I would refer the committee to the National Renewable Energy Laboratories in the US and a paper published way back in 1997, I think, which basically says LCOE is not suitable for investment decision-making. It's not an investment-grade metric. No investors actually use it. That's a really important thing to understand. As Barrie has explained, it's not what I would call an engineering-grade metric either. If we look at the half-hourly price demand data in the NEM, AEMO's data, which is publicly available—and I think if we look at the five-minute data we'll see an even more dramatic picture—what we see are very clear symptoms of problems that point us to the opposite conclusion, to the idea that you can just rely on firmed renewables and you'll get really affordable electricity; we're actually seeing the opposite. If we look at and listen to what the market data is telling us, it is telling us that I don't think that statement is reliable.

Dr GILLESPIE: Could you make any of that data available to the committee.

Prof. Wilson : Yes, I used some snapshot slides of the market data, price versus demand, in my talk at the Australian Nuclear Association Conference the other week and I'd be happy to share it with the committee.

Mr Marar : If you have these issues where the modelling is perhaps questionable or not reliable, based on certain assumptions, I think it's best to look at real-life experience and data. As the penetration of renewables into the grid has increased we have seen prices get more volatile and soar. Around the time that the AEMO report came out there was also a report from AEMC, the Energy Market Commission, which said basically the same thing, on the headline—that renewables entering the market will lower prices for consumers by about two per cent across the whole country—but buried in page 24 of the same report is the admission that wholesale electricity prices were likely to increase significantly unless incentives are provided for firming capacity to replace coal fired generators, which will be driven into retirement over time. By the graph in that report, which I'm happy to provide you afterwards, you can see that, every single time we have a closure of one of our baseload generators, we've seen prices get volatile and often go up quite significantly. The only way to have this sort of incentive for firming capacity is to pay more for it. The firming requirement contracts that are currently in place add potentially up to $30 per megawatt hour to the cost of electricity. That's quite significant.

The same pattern of increased penetration of renewables resulting in electricity bills going up has been repeated in the United States, in states like Colorado in the year 2017, which had renewable energy mandates. Prices went up quite significantly, by hundreds of dollars. I can provide a report that attests to that as well. It just doesn't live up to real-life experience. I can point you to another report, which was put out in 2018 by the consultancy firm Solstice. They didn't used the levelised cost of energy, which AEMO used—I think Professor Stephen criticised that metric—they used long-range marginal cost, which is more real-world orientated. It recognises the fact that you have to combine solar and wind with other sources of generation. They found that, in the case of wind and batteries, to allow for the equivalent baseload generation available for 24 hours a day over a two- to three-day period, the long-range marginal cost is about $211 to $693 dollars per megawatt hour. That's more than eight times the cost of, hypothetically, doing it using just black coal. That is a significant departure there.

CHAIR: Can you table that information.

Mr Marar : Yes.

Mr Irwin : If you look at the levelised costs of firmed renewables then that's more of a reasonable comparison to reliable generation. If you look at the GenCost 2018 report, their firmed variable comes out at about $100 a megawatt hour. That's the sort of figure you'd be looking at for nuclear to be economically feasible. Nuclear on the same table is over $200. It looks as if it's not economically feasible, but the problem is that that $200 is based on the $16,000 per kilowatt hour capital cost. I went to CSIRO when they published this and asked, 'Where does this cost come from?' and they replied, 'GHD.' They were very helpful. They said, 'Here's the GHD report; you can look at it.' I got the GHD report, and the problem is that GHD, instead of looking for a reactor that might be deployed in the late 2020s, early 2030s, decided to go instead for one that would be deployed in 2035. It was 300 megawatts, so it was right at the top end of the SMRs, and it was going to be a generation IV reactor. That's the whole new experimental type of reactor. They then looked for a figure for cost, and they decided to go with the WNA, which is a good site, but they completely misinterpreted what the WNA said. WNA have given evidence to you, and these figures don't mean anything to WNA. $16,000 is just not in any of their figures.

