pdate un a

ower:

ThE Economics oF nuclEar

uclear Pn

PoWEr: an uPdaTE

By steve Thomas

The Economics of

Cost estimates for new nuclear plants have been escalating at

nuclear accident. Yet, in recent years, governments have become

an alarming rate, and in the past decade, construction cost-

increasingly determined in their attempts to maintain existing

estimates have increased five-fold, with every expectation that

nuclear plants in service and revive nuclear ordering, on the

costs will increase further as the designs are firmed up. In ad-

grounds that nuclear power is the most cost-effective way to

dition, there are the unsolved problems of waste disposal and

combat climate change. Some of this apparent paradox is rela-

the high susceptibility of the technology to failure. Up to now,

tively easily explained by the difference between the running

nuclear power plants have been funded by massive public sub-

costs only of nuclear power, which are usually relatively low,

sidies. For Germany the calculations roughly add up to over

and the overall cost of nuclear power – including repayment

100 billion Euros and this preferential treatment is still going

of the construction cost – which is substantially higher. The

on today. As a result the billions set aside for the disposal of

objective of this report is to identify the key economic param-

nuclear waste and the dismantling of nuclear power plants rep-

eters that determine the cost of nuclear electricity, commenting

resent a tax-free manoeuvre for the companies. In addition the

on their determining factors. It shows that without subsidies

liability of the operators is limited to 2.5 billion Euros – a tiny

and guarantees from electricity consumers and taxpayers, new

proportion of the costs that would result from a medium-sized

nuclear power plants will not be built.

Rue d’Arlon 15, -1050 Brussels, Belgium

T +32 2 743 41 00 F 32 2 743 41 09

E brussels@boell.eu W www.boell.eu

publication series on ecology

the economics of nuclear power:

an update

by steve thomas, March 2010

edited by the Heinrich böll Foundation

With the support of the

Heinrich-Böll-Stiftung

Published by the Heinrich-Böll-Stiftung, European Union, Brussels

Printed in Belgium, September 2010

© The authors, the Heinrich-Böll-Stiftung, European Union, Brussels

All rights reserved

English proof-reading and language editing: Katarzyna Radzikowska

Coordination and final editing: Annett Waltersdorf

Print production: Micheline Gutman

Cover picture: iStockphoto.com © Björn Kindler

Pictures of Chapters 1, 3 and 8: One-time, non-exclusive, editorial use only. No archive, redistribution or reuse in another context without prior permission from Greenpeace Photo Library. Not for advertising or promotional use. Credit compulsory.

Some rights reserved for the pictures of Chapters 4, 5, 6 and 7. They are attached to the following Creative Commons license: http://creativecommons.org/licenses/by-sa/2.0/

D/2010/11.850/5

This publication can be ordered at:

Heinrich-Böll-Stiftung, European Union, Brussels

15 Rue d’Arlon

B-1050 Brussels

Belgium

T (+32) 2 743 41 00

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W www.boell.eu

table oF contents

preface: nuclear energy – a Dead end

5

author’s note

7

introduction

8

1. the world market for nuclear plants: existing orders and prospects

9

2. Key determinants of nuclear economics

16

2.1.Constructioncostandtime

17

2.1.1.Unreliabilityofdata

17

2.1.2.Difficultiesofforecasting

18

2.1.3.Learning,scaleeconomies,andtechnicalprogress

19

2.1.4.Constructiontime

20

2.2.Costofcapital

21

2.3.Operatingperformance

22

2.4.Non-fueloperationsandmaintenancecosts

24

2.5.Fuelcost

25

2.6.Accountinglifetime

26

2.7.Decommissioningandwastedisposalcostandprovisions

26

2.8.Insuranceandliability

27

3. experience at olkiluoto and Flamanville

29

3.1.Olkiluoto

29

3.2.Flamanville

30

4. the us programme

32

4.1.Likelyoutcomes

36

5. the uK programme

38

5.1.Likelyoutcomes

39

6. germany

41

7. other markets

42

7.1.UnitedArabEmirates

42

7.2.SouthAfrica

43

7.3.Canada

44

7.4.Turkey

44

7.5.Italy

45

7.6.Brazil

45

7.7.EasternEurope

45

7.7.1.SlovakRepublic

46

7.7.2.Romania

46

7.7.3.Bulgaria

46

7.7.4.Othercountries

46

8. review of utility construction cost-estimates

48

8.1.UnitedStates

48

8.2.Othercountries

49

8.3.Summary

49

9. need for and extent of public subsidies

51

conclusions

53

appendices

55

Appendix1

Reactortechnologies,currentdesigns,andvendors

55

Appendix2

Discounting,costofcapital,andrequiredrateofreturn

61

Appendix3

Decommissioning

62

Appendix4

StatusofUSprojects

65

Preface

5

preFace: nuclear energy – a DeaD enD

Anyone following the statements expressed

subsidies and guarantees. It is noticeable that

from time to time about the renaissance of nu-

new nuclear power stations are built particularly

clear energy could get the impression that the

where the government and the energy industry

number of new nuclear plants was increasing at

form an unholy alliance.

an immense and steady rate. In fact, more recent

statistics show 60 plants in the process of being

Up to now, nuclear power plants have been

built, the majority in China and others in Russia,

funded by massive public subsidies. For Germany

India, South Korea and Japan. The USA is only

the calculations roughly add up to over 100 bil-

shown as having one actual building project.

lion Euros and this preferential treatment is still

However, this list (the VGB Power Tech) includes

going on today. As a result the billions set aside

numerous ancient projects that were never com-

for the disposal of nuclear waste and the disman-

pleted and are therefore de facto building ruins.

tling of nuclear power plants represent a tax-free

manoeuvre for the companies. In addition the

Moreover, there are at the present time pro-

liability of the operators is limited to 2.5 billion

posals for about 160 new nuclear power plants

Euros – a tiny proportion of the costs that would

up to the year 2020, 53 of these in China alone

result from a medium-sized nuclear accident. All

and 35 in the USA, followed by South Korea and

things considered nuclear energy proves to be

Russia. In Europe, the UK heads the list with

just as expensive as it is risky.

eight proposed new projects, followed by Italy,

Switzerland, Finland, Rumania and Lithuania.

In addition to the routine arguments about

France, that would like to bless the world with

nuclear energy, there are some new ones. Firstly,

new nuclear power stations, is itself only plan-

the danger of nuclear proliferation is growing in

ning one new plant. Most European states are not

proportion to the number of new nuclear power

entertaining any concrete nuclear plans.

stations all over the world. There is no insurmount-

able division between the civil and military use of

As a matter of fact the number of nuclear pow-

this technology in spite of the efforts on the part of

er plants in the world is continually decreasing.

the International Atomic Energy Agency (IAEA)

At the present time there are still 436 reactors in

to regulate this. The most recent example is Iran.

operation. In the next 15 to 20 years more ageing

At the end of the day anyone who does not want

plants will go offline than new ones coming into

to be regulated cannot be forced to do so. With

operation. By no means will all declarations of

the expansion of nuclear energy there is a grow-

intent be implemented. The more energy markets

ing necessity to build reprocessing plants and fast

are opened up to free competition, the smaller

breeders in order to produce nuclear fuel. Both give

the chances are for nuclear energy.

rise to the circulation of plutonium leading in turn

to the creation of huge amounts of fissile material

The costs for new plants are also explod-

capable of making bombs – a horror scenario!

ing. For example, the building cost of the new

nuclear power plant in Finland’s Olkiluoto has

Secondly, an extension of the life span of ex-

already increased from 3 to around 5.4 billion

isting nuclear energy stations, and even more so

Euros although not even the shell of the building

the building of new plants, would act as a massive

is standing yet. In addition, there are the unsolved

brake on the development of renewable energies.

problems of waste disposal and the high suscep-

The claim that nuclear energy and renewable

tibility of the technology to failure. Today, no

energies complement each other is a myth since

privately run energy conglomerate risks building

not only do they compete for a meagre amount

a new nuclear power station without government

of investment capital and power-lines but at the

6

6

ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

same time nuclear plants limit the growth po-

tion to climate change nor is it necessary in order to

tential particularly of wind energy owing to their

guarantee energy supply. The exact opposite is true.

inflexible continuous operation. On windy and

Those who want to promote the development of

low-consumption days the energy demand in

renewable energy with the aim of producing 100%

Germany is already covered to a large extent by

of the power demand should oppose the building

the wind energy supply. As the output of exist-

of new nuclear plants as well as the life span exten-

ing nuclear power stations (as well as the big

sion of older ones. Despite the claims about nuclear

coal-fired power stations) is not reduced at short

energy it is not a suitable interim strategy leading

notice for economic reasons, the surplus energy

towards the age of solar energy.

has to be exported to other countries at a loss.

There is method in this madness.

Berlin, January 2010

Whatever way you look at it, nuclear energy has

Ralf Fücks

neither the potential to make a decisive contribu-

(Chairman of the Heinrich-Böll-Stiftung)

Author’snote

7

autHor’s note

Since the following text was finalised in

Rajasthan 6 (India), Lingao 3 and Qinshan 2-3

March 2010, there have been a number of new

(China), and Shin Kori 1 (South Korea). The net

construction starts and completions of nuclear

result of these changes is that by August 2010,

plants. The table below shows the seven plants

there were 59 reactors under construction of

on which construction has started between

which 37 had construction starts after 2005. Of

March 2010 and the end of August 2010. Work

these 37, 23 are in China, 6 are in Russia, 5 are

has also restarted on the Angra 3 plant in Brazil

in South Korea, 2 are in Japan and 1 is in France.

on which construction started in 1976 (see

The picture of new orders still being dominated

Table 3 for details of the plant). Four units (see

by a few countries generally using home suppli-

Table 2 for more details) have been completed:

ers and relatively old designs remains.

nuclear capacity with construction starts between March 2010 and august 2010

country

site

reactor type

Vendor

size MW

China

Taishan2

PwR

Areva

1700

China

Changjiang1

PwR

China

1000

China

haiyang2

PwR

China

1000

China

Fangchenggang1

PwR

China

1000

Japan

Ohma

BwR

Toshiba

1325

Russia

Leningrad2-2

PwR

Russia

1080

Russia

Rostov4

PwR

Russia

1080

Source:PRISDataBase,http://www.iaea.org/programmes/a2/index.html

8 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

introDuction

The severe challenge posed by the need to

ordering, on the grounds that nuclear power is the

reduce emissions of greenhouse gases, especially

most cost-effective way to combat climate change.

in the electricity generation sector, has led to

Utilities are determined to operate their existing

renewed interest in the construction of nuclear

plants for as long as possible and have given ver-

power plants. These would initially replace the

bal support to the need for new nuclear power

aging stock of existing reactors, then meet elec-

plants, but they are reluctant to build new nuclear

tricity demand growth, and eventually replace

power plants without cost- and market guaran-

some of the fossil-fired electricity-generating

tees and subsidies. Some of this apparent paradox

plants. They would also be built in new markets

is relatively easily explained by the difference be-

that up to now have not used nuclear power.

tween the running costs only of nuclear power,

In the longer term, the promise is that nuclear

which are usually relatively low, and the overall

power could take over some of the energy needs

cost of nuclear power – including repayment of the

currently being met by direct use of fossil fuels.

construction cost – which is substantially higher.

For example, nuclear power plants could be used

Thus, once a nuclear power plant has been built,

to manufacture hydrogen, which would replace

it may make economic sense to keep the plant in

use of hydrocarbons in road vehicles.

service even if the overall cost of generation, in-

cluding the construction cost, is higher than the

The public is understandably confused about

alternatives. The cost of building the plant is a

whether nuclear power really is a cheap source of

“sunk” cost that cannot be recovered, and the

electricity. Cost estimates for new nuclear plants

marginal cost of generating an additional kWh

have been escalating at an alarming rate, and

could be small.

in the past decade, construction cost-estimates

have increased five-fold, with every expectation

The objective of this report is to identify the

that costs will increase further as the designs are

key economic parameters that determine the

firmed up. Yet, in recent years, governments such

cost of nuclear electricity, commenting on their

as those of the United States, the United Kingdom,

determining factors. It shows that without subsi-

Germany, and Italy have become increasingly

dies and guarantees from electricity consumers

determined in their attempts to maintain exist-

and taxpayers, new nuclear power plants will

ing nuclear plants in service and revive nuclear

not be built.

1. tHe WorlD MarKet For nuclear plants: existing orDers anD prospects

9

a

ttil

se Anes

eace / Jp

een

1. the world market for nuclear plants:

© Gr

existing orders and prospects

Over the past decade, there has been increas-

in the United Kingdom and the United States

ing talk about a “Nuclear Renaissance” based on

were so bad that, a decade ago, it seemed unlikely

two factors. A new generation of nuclear pow-

that orders would be possible, so reviving these

er plants, so-called Generation III+, would be

markets would be a particular coup.

cheaper and easier to build, safer, and produce

less waste (see Appendix 1 for a description of

The list of plants currently on order (Tables 2,

the Generation III+ designs). Ordering would

3, and 4) suggests that the Renaissance is largely

be not only in countries where nuclear ordering

talk and is geographically limited. In January

had not been problematic, such as France, India,

2010, there were 55 plants under construction

and South Korea, but also in countries such as

worldwide, with a capacity of 51 GW compared

the United States, the United Kingdom, Italy,

to 443 plants already in service with a capacity

as well as Germany, which seem to have turned

of 375 GW (Table 1). Of the 32 units on which

away from nuclear power. The United States

construction had started after 2005, all except

and the United Kingdom

two (one each in France

are particular targets for

The list of plants currently on order

and Japan) were in China

the nuclear industry for a

suggests that the Renaissance is largely

(20), South Korea (6), or

number of reasons:

talk and is geographically limited.

Russia (4) (Table 2). All

except five of these units,

the UK and US programmes are closer to

all for China, were supplied by indigenous sup-

placing orders for Generation III+ designs than

pliers. The Western vendors active in Europe

elsewhere in Europe and North America, apart

– Westinghouse and Areva NP – have won just

from Finland and France;

two orders outside China: Areva NP’s Olkiluoto

the United Kingdom and United States are

order for Finland and its Flamanville order for

seen as pioneers of nuclear power and, therefore,

France. These seven orders and the four units

new orders for nuclear plants in these countries

ordered from South Korea by the United Arab

carry additional prestige; and

Emirates (UAE) in December 2009 are the only

economic experiences with nuclear power

ones for Generation III/III+ designs.

10 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

So without China, the order book for new

Russia, like China, has had very ambitious

nuclear power stations would look much weaker.

plans to expand nuclear power. In 2008, it had

Most of its orders are being supplied by Chinese

plans to commission 26 new nuclear units (about

companies and are based on the French design it

30 GW) by 2025, but by 2009, this target had already

ordered in 1980 for its Daya Bay site. It remains

slipped to 2030 1. Four units dating back to the

to be seen whether China has the human and

1980s are listed as still being under construction

financial resources to continue to finance orders

and nearly complete, but this has been the situa-

at the rate it had in 2008

tion for a decade or more

and 2009, when work on

(see Table 3). If the need for

The most likely outcome for China, is

15 new units was started.

new nuclear capacity was

that it will continue to place a small

The most likely outcome

urgent and the financial

number of nuclear orders on the in-

for China, given the need

resources were available,

ternational market – much fewer than

for China to use its limited

these units would surely

forecast by the Chinese government or

capital resources carefully,

have been completed by

by the nuclear industry – while trying to

is that it will continue to

now. Reliable information

build up its capability through its own

place a small number of

from Russia on the status

nuclear power plant supply industry.

nuclear orders on the in-

of construction at nuclear

ternational market – much

plants is difficult to get and

fewer than forecast by the Chinese government or

these plants may not currently be under construc-

by the nuclear industry – while trying to build up

tion. A particular doubt is the Kursk 5 plant, which

its capability through its own nuclear power plant

uses the same technology as the Chernobyl plant

supply industry. The designs it is supplying now

and which would be very controversial if brought

are too old to be relevant to the West.

on-line.

table 1 – nuclear capacity in operation and under construction: January 2010

operating:

construction:

% elec

cap MW

cap MW

technologies 2

suppliers

nuclear (2008)

(no. units)

(no. units)

Argentina

935(2)

692(1)

6

hwR

SiemensAECL

Armenia

376(1)

-

39

wwER

Russia

Belgium

5863(7)

-

54

PwR

Framatome

westinghouse

Brazil

1766(2)

-

3

PwR

Siemens

Bulgaria

1966(2)

1906(2)

33

wwER

Russia

Canada

12577(18)

-

15

hwR

AECL

Framatome,

PwR,hwR,

China

8438(11)

19920(20)

2

AECL,China,

wwER

Russia

GE,

Taiwan

4949(6)

2600(2)

20

PwR,BwR

Framatome

Czech Republic

3678(6)

-

32

wwER

Russia

1 Nucleonicsweek,“RussiaStretchesOutScheduleforNewReactorConstruction”,march26,2009

2 SeeAppendix1foranoverviewofthetechnologies.

1. tHe WorlD MarKet For nuclear plants: existing orDers anD prospects

11

operating:

construction:

% elec

cap MW

cap MW

technologies 2

suppliers

nuclear (2008)

(no. units)

(no. units)

wwER,BwR,

Russia,Asea,

Finland

2696(4)

1600(1)

30

PwR

westinghouse

France

63260(59)

1700(1)

76

PwR

Framatome

Germany

20470(17)

-

28

PwR,BwR

Siemens

Hungary

1755(4)

-

37

wwER

Russia

hwR,FBR,

AECL,India,

India

3984(18)

2708(5)

2

wwER

Russia

Iran

-

915(1)

wwER

Russia

hitachi,

Japan

46823(53)

1325(1)

25

BwR,PwR

Toshiba,

mitsubishi

westinghouse,

South Korea

17647(20)

6520(6)

36

PwR,hwR

AECL,S

Korea,

Mexico

1300(2)

-

4

BwR

GE

Netherlands

482(1)

-

4

PwR

Siemens

Pakistan

425(2)

300(1)

2

hwR,PwR

Canada,China

Romania

1300(2)

18

hwR

AECL

wwER,

Russia

21743(31)

6894(9)

17

Russia

RBmK

Slovak Republic

1711(4)

810(2)

56

wwER

Russia

Slovenia

666(1)

-

42

PwR

westinghouse

South Africa

1800(2)

-

5

PwR

Framatome

westinghouse,

Spain

7450(8)

-

18

PwR,BwR

GESiemens

westinghouse,

Sweden

8958(10)

-

42

PwR,BwR

Asea

westinghouse,

Switzerland

3238(5)

-

39

PwR,BwR

GESiemens

Ukraine

13107(15)

1900(2)

47

wwER

Russia

UK,

UK

10097(19)

-

13

GCR,PwR

westinghouse

westinghouse,

USA

100683(104)

1165(1)

20

PwR,BwR

B&w,CE,GE

WORLD

375136(443)

50955(55)

Source:IAEA,http://www.iaea.or.at/programmes/a2/

12 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

India ordered a small number of plants from

nuclear material in 2005. Since then Rosatom of

Western suppliers in the 1960s and 1970s, but

Russia (up to 4 WWER-1200 units), Westinghouse

a nuclear weapons test in 1975 using material

(up to 8 AP1000s), Areva (up to 6 EPRs) and

produced in a Canadian research reactor led to

GE-Hitachi (up to 8 ABWRs) have all claimed

the cutting of all contact with Western suppli-

they have agreements to supply nuclear plants

ers. India has continued to build plants using

there, but none of these have been turned into

the 1960s Canadian design it had ordered. These

firm orders. India’s own nuclear industry expects

have a poor record of reliability and frequently

to build a large number of new plants using a

take much longer to build than forecast, so the

variety of technologies, including fast reactors,

completion dates in Table 2 should be treated

heavy-water reactors, and thorium-fueled plants.

with scepticism. The United States also broke off

The Indian government has set a target of 63,000

cooperation in 1998 after further weapons tests

MW of new nuclear capacity to be in service by

but in 2005, India and the United States negoti-

2032. It would be astonishing, considering its past

ated a deal over technological cooperation in civil

record, if India even got close to meeting this

nuclear power. Canada also resumed sales of

target.

