Caption title"Economic Development Program, India Project.""L2-611"--handwritten on cove

Rosenstein-Rodan, P. N.

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India PjcCONTRIBUTION OF ATOMIC ENERGY TO A POWER PRORAMIN INDIAP, N. Rosenstein-RodanAtomic Energy in Developed countries.Nuclear power prospects for the next decade were considered in 1956 tobe of major importance in only two areas of the world, namely, Europeand Japan, Those were the areas in which nuclear power could reach acompetitive threshold with conventional power for three reasons8L, The hydroelectric potential was limited and nearing exhaustion2. Coal had to be imported at very high prices, around $20 per ton,At such prices, incidentally, residual fuel oil for thermal stationsappeared cheaper than coal,3. Europe and Japan were highly industrialized areas with electriegrids in which installation of large units (150 Mw or more) forbase load electricity at very high plant factors (75% to 80%)was possible,Accordingly, ambitious programs for installation of new power stationswere established both in England and in Europe foreseeing installationof 6 million Kw in each within ten years, On the basis of the estimatesthen available, it appeared that the cost per Kwh of nuclear power wouldbe around 10% higher than that of conventional thermal power. It wasthought, however, that such a margin of 10% might be well worth the endof becoming less dependent on one source of power (notably oil) and alsothat in a short time cost reducing technical progress would be greaterin the new field of nuclear power stations than in that of conventionalthermal stations,,Experiences of the last three years -- which is admittedly a short period -do not seem to confirm these expectations,l Coal prices fell in Europe by at least 25% so that a ton ofcoal today costs under $14 instead of the previous $20 Itis now fully competitive with oil '2. Residual fuel oil supply has also become more abundant at slightlylower prices.3. Interest rates in Europe (with the exception of Italy where theywere calculated at 7%) rose from 4% to 5-6% raising thereby therelative cost of nuclear power.4, Cost reducing technical progress did not materialize in nuclearpower but it has been achieved in thermal power,The first two changes may be short-run phenomena although it has tobe remembered that the price of coal imported from the U0S0 has fallenby 25%, mainly because of the collapse of freight rates and expertsdoubt that the freight rates will recover to the 155-'56 level,Accordingly, many authorities doubt that one should project $20 perton of coal for the near future, While opinions may differ about thelong-run price prospects of coal and oil, the fact remains that., on thewhole, pessimistically high price expectations have given place meanwhileto optimistically lower ones,More important, however, are the results of technical development duringthe last three years, Contrary to expectations cost reducing technicalprogress did not materialize in the nuclear field but it did materializein the field of thermal electricity. The introduction of large turbo-generators of 200,000 Kw and more has reduced fixed investment costs forlarge thermal electric power stations by about 20% from, say $150 to $160per Kw installed to $120 and $130 per KWo This also benefits large nuclearpower stations, but the cost reduction there amounts to under 10%: halfthat (or less) of large thermal stations0 At the same time, the cost ofnuclear energy for stations of 150 Mw could not be reduced; this canbe clearly seen from offers submitted at the international tender underthe auspices of the International Bank in 1958 for the Italian EONOSOIOproject, Accordingly, several voices in Europe recently have beenadvocating a slowing down of the EURATOM and U0 K0 atomic power program,since it appears that the cost of nuclear energy will be higher thanthat of a conventional one not by a mere 10% but by at least 20%,1 or,as some people say, by even hO% to 505.I10 Atomic Ener in Underdeveloped CountriesWhile prospects of atomic energy appear, for the time being, to be wellbelow the optimistic expectations even for developed countries likeEurope and Japan, all the arguments which made the introduction of nuclearpower in underdeveloped countries much less promising remain fully valid.There are, as is well known, at least four reasons against the introductionof nuclear power in underdeveloped countries, They are:1, Only large power stations (100 Mw or more) are suitable for atomicpower. In most underdeveloped areas these units may be too largesince such large units can normally be well used only if theiroutput can be fed into an electric grid. 3 Most underdevelopedcountries, however, are not covered by electrical grids or have themonly in very exceptional cases in the neighborhood of a few largecities02o Atomic power stations can only