As Ms Steggall says, there hasn't been an SMR constructed, so we're into estimates. You have to look at the best possible estimate you can get at the moment. We think the NuScale one is the best estimate. This has been done by Fluor, who are a major EPC firm, so they know what they're doing. They have a huge databank of information to work with, so they can look at the plant in detail, and they've come up with this 'n of a kind' cost of US$3,600, which probably translates to about A$5,000. This plant is not just on paper; it has been designed. The design is finished. It's going through licensing in the US at the moment. Next year it'll be licensed to be completed. It'll start construction in 2022. It's close to the start of construction. We believe these sorts of estimates are very reasonable. If you put that estimate into the LCOE then you get around $100 a megawatt hour or less than that. On that basis we think that an SMR would be competitive with firmed renewables.

Mr PITT: I've got a couple of questions. Just a follow-up on that statement: in terms of very large infrastructure projects, and the decision-making points in terms of costs, we've heard a lot about estimates and things that are not completed. I wonder whether someone could make some comments about how people make those decisions, the likely probability of the cost of the project and how that might close down as a project progresses?

Mr Hill : Maybe I can answer that. Through the American society of cost engineers there are very strict methodologies for cost estimating. These have been developed over many, many years of experience. They are essentially based on the quality of information you have at the time, how it's verified and then the use of contingencies which reflect what's happened in the past. For instance—and this applies to mining projects as well and mining processing plants—if I have no site for a nuclear power station then I must be very careful, even though I've done a detailed estimate of every piece of the plant, to allow for contingencies of the order of 30 or 40 per cent.

If I have an existing design that's been built 10 times, as we've seen in South Korea, I can be fairly confident going through the design, because it's very heavily documented, my contingency levels should be around five per cent. What Dr Barr and my colleague did with the South Korean numbers—because they are verifiable numbers we have exact costing. We've looked at how that translates to Australia. We've looked at labour rates in Australia, which in some areas are twice what we see in South Korea, so we've allowed for that. We have no site, so some of the numbers we've used have 30 per cent contingencies. But for the basic plant, the mechanical engineering and the electrical engineering, we are at a contingency level of about five per cent. These are common methodologies we use across all estimating. At the moment they're still estimates. We would need a fully detailed feasibility, study. It would probably take us a year, or two years, to go through to actually firm up on all those costs, where we could bring the contingency levels down to about 10 per cent before construction.

In the past, using these methodologies I've been able to get capital costs prior to construction down to about a two or three per cent level of estimate and then carry it through for that period.

Mr PITT: So that's a standard practice—

Mr Hill : It's all absolutely standard practice—

Mr PITT: It's not just in building nuclear plants; it's bridges and things—

Mr Hill : There's a whole institute in America based on understanding all of this and we use a lot of their information to ensure we follow the right methodology with cost estimating. Part of the problem with the very high costs of first-of-a-kind reactors being built in America and Europe at the moment is they started construction before they'd fully detailed the feasibility study. I think we looked some of the parts at in the US where they actually started construction with only 30 per cent of the real knowledge they needed and sort of changed techniques for modular constructions. We had a look at those sites. For experienced engineers you could walk on to the site and see everything was going wrong, and that's because they started work before they'd fully completed the scope of the work. There is always a great pressure, particularly in a commercial work, to start as quickly as possible and get it finished as quickly as possible, but it leads to cost overruns, which we've seen in Europe and America recently. They're all explainable from a cost engineering point of view and most people who understand how those estimates are raised and the problems which occur during construction that change the estimate.

Prof. Wilson : Just a brief point to add to what Barrie said there. The process he's described is exactly what we teach final year engineers in my professional practice class. Early on you start with big uncertainties and you come down as you approach construction. Barrie used the word 'site' there, so site specific cost is a very important concept. There's one thing that hasn't come out yet that I think's quite important in the SMR discussion. Traditional large reactors chase economies of scale by being bigger and bigger, and so a lot of things have to be built onsite. The SMR approach is to use manufacturing of standardised modules in a factory as a way of managing costs and then to deliver those to site. So it's a different approach to managing and controlling costs that may hold great promise.

Mr PITT: Professor Wilson, to change tracks for the moment, you mentioned earlier that you've seen a change in your students' views. In recent times, how many would have come to you with an antinuclear view?

