Nuclear Power Economics and Project Structuring 2017 Edition

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Nuclear power is an economic source of electricity generation, combining the advantages of security, reliability, virtually zero greenhouse gas emissions and cost competitiveness. Existing plants function well with a high degree of predictability. The operating costs of these plants are usually very competitive, with a low risk of significant operating cost inflation. The capacity factors of existing plants are high (over 90% in the US). Nuclear power plants provide electricity when it is needed. Plants are now expected to operate for 60 years and even longer in future.

The International Energy Agency (IEA) sees the global demand for electricity growing at 1.9% per year in the period to 2040. Given this demand environment, coupled with the desire to reduce the greenhouse gas emissions from the generation of electricity, the IEA projects growth of an annualised 2.3% in nuclear generation over that period.

Nuclear competes well with rival generation technologies as is indicated by the assessment of the Organisation for Economic Cooperation and Development (OECD) - Nuclear Energy Agency (NEA) & IEA, although the level of competitiveness does vary at different discount rates and between countries. In the pivotal Chinese market, nuclear has a lower levelised cost of generating electricity (LCOE) than any other technology barring hydro.

In some electricity markets, especially those that are deregulated, subsidised intermittent renewable generation and gas-fired generation not penalised by carbon costs are creating economic difficulties for all baseload generators, including nuclear. Where the system and external costs of competitor technologies are added to the plant-level costs, the competitiveness of nuclear is enhanced. In order for these advantages of nuclear to be fully realised, policymakers need to address fundamental market design problems. In some countries, deregulated markets are being partially re-regulated in order to place monetary value on the qualities that nuclear power brings (reliability, security, zero emissions).

The economics of new nuclear plants are heavily influenced by their capital cost, which accounts for at least 60% of their levelised cost of electricity. Interest charges and the construction period are important variables for determining the overall cost of capital. The escalation of nuclear capital costs in some countries, more apparent than real given the paucity of new reactor construction in OECD countries and the introduction of new designs, has peaked in the opinion of the IEA3. In countries where continuous development programmes have been maintained, capital costs have been contained and, in the case of South Korea, even reduced. Over the last fifteen years global median construction periods have fallen. Once a nuclear plant has been constructed, the production cost of electricity is low and predictably stable.

Economic risks relate to a range of factors including: the regulation of electricity markets and the existence of competitor technologies that are subsidised or fail to account for external costs; nuclear safety regulation; project construction performance; operational performance; and political risk. Some of these risks can be managed by the reactor engineering, procurement and construction contractors or the utility but others are outside the control of the industry. In practice, current nuclear investment is undertaken in broadly regulated markets largely via utility balance sheet financing where the operator can offset the risks of any given generating technology against those of other assets in their portfolio. Most electricity markets are regulated and characterised by dominant state-owned companies.