be used for base load electricity ona very high load factor of 75% to 80%. This is due to the fact thatcapital charges are very high in nuclear power (2/3 or more of total1See The Economist, London, May 9, 1959o2See Ferdinand Dierkens, "L'atome En Belgique," L9Opinione Economiqueet Financiere, March 19, 1959o3This is an even greater obstacle to obtaining high load factors (seenext point II 24).1--power costs) while in thermal stations capital charges are lower(about 1/3 of the cost of power),, The condition of a high loadfactor is much more difficult to meet in an underdeveloped countryand it seems unlikely that the load factor of 80% or even 75% couldbe obtained in Indiao Even in Europe, incidentally, the early calcula.tion based on an 80% load factor had to be revised to a 75% load factorsince it seemed unlikely that the higher target could be met.3. Since capital costs form a so much higher proportion of total costsof nuclear power, the rate of interest has a major influence on costdetermination,, In the EURATOM and U.K. calculations, the rate ofinterest was raised from the original 4% to about 6%. In Italy wherethe scarcity of capital is certainy less than in India it is calculatedat 7%. In underdeveloped countries where there is a much greaterscarcity of capital, the underlying rate of interest should undoubtedlybe higher. There is no doubt that in India, for instance, an assumed"shadow" rate of interest should be put at around 10% and certainlynowhere near 4}%. Together with the depreciation, the charges oninterest and depreciation should be at least 15%,4a A relatively high overall efficiency, say 28%, is to be assumed fora nuclear power station. That might also be somewhat lower (say 25%)for an underdeveloped country since the choice between iarious peworstations of different age structure and efficiency to provide for peakloads is much more restricted. 1IILo The Need for Atomic Eneryi Indial Dr. HJ. Bhabha proposes a nuclear power program of 1 million Kw inIndia for the next decadeo 2 He recognizes, albeit platonically,IThis point is left out of account in the following texto A 28%efficiency is in fact assumado2See HoJ, Bhabha, The Need for Atomic Energy in the Under-4evelopedCountries, lecture delivered at the Second International Conference onthe Peaceful Uses of Atomic Energy held in Geneva in September, 1958, andHJo Bhabha and N.B, Prasad, A Study of the Contribution of Atomic EnerMto a Power program in India epartmen, of Atomic Energy, dittood document, 1958)the first e (a minimum large size plant and a very high loadfactor) of the four reasons against the introduction of nuclearpower in underdeveloped countries. He argues, however, that insome places like Bombay and Ahmedabad a very high load factor isobtained already (63% to 69%) and seems to infer from it that an80% load factor in the future might not be too unrealistic anassumption, He presents the following cost calculations: (Table 19H.Jo Bhabha and N.B. Prasad, opocito)Comparison of capital and power costsLoad factor - 80%; efficiency of nuclear power station - 28%;efficiency of thermal power station - 25%; fuel burn-up - 3,000 ID/tonneCoal-fired Oil-fired Atomic power stationpower station power station First generationUnit capital cost R6 0l,050/k4* Rso800/kw* Rsol,700/kwUnit fuel inventory costat Rs 300,000 per tonne Rs 0OO/kwat Rso 400,000 per tonne Rs e667/kwCOST OF GENERATION in Rs,/kwhl Capital chargesa) Depreciation § 5% 0075 c00571 c01214b) Interest @ 4o5% ,00675 400514 o01092c)Ilnterest @ 9% (0135O) (,01028) (02184)2o Interest on inventory@4,5%Fuel at 300,000/tonne 200321Fuel at 400,000/tonne o004293. Operating Goots 400125 o00125 o00125(Table cont0 on p. 5a)*This excludes filling and improvements to site,1Not included in Dro, Bhabha's Table0- 5a -Coal-f.red Oil-fired Atomic power stationpower station power station First generation1o Fuel costs:Coal at Rso45/ton 025Oil at RS096/ton M027Fabricated uranium atRs 300,000/tonne 01488Rso400,,000/tonne _01984054O5O 03910 o04240 . 0 4845o Less credit for plutoniumat Rs)56,9 000/kg oc200333 o00333Net cost of nuclear power o03907 o4511Assuming 9% interest the costs per Kwh of a coal fired power stationamount to 647 mills, those of atomic power (allowing for the creditfor plutonium and assuming the cost of uranium of rupees 400O00O perton a $83,330) to 9o6 millsoWe might readily agree that in some Indian towns a relitivelybig size thermal station (150 Mw or more) may usefully be installedbut it seems quite unrealistic to assume an 80% load factor. Anyrealistic comparison should contrast a thermal and a nuclear powerstation of 150 Mw or more but on the assumption of a 65% load factor,If we add to it that the rate of interest in India should be calculatedat 10% rather than at 4i%, then the comparative costs per Kwh can beassumed to be 958 mills for a thermal coal fire. station against14,16 up to 