Prof. Wilson : I'm struggling to find antinuclear students at the university. I tried the experiment last night. The Student Energy Network had their—this is a club of people who just love energy, so they give themselves extra assignments and present them. They're weird, but it's a great club! I first encountered this as an adjunct professor a couple of years ago. Prof. Greig couldn't take the invitation to appear on a debate, and he asked me to step in as a second speaker for the affirmative. The proposition was: Australia should embrace nuclear energy. At the start of the debate, they asked the room—this was a big, 500-seat lecture theatre with probably 350 mostly undergrad students—'Who agrees with this proposition before we have the debate?' I nearly fell off my chair. The overwhelming majority of students agreed with the proposition. I'm finding yeses and 'don't knows' and then one or two anti. When you follow up and ask, 'Why are you opposed?', it's not a strongly antinuclear sentiment. It's just, 'I think we have other options' or 'We don't really need it'—that sort of thing. So there's definitely a generational change going on, I think.

Mr PITT: For the purposes of clarity, Mr Irwin, you talked of a fuel pellet previously. For the purposes of the Hansard, could you describe the size of that and its comparison.

Mr Irwin : Yes. It's about 10 millimetres in length and about eight millimetres in diameter. This is a single fuel pellet.

Mr PITT: And that's the equivalent of how much energy?

Mr Irwin : That is a tonne of coal.

Dr GILLESPIE: Just for comparison, it is about a third the size of a box of matches.

Mr Irwin : It'll be smaller than that. It's only a little one.

Ms STEGGALL: Following on from that, the waste question is not just about that fuel cell though. The waste disposal question is about everything that touches or has anything to do with production, which is even a pair of gloves. I remember from my visit that it's a pair of gloves, it's an apron—it's every item, and some pieces have higher exposure and so the disposal concern is greater. This is just so that we're not saying that that is the only thing we have to worry about from a disposal waste point of view.

Mr Irwin : Do you want us to go through the waste issue?

Ms STEGGALL: No, but I want to clarify that you agree with me that it's not just the fuel cell that we'll have to worry about with waste disposal.

Mr Hill : But that's high-level waste. What you've just described is what we call low-level and intermediate waste—gloves, suits, anything that touches something which has been contaminated. If we're demolishing a plant—and we've demolished one ANSTO research reactor—we have to be very careful at that particular point. We have all the instrumentation which can check that. Some of the material we disposed of could go straight into the dump over the road, the Lucas Heights dump, because it was really not active. Mr Parker, Dr Robert Barr and I inspected the South Korean facility. We would say it's been engineered over the top, because the material they were disposing of—low-level and intermediate waste—was encapsulated in cement in, essentially, 44-gallon drums. I actually built the plant at ANSTO, which encapsulates low-level material in concrete. Mr Parker actually had a geiger counter with him. We checked the drums that were going through, and they were less than background radiation. So that's the low—

Ms STEGGALL: To clarify, we're not just talking about that little cell. We're talking about a bigger problem than that.

Mr Hill : That cell, after being in the reactor, is very high-level material which has to be disposed of.

Mr Irwin : But the rest of it is very easy to manage, as you can see when you visit ANSTO. You can see the drums stored there.

Ms STEGGALL: Easy is relative to who's speaking, I think!

Dr GILLESPIE: Getting back to waste, first of all for Mr Hill or Mr Irwin, so that you can put things in relativity, since ANSTO has operated, apart from what got recycled and is now in one single canister, is it right that all the waste from the 1950s—when it was constructed—is now sitting in big sheds at ANSTO's site?

Mr Irwin : It's only one big shed, really, with all the drums in it at the moment.

Mr Hill : We do have to be careful. The science community in the early days was not good at handling waste. They had a site across the road from ANSTO. What was called?

Mr Irwin : Little Forest.

Mr Hill : Little Forest was where some of the waste was simply buried without processing or drumming or so on, so we have to be very careful. The science communities have not been terribly good at handling waste material. I visited Oak Ridge in America for a number of weeks and investigated the waste issues there. Again, it's a different attitude, because a lot of the material was for nuclear weapons programs and the waste from nuclear weapons. My previous company, Jacobs, is currently spending a lot of time and a lot of money cleaning up that legacy of waste which sits around in all sorts of places. For ANSTO, I think the waste is very well handled at the moment. As Tony said, we have one warehouse full of old gloves and so on.

Dr GILLESPIE: Are those from all the medical facilities and not necessarily from ANSTO?

Mr Hill : Unfortunately, a lot of the medical facility waste is sitting around underneath hospitals at the moment.

Dr GILLESPIE: But that's low-level waste.

Mr Hill : That's low-level, yes.