table 2 – nuclear power plants under construction worldwide ordered from 1999 onwards construc-reactor

construction expected

country

site

Vendor

size MW

tion

type

stage (%)

operation

start

China

Fangjiashan1

PwR

China

1000

2008

0

-

China

Fangjiashan2

PwR

China

1000

2009

0

-

China

Fuqing1

PwR

China

1000

2008

0

-

China

Fuqing2

PwR

China

1000

2009

0

-

China

haiyang1

PwR

China

1000

2009

0

-

China

hongyanhe1

PwR

China

1000

2007

20

-

China

hongyanhe2

PwR

China

1000

2008

0

-

China

hongyanhe3

PwR

China

1000

2009

0

-

China

hongyanhe4

PwR

China

1000

2009

0

-

China

Lingao3

PwR

China

1000

2005

60

2010

China

Lingao4

PwR

China

1000

2006

50

2010

China

Ningde1

PwR

China

1000

2008

10

-

China

Ningde2

PwR

China

1000

2008

5

-

China

Ningde3

PwR

China

1000

2010

5

-

China

Qinshan2-3

PwR

China

610

2006

50

2010

China

Qinshan2-4

PwR

China

610

2007

50

2011

China

Sanmen1

PwR

w’house

1000

2009

10

-

China

Sanmen2

PwR

w’house

1000

2009

10

-

China

Taishan1

PwR

Areva

1700

2009

0

-

China

Yangjiang1

PwR

w’house

1000

2009

10

-

China

Yangjiang2

PwR

w’house

1000

2009

0

-

Taiwan

Lungmen1

ABwR

GE

1300

1999

57

2011

1. tHe WorlD MarKet For nuclear plants: existing orDers anD prospects

13

construc-

reactor

size

construction expected

country

site

Vendor

tion

type

MW

stage (%)

operation

start

Taiwan

Lungmen2

ABwR

GE

1300

1999

57

2012

Finland

Olkiluoto3

EPR

Areva

1600

2005

40

2012

France

Flamanville3

EPR

Areva

1700

2007

25

2012

India

Kaiga4

Candu

India

202

2002

97

2010

India

Kudankulam1

wwER

Russia

917

2002

90

2011

India

Kudankulam2

wwER

Russia

917

2002

79

2011

India

PFBR

FBR

India

470

2005

37

-

India

Rajasthan6

Candu

India

202

2003

92

2010

Japan

Shimane3

BwR

Toshiba

1325

2007

57

2011

South Korea

ShinKori1

PwR

SKorea

960

2006

77

2010

South Korea

ShinKori2

PwR

SKorea

960

2007

77

2011

South Korea

ShinKori3

PwR

SKorea

1340

2008

29

2013

South Korea

ShinKori4

PwR

SKorea

1340

2009

29

2014

South Korea

Shinwolsong1

PwR

SKorea

960

2007

49

2011

South Korea

Shinwolsong2

PwR

SKorea

960

2008

49

2012

Pakistan

Chasnupp2

PwR

China

300

2005

25

2011

Russia

Beloyarsky4

FBR

Russia

750

2006

12

-

Russia

Leningrad2-1

wwER

Russia

1085

2008

0

-

Russia

Novovoronezh2-1

wwER

Russia

1085

2008

5

-

Russia

Novovoronezh2-2

wwER

Russia

1085

2009

0

-

TOTAL

40778

Sources:PRISDataBase,http://www.iaea.org/programmes/a2/index.html;NuclearNews,worldlistofnuclearplants Note:Includesonlyunitslargerthan100mw.ConstructionstageisasreportedbyNuclearNewsinmarch2009

South Korea has continued to order nuclear

from Westinghouse and GE. It may take up to 20

plants throughout the past two decades – five in

years to get approval to build at sites in Japan,

the past four years – and it already gets 36% of its

although once construction starts, completion is

electricity from nuclear plants (see Table 2). The

usually quick (four years typically) and does not

six units under construction may increase this to

usually go beyond schedule. A series of accidents

50%, leaving little scope for many more orders for

at plants in Japan, often badly mishandled, have

the home market. This may account for the deci-

led to an increase in public concern about nuclear

sion to move into export markets and winning

power, and finding sites for further plants is likely

four orders from the United Arab Emirates at a

to be difficult. Only one plant was under construc-

low reported price.

tion at the start of 2010 (see Table 2) and it seems

likely that no more than a trickle of orders will be

Japan is another country that has consistently

placed for Japan.

forecast large increases in nuclear capacity not

matched by actual orders. Japanese companies

Table 3 shows that there are 17 uncom-

supply these plants using technology licensed

pleted units on which construction started

14 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

before 1990 that might still be brought on-line,

in 2007, when it was expected the plant would be

but on which work is not necessarily being

complete by 2013 for $2.5 billion.

actively done. For these, the quoted degree of

completion may be misleading. Plants reported

In 2009, the Tennessee Valley Authority, the

to be less than 33% complete are likely to have

utility that owns Watts Bar, also began to investi-

seen only site preparation with no actual reactor

gate the possibility of restarting construction of

construction. In addition, the completion time

two units at its Bellefonte site in Alabama (USA).

for unit under construc-

Construction on this two-

tion in Taiwan – ordered

unit site started in 1974,

Completing work on designs such

in 1996 when comple-

and when work was halt-

as those at Bellefonte and Watts Bar

tion was expected in 2004

ed in the mid-1980s 5, work

that are now about 40 years old raises

– has slipped by eight

was estimated to be more

particular issues, given that it is

years. The Watts Bar reac-

than 90% complete on unit

highly unlikely these designs would be

tor in Tennessee (USA) is

1 and about 60% complete

licensable if they were submitted to the

a particularly interesting

on unit 2. Completing work

safety authorities now.

example. Construction of

on designs such as those at

it and its twin were start-

Bellefonte and Watts Bar

ed in 1973 but work was continually delayed. Unit

that are now about 40 years old raises particular

1 was finally completed in 1996 at a cost of more

issues, given that it is highly unlikely these designs

than $6 billion 3, but work on unit 2 was effective-

would be licensable if they were submitted to the

ly halted in 1985 when construction was reported

safety authorities now.

to be 90% complete 4. Work restarted on the plant

3 ChattanoogaTimes,“Tennessee:EstimatesRiseforNuclearPlant”,sectionA1,December12,2008.

4 http://www.tva.gov/environment/reports/wattsbar2/seis.pdf

5 http://web.knoxnews.com/pdf/082708bellefonte-reinstatement.pdf

1. tHe WorlD MarKet For nuclear plants: existing orDers anD prospects

15

table 3 – nuclear power plants on which construction started before 1990

construc-

size MW

construction expected

country

site

tech

Vendor

tion

net

(%)

operation

start

Argentina

Atucha2

hwR

Siemens

692

1981

87

2010

Brazil

Angra3*

PwR

Siemens

1275

1976

10

Bulgaria

Belene1*

wwER

Russia

953

1987

0

Bulgaria

Belene2*

wwER

Russia

953

1987

0

Iran

Bushehr

wwER

Russia

915

1975

99

2010

Romania

Cernavoda3*

Candu

AECL

655

1983

23

Romania

Cernavoda4*

Candu

AECL

655

1983

12

Romania

Cernavoda5*

Candu

AECL

655

1983

8

Russia

Balakovo5*

wwER

Russia

950

1986

high

Russia

Kalinin4

wwER

Russia

950

1986

high

Russia

Kursk5*

RBmK

Russia

925

1985

high

Russia

Volgodonsk2

wwER

Russia

950

1983

high

2010

Slovakia

mochovce3

wwER

Russia

405

1983

40

Slovakia

mochovce4

wwER

Russia

405

1983

30

Ukraine

Khmelnitsky3

wwER

Russia

950

1986

30

2015

Ukraine

Khmelnitsky4

wwER

Russia

950

1987

15

2016

USA

wattsBar2

PwR

w’house

1165

1972

70

2012

TOTAL

14403

Sources:PRISDataBase,http://www.iaea.org/programmes/a2/index.html;NuclearNews,worldlistofnuclearplants Note:Constructionworkhasstoppedonreactorsmarked*

table 4 – nuclear power plant orders on which construction had not started by Jan 1 2010

size

order

country

site

tech

Vendor

MW net

date

China

Taishan2

EPR

Areva

1700

2008

UAE

Unknown

AP-1400

SKorea

4x1400

2009

Source:Variouspressreports

16 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

aoliot

© F

2. Key determinants of nuclear economics

There are several important determinants

struction costs are the costs of paying interest

of the cost of electricity generated by a nuclear

on the loans and repaying the capital, but the

power plant (see Table 5). Some of these are

decommissioning cost is also included. The cost

intuitively clear while others are less obvious.

per kWh is also determined by the reliability of

Areva NP, the French vendor of nuclear power

the plant: The more reliable it is, the more units

plants, estimates 6 that 70% of the cost of a kWh

of output it will produce, over which amount

of nuclear electricity is accounted for by the

the fixed costs can be spread. The main running

“fixed” costs from the construction process, 20%

costs are the costs of operation, maintenance,

by “fixed” operating costs, and the other 10% by

and repair rather than fuel.

“variable” operating costs. The main fixed con-

table 5 – nuclear economics – cost elements (based on areva np)

share

Description

70%

Fixedcostsforconstruction:interestonloans/repayingcapital

Fixedoperations(cost/kwh):

20%

dependsonreliabilityofplant(e.g.,loadfactor)

10%

Variableoperations:operation,maintenance,repair,fuel

Decommissioning,wastedisposalandmanagement,riskofmeltdown,

Not included

environmentalandhumanharm

6 http://www.areva.com/servlet/BlobProvider?blobcol=urluploadedfile&blobheader=application%252Fpdf&blobkey=

id&blobtable=Downloads&blobwhere=1246874807296&filename=Overview_June_2009%252C0.pdf 2. Key DeterMinants oF nuclear econoMics17

Prior to looking at these costs in detail, it is im-

2.1.1. Unreliability of data

portant to note that there is a significant mismatch

between the interests of commercial concerns

Many of the quoted construction cost fore-

and society in general. Huge costs that will only

casts should be treated with scepticism. The most

be incurred far in the future have little weight in

reliable indicator of future costs has generally

commercial decisions because such costs are

been past costs 7. However, most utilities are not

“discounted” (see Appendix 3). This means that

required to publish properly audited construc-

waste disposal costs and decommissioning costs,

tion costs and have little incentive to present

which are at present no more than ill-supported

their performance in anything other than a good

guesses, are of little interest to commercial com-

light. However, US utilities were required to pub-

panies. From a moral point of view, the current

lish reliable accounts of the construction costs of

generation should be extremely wary of leaving

their nuclear plants for the economic regulator

such an uncertain, expensive, and potentially dan-

(who only allowed cost recovery from consum-

gerous legacy to a future generation to deal with

ers for properly audited costs) and past US

when there are no ways of reliably ensuring that

costs are reliable. The cost of the Sizewell B (UK)

the current generation can

plant is also reasonably

bequeath the funds to deal

Huge costs that will only be incurred

well-documented because

with them, much less bear

far in the future have little weight in

it had few other activities

the physical risk. Similarly,

commercial decisions because such

in which the construction

the accident risk also plays

costs are “discounted”.

cost could be “disguised.”

no part in decision-making

This means that waste disposal costs

because the companies

and decommissioning costs, which are

The next best option

are absolved of this risk by

at present no more than ill-supported

is the price quoted in calls

international treaties that

guesses, are of little interest

for tenders. While the

shift the risk to taxpayers.

to commercial companies.

actual cost of a nuclear

plant is generally higher

2.1. construction cost and time

(often significantly) than

the contract price, the vendor should at least have

Construction cost is the most widely debated

to fully price the order. If the order is a genuine

parameter, although other parameters, such as

“turnkey” order – that is, a fixed price order in

the cost of capital and the reliability of the plant,

which the customer pays only the contract price

are of comparable importance to the overall cost

no matter what the actual costs are – the vendor

of each kWh of electricity. To allow costs to be

has a particular incentive to make the bid price as

compared, utilities generally quote the “over-

accurate as possible.

night” cost, which, as well as the cost of the plant,

includes the cost of the first charge of fuel but

Turnkey terms are only possible where the

not the interest incurred on borrowings during

vendor is confident that they can control all as-

the construction of the plant, usually known as

pects of the total construction cost. The current

interest during construction (IDC). To allow com-

generation of gas-fired power plants, combined

parisons between reactors with different output

cycle gas turbine (CCGT) plants, are often sold

capacities, costs are often quoted as a cost per

under turnkey terms because they are largely

installed kW. Thus, a nuclear power plant cost-

built in factories controlled by the vendor and

ing $2,400 million with an output rating of 1200

require relatively little on-site work. In the mid-

MW would have a cost of $2,000/kW. There are a

1960s, the four major US nuclear vendors sold a

number of factors that explain why there is such

total of 12 plants under turnkey terms, but lost

controversy about forecasts of construction cost.

massive amounts of money because of their ina-

7 Estimatesoffuturecostshavealmostinvariablybeenoveroptimistic,basedonfaultyexpectationsaboutlearning,

scale,andinnovationeffectsthathavenotbeenreflectedincosts.

18 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

bility to control costs. Since then, it is unlikely that

ous underestimation of actual costs and, counter

any vendor has risked offering a complete plant

to experience with most technologies – where

on turnkey terms. Note that individual items of

so-called learning, scale economies, and tech-

equipment may be purchased on turnkey terms,

nical progress have resulted in reductions in the

but any price for a nuclear plant quoted as be-

real cost of successive generations of technology

ing on turnkey terms should be regarded with

– real construction costs have not fallen and have

considerable skepticism. The Olkiluoto order is

tended to increase through time. There is also

usually described as “turnkey”, with Areva being

some inevitable variability from country to coun-

responsible for management of the construction.

try as a result of local labour costs and the cost of

However, as is described in Section 3.1., Areva

raw materials such as steel and concrete.

was in dispute with the customer, Teollisuuden

Voima Oyj (TVO), over the terms of the contract

2.1.2. Difficulties of forecasting

and specifically which party pays for cost-over-

runs. Note, some vendors use the term “turnkey”

There are a number of factors that make

rather loosely and they sometimes mean no more

forecasting construction costs difficult. First, all

than that the contract covers the whole plant.

nuclear power plants currently on offer require

a large amount of on-site engineering, the cost of

Indicative prices quoted by vendors also must

which might account for about 60% of the total con-

be treated with skepticism. GE-Hitachi (GEH),

struction cost, with the major equipment items

has acknowledged that vendors have not been

– such as the turbine generators, the steam gen-

careful enough in giving indicative prices and the

erators, and the reactor vessel – accounting for

overoptimistic prices quoted have become coun-

a relatively small proportion of total cost 9. Large

terproductive. The GEH president and CEO, Jack

projects involving significant amounts of on-site

Fuller, said: “When reactor construction projects

engineering are notoriously difficult to man-

cost much more than projected, that undermines

age and to control costs on. For example, in the

the public’s confidence in the industry.” 8

United Kingdom, the costs of the Channel Tunnel

and the Thames Barrier were well above forecast

Prices quoted by those with a vested inter-

costs. Some Generation IV designs are expected

est in the technology but no influence over prices

to be largely factory-built and costs are expected

– including industry bodies such as the World

to be much easier to control in a factory.

Nuclear Association and equivalent national

bodies – clearly must be viewed with skepticism.

Second, there are also site-specific factors

Prices quoted by international agencies, such as

that might make a significant difference to costs,

the Nuclear Energy Agency, also must be treat-

for example the method of cooling. GEH CEO

ed with care, particularly when they are based on

Fuller said that the problem with such [generic]

indicative rather than real costs. Generally, these

estimates was that no one made clear “what the

costs are provided by national governments,

number represented […] Did it include fuel? Was

which may have their own reasons to show nucle-

the plant on saltwater or freshwater?” Danny

ar power in a good light, and which generally do

Roderick, GEH senior vice president, nuclear

not base their figures on actual experience.

plant projects, said: “GEH had seen plant costs

change by $1 billion depending on whether the

Forecasts of construction costs have been

plant is cooled by saltwater or freshwater.” 10

notoriously inaccurate, frequently being a seri-

8 Nucleonicsweek,“GEh:CostEstimatesDidIndustrya‘Disservice,’”September17,2009.

9 Asaresultofthedifficultyofcontrollingconstructioncosts,theworldBankdoesnottolendmoneyfornuclear

projects.SeeEnvironmentalAssessmentSourcebook:GuidelinesforEnvironmentalAssessmentofEnergyand

IndustryProjects,VolumeIII,worldBankTechnicalPaper154(washington,DC:worldBank,1991).

10 Nucleonicsweek,“GEh:CostEstimates.”

2. Key DeterMinants oF nuclear econoMics19

Third, costs increase if design changes are

has improved through time is a moot point, but

necessary, for example if the original detailed de-

costs have clearly not fallen. The reasons behind

sign turns out to be poor, or the safety regulator

this are complex and not well understood, but

requires changes in the design, or the design was

factors that are often quoted are increased regu-

not fully worked out before construction started.

latory requirements (note, the standards have not

In response to these problems, plant construc-

increased, but the measures found to be necessary

tors now aim to get full regulatory approval

to meet these standards have) and unwise cost-

before construction starts, as with the proposed

cutting measures with first-generation reactors.

US combined Construction and Operation

Licenses (COL), and they require designs to be

The paucity of orders for current genera-

as fully worked out as reasonably possible before

tions of reactors, especially those with properly

construction starts. In practice, vendors often

documented costs, makes it difficult to know

claim their designs are complete, as was the case

whether costs have stabilised yet, let alone

with the Olkiluoto plant under construction in

begun to fall. However, “learning” – in other

Finland (see Section 3.1.). But even after four

words, improvements in performance through

years of construction, in 2009, it had become

repetition – and scale economies are two-way

clear the design was still far from complete. The

processes. In the 1970s, the major reactor ven-

risks posed by design changes cannot be entirely

dors were receiving up to 10 orders per year.

removed, especially with new designs whereby

This allowed them to set up efficient produc-

unanticipated problems might be introduced by

tion lines to manufacture the key components

the construction process or whereby the regula-

and allowed them to build up skilled teams

tor cannot agree with design details as they are

of designers and engineers. How much these

filled in. For example, at the Olkiluoto plant by

economies of number produced reduced costs

2009, the regulator expressed serious concerns

is difficult to estimate. A Nuclear Energy Agency

about the adequacy of the proposed control and

report from 2000 suggests that the intuitive ex-

instrumentation systems. Without major chang-

pectation that economies of number would be

es, the regulator was not willing to license the

large may not be accurate. It stated:11

plant (see Section 3.1.).

The ordering of two units at the same time

and with a construction interval of at least 12

Experiences within operating reactors might

months will result in a benefit of approximately

also lead to the need for changes in the design

15% for the second unit. If the second unit is part

after construction has started. For example, a

of a twin unit the benefit for the second unit is

major nuclear accident would necessarily lead to

approximately 20%. The ordering of additional

a review of all plants under construction (as well

units in the same series will not lead to signifi-

as all operating plants) and important lessons

cantly more cost savings. The standardisation

could not be ignored simply because licens-

effect for more than two units of identical design

ing approval of the existing design had already

is expected to be negligibly low.

been given.

When the UK Performance and Innovation

2.1.3. Learning, scale economies,

Unit (PIU) of the Cabinet Office examined nu-

and technical progress

clear power economics in 2002, it was provided

with forecasts of costs from British Energy (the

The expectation for most technologies is that

nuclear power plant owner) and BNFL (the

successive generations of design will be cheaper

plant vendor) that were based on “a substantial

and better than their predecessors because of

learning and scale effects from a standardised

factors such as learning, economies of scale, and

programme.” The PIU was sceptical about the

technical change. How far nuclear technology

extent of learning, acknowledging that learning

11 NuclearEnergyAgency,ReductionofCapitalCostsofNuclearPowerPlants(Paris:OECD,2000),p.90.

20 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

was likely to occur but that its impact could be

apparently, the results remain far short of the

limited. It stated:12

necessary employment levels for all stakehold-

The pace and extent of learning may how-

ers involved. The number of nuclear graduates

ever be slower for nuclear than for renewables

and technicians is insufficient and many grad-

because:

uates do not enter or quickly leave the nuclear

relatively long lead times for nuclear

sector. In-house training only partially compen-

power mean that feedback from operating expe-

sates for the problem since the nuclear industry

rience is slower;

has to compete in a harsh market environment

relicensing of nuclear designs further

with many other sectors that lack scientists,

delays the introduction of design changes; and

engineers and technicians.

the scope for economies of large-scale

manufacturing of components is less for nuclear

2.1.4. Construction time

because production runs are much shorter than

for renewables, where hundreds and even thou-

An extension of the construction time beyond

sands of units may be installed.

that forecast does not directly increase the con-

struction costs, although it will tend to increase

The major reactor vendors have received only

interest during construction and often is a symp-

a handful of orders in the past 20 years, their own

tom of problems in the construction phase such

production lines have closed, and skilled teams

as design issues, site management problems, or

have been cut back. Westinghouse had received

procurement difficulties that will be reflected in

only one order in the past 25 years before the

higher construction costs. However, the impact

order for four units from China in 2008. Even

on the utility – if it is a relatively small utility for

the French vendor Areva received its first order

which the new plant would represent a major

in about 15 years with its order for Finland. For

addition to capacity – could be severe, especially

new orders, large components would generally

if the output is already contracted.

have to be subcontracted to specialist compa-

nies and built on a one-off basis, presumably at

The Olkiluoto plant was expected to come

higher costs in countries such as Japan and, for

on-line in May 2009 when the construction con-

the future, China13. There are now acknowledged

tracts for it were signed. However, by May 2009,

to be major shortages in component manufac-

the plant was still nearly four years from comple-

turing facilities. For example, by the end of 2009,

tion. Its output had already been contracted to

only one facility in the world, Japan Steel Works,

the Finnish energy-intensive industry. So, the

could cast large forgings for certain reactor pres-

utility will have to buy “replacement power” to

sure vessels.

supply its customers with the power they had

contracted from the Nordic wholesale electricity

Skills shortages are also becoming acute. A

market until the plant is complete, at whatever

report for the German Environment Ministry

cost is prevailing in the Nordic market. If the

stated: 14

supply-demand balance is tight, for example if

The nuclear skills and competence gap is

there is a dry winter that restricts the amount

an internationally well established and rec-

of hydroelectricity availability, this cost could

ognised problem. Numerous initiatives have

be far higher than the contracted sale price. The

been launched on national and international

utility is unlikely to be able to absorb losses for

scale in order to reverse the trend. However,

long if the Nordic market price is significantly

12 PerformanceandInnovationUnit,TheEnergyReview,CabinetOffice(London:2002),p.195,

http://www.strategy.gov.uk/downloads/su/energy/TheEnergyReview.pdf

13 Forexample,iftheFlamanvilleEPRisordered,thepressurevesselwouldprobablybemanufacturedinJapan.

14 m.Schneider,S.Thomas,A.Froggatt,andD.Koplow,worldNuclearIndustryStatusReport2009,GermanFederal

ministryofEnvironment,NatureConservationandReactorSafety(2009),

http://www.bmu.de/files/english/pdf/application/pdf/welt_statusbericht_atomindustrie_0908_en_bf.pdf 2. Key DeterMinants oF nuclear econoMics21

higher than the price at which it had contracted

idends. This money will be invested in the

to sell the output of Olkiluoto for.

project and, in the long-term, will be paid back

to the shareholders as profits from the project.

