Brazil and the Iran Nuclear Deal

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.)

[Cross-posted at The Reality-Based Community]