Ms STEGGALL: The Australian Energy Council said in their submission that, currently, 'nuclear generation faces large, upfront capital costs at a time when other low carbon generation costs are dramatically falling'. We had the South Australian report, which also showed that the long time frame and volatility of the energy market made it unlikely any investor would commit to the upfront capital cost of nuclear without government assurance. Am I correct in assuming that Nuclear for Climate Australia, SMR Nuclear Technology and the Energy Policy Institute of Technology are interrelated in terms of board members and associations, because there are similarities in your presentations?

Mr Parker : No. Nuclear for Climate has a different policy envelope than, for example, SMR. We share the technologies and we're collegiate, but we have a slightly different direction.

Ms STEGGALL: But you've shared your reliance on the data and the assumptions and calculations in your reports.

Mr Parker : In terms of the energy model, I don't know if SMR included the model that we were looking at in their submission. I'm not sure.

Mr Irwin : We didn't. We'd had our own cost estimates.

Mr Parker : We're operating on different models.

Ms STEGGALL: I do understand that SMR and Energy Policy Institute of Australia have a number of similar directors. In preparing the submission for Nuclear for Climate Australia, you were co-authors on the EPC report—the modelling that's required to be tested against.

Mr Hill : Yes. Dr Barr, Rob Parker and I worked together on the model.

Ms STEGGALL: In the Nuclear for Climate report, you've finished with recommendations where you're talking about, ultimately—and as I was just reading out from the Australian Energy Council's submission—that up-front capital cost without government assurance is going to be a massive problem. That's more than likely going to require carbon pricing to allow for nuclear to be competitive with the current cost of, for example, fossil fuel. Am I understanding correctly that you would advocate for a carbon price as being necessary for nuclear to be able to play a part?

Mr Hill : I think we have to go back a few steps. We currently have an electricity energy market which operates on a five-minute cycle. Through my consulting work with other companies that wish to generate electricity in Australia I travel around the world talking with finance teams. Finance is part of my background as well. You as a private investor cannot borrow money in a five-minute market. There is no guarantee you'll ever pay it back because of the way the market operates here. So one of our colleagues, Dr Robert Barr, has recommended that a capacity market be introduced which actually pays energy providers to have the facilities available to provide energy. In all our work we have not looked at subsidies for nuclear power, but we see around the world that those nuclear operations operating in a liberalised market cannot compete with subsidised resources. Some states in the US are shutting down their nuclear power plants because they cannot compete. Other states in the United States have recognised this particular problem and are working out ways of paying for capacity in the market both at lower emissions and to just keep the lights on. It's a very, very complex question, but at the moment no private investor in Australia can borrow money to invest in the electricity market.

Ms STEGGALL: Electricity as a whole or nuclear?

Mr Hill : Electricity as a whole.

Prof. Wilson : You've raised a really, really important point which I touched on in my opening remarks. You mentioned the problem of large upfront capital costs, which is one issue at the core of the investment problem. I mention the investment problem, and I'd refer the committee to the book of Joskow and Schmalensee way back in 1983 and the recent podcast from June of this year where they discussed that. As you have just asked about, this problem affects every form of generation in the NEM today. The most beautiful quote about this is: 'No-one can produce a bankable price forecast of the Australian electricity market today.' That quote is from some research that Professor Greig and I did a couple of years ago for a minister from a banker with 30 years experience going right back to the Kennett privatisations in Victorian. It applies to coal plants. It applies to nuclear plants. It applies to gas plants. And we are seeing that it is now starting to apply to renewable plants. This is now coming into the public domain. We have seen it starting to appear in the press. My research student has seen this in his work Almost everything is unbankable. That is why I say that the investment problem, yes, is a challenge for nuclear, but it applies to everything else as well.

The other thing to keep in mind is that every single decarbonisation strategy known to humankind in the electricity sector, but not just in the electricity sector, involves capital intensification. Everything that you do to try to reduce CO2 intensity requires more capital. You are trying to substitute capital for hydrocarbons. This is the core of the challenge. It is one of the reasons—it is not the only one—that this is such a difficult challenge for everybody, not just Australia.

Ms STEGGALL: In terms of the terms of reference of this committee on what our prerequisites and circumstances are for considering lifting the moratorium or considering our energy mix in the future, aren't we putting the cart before the horse here? Isn't the first aspect that we actually need to know where we are heading—as in, do we have a fixed policy of heading towards zero carbon? Is our goal decarbonisation and, as such, how is it best achieved and what will our needs be?