Overall lead time – from the time of the deci-

To compensate the shareholders for the delay

sion to build the plant to its commercial operation

in receiving their income, the company must

(i.e., after the initial testing of the plant has been

pay the interest that shareholders could have

completed and its operation handed over by

earned if they had been paid the money and

the vendor to the owner) – is generally much

invested it in low-risk investments plus a pre-

longer than the construction time. For exam-

mium to reflect the risk that is being taken with

ple, the decision to build the Sizewell B nuclear

their money (the project might not make the

power plant in Britain was taken in 1979, but

return on investment it was expected to). The

construction did not start until 1987 (because

cost of equity is therefore generally higher than

of delays not only from a public inquiry but also

the cost of debt.

from difficulties in completing the design). The

plant only entered commercial service in 1995,

If banks are unwilling to lend, replacing bor-

so the total lead-time was 16 years. The cost of

rowing with equity is not likely to be an option.

the preconstruction phase is generally rela-

Essentially this would mean a company was

tively low compared to construction, unless the

asking its shareholders to lend money to the com-

reactor is the “first-of-a-kind”, where design and

pany for a project the banks would not touch.

safety approval could prove expensive. However,

Shareholders may therefore oppose funding of

for a generating company operating in a com-

large projects with too large an element of equity

petitive environment, this long delay and the

funding. Equally, banks will not look kindly on

risks it entails – such as failure at the planning

loan applications if it seems the company is not

inquiry stage or cost escalation from regulatory

prepared to risk its own money.

requirements – is a major disincentive to choose

nuclear.

It is particularly revealing that in the United

States, when the Nuclear Power 2010 programme

2.2. cost of capital

was launched, it was expected that projects would

be financed in equal measure by debt and equity.

This is the other element – construction cost

By 2008, it was clear that the companies were

in capital charges (see Appendix 2). Generally,

expecting to cover as much of the project cost by

large projects are financed through a combina-

borrowing as possible – backed by federal loan

tion of debt (borrowing from banks) and equity

guarantees. The banks also strongly stated they

(self-financing from income). For debt, the cost

would be willing to lend money only if the cover-

of capital will depend on the prevailing “risk-free”

age by loan guarantees was very comprehensive.

interest rate, for example, the rate paid by treasury

As noted in Section 4, six of Wall Street’s largest

bonds, plus a risk factor to represent the degree

investment banks informed the US Department

of risk involved in the project, plus of course the

of Energy (USDOE) that they were unwilling to

bank’s margin and costs.

extend loans for new nuclear power plants unless

taxpayers shouldered 100% of the risks 15.

For equity, it is often suggested that large

companies with substantial resources can eas-

The real (net of inflation) cost of capital varies

ily pay for large investments from income with

from country to country and from utility to utility,

little need for borrowing. However, essential-

according to the country-risk and the credit-rating

ly by financing investment from equity, the

of the company. There will also be a huge impact

company is asking shareholders to defer sums

from the way in which the electricity sector is

that could have been paid immediately as div-

organised. If the sector is a regulated monopoly,

15 Investors’commentsinresponsetoDOEnoticeofproposedrulemaking,July2,2007.

22 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

the real cost of capital could be as low as 5 to 8%,

less than for shareholder companies, and using

but in a competitive electricity market, it is likely

equity might have been easier. The real cost of

to be at least 15%. Thus, for Florida and Georgia,

capital – that is, the annual interest rate for bor-

for example, where the regulator is allowing

rowing, net of inflation – for a developed country

the utilities to begin to recover the cost of new

was generally in the range of 5 to 8%.

nuclear power plants in regulated electricity tar-

iffs even before construction starts, the utility is

In an efficient electricity market, the risk of

less dependent on loan guarantees being offered

investment would fall on the generation company,

to borrow money at low rates. The Georgia Public

not the consumers, and the cost of capital would

Service Commission accepted Georgia Power’s,

reflect this risk. For example, in 2002 in Britain,

which owns 45.7% of the Vogtle project, request

about 40% of the generating capacity was owned

to recover its financing costs for its $6.4 billion

by financially distressed companies (about

share of the 2234-MW nuclear project through

half of this was the nuclear capacity) and several

“construction work-in-progress” beginning in

companies and banks lost billions of pounds on

2011 16. The assurance of cost recovery means that

investments in power stations that they had made

the owners have claimed it will proceed with con-

or financed. In these circumstances, a real cost of

struction even if it does not

capital of more than 15%

receive loan guarantees.

seems well-justified. If the

In an efficient electricity market,

It has also reduced the

risks were reduced – for

the risk of investment would fall on

expected cost of Georgia

example if there were gov-

the generation company, not the

Power’s share, including

ernment guarantees on the

consumers, and the cost of capital

financing up to $4.529

market for power and the

would reflect this risk.

billion 17.

price – the cost of capital

would be lower, but these

It is clear that if the largest element of cost in

would represent a government subsidy (state aid)

nuclear power are the capital charges, more than

and it is not clear they would be acceptable under

doubling the required rate of return will severely

European Union law.

damage the economics of nuclear power. There

is no “right” answer about what cost of capital

2.3. operating performance

should be applied. When the electricity industry

was a monopoly, utilities were guaranteed full

For a capital-intensive technology like nuclear

cost recovery. In other words, whatever money

power, high utilisation is of great importance, so

they spent, they could recover from consumers.

that the large fixed costs (repaying capital, paying

This made any investment a very low risk to those

interest, and paying for decommissioning) can

providing the capital because consumers were

be spread over as many saleable units of output

bearing all the risk. The cost of capital varied

as possible. In addition, nuclear power plants

according to the country and whether the com-

are physically inflexible and it would not be wise

pany was publicly or privately owned. Publicly

to start up and shut down the plant or vary the

owned companies like Vattenfall, the Swedish

output level more than is necessary. As a result,

state-owned utility, generally have a high credit

nuclear power plants are operated on “base load”,

rating and therefore the cost of capital is lower for

except in the very few countries (e.g., France)

them than for companies partly or wholly owned

where the nuclear capacity represents such a high

by private shareholders, like the two main German

proportion of overall generating capacity that this

utilities, E.ON and RWE. For publicly owned com-

is not possible. A good measure of the reliability of

panies, shareholder pressure was also generally

the plant and how effective it is at producing sale-

16 PlattsGlobalPowerReport,GeorgiaPSCApprovesTwoNuclearReactorsbyGeorgiaPower,andaBiomass

Conversion,march19,2009.

17 Nucleonicsweek,“GeorgiaPowerLowersEstimateforNewVogtleUnits”,November11,2009.

2. Key DeterMinants oF nuclear econoMics23

able output is the “load factor” (“capacity factor”

tables are regularly published by the trade press

in US parlance). The load factor is calculated as

such as Nucleonics Week and Nuclear Engineering

the output in a given period of time expressed as

International as well as by the International

a percentage of the output that would have been

Atomic Energy Agency (IAEA). There can be dis-

produced if the unit had operated uninterrupted

pute about the causes of shutdowns or reduced

at its full-design output level throughout the

output levels, although from an economic point

period concerned 18. Generally, load factors are

of view, the fact that output is not being produced

calculated on an annual or a lifetime basis. Unlike

is of less importance than why it is not being pro-

construction cost, the load factor can be precisely

duced.

and unequivocally measured and load factor

table 6 – operating performance of german nuclear power plants

commercial

load factor

lifetime load factor

plant

operation

2008 (%)

to end of 2008 (%)

Biblis A

2/1975

82.6

65.2

Biblis B

1/1977

95.2

67.7

Brokdorf

12/1986

92.4

88.5

Brunsbüttel

2/1977

0.0

53.7

Emsland

6/1988

93.3

93.3

Grafenrheinfeld

6/1982

87.2

86.2

Grohnde

2/1985

88.3

90.6

Gundremmingen B

7/1984

85.7

82.6

Gundremmingen C

1/1985

87.7

80.4

Isar 1

3/1979

98.3

79.3

Isar 2

4/1988

93.2

89.6

Krümmel

3/1984

0.0

71.6

Neckarwestheim 1

12/1976

54.9

79.5

Neckarwestheim 2

4/1989

93.0

92.7

Philippsburg 1

3/1980

78.4

79.0

Philippsburg 2

4/1985

88.7

88.2

Unterweser

9/1979

78.7

79.6

Source:IAEA,http://www.iaea.or.at/programmes/a2/

Note:TheKrümmelandBrunsbüttelplantswereclosedforthewholeof2008

Table 6 shows the 2008 and the lifetime load

having a lifetime load factor of more than 90%,

factors for German nuclear power plants. It

while three units have a lifetime load factor of

shows a wide range of reliability with three plants

less than 70%.

18 Notethatwherereactorsarederated,someorganisations(e.g.,theIAEA)quotetheloadfactorontheauthorised

outputlevelratherthanthedesignlevel.whilethismaygivesomeusefulinformationonthereliabilityoftheplant,

foreconomicanalysispurposes,thedesignratingshouldbeusedbecausethatiswhatthepurchaserpaidtoreceive.

24 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

As with construction cost, load factors of oper-

experience in the late 1990s with the N4 design is

ating plants have been much lower than forecast.

particularly poignant. Note that in an economic

The assumption by vendors and those promoting

analysis, the performance in the first years of op-

the technology has been that nuclear plants are

eration – when teething problems are likely to

extremely reliable, with the only interruptions to

emerge – will have much more weight than that

service being for maintenance and refueling (some

of later years because of the discounting proc-

designs of plant such as the AGR and Candu are

ess. Performance may decline in the later years

refueled continuously and need to only shut down

of operation as equipment wears out and has to

for maintenance), thereby giving a load factors of

be replaced, and improvements to the design

85 to 95%. However, performance was poor and in

are needed to bring the plant in line with current

around 1980, the average load factor for all plants

standards of safety. This decline in performance

worldwide was about 60%. To illustrate the impact

will probably not weigh very heavily in an eco-

on the economics of nuclear power, if we assume

nomic analysis because of discounting. Overall, an

fixed costs represent two-thirds of the overall cost

assumption that reliability of 90% or more seems

of power if the load factor is 90%, then the overall

hard to justify on the basis of past experiences.

cost would go up by a third if the load factor was

only 60%. To the extent that poor load factors are

2.4. non-fuel operations

caused by equipment failures, the additional cost

and maintenance costs

of maintenance and repair resulting would further

increase the unit cost of power. In a competitive

Many people assume that nuclear power

market, a nuclear generator contracted to supply

plants are essentially automatic machines

power that is unable to fulfill its commitment is

requiring only the purchase of fuel and have

likely to have to buy the “replacement” power for

very low running costs. As a result, the non-fuel

its customer, potentially at very high prices.

operations and maintenance costs are seldom

prominent in studies of nuclear economics.

However, from the late 1980s onwards, the

As discussed below, the cost of fuel is relative-

nuclear industry worldwide has made strenu-

ly low and has been reasonably predictable.

ous efforts to improve performance. Worldwide,

However, the assumption of low running costs

load factors now average more than 80% and,

was proved wrong in the late 1980s and early

for example, the United States now has an aver-

1990s when a small number of US nuclear power

age of nearly 90% compared to less than 60% in

plants were retired because the cost of operat-

1980, although the average lifetime load factor of

ing them (excluding repaying the fixed costs)

America’s nuclear power plants is still only 70%.

was found to be greater than the cost of building

and operating a replacement gas-fired plant. It

Only seven of the 414 operating reactors with

emerged that non-fuel O&M costs were on aver-

at least a year’s service and that have full perform-

age in excess of $22/MWh, while fuel costs were

ance records have a lifetime load factor in excess

then more than $12/MWh 19. Strenuous efforts

of 90%, and only the top 100 plants have a life-

were made to reduce non-fuel nuclear O&M

time load factor of more than 80%. Interestingly,

costs and by the mid-1990s, average non-fuel

the top 13 plants are sited in only three coun-

O&M costs had fallen to about $12.5/MWh and

tries: six in South Korea, five in Germany, and

fuel costs to $4.5/MWh. However, it is impor-

two in Finland.

tant to note that these cost reductions were

achieved mainly by improving the reliability of

New reactor designs may emulate the level of

the plants rather than actually reducing costs.

reliability achieved by the top 2% of existing reac-

Many O&M costs (the cost of employing the

tors, but, equally, they may suffer from “teething

staff and maintaining the plant) are largely fixed

problems” like earlier generations. The French

and vary little according to the level of output of

19 ForstatisticsonO&mcosts,seehttp://www.nei.org/index.asp?catnum=2&catid=95

2. Key DeterMinants oF nuclear econoMics25

the plant. So, the more power that is produced,

“enrich” it (increase the percentage of the use-

the lower the O&M cost per MWh. The threat

ful uranium isotope), fabricate it into fuel, store

of early closure on grounds of economics has

it after use, and dispose of it in a safe repository,

now generally been lifted in the United States.

where it must remain isolated from the environ-

ment for several hundred thousand years. The

It is also worth noting that British Energy,

costs other than the purchase cost of fuel are not

which was essentially given its eight nuclear pow-

discussed further here. Fuel costs have fallen as

er plants when it was created in 1996, collapsed

the world uranium price was low from the mid-

financially in 2002 because income from opera-

1970s (around $12/lb of U3O8) to around 2000,

tion of the plants barely covered operating costs.

after which prices rose to about $150/lb (see

This was in part due to high fuel costs, especially

Table 7). Subsequently, spot prices fell to less

the cost of reprocessing spent fuel – an operation

than $50/lb by the end of 2009. These spot prices

only carried out now in Britain and France (see

are a little misleading as the spot market is very

below). Average O&M costs for British Energy’s

“thin” and only a small proportion of uranium

eight plants, including fuel, varied between about

is bought and sold on this market, with the vast

1.65 2.0p/kWh from 1997-2004. However, in every

majority being sold under long-term bilateral

following year, the operating costs increased. In

contracts. US fuel costs average about 0.25p/kWh,

the last full year for which data was published,

but these are arguably artificially low because the

2007/08, the cost was 3p/kWh and in the first

US government assumes responsibility for dis-

six months of 2008/09, the cost was 4.13p/kWh

posal of spent fuel in return for a flat fee of $1/

(the company was taken over then by the French

MWh (0.06p/kWh). This is an arbitrary price set

utility, EDF, and operating cost figures are not

more than two decades ago and is not based on

published).

actual experience – no fuel disposal facilities exist

in the United States or anywhere else – and all the

2.5. Fuel cost

US spent fuel remains in temporary storage pend-

ing the construction of a spent-fuel repository,

The cost of fuel, about 5% of the total cost of

expected to be at Yucca Mountain. Real disposal

power, includes the cost to mine the uranium,

costs are likely to be much higher.

table 7 – price of uranium

UraniUm

10 Years (Mar 11, 2000 – Mar 10, 2010)

160

140

120

/lb) 100

(USD

80

60

Uranium

40

20

0

Mar 11

Nov 1

Jun 24

Feb 13

Oct 6

May 28

Jan 18

2000

2001

2003

2005

2006

2008

2008

Source:http://www.infomine.com/investment/charts.aspx?mv=1&f=f&r=10y&c=curanium.xusd.ulb#chart,2010-03-11

26 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

The issue of spent-fuel disposal is difficult to

reaching their original licensed lives of 40 years

evaluate. Reprocessing is expensive and, unless

are being licensed by the US safety authorities

the plutonium produced can be profitably used, it

for a further 20 years of operation. However, it

does nothing to help waste disposal. Reprocessing

should not be assumed that there will be cheap

merely splits the spent fuel into different parts

electricity once capital costs have been repaid.

and does not reduce the amount of radioactivity

Life extension may require significant new

to be dealt with. Indeed, reprocessing creates a

expenditures to replace worn-out equipment

large amount of low- and intermediate-level

and to bring the plant in compliance with cur-

waste because all the equipment and material

rent safety standards. Life extension is not always

used in reprocessing becomes radioactive waste.

possible. For example, Britain’s AGRs, which

The previous contract between BNFL and British

had a design life of 25 years, are now expected to

Energy (before its collapse) for reprocessing British

run for 40 years, but life extension beyond that

Energy`s fuel was reported to be worth £300m per

may not be possible because of problems with

year, which equates to about 0.5p/kWh. The new

erosion and distortion of the graphite moderator

contract is expected to save British Energy about

blocks.

£150-200 million per year, although this will be

possible only because of underwriting of losses at

2.7. Decommissioning and waste

BNFL by the government. Despite this poor cost

disposal cost and provisions

experience, the United States was reported to be

considering allowing the reprocessing of spent

These are difficult to estimate because there

fuel, which has not occurred since a ban was

is little experience with decommissioning com-

imposed by the Carter

mercial-scale plants and

administration. The cost

the cost of disposal of

For a technology dominated by fixed

of disposing of high-level

waste (especially interme-

costs, it might be expected that doubling

waste is hard to estimate

diate or long-lived waste)

the life would significantly reduce fixed

because no facilities have

is uncertain (see Appendix

costs per unit because there would be

been built or are even under

3). However, even schemes

more time to recover these costs.

construction and any cost

that provide a very high level

In practice, this does not apply.

projections must have a

of assurance that funds will

very wide margin for error.

be available when needed

will not make a major difference to the overall eco-

2.6. accounting lifetime

nomics. For example, if the owner was required to

place the (discounted) sum forecast to be needed

One of the features of Generation III+ plants

to carry out decommissioning at the start of the

is that they are designed to have a life of about

life of the plant, this would add only about 10%

60 years compared to their predecessors, which

to the construction cost. The British Energy seg-

generally had a design life of about half that. For a

regated fund, which did not cover the first phase

technology dominated by fixed costs, it might be

of decommissioning, required contributions of

expected that doubling the life would significant-

less than £20m per year, equating to a cost of only

ly reduce fixed costs per unit because there would

about 0.03p/kWh.

be more time to recover these costs. In practice,

this does not apply. Commercial loans must be

The problems come if the cost has been ini-

repaid over no more than 15-20 years and in a dis-

tially underestimated, the funds are lost, or the

counted cash flow calculation, costs and benefits

company collapses before the plant completes its

more than 10-15 years forward have little weight

expected lifetime. All of these problems have been

(see Appendix 2).

experienced in Britain. The expected decommis-

sioning cost has gone up several-fold in real terms

There is a trend of extending the life of exist-

over the past couple of decades. In 1990, when the

ing plants. Some PWRs and BWRs that are now

Central Electricity Generating Board (CEGB) was

2. Key DeterMinants oF nuclear econoMics27

privatised, the accounting provisions made from

The German parliament’s Study Commission

contributions by consumers were not passed

on Sustainable Energy 2 2 compiled figures on the

on to the successor company, Nuclear Electric.

liability limits in OECD countries (see Table 8)

The subsidy that applied from 1990 to 1996 –

and this shows the wide range of liability limits

described by Michael Heseltine 20 as being to

from very low sums, for example Mexico, to much

“decommission old, unsafe nuclear plants” – was

higher sums, for example Germany.

in fact spent as cash flow by the company owning

the plant, and the unspent portion has now been

The scale of the costs caused by, for example,

absorbed by the treasury. The collapse of British

the Chernobyl disaster, which may be on the order

Energy has meant that a significant proportion

of hundreds of billions of pounds (it is invidious

of their decommissioning costs will be paid by

to put a cost on the value of loss of life or inca-

future taxpayers.

pacity but for insurance purposes it is necessary),

means that conventional insurance cover would

2.8. insurance and liability

probably not be available, and even if it was, its

cover might not be credible because a major acci-

This is a controversial area because at

dent would bankrupt the insurance companies.

present, the liability of plant owners is limited

by international treaty to only a small fraction of

There have been proposals that “catastrophe

the likely costs of a major nuclear accident. The

bonds” might provide a way for plant owners to

Vienna Treaty, passed in 1963 and amended

provide credible cover against the financial cost

in 1997, limits a nuclear operator’s liability

of accidents. A catastrophe bond is a high-yield,

to 300 million Special Drawing Rights or about

insurance-backed bond containing a provision

$460 million (on Feb 22, 2009, US$1=0.653SDR 21).

causing interest and/or principal payments to be

At present the British government underwrites

delayed or lost in the event of losses due to a speci-

residual risk beyond £140 million, though the

fied catastrophe, such as an earthquake. Whether

limit is expected to rise under the Paris and

these would provide a viable way to provide some

Brussels Conventions to €700 million (£500m).

insurance cover against nuclear accidents and

The limit on liability was seen as essential to

what the impact on nuclear economics would be

allow the development of nuclear power but can

will be hard to determine until concrete proposals

also be seen as a large subsidy.

are made.

