|Nuclear Power: Least-Cost Option for Baseload Electricity in Finland|
|Risto Tarjanne & Sauli Rissanen|
As a result of the outstanding operating experience and the low electricity production costs of the existing Finnish nuclear power plants, energy-intensive process industries in particular have a strong belief in nuclear power. There is a potential interest in building more nuclear capacity, the fifth unit, in order to guarantee for Finnish industry the availability of cheap electrical energy in the future. In any case more baseload generation capacity will be needed by 2010 to meet the future growth of electricity consumption in Finland.
Nuclear power generation matches excellently with the long-duration load profile of the Finnish power system. The good performance of Finnish nuclear power has yielded benefits also to consumers through its contribution to decreasing the electricity price. Furthermore, the introduction of nuclear power has resulted in a clear drop in the carbon dioxide emissions from electricity generation during the 1970s and 1980s, as shown in Figure 1.
In 1999 the four Finnish nuclear power units at Loviisa and Olkiluoto generated 22.1 TWh of electricity, roughly equivalent to one third of the total domestic generation. Loviisa power station has a net output capacity of 2 x 488 MWe, and Olkiluoto 2 x 840 MWe. The capacity factors of Olkiluoto‑1 and ‑2 were as high as 96.9% and 96.6% in 1999. For Loviisa‑1 and ‑2 the capacity factors were 91.0% and 93.2%, respectively. During the last decade the average capacity factor of the total Finnish nuclear capacity has been 91.2%, which was the highest in the world. Figure 2 shows the capacity factors of nuclear power plants in various countries during the period 1983 to 1999 (Ref 1).
Environmental impact assessment studies have been made for the fifth nuclear unit to be located at one of the existing Finnish nuclear sites, i.e. Olkiluoto or Loviisa. The size of the new nuclear unit would be in the range of 1000 to 1700 MWe. The existing infrastructure of the site could be utilised, resulting in lower investment cost for the new unit.
In this paper, firstly a financial comparison of the new baseload power plant alternatives in the Finnish circumstances has been carried out (Ref 2), and secondly the actual power production costs of the existing Olkiluoto nuclear power plant have been calculated based on the operating history of about 20 years (Ref 3), (Ref 4), (Ref 5).
Competitiveness Comparison for New Baseload Power Plants
Performance and Cost Data of the Power
· nuclear power plant,
· combined cycle gas turbine plant,
· coal-fired condensing power plant,
· peat-fired condensing power plant.
The performance and cost data (price level of February 2000) of these alternatives are presented in Table 1. All the costs are expressed in euros (1 euro = 5.94573 FIM = US$0.90180).
The existing 560 MWe Meri-Pori power plant with pulverised coal combustion has been used as the reference unit for the coal-fired power plant. The peat-fired unit is based on fluidised bed combustion. The performance and cost data of the combined cycle gas turbine plant is based on new efficient concepts now available internationally.
The sizing of the gas and coal-fired units has been selected sufficiently large so that the benefits of scale can be realised as far as possible. The coal plant would be located on the seacoast. The size of the peat plant is restricted to 150 MWe, because the transport distance of peat fuel is becoming too long for larger unit sizes.
The sizing of the nuclear alternative is selected in the middle of the range of the reactors under consideration. The investment and operation costs of the nuclear unit are based on the fact that it would be built on an existing nuclear site. The construction time of the nuclear power plant is presumed to be five years. All the expenses of nuclear waste treatment (including spent fuel) and decommissioning of the plant are included in the variable operation and maintenance costs through the annual payments to the nuclear waste fund.
Electricity Generation Costs
The electricity generation costs of the four alternatives with the annual full-load utilisation time of 8000 hours (corresponding to a capacity factor of 91%) have been illustrated in Figure 4. The nuclear electricity would cost 22.3 euros/MWh, coal based electricity 24.4 euros/MWh and gas based electricity 26.3 euros/MWh, respectively.
The capital cost component is dominating in the nuclear generation cost, whereas the nuclear fuel cost remains quite low. For the other alternatives under consideration, the fuel cost component is highly dominating.
Table 3 and Figure 5 illustrate the electricity generation cost of the baseload alternatives in the case that investment costs are varied by 10%. For nuclear power the impact is greater than for coal and gas alternatives. However, even a large increase in the investment costs does not change the competitiveness of nuclear power.
The influence of changes in the fuel costs is shown in Table 4 and Figure 6. Nuclear power is highly insensitive to increases, but the production cost of gas-fired electricity rises remarkably with increasing fuel prices.
For the base case the economic lifetime was 40 years for nuclear power, 25 years for coal and gas power, and 20 years for the peat alternative. Table 6 and Figure 8 illustrate the impact of 5 and 10 years change in the economic lifetime.