Prof. Wilson : That's why I made those comments where I asked: what is our energy doctrine? So, yes, those big, high-level questions are very important, but I wouldn't say that repealing the ban is putting the cart before the horse. I think it's a very important early step that can be taken and should be taken as soon as possible.

Ms STEGGALL: What are the negative consequences of that? The Energy Security Board, I believe, came out today with concerns about the negative signal to the market and to investment for firmed renewables. If we go down the road of lifting the moratorium, does that send a signal that the Australian government is heading towards nuclear, and does that send a negative signal to large investment in firmed renewables?

Prof. Wilson : I wouldn't see it that way. Some may interpret it that way, but I don't think it's necessarily the case. It's just opening the field to more options. As I said, I think it's going to be very difficult to deeply decarbonise the Australian economy if we keep nuclear off the table and excluded. Remember, most countries have a mix of generation types. It's very unusual to have a completely homogenous, totalitarian sort of single fuel technology solution in an electricity market.

Ms STEGGALL: I agree, but every nation's energy market and supply really has to involve looking at its characteristics and what it is good at. I would suggest that certain European countries don't have the kinds of natural resources that Australia has, for example, when it comes to wind and solar. So their predisposition to move to nuclear might be quite different to ours, because of access to other technologies and resources. I think there is a consensus that we are looking at it from a low-carbon energy source point of view, which is, ironically, bringing people into the field supporting nuclear who would not normally have supported nuclear.

Prof. Wilson : Yes, that's true.

Ms STEGGALL: The irony, which I struggle with a little, is that we're getting submissions from, for example, minerals councils and the mining sector, who, traditionally, have not advocated for a low-carbon energy source and have advocated for a continuation of fossil fuels, but are now saying the case for nuclear is low-carbon emissions. So I find that there is—

Prof. Wilson : I think the low-carbon consideration is one part of the story, but one of the things I said at the conference last week is that I wouldn't necessarily put all the eggs in that basket. Some people will support nuclear for other reasons. Different people will have different priorities in why they think it's important. I think Bob might have mentioned that China is building a lot of nuclear reactors. Why? You're right to say that every country's situation is different. We should look at other countries and we should learn from other countries, but, basically, every country's circumstances are unique to them. It's remarkable. Why is China building so many nuclear reactors? It ticks the energy security box, which is their No. 1 concern, without any doubt. They can build and deliver megawatt hours from nuclear reactors at a very economically attractive price, so it ticks that box. And it's zero emissions, which is a bonus. So, for them, it's a total no-brainer. Why wouldn't they do it?

Ms STEGGALL: But they're developing towards renewables as well. They're not just going in that direction.

Prof. Wilson : Yes, they are the biggest wind and solar installer in the world. But, because China is so huge, it's still a very small fraction of the mix—it's just part of the mix.

Mr PITT: We had a lot of discussion about Europe and other countries in terms of how they secure their supply for reliability. My understanding is there are interconnectors for Ireland into Britain and France into Germany. We've spoken about Italy. What options does Australia have to source that security from other nations?

Prof. Wilson : In electricity?

Mr PITT: Yes.

Prof. Wilson : In any sort of practical, near term: none. We're an island continent and, unfortunately or fortunately, we need to think accordingly.

Mr Irwin : With 5½ thousand kilometres of grid system and connectors, we're in a completely different situation to somewhere like Germany, which can do practically what it wants, because it's got France, it's got Poland—they're surrounded. It's like South Australia's operation at the moment. They have a lot of wind. If it's all blowing, they can supply 80 per cent of South Australia's needs. If it's not blowing, then they're totally reliant on gas and Victoria. I think the problem is going to be when a lot more states go this way. Then it's going to become more and more of a problem.

CHAIR: Before we go to Mr Zimmerman, a media company wants to do some filming. Could I have a resolution that filming and photography is permitted at today's public hearing. All in favour. That is so moved.

Mr ZIMMERMAN: I have a couple of questions to follow up on your comments, Professor Wilson. You stated that it's very difficult to decarbonise without considering nuclear power. There was Ms Stegall's point about the option of firmed renewables.