20 michaelheseltine,PresidentoftheBoardofTrade,hansard,October19,1992.

21 ThevalueoftheSpecialDrawingRightisdeterminedbyabasketoftheworld’sfourmajorcurrencies.

22 DeutscherBundestag,NachhaltigeEnergieversorgungunterdenBedingungenderGlobalisierungundLiberalisierung,

BerichtderEnquete-Kommission,zurSache6/2002,chapter3.3.2,table3.3(Berlin:DeutscherBundestag,2002),

p.232,http://dip.bundestag.de/btd/14/094/1409400.pdf

28 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

table 8 – liability limits for the oecD countries as of september 2001

liability limits under

national legislation a

Financial security requirements a, b

Belgium

€298m

Finland

€250m

France

€92m

Germany

unlimited

€€2,500mc

Great Britain

€227m

Netherlands

€340m

Spain

€150m

Switzerland

unlimited

€€674m

Slovakia

€47m

Czech Republic

€177m

Hungary

€143m

Canada

€54m

USA

€10,937m

€€226m

Mexico

€12m

Japan

unlimited

€€538m

South Korea

€4,293m

Source:UnofficialStatistics–OECD/NEA,LegalAffairs

Notes:ausingofficialexchangeratesJune2001-June2002;bifdifferentthantheliabilitylimit;c€256minsurance,

€2.5bnoperator’spool,€179mfromBrusselsamendmenttoParisConvention

3. experience at olKiluoto anD FlaManVille29

g

obbin

k Cic

eace / Np

een

3. experience at olkiluoto and Flamanville

© Gr

These two plants are of particular importance

in general, and Areva NP in particular. Industry

because they are the only Generation III+ plants

anticipated that, once complete, the plant would

for which there is any significant experience, albeit

provide a demonstration and reference for other

for construction only, not operation.

prospective buyers of the EPR.

3.1. olkiluoto

Finland is part of the Nordic electricity market

covering also Norway, Sweden, and Denmark. The

The Olkiluoto-3 order for Finland was seen

region is generally seen as the most competitive

as particularly important for the nuclear industry

electricity market in the world. Finland also has a

because it seemed to contradict the convention-

good reputation for the operation of the four units

al wisdom that liberalisation and nuclear power

located in the country. So there were high hopes

orders were incompatible. The Olkiluoto-3 reac-

that this would answer many of the questions

tor order of December 2003 was the first nuclear

concerning the “nuclear renaissance.” However,

order in Western Europe and North America since

closer examination of the deal reveals some very

the 1993 Civaux-2 order in France and the first

special features that show this deal is not repre-

order outside the Pacific Rim for a Generation III/

sentative of conditions in other markets.

III+ design. The Finnish electricity industry had

been attempting to obtain parliamentary approv-

The contract price for Olkiluoto-3 was reported

al for a fifth nuclear unit in Finland since 1992.

in 2004 to be €3 billion for a 1600 MW plant 23.

This was finally granted in 2002. The Olkiluoto-3

Subsequently, the price was reported to be €3.2

order was a huge boost for the nuclear industry

billion24 or €3.3 billion 25. Safety approval was given

23 ProjectDirectormartinLandtmanstated:“ThevalueofthewholeOlkiluoto3investmentincludingtheTurn-key

ContractisaboutEUR3billioninyear2003money.Nootherfiguresarepublished”;personalcommunication,

e-mailtomycleSchneider,datedOctober8,2004.

24 Nucleonicsweek,“ECProbingClaimsOlkiluotoLoanGuaranteeswereStateAid”,October26,2006.

25 Nucleonicsweek,“ArevaReveals47%CostOverrunonContractforOlkiluoto-3”,march5,2009,p.1.

30 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

by the Finnish regulator, STUK, in March 2005 and

construction started. By March 2009 30 the project

substantive work on-site started in August 2005.

was acknowledged to be at least three years late

At the time the contract was signed, the value was

and €1.7 billion over budget 31. In August 2009,

equivalent to about $3.6–4.0 billion (depending

Areva NP acknowledged that the estimated cost

on the contract price) or about $2,250–2,475/kW

had reached €5.3 billion, which at the prevailing

(€1=US$1.2). This cost included financing and

exchange rate of €1=US$1.35 represented a cost

two reactor cores and so the cost per kW in over-

of $4,500/kW 32. The contract is also the subject of

night terms would have been somewhat lower,

an acrimonious dispute between Areva NP and

although given – as we can see below – the very

the customer, Teollisuuden Voima Oy. Areva NP

low rate of interest charged (2.6%), finance costs

is claiming compensation of about €1 billion

would be low.

for alleged failures of TVO. TVO, in a January

2009 counterclaim, is demanding €2.4 billion in

Although this cost was well above the nuclear

compensation from Areva NP for delays in the

industry’s target of $1,000/kW of only a few years

project 33.

before, it was still regarded by critics as a “loss-leader.”

Areva NP had been trying to persuade either EDF or

It seems unlikely that all the problems that

one of the German utilities to place an order for an

have contributed to the delays and cost-over-

EPR since the late 1990s 26 and there were fears

runs have been solved; the final cost could be

that if an order for the EPR was not placed soon,

significantly higher. The result of the claim and

AREVA NP would start to lose key staff 27 and the

counter-claim arbitration between Areva NP

design would become obsolete 28. AREVA NP also

and TVO will determine how the cost-overrun

needed a “shop window” for EPR technology and

will be apportioned. Regardless, however, it is

Olkiluoto-3 would serve as a reference plant for

clear that investor concerns on plant costs and

other orders. As an additional incentive and at

delivery remain valid.

the request of the customer, AREVA NP offered

the plant on “turnkey” or fixed price terms. It also

3.2. Flamanville

took responsibility for the management of the site

and for the architectural engineering, not just the

EDF finally ordered an EPR reactor in

supply of the “nuclear island.” This was not a role

January 2007, to be located at their Flamanville

it was accustomed to. For the 58 PWRs, Areva NP’s

site. This reactor was uprated to 1630 MW 34 and

predecessor, Framatome, had supplied for France,

construction commenced in December 2007 35.

as well as for the foreign projects including those

In May 2006, EDF estimated the cost would be

in China and South Africa; it was EDF that had

€3.3 billion 36. At that time (€1=US$1.28), this was

provided these services.

equivalent to $2,590/kW. This cost, however, did

not include the first fuel, so the overnight cost

As has been documented elsewhere 29, the

would have been somewhat higher. The cost

Olkiluoto project has gone seriously wrong since

estimate did not include financing either.

26 Nucleonicsweek,“GiantEPRSaidToBeCompetitive:EDFToDecideonOrderNextYear”,November6,1998,p.1.

27 PetroleumEconomist,“FrancemullsNuclearFuture”,march2001.

28 Nucleonicsweek,“EPRSafetyApprovalwon’tLastBeyond2002,Regulatorwarns”,march6,1997.

29 S.Thomas,“CanNuclearPowerPlantsBeBuiltinBritainwithoutPublicSubsidiesandGuarantees?”,Presentationat

aconference,CommercialNuclearEnergyinanUnstable,CarbonConstrainedworld,co-hostedbytheNonproliferation

PolicyEducationCenterandRadioFreeEurope/RadioLiberty,march17-18,2008,Prague,CzechRepublic.

30 Nucleonicsweek,“Areva’sOlkiluoto-3managerSaysEngineeringJudgmentUndermined”,march26,2009,p.4.

31 Nucleonicsweek,“ArevaReveals47%CostOverrun”.

32 Nucleonicsweek,“withExpectedLossesmounting,ArevaSeeksChangesinOl3Project”,September3,2009.

33 AgenceFrancePresse,“SetbacksPlagueFinland’sFrench-builtReactor”,January30,2009.

34 Nucleonicsweek,“EDFOrdersFlamanville-3EPRNSSS,withStartupTargetedin2012”,January5,2007,p.1.

35 Nucleonicsweek,“Flamanville-3ConcretePourmarksStartofNuclearConstruction”,December6,2007,p.3.

36 Nucleonicsweek,“EDFtoBuildFlamanville-3,SaysFirstEPRCompetitivewithCCGT”,may11,2006,p.1.

3. experience at olKiluoto anD FlaManVille31

EDF did not seek a turnkey contract that

November 2008, EDF claimed the delays could

carried out the architectural engineering and

be made up and the plant finished to the original

managed the contracting – for example letting

schedule of 2012 38. EDF did acknowledge that the

contracts – for the turbine generator. How far

expected construction costs for Flamanville had

these decisions were influenced by the poor

increased from €3.3 billion to €4 billion 39. This

experience at Olkiluoto and how far they were

was then equivalent (€1=US$1.33) to $3,265/kW,

influenced by the need it saw to maintain

substantially more than the Olkiluoto contract

in-house skills is not clear.

price, but far below the levels being quoted in

the United States and the actual cost of Olkiluoto.

In May 2008, the French safety regulatory

There have also been claims by the trade unions

authorities temporarily halted construction at

involved that construction at Flamanville is run-

Flamanville because of quality issues in pour-

ning at least two years late 40. An Areva official

ing the concrete base mat 37. Delays had led the

has suggested that the cost of an EPR will now be

vendor, Areva NP, to forecast the plant would

at least €4.5 billion, although it was not specified

not be completed until 2013, a year late. But in

whether this was an overnight cost 41.

37 Nucleonicsweek,“ConcretePouringatFlamanville-3StoppedafterNewProblemsFound”,may29,2008,p.18.

38 Nucleonicsweek,“EDFConfirmsTargetofStartingUpFlamanville-3in2012”,November20,2008,p.1.

39 AssociatedPressworldstream,“EDFToLeaduptoEuro50binNuclearPlantInvestment”,December4,2008.

40 Nucleonicsweek,“FrenchUnion:Flamanville-3Delayed”,January28,2010,p.1.

41 Nucleonicsweek,“ArevaOfficialSaysCostsforNewEPRRising,Exceeding$6.5billion”,September4,2008,p.1.

32 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

ey

olin Gr

C

4. the us programme

The Bush administration made a concerted

In addition:

effort to revive nuclear ordering under its Nuclear

[…] to complete the first-of-a-kind Generation

Power 2010 programme, announced in February

III+ reactor technology development and to

2002. The programme focuses on Generation III+

demonstrate the untested Federal regulatory

designs. When it was announced, it was expected

and licensing processes for the siting, construc-

that at least one Generation III+ unit and one

tion, and operation of new nuclear plants 43.

reactor of a more advanced design would be in

operation by 2010. Under the programme, the US

The rationale for the Nuclear Power 2010

Department of Energy expected to launch coop-

programme was that the new nuclear designs

erative projects with industry:

would be economically competitive. However,

bad experience with building nuclear plants in

[…] to obtain NRC approval of three sites

the United States in the 1980s and 1990s meant

for construction of new nuclear power plants

that utilities would be reluctant to order nucle-

under the Early Site Permit (ESP) process, and

ar plants until it had been fully demonstrated

to develop application preparation guidance

that the new designs and procedures resolved

for the combined Construction and Operating

the issues that had led to these problems. The

License and to resolve generic COL regulatory

policy to overcome these barriers was therefore

issues. The COL process is a “one-step” licensing

to streamline regulatory processes, ensure reg-

process by which nuclear plant public health

ulatory approval for a number of new designs,

and safety concerns are resolved prior to com-

and provide subsidies initially for three projects

mencement of construction, and NRC approves

(perhaps six units), after which ordering would

and issues a license to build and operate a new

require no subsidies.

nuclear power plant 42.

42 http://www.ne.doe.gov/NucPwr2010/NucPwr2010.html

43 UnitedStatesDepartmentofEnergy(DoE),ARoadmaptoDeployNewNuclearPowerPlantsintheUnitedStatesby

2010(washington,DC:USDOE,2001).

4. tHe us prograMMe 33

A total of up to $450 million in grants was ini-

A package of subsidies was later proposed

tially proposed for at least three projects. Three

for this handful of demonstration units, of which

main organisations emerged to take advantage

two have turned out to be the most important:

of these subsidies, with two signing agreements

with the USDOE to develop COLs. Nustart,

production Tax Credits: In order to make

launched in 2004, was made up of a consor-

electricity generated from new nuclear power

tium of eight US utilities, including Entergy,

plants competitive with other sources of energy,

Constellation Energy, Duke Power, Exelon,

an $18/MWh tax credit would be paid for the first

Florida Power & Light, Progress Energy, Southern

eight years of operation. According to the Energy

Company and the Tennessee Valley Authority

Information Administration (EIA), this subsidy

(TVA, providing staff time not cash). The French

would cost US taxpayers $5.7 billion by 2025 44;

utility, EDF, and the vendors Westinghouse and

loan Guarantees: To ease the difficulty

GE were also members but had no voting rights.

of financing new plants, loan guarantees were

Nustart planned to make two applications, one

offered so that utilities could borrow at government

for a GE ESBWR at Entergy’s Grand Gulf (Texas)

treasury bond rates. The Congressional Budget

site and one for a Westinghouse AP1000 at TVA’s

Office concluded that the risk for loan default by

Bellefonte site. The other main group is led by

the industry would be “well above 50%” 45. The

the utility Dominion. Dominion was seeking a

Congressional Research Service estimated that the

COL for an advanced version of Atomic Energy

taxpayer liability for loan guarantees covering up

of Canada’s Candu design, the ACR-700, at North

to 50% of the cost of building six to eight new reac-

Anna (Virginia), where Dominion operates

tors would be $14-16 billion 46.

two reactors. However, in January 2005, it an-

nounced that it had replaced the ACR-700 with

EPACT offered up to $500 million in risk insur-

GE’s ESBWR because of the expected time for a

ance for units 1-2 and $250 million for units 3-6.

Candu plant to be licensed in the United States.

This insurance would be paid if delays not attribut-

A Candu design has not achieved regulatory ap-

able to the licencee slowed licensing of the plant.

proval in the United States and the NRC forecast

It also offered support for R&D funding worth

that its approval process could take more than

$850 million and help with historic decommis-

60 months – much longer than it then expected

sioning costs worth $1.3 billion.

would be required for a Generation III+ PWR or

BWR. Subsequently, it has become clear that all

It soon became clear that the loan guarantees

the new designs being assessed by the NRC will

were not only the key element of the package,

take more than 60 months to assess.

but that the extent of coverage offered was insuf-

ficient to allow utilities to place orders. Federal

Since the Energy Policy Act of 2005 (EPACT),

loan guarantees were originally expected to cov-

the timescale of the programme has slipped but

er up to 80% of the debt involved in the project

the scope has expanded to accommodate the

and if debt accounted for about 60% of the cost

large number of US utilities expressing an inter-

of building the plant (the rest from equity), this

est in building plants, and the scale of support

would mean about half the cost of the plant

on offer has also increased dramatically. By the

would be covered. Utilities successfully lobbied

start of 2009, plans to build 31 units had been

for 100% coverage of debt up to 80% of the project

announced (see Table 9).

cost. Banks were also vocal in their call for full

44 UnitedStatesDepartmentofEnergy(DoE),AnalysisofFiveSelectedTaxProvisionsoftheConferenceEnergyBillof

2003(washington,DC:EnergyInformationAdministration,2004),p.3,

http://tonto.eia.doe.gov/FTPROOT/service/sroiaf(2004)01.pdf

45 CongressionalBudgetOffice,CostestimateofS.14,EnergyPolicyActof2003(washington,DC:Congressional

BudgetOffice,may7,2003),http://www.cbo.gov/doc.cfm?index=4206

46 CongressionalResearchService(CRS),PotentialCostofNuclearPowerPlantSubsidiesinS.14(may7,2003);

requestedbySenatorRonwyden.

34 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

table 9 – us nuclear projects announced under “nuclear power 2010”

loan

expected

plant

owner

nrc status

Design

guarantee

on-line

COLapplication

Calvert Cliffs 3

Unistar

Short-listed

EPR

?

submitted3/08

COLapplication

South Texas 3,4

NRG

Short-listed

ABwR

?

submitted9/07

COLapplication

Bellefonte 3,4

TVA

Noteligible

AP1000

?

submitted10/07

COLapplication

Calvert Cliffs 3

Unistar

Short-listed

EPR

?

submitted3/08

COLapplication

South Texas 3,4

NRG

Short-listed

ABwR

?

submitted9/07

COLapplication

Bellefonte 3,4

TVA

Noteligible

AP1000

?

submitted10/07

COLapplication

North Anna 3

Dominion

Applied

ESBwR

?

submitted11/07

COLapplication

Lee 1,2

Duke

Applied

AP1000

2021-23

submitted12/07

COLapplication

Harris 2,3

Progress

Notapplied

AP1000

2019-20

submitted2/08

COLapplication

Grand Gulf 3

Entergy

Applied

ESBwR

Suspended

submitted2/08

COLapplication

Vogtle 3,4

Southern

Short-listed

AP1000

2016

submitted3/08

COLapplication

Summer 2,3

SCANA

Short-listed

AP1000

2016-19

submitted3/08

COLapplication

Callaway 2

AmerenUE

Applied

EPR

Suspended

submitted7/08

COLapplication

Levy 1,2

Progress

Applied

AP1000

2019-20

submitted7/08

COLapplication

Victoria 1,2

Exelon

Applied

ESBwR

Suspended

submitted9/08

COLapplication

Fermi 3

DTEEnergy

Notapplied

ESBwR

?

submitted9/08

COLapplication

Firstre-

Comanche Peak 3,4

TXU

APwR

?

submitted9/08

serve

COLapplication

Nine Mile Point 3

Unistar

Applied

EPR

Suspended

submitted10/08

COLapplication

Bell Bend

PPL

Applied

EPR

2018

submitted10/08

Amarillo 1,2

Amarillo

?

EPR

?

4. tHe us prograMMe 35

loan

expected

plant

owner

nrc status

Design

guarantee

on-line

COLapplication

River Bend

Entergy

Applied

ESBwR

Suspended

submitted9/08

Elmore

Unistar

?

EPR

Suspended

COLapplication

Turkey Point 6,7

FPL

?

AP1000

2018–20

planned3/09

Source:Variouspressreports

Note:moredetailsontheindividualprojectsareavailableinAppendix4

coverage. A statement in 2007 signed by six of

AP1000; GE-Hitachi ESBWR; GE-Hitachi ABWR 48;

Wall Street’s largest investment banks (Citigroup,

Areva NP EPR; and Mitsubishi APWR.

Credit Suisse, Goldman Sachs, Lehman Brothers,

Merrill Lynch, and Morgan Stanley) informed the

In 2002, when the programme was launched,

USDOE that they were unwilling to extend loans

construction costs of $1,000/kW were still expect-

for new nuclear power plants unless taxpayers

ed, and the guarantees needed for six units of

shouldered 100% of the risks 47.

about 1400 MW, each covering 50% of the total

cost, would have been about $4.2 billion. But in

In states where the electricity market is less

2008, if we assume 15 units will be eligible and

liberalised and utilities operating under regu-

will be covered up to 80% of their total cost of

lated tariffs with a regulated asset base, loan

$6,000/kW, guarantees worth in excess of $100

guarantees may be less vital. If regulators agree,

billion would be required.

as some have, in advance

of completion of the plant

The Energy Bill passed

A statement in 2007 signed by six of

to allow the utility to begin

in 2007 gave the USDOE

Wall Street’s largest investment banks

to recover the construc-

a budget of up to $18.5

informed the USDOE that they were

tion cost of the plant, there

billion for 2008/09 for

unwilling to extend loans for new

will be a significant shift

loan guarantees covering

nuclear power plants unless taxpayers

in the construction risks

nuclear plants. The USDOE

shouldered 100% of the risks.

away from the utility to

short-listed five projects

the consumers. This may

for these loan guarantees

mean financiers will offer loans at a much lower

in February 2009. These were Southern Company

rate than if the plant had to compete in a market.

(Vogtle), South Carolina Electric & Gas (Summer),

Unistar Nuclear Energy (Calvert Cliffs), NRG

The scope of the subsidies also grew, going

(South Texas), and the Comanche Peak project.

from covering just three sites (up to six units)

The list was subsequently reduced to four projects

to loan guarantees for up to three units of each

when the Comanche Peak project was relegated

“innovative” design, and by 2008, five qualifying

to first reserve in May 2009. Appendix 4 gives a

“innovative designs” were being processed by

detailed description of the status of the announced

the Nuclear Regulatory Commission (NRC). This

nuclear projects in the United States.

meant up to 15 units would be eligible for loan

guarantees. The five designs are: Westinghouse

47 Investors’commentsinresponsetoDOEnoticeofproposedrulemaking,July2,2007.

48 ToshibamayalsooffertheABwRindependentlyfromGE-hitachi.

36 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

4.1. likely outcomes

its projects appear to be dormant and only the

Calvert Cliffs project is well-advanced.

