Economics of nuclear power plants

The economics of new nuclear power plants is a controversial subject, since multi-billion dollar investments ride on the choice of an energy source. Nuclear power plants typically have high capital costs for building the plant, but low fuel costs. Therefore, comparison with other power generation methods is strongly dependent on assumptions about construction timescales and capital financing for nuclear plants. Cost estimates also need to take into account plant decommissioning and nuclear waste storage costs. On the other hand measures to mitigate global warming, such as a carbon tax or carbon emissions trading, may favor the economics of nuclear power.

Analysis of the economics of nuclear power must take into account who bears the risks from future uncertainties. To date all operating nuclear power plants were developed by state-owned or regulated utility monopolies where many of the risks associated with construction costs, operating performance, fuel price, and other factors were borne by consumers rather than suppliers. Many countries have now liberalised the electricity market where these risks, and the risk of cheaper competitors, are borne by merchant plant suppliers rather than consumers, which can lead to a significantly different evaluation of the economics of new nuclear power plants.

New plants under construction

Four ABWRs are already in operation in Japan, and one more is being built in Japan and two in Taiwan. Two of the Japanese plants were brought in under budget and ahead of schedule.

The 1600 MWe European Pressurized Reactor (EPR) reactor is being built in Olkiluoto Nuclear Power Plant, Finland. A joint effort of French AREVA and German Siemens AG, it will be the largest PWR in the world. In December 2006 (approximately 18 months after construction began), completion of construction was about 18 months behind the original schedule so completion was expected 2010-2011. The Olkiluoto project has benefited from various forms of government support and subsidies, including liability limitations, preferential financing rates, and export credit agency subsidies.

As of March, 2007, there are seven nuclear power plants under construction in India, and five in China.

Russia has begun building the world’s first floating nuclear power plant. The £100 million vessel, the Lomonosov, is the first of seven plants (70 MWe per ship) that Moscow says will bring vital energy resources to remote Russian regions.

Early Site Permit Applications have been filed in the U.S. for several AP1000 plants. Four are to be built in China. Two EPRs are also to be built in China.

According to the NRC, 28 new U.S. nuclear power units are planned, as of 2007.

New plant designs

Plant designs currently available for building include AREVA's European Pressurized Reactor (EPR) and its SWR-1000, General Electric's ABWR and ESBWR, and Westinghouse's AP1000. Canada (see CANDU), Russia (see VVER), India and China also have indigenous plant designs.

For a full list, see Advanced Nuclear Power Reactors in the External links below.

Capital costs

Because of the large capital costs for nuclear power, and the relatively long construction period before revenue is returned, servicing the capital costs of a nuclear power plant is the most important factor determining the economic competitiveness of nuclear energy. The investment (including interest) can contribute about 70% of costs of electricity, according to one 2005 OECD/NEA study (which assumed a 10% discount rate). The discount rate chosen to cost a nuclear power plant's capital over its lifetime is arguably the most sensitive parameter to overall costs.

The recent liberalisation of the electricity market in many countries has made the economics of nuclear power generation less attractive. Previously a monopolistic provider could guarantee output requirements decades into the future. Private generating companies now have to accept shorter output contracts and the risks of future lower-cost competition, so they desire a shorter return on investment period - this favours generation plant types with lower capital costs but higher fuel costs. A further difficulty is that due to the large sunk costs but unpredictable future income from the liberalised electricity market, private capital is unlikely to be available on favourable terms, which is particularly significant for nuclear as it is so capital-intensive.

Construction delays can add significantly to the cost of a plant. Because a power plant does not yield profits during construction, longer construction times translate directly into higher interest charges on borrowed construction funds. Modern nuclear power plants are planned for construction in four years or less (42 months for CANDU ACR-1000, 60 months from order to operation for an AP1000, 48 months from first concrete to operation for an EPR and 45 months for an ESBWR) as opposed to over a decade for some previous plants. However, despite Japanese success with ABWRs, the first EPR (in Finland) is significantly behind schedule.

In some countries in the past (notably the U.S.), changes in licensing, inspection and certification of nuclear power plants added delays and construction costs to their construction. However, the regulatory processes for siting, licensing, and constructing have been standardized since their introduction, streamlining the construction of newer and safer designs.

In the U.S. many new regulations were put in place in the years before and again immediately after the Three Mile Island accident's partial meltdown, resulting in delaying plants' operation by many years. The NRC has new regulations in place now, and the next plants will have NRC Final Design Approval before the customer buys them, and a Combined Construction and Operating License will be issued before construction starts, guaranteeing that if the plant is built as designed then it will be allowed to operate - thus avoiding lengthy hearings after completion.