The sensitivity analysis reveals that the advantage of the nuclear option is quite insensitive to changes in the input parameters. For example, an increase in the uranium price causes only a slight increase in nuclear electricity costs, whereas for the natural gas alternative a rising trend of gas prices causes a major cost increase. Furthermore, the availability of natural gas in Finland for a new large baseload unit is not guaranteed in the near future.
Conclusions for Selecting a New Baseload
Of the four alternatives under consideration, the nuclear option is the only one which does not produce any carbon dioxide emissions to the atmosphere. A new 1250 MWe nuclear unit with 10 TWh annual production would save 8.3 million tonnes of carbon dioxide emissions annually, if the reference is the coal-fired condensing power plant. Compared to the combined cycle gas turbine plant, the new nuclear unit would save 3.7 million tonnes of CO2 emissions. The nuclear choice would make a major contribution to achieving in 2010 the greenhouse gas emission level in accordance with the Kyoto protocol.
From the national point of view both in terms of the economy and in terms of Finnish compliance with its Kyoto protocol commitments on greenhouse gas emissions reductions the nuclear choice is by far the best alternative for new baseload power capacity.
Generation Costs of the Existing Olkiluoto Nuclear Plant
Input Data and Calculation Method
The annual electricity production of Olkiluoto between 1979 and 1999 is illustrated in Figure 9. The output capacities of both the units have been upgraded from the initial value of 660 MWe each to 840 MWe each.The current operating permission extends to the end of 2018 with the condition that a complete safety assessment of the plant has to be made by 2008. The final shut-down date has not yet been strictly defined, and in practice by partially renewing the plant it is possible to extend its lifetime further. The maintenance philosophy of Olkiluoto NPP has been to keep the plant in such a condition that the remaining lifetime is still 40 years. This policy costs a little more but guarantees good safety and trouble-free operation of the baseload power plant. In the financial calculations the following two study periods have been used:
· The past operation period 198099, allowing for the residual value of the investment at the end of period.
· The planned operation period 19802018, by defining moderate future operation and expenditure records for the period 20002018.
The TVO company earns all its revenues through electricity sales to its shareholders. As TVO is a non-profit company, the electricity price is defined so that the revenues are enough to cover all the annual expenses including capital costs. The price of electricity to the owners has been clearly below the wholesale market price of electricity during the more than 20-year operating period of Olkiluoto. Consequently, the original shareholders of the company have benefited greatly from their investment.
In the financial analysis of this study all the cash expenses (investment and annual cash expenses) of the Olkiluoto NPP are taken into account and the average production cost and other profitability indicators are calculated. From the balance sheets and annual financial statements of the TVO company, the actual annual expenses of Olkiluoto NPP can be followed from the very beginning. The starting point of the financial analysis is fixed at the beginning of 1981, which is the first year in which both units were in operation throughout the year.
The total liabilities of the TVO company including its own share capital amounted at the end of 1980 to 806 million euros, which is taken as the initial investment cost, including the initial fuel loading and the interest during construction. All the expenditure during construction and the operating expenses and revenues during the years of partial operation were included in the total liabilities at the end of 1980.
The average nominal interest rate used in the financial calculations should correspond as closely as possible to the interest rates of the financial markets applied for the loans of large industrial companies during 198199. As a conservative choice, a nominal interest rate of 9% per annum was used in the base case of the financial analysis.
The annual cash expenses (excluding interest and depreciation) during 198199 have varied between 85 and 170 million euros. The annual cash expenses comprise uranium fuel costs, personnel costs, bought services, spare parts and materials for operation and maintenance, operational investments and investments for capacity upgrades, as well as payments to the national fund for nuclear waste management and nuclear power decommissioning.
In the financial analysis the revenues originate from the generated electricity. The price (i.e. production cost) of the electricity is the unknown factor to be calculated. The electricity price during the study period is defined either to be constant every year or to be proportional to a given price index describing the typical electricity price development during the study period. If the electricity price is used as an input, the internal rate of return (IRR) and payback time of the initial investment of 806 million euros (in 1980) can be calculated.
The financial analysis was carried out as a net present value (NPV) calculation by discounting all annual expenses and revenues (i.e. the net cash flow) to 1980. By calculating year by year the development of the cumulative discounted net cash flow (i.e. the net present value from 1980 to the year in question) during the study period an informative payback curve can be created.