While reactor designs are being reviewed by

the NRC, all raise significant questions. The APWR

The AP1000 appears to be in the strongest posi-

has been close to commercial order in Japan for

tion. It accounts for nearly half of the announced

about a decade, but for reasons that are not clear,

reactor units (14 out of 31) and two out of four

the order has not materialised. In the United

of the projects shortlisted for loan guarantees,

States, it has only one customer, and if that project

including the project most likely to get the first of

should not proceed and the Japanese order con-

these, Vogtle. None of the AP1000 projects appear

tinues to be delayed, the technology would seem

to have been abandoned yet, although the TVA

to have little future.

Bellefonte project is now in some doubt. It has

already received NRC design approval (in 2006)

There is little interest in the ESBWR outside the

although Westinghouse/Toshiba has subsequent-

United States, and since 2008 it has lost three out

ly submitted design revisions for which review

of five of its US customers. These customers have

will not be complete before 2011. Westinghouse/

made damaging comments about the uncertainty

Toshiba is experiencing some difficulty resolving

of construction costs and how close to commer-

safety issues concerning the end-shield on both

ciality the design is. The remaining two customers

sides of the Atlantic. In February 2010, the UK

for the ESBWR (Dominion and DTE Energy) are

nuclear safety regulator raised a “regulatory issue”

not on the short-list for loan guarantees. If these

on this design aspect 49.

orders fall through, it will be hard for the ESBWR

to survive; if they do not, this would raise ques-

The existing loan guarantees committed by

tions about GE’s future as a reactor vendor.

the US government until the end of 2009 – $18.5

billion – would probably have been consumed

The ABWR has only one customer (NRG), and

by just two projects. There is also the problem of

that project experienced serious difficulties in late

establishing what fee the utilities should have to

2009 because of escalating costs. It has the strong

pay to receive these guarantees. Given that loan

advantage of being a demonstrated technology

guarantees are effectively an insurance policy, the

that already has regulatory approval from the NRC.

“premium” should reflect the risk of default. The

However, this approval runs out in 2012 and any

Congressional Budget Office has estimated that the

new orders would have to await renewal of its cer-

net default risk would be 25% (50% but half of the

tification. The NRC has yet to give any indication

cost would be recovered by selling off equipment).

of the extent of any changes that would need to be

It seems highly improbable that utilities borrowing

implemented, for example, on aircraft protection.

– say, $10 billion for a two unit project – would be

The ABWR’s advantage as a proven technology will

prepared to pay a fee of $2.5 billion just to receive

disappear if the list is extensive and the process to

loan guarantees. The utilities are asking for a fee

review the design-changes is lengthy.

of 1% 50, but this seems unlikely to be politically

acceptable.

The image of the EPR is being seriously

damaged by the problems at Olkiluoto (and

In February 2010, in its 2011 budget, the Obama

Flamanville) and by the difficulty of resolving

administration approved an increase in the amount

the control and instrumentation issue with the

available for loan guarantees, from $18.5 billion

European safety regulators. Three out of six of

to $54.5 billion (perhaps enough for 12 units) 51.

49 Iftheregulatoryissueisnotresolvedwithinaspecifiedtimelimit(inthiscase),thesafetyauthoritiesmayrefuseto

givethedesigngenericdesignapprovalseehttp://news.hse.gov.uk/2010/02/16/

hse-raise-regulatory-issue-ri-against-westinghouses-ap1000-nuclear-reactor-design/

50 ElectricUtilityweek,“ChangetoDOEGuaranteeProgrammeBoostsNuclearhopefuls;SizeofFeeRemainsan

Issue”,December14,2009.

51 AssociatePress,“ALookatObama’s2011BudgetforGov’tAgencies”,February1,2010.

4. tHe us prograMMe 37

In February 2010, the USDOE announced that

(see Appendix 4). So any bank lending money to the

loan guarantees worth $8.33 billion had been allo-

project had double protection: from the federal gov-

cated to the Vogtle (Georgia) project for two AP1000

ernment (taxpayers) via loan guarantees; and from

units 52. The loan guarantees were expected to cover

consumers via guaranteed cost-recovery.

7% of the costs (at least for the main owner, Georgia

Power) although the details of the fee that would

This model of double protection does show

be charged for the loan guarantee was not speci-

that nuclear plants can be built if the government

fied. The forecast cost of the plant is therefore about

is prepared to provide large enough subsidies.

$11.9 billion, or $5,000/kW. The Georgia Public

However, it does not seem likely to be sustainable

Service Commission had already accepted Georgia

for more than a few demonstration units, especial-

Power’s request to be allowed to start recovering the

ly if the project does not go smoothly and taxpayers

construction cost from its monopoly consumers

and consumers are forced to meet extra costs.

52 washingtonPost,“ObamaTohelpFundNuclearReactors”,February17,2010.

38 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

ar

edj

R

5. the uK programme

The UK government’s programme is based on

giving utilities a choice of designs. Most observ-

very different underlying assumptions than that of

ers expected that the EPR and AP1000 would be

the United States. The UK government has never

the final choices, and so it has proved. The ACR-

claimed that nuclear power would be directly

1000 was quickly withdrawn and in late 2008, the

competitive with fossil fuels, but if a carbon price

ESBWR was also withdrawn.

of €36/ton was assumed, it would be competi-

tive. Ordering would therefore take place without

The NII has experienced severe difficulties

subsidy, provided a few non-financial enabling

recruiting sufficient inspectors to carry out

decisions were taken, particularly on planning

its tasks, and in November 2008, it was still 40

processes and certification of designs. In 2008,

inspectors (about 20%) short of the required

when the government revisited nuclear econom-

number. By July 2009, the shortage was 54

ics, it assumed the construction cost was £1,250/

inspectors (24%) 54. Some of the utilities oper-

kW ($2,000/kW), representing a real increase in

ating in the United Kingdom, especially EDF,

costs of about 20% over the 2002 figures 53.

have said they expect to be able to order plants

without subsidies.

The government’s nuclear regulator, the

Nuclear Installations Inspectorate (NII), started

However, realistically, orders cannot be placed

to examine four separate designs in 2007: the

for at least five years in order to allow regulatory

Westinghouse/Toshiba AP1000; the Areva NP EPR;

approval for the chosen design and planning

the GE-Hitachi ESBWR; and a Canadian heavy-

approval for a site. Three utilities have made sig-

water reactor design, the ACR-1000 (Advanced

nificant commitments to UK ordering: EDF, RWE,

CANDU Reactor). The rationale was that up to

and E.ON – the latter two in consortium. EDF

three designs would be finally certificated, thus

took over the UK nuclear generation company,

53 DepartmentforBusiness,EnterpriseandRegulatoryReform,“meetingtheEnergyChallenge:AwhitePaperon

NuclearPower”,Cm7296,hmSO,London,p.61,http://www.berr.gov.uk/files/file43006.pdf 54 InsideNRC,“UK’sNIIShortonInspectors,SeesYearsofRecruitmentStruggle”,July20,2009,p.9.

5. tHe uK prograMMe39

British Energy, for about €15 billion in 2008, while

By the start of 2010, the UK was still 3 to 4

RWE/E.ON have purchased sites in 2009 adjacent

years away from completing safety assessments

to existing nuclear power plants for several hun-

of the designs and getting planning permission

dred million euros. Both EDF and the RWE/E.ON

for specific sites – the point when a firm order

consortium expect to order 4 units, for a total of

could be placed. At that point, other options,

10 to 12 GW of capacity. EDF is expected to order

such as renewables and energy efficiency, will

the EPR, while the RWE/E.ON consortium has yet

most likely not be developed enough to be

to choose its supplier.

brought in, and the United Kingdom will be in

a position of having to order nuclear plants to

5.1. likely outcomes

keep the lights on. The government will then

have to accede to whatever demands the utili-

While the 2009 UK government was heavily

ties make.

committed to reviving nuclear ordering in the

United Kingdom, there can be no guarantee that

The first major chink in the government’s “no

when it comes to place orders, the commitment

subsidies” policy came in February 2010, when the

of the government of the day will be so strong.

Energy Minister, Ed Miliband, told the Times 55:

EDF had also heavily committed itself to nuclear

“The Neta system [the British wholesale

ordering in the United Kingdom with its purchase

market], in which electricity is traded via con-

in 2009 of British Energy for about €15 billion.

tracts between buyers and sellers or power

This price seems far above the value of the assets

exchanges, does not give sufficient guarantees

being acquired and only has any logic if new

to developers of wind turbines and nuclear

nuclear orders are placed.

plants.”

British Energy went bankrupt in 2002 because

He said that one alternative would be a return

its operating costs, then about £16/MWh, were

to “capacity payments” – in which power station

marginally higher than the price it received

operators would be paid for the electricity they

for electricity. Since then, operating costs have

generate and also for capacity made available. The

grown every year and by 2008/09, the operating

idea of such payments is to give greater certainty

costs had risen to £41.3/MWh. British Energy only

to investors in renewable and nuclear energy.

remained solvent because of the extremely high

wholesale electricity prices that prevailed in that

A day later, the national economic energy reg-

period – British Energy received £47/MWh in that

ulator announced 56:

period. If operating costs continue to rise and/

The unprecedented combination of the

or wholesale electricity prices fall (by the end

global financial crisis, tough environmental tar-

of 2009, they were well below the 2008 peak),

gets, increasing gas import dependency and the

British Energy will be at risk of collapse again.

closure of ageing power stations has combined

In theory, EDF could simply abandon British

to cast reasonable doubt over whether the cur-

Energy (the company was acquired via a wholly-

rent energy arrangements will deliver secure

owned subsidiary, Lake Acquisitions) but this

and sustainable energy supplies […]. There is an

would be unlikely to be politically acceptable.

increasing consensus that leaving the present

The RWE/E.ON consortium had invested a few

system of market arrangements and other incen-

hundred million pounds in options to buy sites,

tives unchanged is not an option.

but if it did not take up these options, it could

walk away from a British nuclear programme at

If the result of these two statements is that

little cost.

nuclear power plants will get large “capacity pay-

55 TheTimes,“LabourPreparesToTearUp12YearsofEnergyPolicy”,February1,2010.

56 Ofgem,“ActionNeededToEnsureBritain’sEnergySuppliesRemainSecure”,pressreleaseR5,February2010,

http://www.ofgem.gov.uk/media/PressRel/Documents1/Ofgem%20-%20Discovery%20phase%20II%20Draft%20v15.pdf

40 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

ments” whether or not they operate and the

operator could be sufficiently guaranteed (by

wholesale market is abandoned in favor of a

consumers) so that the economic risks of nucle-

much more planned (less economically risky)

ar power could be reduced sufficiently so as to

system, the income for a nuclear power plant

allow for cheap financing.

6. gerMany 41

atcliff

ey RTr

6. germany

Germany operates 17 power reactors. In 2002

the existing plants but it has agreed not to remove

the parliament passed a nuclear phase-out law

the phase-out policy 57. For fall 2010, the government

that requires they be shut down after an average

has promised a national review of energy policy

lifetime of about 32 years. However, the utilities

that will take a comprehensive look at the situation

had a total “nuclear electricity-generating budget”

and propose the government’s strategy, including

of 2,623 billion kWh (corresponding to the annual

the issue of reversing the phase-out policy.

world nuclear power production) and can transfer

remaining kWh from one reactor to another unit.

While it is clear that the two major utilities,

Two units have already been shut down under the

RWE and E.ON, would like to build new nuclear

phase-out law (Stade, Obrigheim). A third unit

plants, their first priority will be to maintain their

(Mülheim-Kärlich) that had been under long-term

existing plants in operation. Two, Neckarwestheim

shutdown since 1988 has been closed for good. The

1 and Biblis A, will be closed in 2010 unless the

construction of new nuclear plants and spent-fuel

government acts. If the life of the existing plants

reprocessing (beyond quantities of fuel shipped to

is extended, their initial capital costs will have

reprocessing plants until June 30, 2005) is prohibited.

been repaid and – provided major repairs and

upgrades are not needed – these plants will pro-

Some expected the election of the new Merkel

duce very cheap power. One German economist,

government in September 2009 to lead to a rever-

Wolfgang Pfaffenberger, estimated that these

sal of the phase-out policy and perhaps even new

additional profits could amount to €200 billion,

orders. However, the new coalition government led

if the life of the existing 17 reactors was extend-

by the Christian Democrats (CDU) with the Free

ed to 60 years 58. Until now the government has

Democrats (FDP) and the Christian Social Union

struggled to answer how it can legally justify the

(CSU) has been cautious in changing the law. The

“use” of these windfall profits if it allows opera-

government has signaled it might extend the life of

tors to keep their plants running longer.

57 Nucleonicsweek,“NewGermanGovernmentwillPostponeNuclearPolicyDecisionsuntilLate2010”,November5,2009.

58 Nucleonicsweek,“TaxRevenuefromLongerLifetimesNoIncentiveforNewGermanRegime”,December4,2009.

42 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

a

amell

imone R

S

7. other markets

While many countries have expressed an in-

subcontract some of the work to equipment sup-

terest in new nuclear power plants, the time from

pliers such as Hyundai, Doosan, and Samsung.

“expression of interest” to the actual order is a very

The terms of the deal and what is included are not

long one and one in which there is ample scope

clear, although the contract is reported to be worth

for failure. In this section, we therefore concen-

$20.4 billion. The South Korean bid was reported

trate on markets that are of symbolic importance,

to be $16 billion lower than the French bid, and

especially Italy; ones where calls for tender have

the GE-Hitachi bid was reported to be significantly

already taken place, for example, South Africa and

higher 60. It appears not to be a whole project “turn-

Canada; and countries where efforts to restart

key” (fixed price) deal. South Korean companies

work on partially built plants are underway.

will hold an equity stake in a joint venture with

UAE public companies, which will operate the

7.1. united arab emirates

plants after their completion 61. It is not clear how

the plants will be financed.

In December 2009, the United Arab Emirates

ordered four nuclear reactors from South Korea

There seems to be ample scope for things to go

using AP1400 technology, beating opposition from

wrong with this project:

consortia led by EDF (including GDF Suez, Areva,

Total with the EPR) and GE-Hitachi (technology

the technology is untested: there is only

unspecified) 59. The contract is with Korea Electric

about a year of construction experience with this

to build and operate the plants, the first coming

design;

on-line at an unspecified site in 2017 and the last

there is little nuclear expertise in the region;

by 2020. KEPCO will provide design, construction,

the timescale will be very difficult to meet

and maintenance for the nuclear reactor and will

and the contract price appears to be about 40%

59 Koreaherald,“KoreawinsLandmarkNuclearDeal,”December28,2009.

60 RightVisionNews,“UAE:middleEastLeadsRallyinNuclearPlantOrders”,January12,2010.

61 InternationalOilDaily,“SouthKoreanConsortiumAwardedUAENuclearContract”,December29,2009.

7. otHer MarKets 43

lower than the cost estimates for plants planned by

of the previous year for 3200 to 3400 MW of new

experienced US utilities;

nuclear capacity in the near term and up to 20,000

the South Korean nuclear industry has no

MW by 2025. One bid was from Areva for two EPRs

experience with supplying reactors outside South

(plus 10 more for the long-term) and the other

Korea;

from Westinghouse for the three AP1000s (plus 17

there is little of the infrastructure needed

more in the long term) 64. Both claimed their bids

to operate a nuclear power plant in the UAE – for

were “turnkey”, but whether they were really turn-

example a safety regulator was only set up in late

key in the fixed price sense or whether they were

2008.

simply for the whole plant is not clear.

7.2. south africa

It was later reported that the bids were for

around $6,000/kW – more than double the expect-

South Africa was pinning its hopes for its

ed price 65. It was therefore no surprise when Eskom

nuclear programme on the Pebble Bed Modular

abandoned the tender in December 2008 on the

Reactor (PBMR) from 1998 onwards. However,

grounds that the magnitude of the investment was

by 2006 it was clear that the PBMR would at

too much for it to handle 66. This was despite the

best be long-delayed, and

willingness of Coface, the

at worst not viable. The

French government’s loan

While many countries have expressed

PBMR is now unlikely to be

guarantee body, to offer

an interest in new nuclear power

deployed even as a dem-

export credit guarantees

plants, the time from “expression of

onstration plant before

and despite Areva’s claims

interest” to the actual order is a very

2020 and the South African

that it could have arranged

long one and one in which there is

state-owned utility, Eskom,

85% of the financing 67. In

ample scope for failure.

is not expecting to order

February 2009, Eskom also

any units of this design.

abandoned plans to build

PBMRs 68. While Eskom is still claiming it expects

The South African government and Eskom

to order nuclear plants, it seems unlikely that it will

then began to talk about a programme of what

be able to finance these.

they termed conventional nuclear power plants.

As with the PBMR, their estimates for duration and

Engineering News reported that the issue was

costs were hopelessly unrealistic. In 2006 62, the

the credit rating of Eskom 69:

South African government forecast that a new unit

In fact, ratings agency Standard & Poor’s

could be on-line between 2010 and 2012.

said on Thursday that South Africa’s National

Treasury needed to extend “unconditional, time-

By mid-2007, Eskom was targeting construc-

ly guarantees” across all Eskom’s debt stock if it

tion of 20,000 MW on new nuclear capacity by

hoped to sustain the utility’s current BBB+ invest-

2025, although completion of the first unit had

ment-grade credit rating. The National Treasury

slipped to 2014 63. It expected a construction cost of

was still to announce the details of the package.

$2,500/kW. In January 2008, Eskom received two

The Eskom board had, as a result, decided to ter-

bids in reply to its call for tenders from November

minate the commercial procurement process to

62 SundayTimes(SouthAfrica),“SAGoingNuclear”,June24,2006.

63 Nucleonicsweek,“CabinetmullsPolicyasEskomLaunchesConsultationonNewPlant”,June7,2007.

64 Nucleonicsweek,“EskomGetsBidsforTwoEPRS,ThreeAP1000s,Bigger‘Fleet’”.February7,2008.

65 Nucleonicsweek,“BigCosthikesmakeVendorswaryofReleasingReactorCostEstimates”,September11,2008.

66 Nucleonicsweek,“EskomCancelsTenderforInitialReactors”,December11,2008.

67 TheStar,“NuclearBidhadFunding–AREVA”,January30,2009.

68 PBmRpty,“PBmRConsideringChangeinProductStrategy”,newsrelease,February5,2009,

http://www.pbmr.co.za/index.asp?Content=218&Article=104&Year=2009

69 EngineeringNews,“EskomTerminatesNuclear1ProcurementProcess,butSAStillCommittedtoNuclear”,

December5,2008.

44 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

select the preferred bidder for the construction of

bid was C$23.6 billion (US$21 billion) for two

the Nuclear-1 project.

EPRs (1600 MW each) or C$7,375/kW (US$6,600/

kW), while AECL’s compliant bid was C$26 bil-

This history illustrates that loan guarantees are

lion (US$23 billion) for two ACR-1000s (1200

not enough in themselves to guarantee nuclear

MW each) or C$10,800/kW (US$9,600/kW). The

projects can be funded. If the credit rating of the

compliant bid was nearly four times the amount

utility is at risk, it will be hard to proceed.

projected by the OPA only two years previously.

The Westinghouse bid, the last of the three, was

7.3. canada

reported to be about midway between the other

two bids. Not surprisingly, Ontario decided to

In 2007, Ontario Power Authority (OPA), the pub-

suspend the tender.

lic body responsible for planning the Ontario power

system, had assumed nuclear power plants could

Subsequently, Areva disputed the published

be built for about C$2,900/kW 70. On June 16, 2008,

bid price, but they were not willing to supply the

the Canadian government announced Darlington

actual price they bid. There was also reported to be

in Ontario as the site for a two-unit new build

a number of additional items included over and

project and on May 20, 2009, information leaked

above those included in the “overnight price”, in-

that the Ontario government had chosen AECL as

cluding: the construction of the transmission and

the leading bidder over

distribution infrastructure

Areva and Westinghouse to

to deliver the power from

That loan guarantees are not enough

start building the first new

the Darlington site to cus-

in themselves to guarantee nuclear

nuclear plants in Canada

tomers in the northeastern

projects can be funded. If the credit

in 25 years. Two new reac-

United States; and the

rating of the utility is at risk,

tors were projected to

price of nuclear fuel for 60

it will be hard to proceed.

start operating by 2018.

years and decommission-

However, the provincial

ing costs 74.

government reportedly conditioned any go-ahead

on financial guarantees by the federal govern-

The failure of AECL to be awarded this tender

ment to cover the financial risks involved 71. Three

put its future as a reactor vendor in doubt and

bids were received, including one from Areva

AECL was put up for sale at the end of 2009 75.

and one from AECL, although only the AECL bid

complied with the requirement that the vendor

7.4. turkey

assume the construction risk. Ontario Energy and

Infrastructure Minister George Smitherman said

Turkey has been holding calls for tender for

that only the AECL bid complied with the prov-

nuclear power plants for about 30 years but has

ince’s requirement for vendors to bear the entire

yet to place an order. In 2008, Turkey opened a call

risk of cost-overruns 72.

for tenders for 3000 to 5000 MW of new nuclear

capacity. Bidders would be required to cover not

There was a press report on the size of the

just the construction cost but would be required to

bids 73. This suggested that Areva’s non-compliant

operate the plant for 15 years, offering the power

70 TorontoStar,“NuclearBidRejectedfor26Billion:OntarioDitchedPlanforNewReactorsoverhighPriceTagThatwould

wipeOut20-YearBudget”,July14,2009.