The smallest nuclear power plant that can be built is often larger than other power plants, making it possible for a utility to build the other plants in smaller increments, or in areas of low power consumption. (However, several new designs are being targeted at smaller markets, such as PBMR, IRIS, and SSTAR).

In Japan and France, construction costs and delays are significantly diminished because of streamlined government licensing and certification procedures. In France, one model of reactor was type-certified, using a safety engineering process similar to the process used to certify aircraft models for safety. That is, rather than licensing individual reactors, the regulatory agency certified a particular design and its construction process to produce safe reactors. U.S. law permits type-licensing of reactors, a process which is being used on the AP1000 and the ESBWR.

In 2006, Business Week magazine stated, "...,the [US] industry is aiming to build new plants for $1,500 to $2,000 per kilowatt of capacity,...". However, they also added, "Trouble is, the cheapest plants built recently, all outside the U.S., have cost more than $2,000 per kilowatt."

An AP1000 (with passive-safety features) is estimated by Westinghouse to have an overnight cost of $1,000 to $1,100 per kilowatt-electric (kWe) installed capacity (for a 1,117 MWe plant), after the first few plants are started. For an ESBWR (a fully passively safe plant), General Electric estimates $1,160 to $1,250 per kWe for a first-of-a-kind 1,560 MWe plant per kWe. Estimates from producers themselves can have a large range, adding to the potential uncertainty; GE and Hitachi recently estimated costs at between $2,000 and $3,000.

To encourage development of nuclear power, under the Nuclear Power 2010 Program the U.S. Department of Energy (DOE) has offered interested parties the opportunity to introduce France's model for licensing and to subsidize 25% to 50% of the construction cost overruns due to delays for the first six new plants. Several applications were made, two sites have been chosen to receive new plants, and other projects are pending (see Nuclear Power 2010 Program).

Operating costs

In general, coal and nuclear plants have the same types of operating costs (operations and maintenance plus fuel costs). However, nuclear has lower fuel costs but higher operating and maintenance costs.

Security

Unlike other power plants, nuclear plants must be carefully guarded against both attempted sabotage (generally with the goal considered to be causing a radiological accident, rather than just preventing the plant from operating) and possible theft of nuclear material. Thus security costs of both protecting the physical plant and the screening of workers must be considered. It is true that some other forms of energy also require high security, like natural gas storage facilities and oil refineries.

Uranium

Nuclear plants require fissionable fuel. Generally, the fuel used is uranium, although other materials may be used (See MOX fuel). In 2005, prices on the world market averaged US$20/lbs (US$44.09/kg). On 2007-04-19, prices reached US$113/lbs (US$249.12/kg). On 2007-9-24, the price had dropped to $85/lb. [2]

While the amounts of uranium used are a fraction of the amounts of coal or oil used in conventional power plants, fuel costs account for about 28% of a nuclear plant's operating expenses.

Currently, there are proposals to increase the numbers of nuclear power plants by 57% more reactors from the 435 currently in operation, according to John S. Herold's Ruppel. While it is unlikely all proposed plants will actually be completed, an increase in plants, combined with the current decline in supply, caused by flooding at some of the world's largest uranium mines, and speculators winning repositories in North America and Europe, means that prices are likely to increase. In addition, about 45% of the 2006 world supply of uranium came from old nuclear warheads, mostly Russian. At current supply and demand levels, those old stockpiles will be completely depleted by 2015.

Mining activity is growing rapidly, especially from smaller companies, but developing a uranium mine takes a long time, 10 years or more.

Waste disposal

Main article: radioactive waste

All nuclear plants produce radioactive waste. Much of the waste is extremely deadly and will remain so for thousands of years. To pay for the cost of transporting it to and storing it at a safe location, in the United States, a surcharge of a tenth of a cent per kilowatt-hour is added to the electric bills of customers.

The costs involved for other nations would be different. The United States plans on using a facility at Yucca Mountain to permanently store the waste created by U.S plants. No mention has been made of providing storage for other nations there.

Sweden has proposed using the Forsmark Nuclear Power Plant site to store its nuclear waste, using the KBS-3 process.