Prof. Wilson : It's theoretically possible, but there are serious engineering challenges in that. The economics are very daunting and I think that will make it very difficult to sustain long-running public support for that kind of techno-economic strategy.

Mr Pritchard : That begs the question: what do you firm the renewables with? The best firming mechanism for renewables could actually be nuclear power because it has the ability to load-follow.

Ms STEGGALL: Isn't part of the difficulty the proportion that will be required? What I'm getting clearly is that, for nuclear to be cost-effective, a certain amount of use is required, because it hasn't got complete flexibility. A proportion of the market—say, 40 per cent or 50 per cent—would need to come from nuclear for it to be cost-effective. You're saying that nuclear could be there as a firming option to renewables, but, if renewables only need 20 per cent firming, for example, how is nuclear the right option?

Mr Pritchard : It's not 20 per cent across the board or 40 per cent across the board; it's the time of day, the weather conditions and the demand conditions. There are so many variables at work. Could I give you one example of the sheer and utter complexity of trying to complement the decisions about individual fuels and individual technologies with the cost to the market. At the present time, we have underway in Australia 13 separate inquiries into different aspects of how to improve the currently defective and uninviting energy market by altering the location of transmission lines and networks and other equipment and services. On top of that, the Energy Security Board has just announced that it's going to undertake a post-2025 market redesign project. The whole question of redesign of the markets, taking account of all of the available technologies and all the demands on the system and all the requirements for return of capital for investors, is going to be covered in this report. That is superimposed over the top of the other 13 reports that are already underway. So you have 14 separate reports currently being agonised over by the market institutions in this country. It's just impossible for these people to operate efficiently with that number of reports and that number of considerations. As far as the Energy Policy Institute is concerned, it's apolitical and it's technology-neutral. A lot of my members are fossil fuel people. Some members are pro renewables and some people are for utilities, where you have investments in all different types of technologies. We mustn't confuse the market design with the fundamental problem: if you want to invest a large amount of capital into a spot market, an energy-only market, you've got to take a punt on the long-term price, and at the moment you can't take a punt on the long-term price if the term is long. In the case of nuclear, it is particularly exposed to that long-term price because it is highly capital-intensive technology. On the other hand you weigh it up against the life of the plan, which might be 80 years. So you do have the same problem justifying capital investment with a coal-fired power station or a hele power station as well. The way to go about it is to open up all these technologies for competition and let them fight to the death if they want to. If you've got an economy which enables you to recover your investment, then it's a contest between the technologies that are going to be the most efficient to get there.

Mr ZIMMERMAN: That's a good segue into my second question, which is about the market conditions that you would need to put in place for the adoption of nuclear power. In your introductory statement, you indicated that a traditional free market doesn't necessarily work in terms of planning for the energy sector. What are the steps that Australian state governments have to take to effectively permit nuclear energy to operate? Is it 'let them battle it out and see who survives', or is there a different approach you would recommend?

Mr Pritchard : There has already been one approach put forward by the federal government—that is, the Underwriting New Generation Investments program. The problem that that raises, of course, is: why should capital support for any energy investment or any investment of any type be provided by the government through some sort of ministerial or departmental process? If you are going to have a support system set up, ideally you'd have a mechanism established where every contender for financial assistance could apply for it, and there would be rules laid down in advance. It's very early days on that. There needs to be established an institution which would be taken into account in the review of the market redesign.

Mr ZIMMERMAN: What's wrong with the principle that the private sector will build it if it stacks up?

Mr Pritchard : There's a magic trick here—that is, you just get somebody to give you a power purchase agreement which basically says, 'I will buy, because I'm a public-spirited person, all of your renewable power over a particular period of time,' or, 'I will buy all of your energy from a nuclear power plant to whatever extent is necessary to service the capital.' Then you can worry about generating your profit by operating in the spot market.

Prof. Wilson : Bob is making a point on one of four critical conditions that our research found. Essentially you are addressing the investment problem, which you might also call the bankability problem; what are the conditions for investment? I'll very briefly say something on that. On renewables, we have to remember that the problem of firming renewables, when they have a very low share of the market, is a trivial problem. The first five or 10 per cent are reducing overall system costs. Then they start to increase. You don't really notice until you get to 40 or 50 per cent. After that, it's like a difference between a stroll in the park and climbing the Matterhorn; it just gets more and more formidable as the share gets higher. It's really important to remember that.