71 TheGlobeandmail,“AECLFavouredtoBuildOntarioReactors:Sources”,may20,2009.

72 Nucleonicsweek,“ArevaDisputesEPRCostFigureasCanadiansGrapplewithRiskIssue”,July23,2009.

73 TorontoStar,“NuclearBidRejected”.

74 Nucleonicsweek,“ArevaDisputesEPRCost”.

75 TheGlobeandmail,“CanadaPutsItsNuclearPrideontheBlock”:“Underweightofrecorddeficit,Toriesseekbidson

AECL’sreactorwing.TheCandusareapointofprideinCanada'sengineeringhistoryandthesaleissparkingfearsthe

technologywillleavethecountry”,December18,2009.

7. otHer MarKets 45

at a fixed price 76. This was an extraordinary level

7.6. brazil

of risk to ask the vendors to cover. Despite report-

ed interest from vendors such as GE-Hitachi,

Brazil operates two nuclear reactors, the first

Toshiba/Westinghouse, Korea Electric, and

of which, Angra-1, was ordered in 1970 from

Areva, in January 2009 when bidding closed

Westinghouse. The reactor went critical in 1981. In

(it had to be extended), the only bid came from

1975, Brazil signed with Germany what remains

the Russian supplier, Atom Stroy Export (ASE).

probably the largest single contract in the his-

The price bid was reported to be $211.6/MWh 77.

tory of the nuclear industry for the construction of

Subsequently, a revised bid of $151.6/MWh was

eight 1300 MW reactors over a 15-year period. The

presented after TETAS, the state-owned electric-

outcome was a disaster. Due to an ever-increasing

ity trader, submitted its report on the tender to

debt burden and obvious interest in nuclear weap-

the government stating the bid was too high to

ons by the Brazilian military, practically the entire

proceed with 78. In November 2009, the Turkish

programme was abandoned. Only the first reactor

government scrapped the tender, which was,

covered by the programme, Angra-2, was finally

by then, under threat of being invalidated by a

connected to the grid in July 2000 – 24 years after

court decision following action by the Turkish

construction started. The construction of Angra-3

Chamber of Engineers 79.

was halted in June 1991. Attempts by the publicly

owned company, Eletronuclear, to get construction

7.5. italy

restarted have been continually delayed. Work was

reported to have restarted in October 2009 with

In 1987, a referendum led to the closure of

expected completion in 2015 82. In January 2010,

the four operating nuclear power plants in Italy

Areva NP applied to the German government for

and the abandonment of work on construction

loan guarantees worth €1.4 billion from the German

of another nuclear station. The Berlusconi gov-

credit guarantee agency, Hermes, to complete

ernment has introduced legislation that would

Angra-3 83.

pave the way for the reintroduction of nuclear

power in Italy. Four 1650 MW EPRs could be

Beyond this, the Brazilian government was

built, with construction starting as early as 2013,

expecting, in late 2009, to announce the sites for

under an agreement signed in February 2009 by

four new reactors. The Energy Minister, Edison

the French utility, EDF, and the largest Italian

Lobao, has said each of the units is expected to cost

utility, ENEL.

about $3 billion and generate up to 1500 MW. This

projected cost of $2,000/kW appears hopelessly

ENEL has not selected the sites for these units

unrealistic and there must be strong doubts about

yet. It has said the cost would be about €4 to 4.5

whether Brazil will proceed with nuclear orders in

billion ($5.9 to 6.6) each or $3,600 to 4,000/kW 80.

the next five years.

There has been speculation about other com-

peting bids to build nuclear power plants – for

7.7. eastern europe

example, a consortium led by A2A, the Milan-

based utility offering AP1000s – but these projects

In this section we focus on efforts to restart

are much less advanced than those of ENEL 81.

work on partially built plants, especially those in

76 Nucleonicsweek,“GE-hitachiPlansBidToBuildABwRinTurkey;OtherVendorsCautious”,September11,2008.

77 Prime-TassEnglish-languageBusinessNewswire,“DJAtomstroyexportGrpRevisesBidinTurkishNuclearTender–IhA”,

January19,2009.

78 TurkeyToday,“State-runTETASPresentsReportonNuclearPowerTendertoEnergyministry”,June30,2009.

79 AgenceFrancePresse,“TurkeyScrapsNuclearPowerPlantTender”,November20,2009.

80 Nucleonicsweek,“EnelTargets2020forOperationofFirstItalianEPRUnit”,October8,2009.

81 Nucleonicsweek,“milanUtilityA2ACouldBecomehubofAP1000ConsortiumforItaly”,October22,2009.

82 EsmerkBrazilNews,“Brazil:Angra3worksStart”,October13,2009.

83 Taz,ditagezeitung,“SiemenswillStaatshilfefürAtom-Export,”January7,2010.

46 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

Bulgaria, Romania, and the Slovak Republic. New

additional units. Bids have been solicited to cre-

reactors are being considered for the Baltic States,

ate an independent power producer between the

Poland, and the Czech Republic, but these were

utility, SNN, which will complete and provide

all some way from placing an order. In Bulgaria,

operation and maintenance, and a private inves-

Romania, and the Slovak Republic, the projects to

tor. Financing has proved difficult and delays

complete partially built units have been delayed by

have continued. Initially, commissioning of unit 3

up to a decade and their completion is still far from

was due in October 2014 and unit 4 in mid-2015.

certain.

However, this has now been revised and the first

unit is not expected to be completed until 2016 at

7.7.1. Slovak Republic

the earliest 84.

Mochovce was planned to host four Soviet-

7.7.3. Bulgaria

designed reactors of the WWER-440 design. Work

on this site was stopped in 1990 but work on two

In 2003 the government announced its

units was later restarted and these were completed

intention to restart construction at the Belene site

in 1998 and 1999. In October 2004 the Italian utility

in northern Bulgaria. Construction of a reactor

ENEL acquired 66% of Slovenske Elektrarne (SE).

began in 1985, but following the political changes

As part of its bid, ENEL proposed to invest nearly

in 1989 construction was suspended and formally

€2 billion in new generating capacity, including

stopped in 1992. In 2004 a call for tenders for the

the completion of the third and fourth units of

completion of the 2000 MW of nuclear capacity

Mochovce. In February 2007, SE announced that it

was made. In October 2006 a consortium led by

was proceeding with the completion of these units

the Russian company, Atom Stroy Export (ASE)

and that ENEL had agreed to invest €1.8 billion.

was awarded the €4 billion contract.

Although the European Commission gave its per-

mission for construction to restart in July 2008, it

A Belene construction consortium has been

noted that the reactor did not have a “full contain-

established in which the state utility, NEK, will retain

ment” structure, which is used in the most recent

overall control, with 51%, with the remaining shares

construction of nuclear power plants planned

having been put to tender. In late 2008 German util-

or under way in Europe, and they requested that

ity RWE was announced as the strategic investor

the investor and national authorities implement

with a requirement to put up €1.275 billion as well

additional features to withstand impact from

as provide a €300 million loan in advance. This led

small aircraft. Despite pressure from the Slovak

to the formation of the Belene Power Company in

government, it took until June 2009 to reactivate

December 2008 as a joint venture. However, RWE

construction. The two units are now scheduled for

subsequently withdrew and at the end of 2009,

completion in 2012 and 2013 respectively.

financing was still being arranged 85.

7.7.2. Romania

7.7.4. Other countries

The Cernavoda nuclear power plant was

In 2009, the Czech state-controlled utility,

expected to house five “Candu” units when

CEZ, opened a call for tenders for two new re-

a contract was placed to build them in 1980.

actors to be built at the Temelin site, where two

Construction started in 1980 but later, all efforts

reactors already operate with an option to build

went to complete unit 1, which went on-line

a third unit at another existing site, Dukovany 86.

in 1996. A second unit was completed in 2007

The bidders are reported to be Westinghouse,

and plans are being developed to complete two

Atom Stroy Export, and Areva although the final

84 Nucleonicsweek,“EconomicCrisisEndsRomania’sPlanformajorityStakeinCernavoda-3,-4”,September3,2009.

85 BalkansBusinessDigest,“moscowinTalkswithSofiaOverStakeinBeleneNuke”,December28,2009.

86 CzechRepublicToday,“CEZAdmitsAllBiddersforTemelinConstructiontoSecondStage”,February22,2010.

7. otHer MarKets 47

decision is not expected before early 2012 with

designed nuclear reactors it has retired recently

completion of the three units expected in 2019,

but lacks the financing to do so. Unless a vendor

2020, and 2023-25.

is prepared to organise a deal under which a part-

ner of the vendor would own and operate the

The Polish government has expressed its

plant (as Korea Electric has done in the United

intent to build new nuclear power plants but

Arab Emirates), it seems unlikely a reactor order

the plans are at an early stage. The Lithuanian

will be possible.

government would like to replace the two Soviet-

48 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

g

obbin

k Cic

eace / Np

een

© Gr

8. review of utility construction cost-estimates

Many of the recent utility cost-estimates

guarantees and may also need to account to

have come from the United States. These cost

state energy regulators for the costs they expect

estimates may be more reliable than other util-

to incur. However, there have been indications of

ity cost-estimates as the utilities will need to

the results of three calls for tenders and the expe-

provide reliable cost estimates to obtain loan

rience from Olkiluoto and Flamanville to add.

8.1. united states

table 10 – construction costs for us nuclear power plants

plant

technology

cost estimate (us$bn)

cost estimate us$/kW

Bellefonte 3, 4

AP1000

5.6-10.4*

2,500-4,600

Lee 1, 2

AP1000

11*

4,900

Vogtle 3, 4

AP1000

9.9

4,190

Summer 2, 3

AP1000

11.5

4,900

Levy 1, 2

AP1000

14

5,900

Turkey Point 6, 7

AP1000

15-18

3,100-4,500

South Texas 3, 4

ABwR

17

6,500

Grand Gulf

ESBwR

10+

6,600+

River Bend

ESBwR

10+

6,600+

Bell Bend

EPR

13-15

8,100-10,000

Fermi

ESBwR

10

6,600+

Source:Variouspressreports

Estimatesmarked*areovernightcosts;otherestimatesincludeinterest

8. reVieW oF utility construction cost-estiMates

49

Table 10 shows the most recent construction

$1,000/kW figures that were being claimed by the

costs for US nuclear power plants. A number of

nuclear industry in the late 1990s and that cost es-

factors emerge from this table. First, most of the

timates were continuing to rise at the end of 2009.

estimates, especially the most fully worked out,

The basis for the figures varies: Some include

are for the AP1000 design. Because this and the

financing, some include transmission costs, and

ABWR are the only designs that have completed

so direct comparisons are not reliable.

their NRC review process – albeit that both designs

are being revised again – it is easier to make construc-

8.2. other countries

tion cost-estimates because the design is closer to

a final design. However, it is difficult to draw very

Table 11 summarises recent cost-evidence

strong conclusions from this table, other than that

from countries that have got at least as far as com-

cost estimates appear to be at least four times the

pleting a call for tenders.

table 11 – recent nuclear power plant bids (us$/kW)

pre-bid

lowest bid/

Most recent

country

status

forecast

contract price

estimate

South Africa

2,500

6,000

-

Tenderabandoned

Canada

2,600

6,600

-

Tenderabandoned

UAE

-

3,700

-

Awaitingconstructionstart

France

-

2,700

3,300

Constructionfrom12/2008

Finland

2,500

4,500

Constructionfrom7/2005

Source:Author’sresearch

8.3. summary

rent cost estimates, while US plants completed in

the 1990s also cost about the same. It may be that

It is clear that in the past decade, the esti-

plant designers assumed that starting without all

mated construction cost for new nuclear plants

the “baggage” that earlier generations of designs

has increased several-fold, perhaps more than

had acquired in response to the safety challenges

five-fold, with no sign that the rate of increase is

thrown up by Three Mile Island and Chernobyl,

leveling out. All past expe-

new designs could meet

riences suggest that when

the safety requirements

actual construction costs

In the past decade, the estimated

but with much simpler

are established, they will

construction cost for new nuclear plants

designs, which would be

be substantially more than

has increased several-fold, perhaps

cheaper and more efficient.

these estimates. However,

more than five-fold, with no sign that

It may be that this percep-

what is more difficult to

the rate of increase is leveling out.

tion was an illusion and

establish is whether cur-

the designs have become

rent estimated costs really

no less complicated. The

are significantly higher than past costs and, if they

need to provide protection against aircraft strikes

are, why estimated costs have increased at such

also seems to have proved more onerous than the

a rate.

nuclear industry anticipated.

The Sizewell B plant, the most recent plant built

The figure of $1,000/kW may also not have

in the United Kingdom, which did not encounter

emerged “bottom-up” from design studies but

major problems in the construction phase, cost

from “top-down” considerations that this was

in the range of £3 billion, not out of line with cur-

the cost needed to make nuclear competitive. In

50 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

short, the $1,000/kW was an imposed target with

Steel Works, which manufactures ultra-heavy forg-

no technical basis. To the extent there has been

ings for pressure vessels. While a large demand

cost escalation, a variety of explanations can be

for these products would undoubtedly lead to

suggested for this 87. These include:

an increase in capacity, the certification require-

ments for nuclear components will make this a

rapidly rising commodity prices driven by

slow process and companies will be reluctant to

China’s demands for them, which makes all power

commit the investment needed to build such pro-

plants more expensive, but affects nuclear plants

duction facilities until they see solid evidence of

particularly severely because of their physical size;

long-term demand. Standard & Poor’s also notes

lack of production facilities, which means

skills shortages as a major constraint and, again,

that utilities hoping to build nuclear plants are tak-

such skills shortages cannot quickly or easily be

ing options on components like pressure vessels;

overcome. It expects the United States to have to

shortages of the necessary nuclear skills

rely on expertise from foreign countries, especial-

as the nuclear workforce ages and is not replaced

ly France and Japan initially.

by younger specialists;

Currency instability. Currency values

weakness of the US dollar; and

have been particularly volatile in the past two

greater conservatism in cost estimation by

years, with the dollar hitting historic lows against

utilities.

European currencies. From November 2005 to

July 2008, the value of the dollar against the euro

All of these appear plausible at first sight,

fell from €1=$1.17 to €1=$1.57. Yet by November

but closer examination suggests not all are con-

2008, the dollar had recovered much of this

vincing.

ground to €1=$1.27. It seems likely that at least

some of the cost escalation was related to the de-

Commodity prices. In the past decade, cline of the US dollar, making some inputs more commodity prices of many metals and other raw

expensive in dollar terms but not necessarily in

materials have increased significantly – the so-called

euro terms.

China effect. However, commodity prices have

Utility conservatism. Greater aware-

fallen sharply following the financial crisis with no

ness among utilities regarding the accuracy of

corresponding fall in estimated construction costs.

their estimates and whether there will be serious

Component bottlenecks and skills short-

financial consequences is difficult to quantify.

ages. Standard & Poor’s 88 places emphasis on the Experience with Olkiluoto and the awareness that issue of shortage of component manufacturing

regulators and the public are likely to be much

facilities. It identifies pressure vessels, circulating

less indulgent to cost-overruns than they were in

water pumps, and turbine forgings as particular-

the past will be a strong incentive for utilities to

ly problematic. There is only one supplier, Japan

build-in ample contingencies.

87 Formorediscussiononthesefactors,seeStandard&Poor’s,“ConstructionCostsToSoarforNewU.S.

NuclearPowerPlants”(2008).

88 Ibid.

9. neeD For anD extent oF public subsiDies

51

ages

imer

upit

ages/J

ty imet

9. need for and extent of public subsidies

© G

Successive studies by the British government

conditions allow utilities to borrow the money

in 1989, 1995, and 2002 came to the conclusion

they need very cheaply.

that in a liberalised electricity market, electric

utilities would not build nuclear power plants

The areas where subsidies and guarantees

without government subsidies and government

might also be required would be particularly

guarantees that cap costs. In most countries where

those that are not fully under the control of the

the monopoly status of the generating companies

owner. These include:

has been removed, similar considerations would

apply. The recent order in Finland clearly does

construction costs. The construction

not follow this expectation, but, as argued above,

costs of a new nuclear power plant would be

the special status of the buyer as a not-for-profit

high and there would be a significant risk of cost-

company owned by the industrial companies

overruns. The government might therefore have to

contracted to buy the output of the plant means

place a cap on the costs a private investor would

that the special conditions in Finland provide an

have to pay;

example that other countries are not likely to fol-

operating performance. There would

low. The experience with this project has been

be a significant risk that performance would be

consistently very bad and this is likely to be a fur-

poorer than forecast. Reliability is largely under

ther deterrent to utilities operating in competitive

the control of the owner and it is not clear whether

electricity markets from building nuclear power

developers would be sufficiently confident in

plants unless they are very fully insulated from

their abilities to take the risk of poorer-than-

market risks.

expected reliability;

non-fuel operations and maintenance

The US programme to revive nuclear ordering

costs. Similarly, this is largely under the control

has demonstrated that the key requirement for

of the owners and they may be willing to bear

ordering is either government-backed loan guar-

this risk;

antees or a regulatory commitment to allow the

nuclear fuel cost. Purchasing fuel has not

utility to recover its costs from consumers. These

generally been seen as a risky activity. Uranium

52 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

can easily be stockpiled and the risk of increasing

opers might therefore seek some “cap” on their

the fuel-purchase cost can be dealt with. The cost

contributions.

of spent-fuel disposal (assuming reprocessing is

not chosen) is, however, much more contentious,

Guarantees would be particularly extensive

and nuclear owners might press for some form of

and high for the first units built, which would

cap on disposal cost, similar to the US arrange-

bear the setup costs for a new technology. If a series

ments;

of plants are built and experience with them is

decommissioning costs. The costs of good, it is possible that the market would be will-decommissioning are very hard to forecast, but the

ing to bear more of the risk, although a political

costs will arise far into the future. Contributions

commitment to promote nuclear power is by no

to a well-designed, segregated decommission-

means sufficient to ensure the completion of a

ing fund appear relatively manageable, although

programme. It should be remembered that the

if experience with decommissioning and waste

Reagan and Thatcher administrations, which

disposal reveals that current estimates are signifi-

promised a strong revival in the nuclear industry,

cantly low, or if returns on investment of the fund

presided over steep declines in the fortunes of

are lower than expected, contributions might

nuclear power.

have to be increased significantly. Private devel-

conclusions

53

conclusions

these orders are generally being supplied by

national vendors and are generally for earlier

In the decade since the Nuclear Renaissance

generation designs. The markets that must be

based on Generation III+ designs was first moot-

reopened if the Renaissance is to happen, such

ed in the late 1990s, the forecast economics of

as the United States, the United Kingdom and

new nuclear plants has deteriorated dramatically.

Italy, are still several years away from ordering

Paradoxically, this seems to have made many gov-

and the Generation III+ designs are also several

ernments, including those of the United States,

years from being demonstrated in operation.

the United Kingdom, and Italy, far more deter-

mined to force new nuclear power plant orders

While powerful political backing can push the

through. Indeed, the efforts to relaunch nuclear

Nuclear Renaissance so far, if the fundamentals of

ordering have been associated in a very person-

technology and economics are not right, political

al way with the leaders of these countries: Bush,

backing – as was provided by Thatcher and Reagan in

Blair, and Berlusconi.

the 1980s – will ultimately not be enough. This report

focuses on the economics, but there is an overlap

While such powerful political backing can

between economics and technology. In principle,

be a strong facilitating force, for example short-

almost any design can be made to meet the safety

cutting planning procedures and making public

standards required by the regulatory authorities, but

subsidies available, it can also be a weakness.

the cost of doing so could be prohibitive.

When governments change, the new government

may be less enthusiastic.

It has proved much more difficult to obtain

regulatory approval for the new designs than

Some of the enthusiasm for nuclear power

was expected. The US Nuclear Power 2010 pro-

appears to be based on the blatantly misguid-

gramme was launched with an objective to get

ed view that expanding nuclear power can be a

a Generation III+ design on-line in the United

major way to cut emissions of greenhouse gases.

States by 2010. It seems that only one design

Electricity typically makes up only about 20% of

(AP1000) will have completed its design cer-

final energy demand, and even if this proportion

tification by then and even this design is now

was increased somewhat and the proportion of

being reviewed again following submission of

electricity demand generated by nuclear power

revisions to it. By the start of 2010, it was clear

was also increased, it would still be hard to get the

that none of the designs will be fully certi-

proportion of energy met by nuclear power much

fied before 2011 and perhaps later. Significant

above 10%. Increasing world nuclear capacity four-

design issues – such with the Control and

or five-fold would raise major issues – for example of

Instrumentation system for the EPR 89 and the

uranium resource adequacy, availability of accept-

Shield Building for the AP1000 90– can likely be

able sites, and waste disposal – even if the materials,

resolved, but in doing so, costs could be added

skills, and financial resources could be assembled.

and delays will occur.