France uses nuclear reprocessing for much of their waste. For the waste that cannot be reprocessed, it has decided for political reasons to not store its waste "permanently" but to build a research laboratory charged with investigating various options, including deep geological storage, above ground stocking and transmutation and detoxification of waste. Waste would not be buried permanently but rather stocked in a way that makes it accessible at some time in the future.

Decommissioning

Main article: nuclear decommissioning

At the end of a nuclear plant's lifetime (estimated at between 40 and 60 years), the plant must be decommissioned. This entails either Dismantling, Safe Storage or Entombment. Operators are usually required to build up a fund to cover these costs while the plant is operating, to limit the finacial risk from operator bankruptcy.

In the United States, the Nuclear Regulatory Commission (NRC) requires plants to finish the process within 60 years of closing. Since it may cost $300 million or more to shut down and decommission a plant, the NRC requires plant owners to set aside money when the plant is still operating to pay for the future shutdown costs.

Insurance

Insurance for nuclear or radiological incidents in the U.S. is organized by the Price-Anderson Nuclear Industries Indemnity Act. In general, nuclear power plants have private insurance and assessments that are pooled into a fund currently worth about $10 billion. Insurance claims beyond the fund's size would be organized by, and probably paid by, the U.S. government. In July 2005, Congress extended this Act to newer facilities. For full history, details and controversy, see Price-Anderson Nuclear Industries Indemnity Act.

In the UK, the Nuclear Installations Act of 1965 governs liability for nuclear damage for which a UK nuclear licensee is responsible.

The Vienna Convention on Civil Liability for Nuclear Damage puts in place an international framework for nuclear liability.

Subsidies

Critics of nuclear power claim that it is the beneficiary of inappropriately large economic subsidies — mainly taking the forms of taxpayer-funded research and development and limitations on disaster liability — and that these subsidies, being subtle and indirect, are often overlooked when comparing the economics of nuclear against other forms of power generation. However, competing energy sources also receive subsidies. Fossil fuels receive large direct and indirect subsidies, such as tax benefits and not having to pay for the greenhouse gases they emit. Renewables receive large direct production subsidies and tax breaks in many nations.

Energy research and development (R&D) for nuclear power alone has and continues to receive much larger state subsidies than R&D for all renewable energy sources put together or for fossil fuels. However, today most of this takes places in Japan and France: in most other nations renewable R&D as a whole get more money. In the US, public research money for nuclear fission declined from 2,179 to 35 million dollars between 1980 and 2000. However, in order to restart the industry, the next six US reactors will receive subsidies equal to those of renewables and, in the event of cost overruns due to delays, at least partial compensation for the overruns (see Nuclear Power 2010 Program).

Cost per MWh (or kWh)

Factoring in all these issues, various groups have attempted to calculate a true economic cost for electricity generated by the most modern designs proposed.

If an actual cost per MWh (or kWh) can be calculated, then it is possible to compare it to other power sources to determine if such an investment is economically sound.

In 2003, the Massachusetts Institute of Technology (MIT) issued a report entitled, "The Future of Nuclear Power". They estimated that new nuclear power in the US would cost 6.7 cents per kWh. However, the Energy Policy Act of 2005 includes a tax credit that should reduce that cost slightly.

The lifetime cost of new generating capacity in the United States was estimated in 2006 by the U.S. government. Nuclear power was estimated at $59.30 MWh. However, the "total overnight cost" for new nuclear was assumed to be $1,984 per kWe -- as seen above in Capital Costs, this figure is subject to debate.

Comparisons with other power sources

Generally, a nuclear power plant is significantly more expensive to build than an equivalent coal-fueled or gas-fueled plant. However, coal is significantly more expensive than nuclear fuel, and natural gas significantly more expensive than coal — thus, capital costs aside, natural gas-generated power is the most expensive. Most forms of electricity generation produce some form of negative externality - costs imposed on third parties that are not directly paid by the producer - such as pollution which negatively affects the health of those near and downwind of the power plant, and generation costs often do not reflect these external costs.

A comparison of the "real" cost of various energy sources is complicated by several uncertainties:

• The cost of climate change through emissions of greenhouse gases is hard to estimate. Carbon taxes may be enacted, or carbon capture and storage may become mandatory.
• Outside the U.S., the cost or even political feasibility of disposal of the waste from reprocessed spent nuclear fuel. (Disposal of U.S. spent nuclear fuel, which currently is not reprocessed, is funded by a fixed surcharge on generation: the U.S. government is obligated to take title to the fuel.)
• Many renewables are intermittent and the system may require incremental back-up power or storage if the portion of generation from these renewables is significant.
• Governmental instabilities in the next plant lifetime. New nuclear power plants are designed for a minimum of 60 years (50 for VVER-1200), and may be able to be refurbished. Likewise, the waste from reprocessed fuel remains dangerous for about this period.