15.6 mills for a nuclear power station. These are theonly relevant cost comparisons: See I.MD. Little, "Atomic Bombay?,A Comment on The Need for Atomic Energy in the Under-DevelopedCountries," The Economic Weekly, November 29, 1958, in which thefollowing costs are calculated on the above mentioned assumptions:Coal NuclearRupees $ mills Rupees $ millsCapital Cost 201975 houf4 4518 100808to to40542 11310Operating Cost oool25 ,26o .0012 .26oFuel Cost o02500 5o2O8 co148 3o100to to,30198 hol33Total 2o4600 9c583 2068 14o166to too075 l50625In this calculation a cost of $156 per thermal Kw installed has beenassumed. A larger power station of over 200 Mw may nowadays beinstalled at a lower cost of $130 per Kw. It is thus quite clear thatnuclear power costs 50 to 60% more per Kwh than thermal powero It wouldbe sheer waste to spend twice as much capital on atomic energy to produceelectri power at 50% to 60% higher costs than that which can beobtained from equivalent thermal power. This is a decisive- 7 -argument against the introduction of nuclear power in India, evendisregarding the fact that the foreign exchange component of nuclearpower investment is more than twice as high as the foreign exchangecosts of thermal power. If a "shadow" rate of foreign exchangehigher than the existing rate were to be applied in the prograamingof the Third Five Year Plan - which would be quite appropriate inview of the foreign exchange gap - then the argument against nuclearpower would be still stronger,2. Dr. Bhabha, however, produces two additional arguments which mightchange, if not redress, the balance in favor of a nuclear powerprogram in India:i) (To be considered in this paragraph) is the fact that thepresent coal prices in high coal price areas (for instance,Bombay) of 45 rupees per ton may not reflect the present andcertainly will not cover the future real costs of coal,ii) The second argument (to be considered in the next paragraph - 30)submits that while the comparative costs of nuclear power may notbe attractive for the first and second generations of nuclearpower stations, they will become very much more attractive forthe third generation power stations.It may be readily admitted that the presently very high coal price of45 rupees per ton in Bombay (among the highest in India) may not fullycover all the indirect costs, notably, of transport and transportequipment. This may be especially the case if we consider that thecost of capital necessary for the maintenance of rail trucks and railwayequipment may be based on an interest rate which is too low, say 4}0instead of the more probably correct "shadow" rate of interest of10%, Dr, Bhabha gives estimates of additional investment costsfor the railways and mines - but this is insufficient to determinewhat the proper coal price is, Dro IMoDo Little correctly argues,however, that the coal price would have to reach 87 to 103 rupeesper ton in Bombay in order to equalize costs of nuclear power stations,"It is hard to believe that the long-run real cost of mining andgetting coal to Bombay is as much as this, or will ever be as muchas this over the course of 20 years - anyway, long short of thesefigures, oil is cheaper(,"In the long run the balance of cost charges, at present decidedlyagainst nuclear power costs, may gradually swing more in favor ofatomic energy for two reasons. First, because contrary to the resultsof the short run of the last three years, cost reducing technicalprogress may be greater in nuclear than in thermal power. Secondly,because in the long run the real cost of mining coal may rise increasingly,"But that it might be good to have atomic energy in 20 years, or even in10 years, is little reason to buy uneconomical plants from the U0 K, orUUSOAO now . o . To put any of her own capital resources into buying the,early products of this western research would seem to be a great wasteof the very limited savings of the Indian people, As Dr. Bhabha says,electricity is in short supply in India, It is likely to go on being inshort supply if one uses twice as much capital as is needed to get more0"13o Dr. Bhabha's main argument in favor of a nuclear power program in Indiais his calculation of the third generation atomic power costs. Thesecosts are assumed to be a mere 50-60% of those of the first and secondgeneration atomic power stations., The first and second generation atomicpower stations should be considered, according to him, as mere stepping-1'1 04 Little, op. citostones or instruments of producing locally uranium U2 33 for the"third generation power stationsg" Using local monazite,"with thevast reserves of thorium available in India, an additional investmentin nuclear power in the first ten years would repay itself within thefollowing ten years and, what is more important, hold out the possibilitythereafter of an expansion of the power program at the maximum rateconsidered