To answer your question, the four critical conditions we found in the research we did—this was actually asked in the context of how you would finance a new coal plant, but the interesting thing is that it actually applies to everything in different degrees. The first one is: reliable government support is absolutely essential. Obviously you can't build a nuclear reactor without federal, state and local government support. The second one is: you need a long-term Power Purchase Agreement—as the banker who I quoted from said. How do you solve the problem? You've got to have a long-term PPA. By the way, the banker will look straight through it and say, 'How creditworthy is the offtaker?' Guess what? There are very few creditworthy offtakers in this country. Once you go beyond the big three generator-retailers, the pickings are very slim—even with big industrial customers. They are going to have to write at least a 15-year PPA—probably longer for nuclear.

The third requirement is the lenders. You are going to have at least 10 bankers around the table and none of them are going to expose themselves to more than $200 million. They are going to have to get confident and comfortable that you will be able to refinance after seven years. That is the longest loan period they'll give anybody; they do three years, five years and seven years. So four years of construction, three years of operation and you are straight into your first refinancing; that's what they're looking at. The fourth critical requirement is that the lenders and investors must be fully hedged from carbon policy risk. Obviously that's an issue for a coal plant but it's not an issue for a nuclear plant or a renewables plant. They are the four requirements.

Mr ZIMMERMAN: My last question is to either Mr Hill or Mr Parker. With your statement that if we were to meet our IPCC obligations—we are talking about decarbonising the energy market by 2050. I wonder whether you can put your best guess here: if nuclear is one of the primary tools for achieving that, and you're using small modular reactors, what is the range of the number of small modular reactors that we would need nationally to achieve that goal by 2050?

Mr Parker : I won't define it in terms of small modular reactors. Our modelling showed that if we were to try to get to about 50 grams of carbon dioxide—we came up with a matrix that showed nuclear in there at around 75 or 80 per cent. You end up with solar going in during the daytime, you end up with gas, you end up with pumped hydro and you end up with hydrate—so you have a matrix. Therefore, we would be looking down the tube of around 18 gigawatts of nuclear energy going in there at A$6,200 per kilowatt. Whether you choose to make that one-gigawatt reactors or small modular reactors as and when they become available is open to the decision-making at the time.

Mr ZIMMERMAN: Let's say you did you small modular reactors—

Mr Parker : It would be the same number. It's about 18 gigawatts.

Mr ZIMMERMAN: So how many small modular reactors?

Mr Parker : Well, 18 gigawatts divided by 0.3 is about 50.

Mr Hill : No, that's wrong.

Mr Parker : That's at 300 megawatts; at 300 megawatts, it would be about 50. Then, if you went to the new scale—I wouldn't categorise every separate module in the new-scale reactor as a separate reactor. I'd say that a new-scale reactor is a 270 or 720 unit. In that case you will be looking at about 25 or 30 new-scale units.

Mr ZIMMERMAN: So the range would be 25 to 50 reactors?

Mr Parker : Yes.

Mr PITT: In Queensland the state government own 70 per cent of the generators and pretty much all of the transmission, yet last week there were media reports that they have taken a $1½ billion profit through those activities. How can we ensure for the Australian people that prices will actually come down if we lift the prohibition?

Mr Hill : You can't. By the way, I was a member of the Queensland Mining Council while I was in Queensland. I advised the Treasury not to sell all the power stations but to hold back and watch what happened in the southern states, and they took that advice. Queensland did not privatise all of the power stations, hence the profit which is now going back to the people.

Mr PITT: I'd suggest it's going to the Treasury.

Mr Parker : I would like to make one comment on that. I'm a stickler for precedent. I would suggest that, for some surety, we should be looking at the volatility of systems that use high proportions of nuclear. I would suggest we look at the Nordic situation. I would suggest we look at the French and probably the Korean situations, and look at the volatility in those markets and analyse that as opposed to trying to reinvent the wheel. You may find that the truth hides in there.

CHAIR: Thank you very much for your attendance here today. If you have been asked to provide any additional information, could you please forward it to the secretariat. If the committee has any additional information to ask of you where we require a response on notice, we will ask you through the secretariat. You will be sent copies of the transcript of the evidence that you have given today, and you will have an opportunity to request corrections to transcription errors. We appreciate your time.