DHS H2 ECON P1 P2 MARK SCHEMES

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2 Answer all questions. Question 1 Economics of Nuclear Power Extract 1: Economics of New Plant Construction Nuclear power reactors are ex pensive to build but relative ly cheap to operate. The capital costs are a much lar ger proportion of the total th an for other technologies, and that fuel costs are a relatively small fr action. This means that while initial costs are high, the cost of nuclear energy does not fluctuate with uranium prices in the way that electricity from fossil fuels does as gas, oil or c oal prices go up and down. Their economic competitiveness thus depends on keeping construction to schedule to keep financing costs down, and then operat ing them at reason ably high capacity over many years. In contrast, gas-fired power pl ants are very cheap and qui ck to build, but relatively very expensive to operate due to the cost of their fuel. With rising gas prices, and the high cost of moving coal long distances, nuclear plants are becoming more competitive with both gas and coal. Source: World Nuclear Association Report, BBC News Figure 1: Price of Crude Oil (US$ per barrel) and Uranium (US$ per pound) from Jul 2006 to Jul 2011 * Uranium is the fuel used in nuclear power reactors Source: International Monetary Fund 0 20 40 60 80 100 120 140 160 Jul‐06 Nov‐06 Mar‐07 Jul‐07 Nov‐07 Mar‐08 Jul‐08 Nov‐08 Mar‐09 Jul‐09 Nov‐09 Mar‐10 Jul‐10 Nov‐10 Mar‐11 Jul‐11 Crude Oil Uranium

3 Extract 2: The Carolinas Nuclear Cluster (CNC) The Carolinas Nuclear Cluster (CNC) is a collaboration of 47 companies, universities, technical colleges, and nonprof its that advance economic development in North Carolina and South Carolina by strengthening and expandi ng the region’s nuclear energy industry. It o ffers firms proximity to ke y suppliers and customers and the opportunities for like-minded industries to collaborate. With new clean-energy needs, a scarcity of fossil fuels, and growing public support – both at home and around the worl d – the nuclear industry is experiencing a sort of global resurgence. And the Carolinas, with its strong nuclear cluster, top-flight engineering programmes offered by its universities and weal th of global suppliers, are positioned to play a central role in that rebirth. Six new plants are currently in the works across the Caro linas alone, meaning the greatest immediate potential exists in the areas of plant construction and maintenance. More importantly to the ec onomy of the Carolinas, utilities companies such as SCE&G are looking specifically to local suppliers to fill their needs. www.innoventurecommunity.com, www.gcbusinessjournal.com, May 2010 Extract 3: Nuclear power as Singapore's new energy source The Economic Strategies Committee's (ESC), looking at ways to ensure Singapore's economic competitiveness and energy security, whil e addressing environmental- sustainability issues, made the following recommendations: 1. diversify energy sources to incl ude nuclear energy, coal and imported electricity, and possibly harness renewable energy generated in neighbouring countries, 2. conduct a study on the possibility of a carbon-pricing scheme to price energy to reflect real costs 3. further promote energy efficiency for buildings, industry and homes, and support clean and efficient technologies in transportation Unlike gas and coal that are prone supply interruptions, a key advantage of nuclear power is that the cost of generating it is less vulnerable to fluctuations in fuel costs. Nuclear power plants also do not release greenhouse gases that contribute to global warming. However, safety is a major concer n, especially given our high urban density. Nuclear power stations produce r adioactive waste and could release radioactive material if there was an accident. In the long run, with the infrastructure in place to transmit electricity between countries, it opens the energy market to greater competition between local and regional suppliers and makes the market more efficient. Source: My Paper, 5 Feb 2010

4 Extract 4: The Cost of Oil Subsidies Across the developing world, governments are subsidising energy so as to shield the poor from the high prices. They worry that eliminating subsidies might lead to inflation at a time when pric es are rising broadly. But these subsidies are misguided and mainly benefit the well-off, who own big ca rs and fly in jets, as well as energy- intensive industries, which are not usually those that create most jobs. They are expensive, sucking in public money that might be better used on, say, health care or education. Source: 1 Aug 2008, The New York Times Questions (a) Compare the trends in pr ices of oil and uranium from July 2008 to July 2011. [2] (b) (i) Distinguish between fixed and variable costs in nuclear power production. [2] (ii) Electricity generating companies (gencos) have to compete to sell electricity, a homogeneous good, to the state utilities company which will then distribute it to the end users. Explain why “nuclear plants are becoming more competitive with both gas and coal.” [4] (c) Explain how government failure may arise from the oil subsidies. [4] (d) To what extent does the profit of a firm such as SCE&G depend on whether it is located within the industry cluster? [8] (e) Discuss whether moving towards nuclear energy is the most appropriate amongst the recommendations outlined in Extract 3 to help Singapore achieve the goals set out by the Economic Strategies Committee. [10] [Total 30m]

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