Electricity Generation Costs and Payback
For the remaining period 200018 the annual generation has been assumed to be 14 TWh a little less than the 14.2 TWh generation of 1999 and inflation increases in all expenses and the price of electricity were assumed to be 2% per annum. Thus the NPV calculation for the period 19802018 resulted in a constant (198199) electricity price of 18.0 euros/MWh, which then increases by 2% per year from 2000 onwards. The respective payback curve is shown in Figure 12.
A moderate residual value for 1680 MWe of nuclear capacity with future lifetime of 19 years (200018) amounts to 1346 million euros (8000 million FIM) at the end of 1999.3 This results in a constant value of 17.8 euros/MWh for the period 198099. This value matches well with the value of 18.0 euros/MWh for the whole period 19802018.
In order to define a reference price for electricity during the period 198199 the wholesale price of baseload electricity could be considered. However, the nuclear capacity of Finland (Olkiluoto and Loviisa) has contributed to lowering the wholesale electricity price, and thus the price benefit of nuclear power would be partly hidden. Consequently, a coal electricity price index was calculated for the period 198099 based on actual historical coal prices, investment and annual operation and maintenance costs of coal-fired condensing power plant for baseload use (cf. Figure 11). The average of the coal electricity price for this period is 26.4 euros/MWh, which is 8.6 euros/MWh or 48% higher than the average production cost of the Olkiluoto NPP.
When the electricity price is assumed to be proportional to the coal electricity price index, the own-cost electricity price profile of Olkiluoto NPP for 198199 can be calculated and is shown in Figure 11. The residual value of 1346 million euros at the end of 1999 has been used for the NPP investment. In addition, a similar cost profile proportional to the Finnish wholesale price index is presented in Figure 11.
Figure 12 summarises for the whole period 19802018 the payback curves of the following cases:
· The price of electricity is equal to the coal electricity price during 198199: the time of investment payback is April 1990.
· The price of electricity is equal to 20.5 euros/MWh during 198199: the time of payback is at the end of 1999.
· The price of electricity is equal to 18.0 euros/MWh during 198199: the time of payback is at the end of 2018.
From 2000 onwards the above electricity prices are increased by 2% per annum.
The case where the price is equal to the coal electricity price in Figure 12 results in an early payback time for the investment of April 1990.
Internal Rate of Return (IRR)
For the whole period 19802018:
· If the price of electricity is equal to the coal electricity price, IRR = 18.1%.
· If the price of electricity is equal to 20.5 euros/MWh, IRR = 11.9%.
· If the price of electricity is equal to 18.0 euros/MWh, IRR = 9.0%.
For the shorter period 198099 with a residual value of 1346 million euros at the end of 1999:
· If the price of electricity is equal to the coal electricity price, IRR = 18.2%.
· If the price of electricity is equal to 20.5 euros/MWh, IRR = 12.%.
· If the price of electricity is equal to 17.8 euros/MWh, IRR = 9.0%.
For the shorter period 198099 with zero residual value at the end of 1999:
· If the price of electricity is equal to the coal electricity price, IRR = 16.9%.
· If the price of electricity is equal to 20.5 euros/MWh, IRR = 9.0%.
These figures of internal rate of return indicate outstanding profitability.
Profitability of the Olkiluoto NPP
A new 1250 MWe nuclear power plant located at one of the existing nuclear power sites in Finland would cost 2200 million euros, including the interest during construction and the initial fuel loading. At 8000 hours annual full-load utilisation corresponding to Finlands historical average nuclear capacity factor of 91% the electricity generation cost would amount to 22 euros/MWh, making it the least-cost option for the new baseload capacity which is needed in Finland in the near future. The expenses of nuclear waste management and the decommissioning of the nuclear power plant are included in the electricity generation costs through annual payments to the national nuclear waste fund.
The nuclear electricity cost is quite insensitive to fuel price changes, which further improves the competitiveness of nuclear over the gas and coal alternatives. Furthermore, the reductions in greenhouse gas emissions through additional nuclear capacity strengthen the superiority of the nuclear option still further.
The deregulation of the power market in the Nordic countries has lowered the market price of electricity. As a consequence of successive years of abundant rainfall (which provides hydro power) the electricity market price has during the last two years been exceptionally low. No new power plant producing only electricity would have been financially feasible with revenues based on these electricity prices. However, in the future the market price of electricity is expected to rise.
The electricity generation cost calculated from the historical records of the Olkiluoto NPP amounts to 18 euros/MWh as a constant price during the past operating period of 198199. The investment has been highly profitable.
The key issue making the nuclear option so competitive in Finland is the high capacity utilisation factor, which has been achieved through first-class maintenance and operation. Furthermore, the annual load profile of the Finnish power system facilitates high capacity factors for the baseload nuclear capacity with its small variable operating costs.
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