Worldwide, the ordering rate for new nuclear

There are three reasons why forecasting the

power plants has been at a low ebb for 30 years.

cost of power from a nuclear plant is difficult and

In the past few years, orders for China and, to a

controversial:

lesser extent, South Korea and Russia, have sub-

several of the variables relate to pro-

stantially increased the number of plants under

cesses that have not been proven on a commercial

construction – in January 2010, there were 20

scale, such as decommissioning and waste dis-

plants under construction in China alone. But

posal, especially for intermediate- and high-level

89 ForSeeforexample,health&SafetyExecutive,“JointRegulatoryPositionStatementontheEPRPressurizedwater

Reactor”,ReleaseNo:V422/10/2009,November2,2009,http://www.hse.gov.uk/PRESS/2009/hse221009.htm

90 Seeforexample,NuclearRegulatoryCommission,NRCInformswestinghouseofSafetyIssueswithAP1000Shield

Building,http://www.nrc.gov/reading-rm/doc-collections/news/2009/09-173.html

54 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

waste. Experience of nuclear power suggests that

There is a significant mismatch between the

unproven processes could easily cost signifi-

commercial interests of the companies involved

cantly more than expected. There is therefore a

and the interests of society in general. Costs in-

strong risk that forecasts of these costs could be

curred far in the future – no matter how large or

significantly low;

uncertain – have little weight in commercial cost

for some of the variables, there is no “cor-

appraisals, and companies are also absolved of

rect” answer. For example, the discount rate could

the risk of nuclear accidents by international trea-

vary widely and there is no consensus on how pro-

ties. So cost appraisals made from a corporate

visions to pay for decommissioning should be set;

point of view must be corrected so that they

there is a lack of reliable, up-to-date data on

reflect fully the broader societal perspective.

actual nuclear plants. Utilities are secretive about

the costs they incur, while in the past two decades,

As with the many previous predictions of a

there have been only a handful of orders in Western

“second-comings” for nuclear power since 1980,

Europe and none since 1980 in North America. All

the result of the current “Renaissance” will not be

modern designs are therefore untested.

a large number of new nuclear orders. Countries

where nuclear orders have not been problematic

Over the past four decades, there has consist-

will continue to order plants. Even in these coun-

ently been a wide gap between the performance of

tries, enthusiasm will dim as the escalating costs

existing nuclear plants and the performance fore-

become apparent, the problems of waste disposal

cast for new nuclear plants. These expectations have

remain unaddressed, and nuclear capabilities

almost invariably proved overoptimistic. The gap in

die away.

expected performance is as wide as ever between

current forecasts of the economic performance of

In the “Renaissance countries”, a handful of

the next generation of nuclear power plants and

plants will be built, proving only that nuclear pow-

that of the existing plants. The fact that in the past

er plants can be built if governments are prepared

such expectations have proved wrong is not a guar-

to provide large enough subsidies and to over-

antee that current forecasts would prove inaccurate.

ride proper democratic consultation processes.

It does suggest that forecasts that rely on major

The real loss however will be – as it has been over

improvements in performance should be treated

the past few decades – the opportunity cost of not

with some skepticism. The most important assump-

pursuing more cost-effective options of meeting

tions are:

the energy policy goals of providing affordable,

construction cost;

reliable, and clean energy – or efficiency savings.

operating performance;

The cost-curve for nuclear power has always been

non-fuel operations and maintenance cost;

upwards. In other words, instead of getting cheap-

nuclear fuel cost;

er over time due to the learning, scale economies,

decommissioning cost.

and technical progress effects, as most technolo-

gies do, nuclear costs have increased. Analyses by

Nuclear power plants can only be built where

Froggatt and Schneider (2010) show that energy

extensive government guarantees and subsidies

efficiency and renewables are far more cost-effec-

are provided.

tive than nuclear power and that their cost curve

is downwards 91. If some of the resources being

There might also need to be commercial

poured into another fruitless attempt to revive

guarantees that the output of the plants would be

nuclear power were devoted to these sources,

purchased at a guaranteed price. It seems doubt-

the economic gap between energy efficiency and

ful that such an extensive package of “state aids”

renewables and nuclear would be highly likely to

would be acceptable under EU competition law.

grow even wider.

91 A.Froggatt(withm.Schneider),“SystemsforChange:NuclearPowervs.EnergyEfficiencyandRenewables?”Paper

preparedforheinrichBöllFoundation,April2010.

appenDices

55

appenDices

BWRs are therefore less complex than PWRs, but

because the coolant water goes directly to the

appenDix 1 :

turbine, radioactive contamination of the plant

reactor technologies, current designs,

is more extensive. Most of the Russian-designed

and vendors

plants, WWERs, are essentially PWRs. Britain has

one operating PWR, Sizewell B, but no BWRs.

reactor technologies

Some plants use “heavy water” as coolant

Nuclear power reactors can be broadly catego-

and moderator, the most common of which are

rised by the coolants and moderators they use. The

the Candu reactors designed in Canada. In heavy

coolant is the fluid (gas or liquid) that is used to take

water, the deuterium isotope of hydrogen replaces

the heat from the reactor core to the turbine gen-

the much more common form of the atom. Heavy

erator. The moderator is a medium that reduces the

water is a more efficient moderator and Candu

velocity of the neutrons so that they are retained in

plants can use natural (unenriched) uranium.

the core long enough for the nuclear chain reaction

However, its greater efficiency is counterbalanced

to be sustained. There are many possible combi-

by the cost of producing heavy water. A new Candu

nations of coolant and moderator, but among the

design has been proposed that would use light

reactors currently in service or on offer, there are

water as a coolant and heavy water as a moderator,

four possible coolants and three moderators.

but this design is still on the drawing board.

The most common type of nuclear plant is the

All of the British plants except Sizewell B

light-water reactor (LWR), for which there are two

are cooled by carbon dioxide gas and moder-

variants, the pressurised water reactor (PWR), and

ated by graphite. The first-generation plants, the

boiling water reactor (BWR). These are derived from

Magnoxes, use natural uranium, but most were

submarine propulsion units and use ordinary water

unable to operate long-term at their full design

(“light water”) as coolant and moderator. The advan-

rating because the carbon dioxide coolant

tage of water is its cheapness, although it is not the

becomes mildly acidic when in contact with

most efficient moderator (water molecules absorb

water and causes corrosion of the piping. The

some of the neutrons rather than them “bouncing”

second-generation plants use enriched uranium

off the water). As a result, the proportion of the

and improved materials were used to prevent cor-

active isotope of uranium has to be increased from

rosion. Graphite is an efficient moderator but is

about 0.7%, the amount found in natural uranium,

quite expensive compared to water. Its disadvan-

to more than 3%. This process is expensive.

tages are its flammability and its tendency to

crack and distort with exposure to radiation. The

As a coolant, the disadvantage of water is that

design used at Chernobyl, the RBMK, also uses

it is designed to work as a liquid. If there is a break

graphite as the moderator but uses light water as

in the coolant circuit, the water will boil and will

the coolant.

cease to be as effective as assumed. Avoiding the

possibility of “loss of coolant accidents” is there-

There has been consistent interest in reactors

fore a major priority in reactor design. The main

that use helium gas as the coolant and graphite

difference between a PWR and a BWR is that in

as the moderator, so-called high temperature

a BWR, the coolant water is allowed to boil and

gas-cooled reactors (HTGRs). Helium is entirely

passes directly to the turbine generator circuit,

inert and is an efficient, albeit expensive coolant.

where the steam generated in the reactor core

The use of helium and graphite means the reac-

drives the turbine. In a PWR, the coolant water is

tor operates at a much higher temperature than

maintained as a liquid by keeping it under pres-

a light-water or carbon-dioxide-cooled reactor.

sure. A heat exchanger (steam generator) is used

This allows more of the heat energy to be turned

to transfer the energy to a secondary circuit where

into electricity and also opens the way to use

water is allowed to boil and drives the turbine.

some of the heat in industrial processes while still

56 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

being able to generate power. However, despite

It remains to be seen whether any of these

research in several countries – including Britain,

technologies can be commercialised, but even

going back more than 50 years – no commercial

their proponents acknowledge that they will not

design of such a plant has ever been produced

be a commercial option before about 2030, so they

and the demonstration plants that have been

have no relevance to current reactor choices.

built have a very poor record.

current designs and vendors

There has been some discussion of Genera-

tion IV designs 92. While Generation III+ designs

The most relevant designs for orders to be

are described by the US Department of Energy

placed in the next decade in the West are so-called

as “evolutionary”, Generation IV designs are

Generation III+. Generation I designs represent

described as revolutionary. They are described

the first orders placed in the 1950s and 1960s.

as “safer, sustainable, economical, more prolif-

Generation II designs represent the majority of

eration resistant and secure”. The main feature of

units now in service and include plants ordered

these designs that would distinguish them from

from the late 1960s to the early 1980s. Generation

existing designs is that they would use natural

III plants are those ordered from the early 1980s

uranium much more fully than existing tech-

to around 2000. They incorporate, from the start,

nologies, for example, through use of “breeder

the main lessons from the Three Mile Island acci-

cycles”, which allow the 99.3% of natural uranium

dent. The main distinction between Generation

that existing reactors do not utilise, to be used.

III plants and Generation III+ plants, which were

They also operate at higher temperatures than

designed after the Chernobyl disaster, is that

existing reactors and could, for example, be used

the latter incorporate a greater level of “passive”

to produce hydrogen. Six technologies have been

safety as opposed to engineered safety. For exam-

identified as being most promising:

ple, Generation III+ designs would rely less on

engineered systems for emergency cooling and

gas-cooled fast reactors;

more on natural processes, such as convection.

lead-cooled fast reactors;

The “9/11” attacks have added another important

molten salt reactors;

design consideration and any new design must

sodium-cooled fast reactors;

now be able to demonstrate it can withstand a

super-critical water-cooled reactors;

commercial aircraft being flown into it.

very high-temperature gas-cooled reactors.

There are a large number of designs that have

Only the sodium-cooled fast reactors and the

been announced, but many are not far advanced,

very high-temperature gas-cooled reactors have

do not have regulatory approval, and have limited

seen significant development in operating plants.

prospects for ordering. There is no clear definition

However, both technologies have proved highly

of what Generation a particular design falls into,

problematic. Fast reactors cooled by sodium have

but the main features of the Generation III+ design,

been operated since the 1960s and many coun-

apart from it being designed in the last 15 years, are:

tries have had sodium-cooled breeder reactor

programmes, but they have proved very expen-

a standardised design to expedite licens-

sive and unreliable, and few countries are now

ing, and reduce capital cost and construction

pursuing this technology. As noted above, high-

time;

temperature gas-cooled reactors have also been

a simpler and more rugged design, mak-

under development in many countries since the

ing them easier to operate and less vulnerable to

1960s but have also proved impossible to commer-

operational upsets;

cialise, and most countries are no longer actively

higher availability and longer operating

pursuing them.

life – typically 60 years;

92 FormoreinformationonGenIVtechnology,seetheGenerationIVInternationalForumathttp://www.gen-4.org/

appenDices

57

reduced possibility of core-melt accidents;

numbers) had been overestimated. An executive

minimal effect on the environment;

of Westinghouse justified the choice of a unit size

higher burn-up to reduce fuel use and the

of 600 MW rather than 1000-1300 MW by stating

amount of waste; and

that “the economies of scale are no longer opera-

burnable absorbers (“poisons”) to extend

tive”. 94 The AP-600 went through the US regulatory

fuel life 93.

process and was given safety approval in 1999. By

then, it was clear that the design would not be

These characteristics are clearly very impre-

economical and the AP-600 was never offered in

cise and do not define well what differentiates a

tenders. Its size was increased to about 1150 MW

Generation III+ plant from earlier designs, other

in the hope that scale economies would make the

than that the design was evolved from existing

design competitive. In September 2004, the NRC

models. In the following descriptions, we concen-

granted a Final Design Approval, valid for five

trate on designs that have been ordered, or are

years, to Westinghouse for the AP1000. The NRC

being assessed, by safety regulators.

issued a standard Design Certification, valid for

15 years, in 2006. However, Westinghouse sub-

Pressurised Water Reactors (PWR)

sequently submitted further design changes that

will not be approved by the NRC before 2011.

There are four main independent vendors of

The AP1000 is one of the designs being reviewed

PWR technology from which current designs are

by the NII under its Generic Design Assessment

derived: Westinghouse, Combustion Engineering,

(GDA) programme and the NII expects to com-

Babcock & Wilcox (B&W), and the Russian ven-

plete its assessment by mid-2011, although, as

dor, Rosatom.

with the EPR, there is no guarantee that it will

then be licensed.

Westinghouse

Areva

Westinghouse technology is the most widely

used and has been widely adopted using tech-

Both Framatome and Siemens became in-

nology licences, the main licencees being the

dependent of Westinghouse and, in 2000, they

French company Areva (up to 2001, known as

merged their nuclear businesses, with 66% of the

Framatome), Siemens (Germany), and Mitsubishi

shares going to Framatome and the remainder go-

(Japan). Westinghouse plants have been sold

ing to Siemens. Framatome is now controlled by the

throughout the world, although it had only one

Areva group, which is more than 90% owned by the

order in the past 25 years (Sizewell B) before it

French government. The Framatome division was

received four orders from China in 2008; its last

renamed Areva NP in 2001. In 2009, Siemens ex-

order in the United States (not subsequently can-

pressed its intention to withdraw from the joint

celled) was more than 30 years ago. In 1998, BNFL

venture, although by the end of 2009, the details

took over the nuclear division of Westinghouse,

of the withdrawal were still being negotiated.

but in 2006 it was sold to Toshiba. Westinghouse’s

Framatome supplied all the PWR plants in France

main current design is the AP1000, although it has

(58 units) and has exported plants to South Africa,

only had orders for four units, all for China.

South Korea, China, and Belgium. Siemens sup-

plied 10 out the 11 PWRs built in Germany and

The AP1000 (Advanced Passive) was devel-

exported PWRs to the Netherlands, Switzerland,

oped from the AP-600 design. The rationale for

and Brazil.

the AP-600 was to increase reliance on passive

safety and also that scale economies (from build-

The only Generation III+ PWR design with

ing larger units as opposed to building larger

significant construction experience is the Areva

93 http://www.uic.com.au/nip16.htm

94 NucleonicsweekSpecialReport,“OutlookonAdvancedReactors”,march30,1989,p.3.

58 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

NP European Pressurised water Reactor (EPR).

year for a decade, but as of the end of 2009 the

The Finnish government issued a construction

order had still not been placed. A more advanced

licence for the Olkiluoto EPR in February 2005

version of the APWR is being reviewed by the

and construction started in summer 2005. Work

NRC and one US utility, TXU, plans to order it.

started on an EPR at the Flamanville site in France

The NII does not expect to complete its review

in 2007. Two EPRs have also been ordered by

before about 2012.

China, but by the end of 2009, there was minimal

construction experience. The EPR received out-

Combustion Engineering

line safety approval from the French authorities

in September 2004 and from the Finnish authori-

Combustion Engineering produced its own

ties in January 2005, although it is now clear, as is

design of PWR, which is installed in the United

discussed later, that many design details remain

States. Outside the United States, its technology

to be finalised. Areva has asked the NRC, in col-

was licensed by South Korea. The nuclear division

laboration with Constellation Energy, under the

of Combustion Engineering was taken over by

Nuclear Power 2010 programme to begin licens-

ABB in 1996 and, in turn, taken over by BNFL in

ing of the EPR in the United States. Final approval

1999. It is now part of the Westinghouse division

is unlikely to be given before 2012. The EPR is also

and was sold in 2006 as part of the Westinghouse

one of the designs being reviewed by the UK safe-

division to Toshiba.

ty authorities, the NII, under its GDA programme,

which was launched in 2007. The NII expects to

Combustion Engineering’s System 80+ design

complete its assessment by mid-2011, but this

received regulatory approval in the United States

does not mean it will necessarily be approved

in 1997. System 80+ is not being offered for sale by

then. For the US market, EPR is an abbreviation

Westinghouse. However, the South Korean ven-

for Evolutionary Power Reactor.

dor, Doosan, has used this design under licence

from Westinghouse to develop its APR-1400,

The Olkiluoto (Finland) EPR has an output of

which was ordered for South Korea in 2008. South

1600 MW, although this was increased to 1700 MW

Korea did offer the design for the Generation III

for orders after Olkiluoto. The design was devel-

plant tender held in 2005 for China but it was

oped from the previous Framatome design, N4,

rejected. In December 2009, it won a tender for

with some input from Siemens’ previous design,

four units for installation in the United Arab

the “Konvoi” plant. A reduction in the refueling time

Emirates and the suppliers are now expected to

is expected to allow a load factor 95 of about 90%.

offer it to Turkey.

Mitsubishi

Babcock & Wilcox

Mitsubishi supplies PWR technology to Japan,

Babcock & Wilcox (B&W) supplied PWRs of its

where it has built 22 units, but it has never tried

own design to the US market, but the Three Mile

to sell plants to the international market before

Island accident, which involved B&W technology,

it submitted it to the US Nuclear Power 2010

effectively ended their interest in reactor sales.

process. One US utility is planning to build an

The only plant of B&W design built outside the

Advanced PWR (APWR), its most modern design.

United States was built under licence in Germany,

Development of the APWR by Mitsubishi and its

but this was closed in 1988 due to licensing prob-

technology licensor, Westinghouse, was launched

lems soon after its completion in 1986 and will

around 1980, but first orders have continually

not be restarted.

been delayed. Orders for a unit for the Tsuruga

(Japan) site have been expected within about a

95 Annual(orlifetime)loadfactoriscalculatedastheannual(orlifetime)outputoftheplantasapercentageoftheoutputthe

plantwouldhaveproducedifithadoperatedcontinuouslyatfullpowerandisagoodmeasureofthereliabilityoftheplant.

appenDices

59

Rosatom/Atom Stroy Export

expect to submit an updated design to the NRC

to renew its safety approval. It is not known yet

Exports of Russian technology are through

how extensive the changes required by the NRC

Atom Stroy Export (ASE), part of the Rosatom

would be and how long recertification would

company. In 2009, Siemens was negotiating

take. Inevitably, the new design will need much

with Rosatom to form a new joint venture to

more extensive protection against aircraft strikes

sell Russian technology. The latest Russian

than the earlier version. The ABWR should prob-

design, generating about 1200 MW, is the AES-

ably be classified as a Generation III design, but

2006/WWER-1200, offered from 2006 onwards.

if it succeeds in having its certification renewed

Two units of this design have been ordered

by the NRC, the revised design can probably be

for each of two sites in Russia (Leningrad and

described as Generation III+. One utility, NRG,

Novovoronezh). It won a tender in 2008 for nu-

plans to build ABWRs under the US Nuclear

clear plants to be built in Turkey, although it

Power 2010 programme.

was the only bidder and the contract was with-

drawn in 2009 because of the high price offered.

The Economic & Simplified BWR (ESBWR) is

It may be considered for Finland and India.

a 1500 MW design developed by GE. In October

2005, the GE-Hitachi joint venture applied to

Boiling Water Reactors (BWRs)

the NRC for certification of the ESBWR design.

The ESBWR has been developed in part from

The main designer of BWRs is the US company

GE’s Simplified Boiling Water Reactor (SBWR)

General Electric (GE), which has supplied a large

and the ABWR. The SBWR began the process of

number of plants to the USA and international

getting regulatory approval in the 1990s but was

markets such as Germany, Japan, Switzerland,

withdrawn before the procedure was complete

Spain, and Mexico. Its licencees included AEG

and did not win any orders. The ESBWR has

(subsequently taken over by Siemens), Hitachi,

been chosen by a number of US utilities under

and Toshiba. The Siemens reactor division (now

the Nuclear Power 2010 programme, although

part of Areva NP) offered the SWR design for the

NRC does not expect to complete its review

Olkiluoto tender, but despite this, the design seems

before 2011. The ESBWR was submitted to the

some way from being commercially available.

UK’s GDA review programme in 2007, but was

withdrawn in 2008. Six US utilities planned to

GE-Hitachi and Toshiba

build ESBWRs under the Nuclear Power 2010

programme, but one has switched to the ABWR,

GE’s Japanese licencees continue to offer

one appears to have abandoned the project, and

BWRs in Japan. There are now 32 BWRs in opera-

there are doubts around the viability of most of

tion or under construction in Japan. A few

the other four projects. There appears to be little

first-of-a-kind plants in Japan were bought from

interest in the ESBWR outside the United States

GE but the rest were split between Hitachi and

and the design may have to be abandoned.

Toshiba. The Advanced Boiling Water Reactor

(ABWR) was developed in Japan jointly by Hitachi

Other BWRs

and Toshiba and their US technology licensor, GE.

The first two orders were placed around 1992 and

Asea Atom (Sweden) produced its own design

completed in 1996/97. By the end of 2009, there

of the BWR, nine of which were built in Sweden

were four ABWRs in service and one under con-

and two in Finland. Asea Atom merged with

struction in Japan and two under construction in

Brown Boveri to form ABB, which in turn was

Taiwan. The ABWR received safety approval in the

taken over by BNFL in 1999 and sold to Toshiba

United States in 1997, but this approval runs out

in 2006 as part of the Westinghouse nuclear divi-

in 2012. It is now being offered by a GE-Hitachi

sion. The BWR-90+, a 1500 MW design developed

joint venture and by Toshiba, which now oper-

by Westinghouse from the Asea BWR design, has

ates independently, and both these companies

been mooted but development is not advanced.