reasonable, namely, doubling every five years for anindefinite periodo..If India is to benefit from the advantages ofnuclear power ten to fifteen years hence, and be in a position toutilize further the technical developments which may be expected bythen, an investment in a million kilowatts of nuclear power has to bemade within the next seven years,"IUnfortunately the argument and its operational conclusions are wrongfor th~ree reasons:A, Uncertain cost estimatesThe technology and the cost of the various processes involved inthe second and third generation stations is not yet firmlyestablished even in the laboratory stage, not to mention on acommercially or practically feasible stage. Dr. &iabha recognizesthis .difficulty - albeit insufficiently - when saying: "Sincethe technology of this reactor (LMFR) is still in its early stages,and no prototype power reactor of this design has yet been built,our discussion at this stage must necessarily be subject to considerableuncertainties"2 and: "Our estimates for latter parts of the programare necessarily invested with mch greater uncertainties, and weregard them as indicating only the correct order of magnitude onthe basis of present technology 0"3 The uncertainties are so1H.J. Bhabha and N.B. Prasad, o cit, p 34-35,9 paragraph 47.2);bid, po 18, paragraph 27.3Ibid., p, 21, paragraph 31.- 10great, however, that even a correct order of magnitudes cannotbe estimated at the present stage. Even if the purely technologicalproblems were clearly solved it would be excessively risky to initiatea nuclear power program in India before industrially and commerciallychecked cost estimates can be obtained, In addition, however, anumber of purely technological items in Dr. Bhabha's argument appearhighly doubtfulo.B. Technoloical doubteli) It appears doubtful whether the doubling time of five yearsfor U233 fueled plants is not too optimistic. The benefitsof the third generation plants may take 15 or 20 years insteadof the 10-15 years assumed.ii) The feasibility of any type of U233 breeder is not yet practicallyproved0 The internally cooled liquid metal fuel reactor (IMFR)on which the calculations are based2 disappointed expectations:it will not breed.iii) Recycling thorium3 is unattractive economically because costsof handling irradiated thorium, which will have been made radio-active with Th228 , would be much higher than costs of fresh thorium0iv) Recent calculations seem to show that costs of power produced ina U 23 breeder will be substantially higher than in a reactor fueledwith natural or slightly enriched uranium.v) It is quite uncertain whether plutonium will fulfill the expectationsas to its productive use in the future, Far from basing costlyinvestment decisions on this hope, it appears even highly doubtfulwhether deducting credit for plutonium produced by the nuclear1 The author had the benefit of advice from Professor M. Benedict (Mo,),,)on these matters, who is not responsible, however, either for his interpreta-tion or misinterpretation) or his conclusions.H4.J Bhabha and N.B. Prasad, op. citO, po 1803Tbid., p. 20-11power station is justified for more than the next few yearsoIt is quite uncertain whether the U0S. and the UoK0 AtomicEnergy Comissions will go on paying the present prices forplutonium, Without this credit the costs per nuclear Kwhwould increase by a further 0,7 millsoC. Unwarranted conclusions.Points A and B show that the economic and the technological argumentsused are at best doubtful If they were to reveal themselves ascorrect after a few years further experience the impression is giventhat a failure to initiate a nuclear power program in India now wouldlose valuable time, since it takes 10 years or more before thirdgeneration atomic power stations can be built, This is, however, acompletely unjustified conclusion, It appears unnecessarily wastefulto build three generations of reactors. India could then start offwith third generation plants and may import U235 to start them fromthe US 0  The US. costs of U235 are very low, being based inter aliaon low hydroelectric costs of 3-4 mills per Kwh0 As long as U235was available only for a short run, the dependence on one source ofsupply - even if very much cheaper than own-produced costs - may havebeen felt to be politically unpalatable. Since purely cormercial long-run contracts for delivery of U235 are available, however, thisargument does not apply0The "third generation atomic power station" argument of Dr, Bhabhadoes not justify the initiation at present of a nuclear power programin India. When a man is hungry he may pay a high price for a meal,but he should not proceed to buy a reataurant0

Contribution of atomic energy to a power program in India

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Contribution of atomic energy to a power program in India

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