A UK Royal Academy of Engineering report in 2004 looked at electricity generation costs from new plants in the UK. In particular it aimed to develop "a robust approach to compare directly the costs of intermittent generation with more dependable sources of generation". This meant adding the cost of standby capacity for wind, as well as carbon values up to £30 (€45.44) per tonne CO₂ for coal and gas. Wind power was calculated to be more than twice as expensive as nuclear power. Without a carbon tax, the cost of production through coal, nuclear and gas ranged £0.022-0.026/kWh and coal gasification was £0.032/kWh. When carbon tax was added (up to £0.025) coal came close to onshore wind (including back-up power) at £0.054/kWh — offshore wind is £0.072/kWh -- nuclear power remained at £0.023/kWh either way, as it produces negligible amounts of CO₂. (Nuclear figures included decommissioning costs.)

The lifetime cost of new generating capacity in the United States was estimated in 2006 by the U.S. government: wind cost was estimated at $55.80 per MWh, coal (cheap in the U.S.) at $53.10, natural gas at $52.50 and nuclear at $59.30. However, the "total overnight cost" for new nuclear was assumed to be $1,984 per kWe -- as seen above in Capital Costs, this figure is subject to debate. Also, carbon taxes and backup power costs were not considered.

An OECD/IEA study from 2005 estimated nuclear power total-lifetime costs per kwhr-electric versus coal and natural gas for 12 nations: nuclear generally beat coal (even without a carbon tax) even though the study unrealistically assumed 40-year plant lifetimes (new plants are designed to operate for 60 or more years).

Costs for Clean coal and Carbon capture and storage can be found in those articles.

Estimates of total lifetime energy returned on energy invested vary greatly depending on the study. An overview can be found here (Table 2):

Other economic issues

Nuclear Power plants tend to be very competitive in areas where other fuel resources are not readily available — France, most notably, has almost no native supplies of fossil fuels.

Nuclear power plants (except old BWRs and new ABWRs) cannot rapidly adjust their level of power production (called load-following), and are generally intended solely for baseload supply. Some new experimental reactors, notably pebble bed modular reactors, are specifically designed to do this, for peaking power purposes.

Any effort to construct a new nuclear facility around the world, whether an existing design or an experimental future design, must deal with NIMBY or NIABY objections. Because of the high profiles of the Three Mile Island accident and Chernobyl disaster, few municipalities welcome a new nuclear reactor, processing plant, transportation route, or nuclear burial ground within their borders, and some have issued local ordinances prohibiting the locating of such facilities there. However, a number of U.S. areas, some already with nuclear units, are campaigning for more (see Nuclear Power 2010 Program).

A Council on Foreign Relations report on nuclear energy argues that a rapid expansion of nuclear power may create shortages in building materials such as reactor-quality concrete and steel, skilled workers and engineers, and safety controls by skilled inspectors. This would drive up current prices.[3] It may be easier to rapidly expand, for example, the number of coal power plants, without this having a large effect on current prices.

The World Nuclear Association states that "Sun, wind, tides and waves cannot be controlled to provide directly either continuous base-load power, or peak-load power when it is needed. In practical terms they are therefore limited to some 10-20% of the capacity of an electricity grid, and cannot directly be applied as economic substitutes for coal or nuclear power, however important they may become in particular areas with favourable conditions." "The fundamental problem, especially for electricity supply, is their variable and diffuse nature. This means either that there must be reliable duplicate sources of electricity, or some means of electricity storage on a large scale. Apart from pumped-storage hydro systems, no such means exist at present and nor are any in sight." "Relatively few places have scope for pumped storage dams close to where the power is needed, and overall efficiency is low. Means of storing large amounts of electricity as such in giant batteries or by other means have not been developed."[4]

See also

• Galena Nuclear Power Plant - proposed nuclear power plant to be constructed in Alaska, USA.
• Decommissioning nuclear facilities

External links

• The Economics of Nuclear Power The view of the World Nuclear Association
• Steve Thomas (2005), "The Economics of Nuclear Power: analysis of recent studies", PSIRU, University of Greenwich, UK.
• Brookings Institution — The Political Economy of Nuclear Energy in the United States
• Advanced Nuclear Power Reactors