60 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

Candus

High-temperature gas-cooled

reactors (HTGRs)

The main heavy-water reactor supplier is the

Canadian company Atomic Energy of Canada

It is not clear whether the HTGRs under devel-

Limited (AECL), which has supplied plants more

opment should be categorised as Generation III

than 20 units to Canadian utilities as well as

or IV plants. The Pebble Bed Modular Reactor

exports to Argentina, Romania, South Korea, and

(PBMR) is based on designs developed by

China. It also sold plants to India but because of

Siemens and ABB for Germany, but abandoned

proliferation issues, it has had no contact with the

after poor experiences with a demonstration

Indians since 1975, although India continues to

plant. It is now being developed by South African

build plants of this 40-year-old design. Argentina

interests. The various takeovers and mergers

has built three heavy-water plants, one Candu

in the reactor vending business mean that the

and two plants of a German design (one of which

technology licence providers are now Areva

is incomplete and no work is currently being car-

(for Siemens) and Westinghouse (for ABB). The

ried out on it).

technology is being developed by PBMR Co., a

subsidiary of Eskom, the South African publicly

The main future design for AECL will be the

owned electric utility. Funding for its develop-

Advanced Candu Reactor (ACR), which was

ment was contracted to come from Eskom; BNFL;

expected to be produced in two sizes, 750 MW

the US utility Exelon; and the South African state-

(ACR-700) and 1100-1200 MW (ACR-1000).

owned Industrial Development Corporation.

Unlike earlier Candus, which used heavy water

This investment would entitle the companies

as a coolant and moderator, these would use

to a stake in a new company that would sell

light water as a coolant and heavy water as a

the reactors. The project was first publicised in

moderator. The ACR-700 was being reviewed by

1998 when it was expected that first commercial

the NRC under the sponsorship of the US utility

orders could be placed in 2003. However, there

Dominion, but Dominion withdrew its support

were greater than anticipated problems in com-

in January 2005, opting instead for GE’s ESBWR,

pleting the design. Exelon withdrew in 2002 and

citing the long time-scale of at least five years

the other partners paid less than they were con-

that NRC said would be needed for the review

tracted to pay, leaving Eskom to bear most of the

because of the lack of experience in the United

costs up to 2004 and the South African govern-

States with Candu technology. The ACR-700

ment directly from then on. The BNFL option has

appears to have been subsequently abandoned

passed to Westinghouse, Industrial Development

in favor of the ACR-1000. Any calls for tenders

Corporation has withdrawn, and no new inves-

requiring a reactor of this size would probably

tors have been found. The project time-scale

be offered an updated version of the 30-year-old

has slipped dramatically so that by 2009, first

Candu-6 design. The ACR-1000 was offered in a

commercial orders were not expected until after

call for tenders in Ontario but the price offered

2025. In 2008, a report by the Jülich Research

was far too high. It was also submitted to the UK

Centre – the German government’s nuclear

GDA process in 2007 but was withdrawn soon

research organisation that first developed peb-

after. There are now proposals to privatise its

ble bed technology – cast doubt on the safety of

state-owned vendor, Atomic Energy of Canada

the design based on a reevaluation of experience

Limited (AECL), and the future of Candu tech-

with a prototype plant of this design 96. In March

nology for new orders is in doubt.

2009, the South African government announced

that it would provide only one more year of fund-

ing. PBMR Co. decided to effectively abandon

the design they had been developing. They may

96 R.moormann,“ASafetyRe-evaluationoftheAVRPebbleBedReactorOperationandItsConsequencesforFuturehTR

Concepts”,ForschungszentrumJülich,2008,http://juwel.fz-juelich.de:8080/dspace/handle/2128/3136

appenDices

61

now develop a much smaller design without

now should be weighted more heavily than income

some of the advanced features, targeted at the

or expenditure earned in the future. For example,

process-heat market such as desalination, coal

a liability that has to be discharged now will cost

gasification, and liquefaction. It seems unlikely

the full amount, but one that must be discharged

that the PBMR programme will survive long after

in, say, 10 years can be met by investing a smaller

the end of South African government funding.

sum and allowing the interest earned to make up

the additional sum required. In a DCF analysis,

Chinese interests are also developing simi-

all incomes and expenditures through time are

lar technology with the same technological roots

brought to a common basis by “discounting”. If an

and, while optimistic statements have been made

income of $100 is received in one year’s time and

about development there, the Chinese govern-

the “discount rate” is 5%, the “net present value” of

ment seems to be backing development of PWRs

that income is $95.23 – a sum of $95.23 would earn

and perhaps BWRs.

$4.77 in one year to make a total of $100. The dis-

count rate is usually seen as the “opportunity cost”

of the money, in other words, the rate of return

appenDix 2

(net of inflation) that would be earned if the sum of

discounting, cost of capital, and required

money was invested in an alternative use.

rate of return

While this seems a reasonable process over

A particularly difficult issue with nuclear eco-

periods of a decade or so and with relatively low

nomics is dealing with, and putting on a common

discount rates, over long periods – with high dis-

basis for comparison, the streams of income and

count rates – the results of discounting can be very

expenditure at different times in the life of a nuclear

powerful and the assumptions that are being made

power plant. Under UK plans, the time from placing

must be thought through. For example, if the dis-

a reactor order to completion of decommissioning

count rate is 15%, a cost incurred in 10 years of $100

could span more than 200 years.

would have a net present value of only $12.28. A

cost incurred in 100 years, even if the discount rate

Conventionally, streams of income and

was only 3%, would have a net present value of only

expenditure incurred at different times are com-

$5.20. At a discount rate of 15%, costs or benefits

pared using discounted cash flow (DCF) methods.

more than 15 years forward have a negligible value

These are based on the intuitively reasonable

in an normal economic analysis (see Table 12).

proposition that income or expenditure incurred

table 12 – impact of discounting: net present values

Discounting period (years)

3%

15%

5

0.86

0.50

10

0.74

0.25

15

0.64

0.12

20

0.55

0.061

30

0.41

0.015

50

0.23

0.00092

100

0.052

-

150

0.012

-

Source:Author’scalculations

62 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

If we apply this to nuclear plants operating

controlling construction costs, the variability

in a competitive market where the cost of capi-

of performance, the risk of the impact of ex-

tal will be very high, this means that costs and

ternal events on the operation, and the fact

benefits arising more than, say, 10 years in the

that many processes are yet to be fully prov-

future will have little weight in an evaluation of

en (such as disposal of high-level waste and

the economics of a nuclear power plant. Thus

decommissioning). In a competitive environ-

increasing the life of a plant from 30 years to 60

ment, there are additional risks because of

years will have little benefit, while refurbishment

the rigidity of the cost structure. Most of the

costs incurred after, say, 15 years will equally

costs will be incurred whether or not the plant

have little impact.

is operated. Thus, while nuclear plants will do

well when the wholesale price is high (as was

For decommissioning – for which under UK

the case with British Energy from 1996-1999),

plans the most expensive stage is not expected

they will do poorly when the wholesale price

to be started until 135 years after plant closure

is low (2000-2002). The fact that a plant has

– this means very large decommissioning costs

made good profits for a decade will not protect

will little impact, even with a very low discount

it from bankruptcy in the bad years, and finan-

rate that is consistent with investing funds in a

ciers will therefore see investment in nuclear

very secure place with a low rate of return, such

power as being extremely risky and will apply

as 3%. If we assume a Magnox plant will cost

a very high interest rate that reflects the risk

about $1.8 billion to decommission and the

that the money loaned could easily be lost.

final stage accounts for 65% of the total (undis-

counted) cost ($1,170m), a sum of only $28

million invested when the plant is closed will

appenDix 3

have grown sufficiently to pay for the final stage

decommissioning

of decommissioning.

Decommissioning of nuclear plants has attract-

The implicit assumption with DCF meth-

ed considerable public interest in recent years as

ods is that the rate of return specified will be

reactors get near the end of their lives, forecast

available for the entire period. Give that even

decommissioning costs escalate, and weaknesses

government bonds – usually seen as the most se-

in the schemes that were meant to provide the

cure form of investment – are only available for

funds to do the job become apparent.

30 years forward, and that a period of 100 years

of sustained economic growth is unprecedented

Conventionally, decommissioning is split

in human history, this assumption seems diffi-

into three separate phases. In phase I, the

cult to justify.

fuel is removed and the reactor is secured.

The time taken to remove the fuel varies, with

So, with nuclear power, there is the appar-

plants that refuel off-line taking much less time

ent paradox that at the investment stage, a

(e.g., PWRs and BWRs). These are designed

very high discount rate (or required rate of

for about a third of the fuel to be replaced in

return) of 15% or more is likely to be applied

an annual shutdown of a few weeks. Reactors

to determine whether the investment will be

that refuel on-line (e.g., AGRs and Candus)

profitable, while for decommissioning funds,

take much longer because the refueling ma-

a very low discount rate is applied to deter-

chine is designed to constantly replace small

mine how much decommissioning funds can

proportions of the fuel while the reactor is in

be expected to grow.

operation. This requires precision machinery

that moves slowly, and removing the entire

The key element resolving this paradox

core may take several years. Once the fuel

is risk. Nuclear power plant investment has

has been removed, the reactor is no longer at

always been risky because of the difficulty of

risk of a criticality and the vast majority of the

appenDices

63

radioactivity and all the high-level waste has

Very few commercial-size plants that have

been removed. Until this phase has been com-

operated over a full life have been fully decom-

pleted, the plant must essentially be staffed

missioned, so the cost is not well established.

as fully as if it was operating. There is thus a

The operations required are said to have been

strong economic incentive to complete phase I

demonstrated successfully on a small scale, but

as quickly as possible, and phase I is invariably

until they are applied to a large-scale plant, the

completed as quickly as possible consistent

process cannot be seen as proven – many proc-

with safety. In technological terms, phase I is

esses that worked on a small scale in this area

simple – it represents largely just a continua-

have suffered problems when scaled up to com-

tion of the operations that were being carried

mercial size.

out while the plant was operating. Note that

dealing with the spent fuel is not included in

Much of the cost of decommissioning is

the cost of phase I.

accounted for by disposal of the radioactive waste

generated. The cost of waste disposal in modern

In the second phase, the uncontaminated

facilities is also not well-established, especially

or lightly contaminated structures are demol-

for intermediate level waste and long-lived, low-

ished and removed, leaving essentially the

level waste because of the lack of experience in

reactor. Again, this is relatively routine work

building facilities to take this waste.

requiring no special expertise. In economic

terms, the incentive is to delay it as long as

This uncertainty is reflected in the way that

possible to minimise the amount that needs

estimates of nuclear decommissioning costs

to be collected from consumers to pay for

are quoted. Typically, they are quoted as a per-

it – the longer the delay, the more interest

centage of the construction cost (perhaps 25%).

the decommissioning fund will accumulate.

Given that the cost of decommissioning clearly

The limiting point is when the integrity of

only bears a limited relationship to the cost of

the buildings can no longer be assured and

construction, this illustrates how little is known

there is a risk they might collapse, leading to

of the costs.

a release of radioactive material. In Britain, it

is planned to delay stage II until 40 years after

A typical breakdown of the expected undis-

plant closure.

counted cost of decommissioning might be

one-sixth for phase I, one-third for phase II,

The third phase, the removal of the reactor

and a half for phase III. British Energy was

core, is by far the most expensive and most tech-

required to operate a “segregated” fund to pay

nologically challenging, requiring remote robotic

for decommissioning of its plants, although

handling of materials. As with phase II, the eco-

phase I was expected to be paid for out of cash

nomic incentive is to delay the work until it is no

flow. BNFL, which owned the Magnox plants

longer safe to do so, and in Britain, this is expect-

until they were transferred to the Nuclear

ed to result in a delay of 135 years.

Decommissioning Authority in April 2005,

is publicly owned and treasury policy is not

At the end of phase III, the ideal is that the

to allow segregated funds for publicly owned

land can be released for unrestricted use, in oth-

companies. British Energy assumed a discount

er words, the level of radioactivity is no higher

rate of 3% for the first 80 years and zero after

than in uncontaminated ground. In practice,

then, while BNFL assumed a discount rate of

this is not always going to be possible and at

2.5% indefinitely. In 2003/04, British Energy

some “dirty” sites, such as the Dounreay site

increased its discount rate to 3.5%.

in Scotland where a demonstration fast reac-

tor operated, use of the land is expected to be

If we assume a total cost of decommissioning

restricted indefinitely because of the high level

of $1.8 billion – split between phases as above

of contamination.

with phase I carried out immediately after clo-

64 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

table 13 – illustrative costs of decommissioning (£m)

undiscounted

british energy (3%)

british energy (3.5%)

bnFl (2.5%)

Phase I

300

300

300

300

Phase II

600

184

151

223

Phase III

1,200

113

76

41

Total

1,800

597

527

574

Source:Author’scalculations

sure, phase II after 40 years, and phase III after

least the rate of return assumed. The weakness

135 years – the undiscounted and discounted

of this method was illustrated when the Central

costs will be as in Table 13.

Electricity Generating Board – the company that

owned the power stations in England and Wales

British Gas-cooled reactors are expected to be

until privatisation in 1990 – was privatised. About

very expensive to decommission because of their

£1.7 billion in accounting provisions had been

physical bulk, which produces a large amount of

made by consumers, but the company was sold for

waste. PWRs and BWRs are much more compact

only about a third of its asset value, so effectively

and are expected to cost perhaps only a third as

two-thirds of the provisions were lost. The govern-

much – for example, Sizewell B might be expected

ment did not pass on any of the sale proceeds to the

to cost a total of about $540 million.

company that inherited the nuclear power plants,

losing the remainder of the provisions.

Various means are used so that, as required by

the polluter-pays principle, those that consume the

A more reliable method appears to be the

electricity produced pay for the decommissioning.

segregated fund. Under this method, consumers

Under all methods, if the cost of decommission-

make provisions for the duration of the plant’s life,

ing is underestimated, there will be a shortfall in

which are placed in a fund that the plant owner has

funds that will inevitably have to be paid for by

no access to and which is independently managed.

future taxpayers. In Britain, the forecast cost of

The funds are invested only in very secure invest-

decommissioning the Magnox plants has grown

ments to minimise the risk of loss of the funds. Such

by a factor of about four in the past 20 years, even

investments might yield no more than 3% interest.

before any of the most challenging work has been

When decommissioning is required, the company

carried out.

that owns the plant can draw down the segregated

fund. Again, there are risks as illustrated by British

The least reliable method of collecting the

experience. The British Energy segregated fund

funds is the unfunded accounting method under

did not cover stage I – by far the most expensive

which the company makes accounting provisions

stage in discounted terms (about half) – while the

for the decommissioning. The provisions are col-

company collapsed long before the plants had

lected from consumers but these funds are not

completed their operating life. The company had

separated in any way from the company`s other

to be rescued by the government, and much of

revenues. The company is free to invest them in

the burden of decommissioning will be borne by

any way it sees fit, and these provisions exist as a

future taxpayers, who will be required to provide

proportion of the assets of the company, there is

the funds when decommissioning is carried out.

not a specific pot of money or set of assets that is al-

located to pay for decommissioning. This method

Perhaps the lowest risk approach of provisions

will only be reliable if it can be assumed the com-

being inadequate would be if a segregated fund

pany will continue to exist until decommissioning

was set up at the time the plant entered service,

is completed and that the assets it builds make at

with sufficient funds to pay for decommissioning

appenDices

65

after the design life of the plant had been complet-

also issued an “early site permit” to Southern that

ed. If we assume a life of 30 years and a discount

determines the site is environmentally suitable

rate of 3%, the required sum would be about 40% of

for the new reactors and approves emergency

the undiscounted sum. Thus, if the undiscounted

plans. The Georgia Public Service Commission

decommissioning cost is about 25% of the con-

accepted Georgia Power’s, which owns 45.7% of

struction cost, the sum that would have to be placed

the project, request to recover its financing costs

in the fund would be about 10% of the construction

for its $6.4 billion share of the 2234-MW nuclear

cost. Even this scheme would be inadequate if the

project through “construction work in progress”

plant had to be retired early, or if the decommis-

beginning in 2011 98. The assurance of cost recov-

sioning cost had been underestimated or if the

ery means that Southern Company has claimed it

funds did not achieve the rate of return expected.

will proceed with construction even if it does not

receive loan guarantees. It has also reduced the

Overall then, the sums required to decommis-

expected cost of its share, including financing up

sion nuclear plants are likely to be high. But even

to $4.529 billion, or a total of $9.9 billion 99.

under the schemes that provide the lowest risk that

there will be insufficient funds to pay for decom-

South Carolina Electricity & Gas

missioning – if the costs are estimated accurately

– the impact on overall costs would appear to be

Like the Vogtle proposal, the Summer (South

limited because of the impact of discounting.

Carolina) proposal is for two AP1000s and was

on the US Department of Energie’s short-list

for loan guarantees. SCE&G estimated the cost

appenDix 4

for constructing the two Summer plants alone

status of the us projects

– without transmission and finance charges –

would be $9.8 billion in June 2008 100. However,

Southern Company

in January 2009, SCE&G increased the estimate

of its 55% share of the costs from $4.8 billion

The Vogtle project appears to be the most

to $6.3 billion, implying a total cost of $11.5

advanced of the projects in the Nuclear Power

billion 101. This was described as an “all-in” price

2010 programme. In December 2009, the Vogtle

and presumably includes finance costs.

project (Georgia), comprising two AP1000s,

was seen as the frontrunner to get the first loan

Unistar

guarantees to be offered by the US govern-

ment. Ironically, two previous units at Vogtle,

The Unistar consortium is a joint venture of

completed in the 1980s, were among the worst

Constellation Energy (Baltimore Gas & Electric)

cases of cost escalation then. These two units,

and EDF formed in 2007. EDF subsequently took

originally expected to cost $660 million for four

a 49.9% share in Constellation’s existing nuclear

units, escalated to $8.87 billion for the two units

assets. Unistar has three projects: Calvert Cliffs

actually built.

(Maryland), Nine Mile Point (New York), and

Elmore (Idaho), all for single EPRs. The most

The NRC has given Southern Company per-

advanced of these is the Calvert Cliffs project,

mission to begin limited construction, for example

which was short-listed for loan guarantees. The

on backfill, retaining walls, and a waterproof

other two projects, Nine Mile Point and Elmore,

membrane at the Vogtle nuclear site 97. The NRC

will not be actively progressed until there is some

97 Greenwire,“NRCGrants‘Limitedwork’ApprovalforProposedGa.Reactors”,August27,2009.

98 PlattsGlobalPowerReport,“GeorgiaPSCApprovesTwoNuclearReactorsbyGeorgiaPower,andaBiomassConversion”,

march19,2009.

99 Nucleonicsweek,“GeorgiaPowerLowersEstimate”.

100NuclearEngineeringInternational,“PowermarketDevelopments–TheAmericanway”,June2008.

101SNLPowerweek(Canada),“SCE&GDisclosesNewCostsforSummerNukeExpansion”,January5,2009.

66 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

prospect of loan guarantees being available for

atory and illegal conduct” and had then tried to

them. In December 2009, Unistar asked the NRC

push CPS out 105. In October 2009, it emerged that

to put a hold on its application for a combined

the cost estimate for the two South Texas ABWRs

construction and operating licence for Nine Mile

was about $17 billion, including financing. No

Point 102.The Elmore project is less advanced than

up-to-date estimates without financing costs are

the Nine Mile Point project. In April 2009, the

available.

Chairman of UniStar said Constellation has not

publicly announced the estimated cost for Calvert

TXU Energy

Cliffs and that those figures are confidential 103.

The Comanche Peak (Texas) project is the only

NRG

proposal for the APWR. It was on the first USDOE

short-list for loan guarantees but was subsequently

The South Texas project is for two ABWRs,

relegated to first reserve. No construction cost-

to be supplied by Toshiba, which replaced GE-

estimates for the Comanche Peak project have yet

Hitachi as the vendor of essentially the same

been published.

design in March 2008. It is the only project refer-

encing the ABWR design, although some of the

Exelon Corporation

projects referencing the ESBWR may switch to

the ABWR. It was short-listed for loan guaran-

In November 2008, Exelon effectively aban-

tees by the USDOE. This project attracted a great

doned the ESBWR for its Victoria site (Texas),

deal of publicity in late 2009. Nuclear Innovation

where two units were planned, and was reported

North America (NINA) – a joint venture owned

to be looking at alternative designs 106. In June

88% by NRG and 12% by Toshiba – owns 50% of

2009, Exelon announced it was deferring its

the South Texas project. CPS, which is owned by

Victoria project for up to 20 years, although it was

San Antonio city council, owns the other 50%.

continuing with the Early Site Permit process 107.

However, in October 2009, CPS announced

its wish to reduce its stake to between 20 and

Dominion

25% 104, and by December it was investigating

the possibility of exiting completely. This was

The North Anna project was one of the first

after it emerged that Toshiba’s (the vendor) cost-

to be announced and was originally expected to

estimate for the expansion project was about

use the Canadian ACR-700. However, in 2005,

$4 billion higher than the $13 billion estimate

Dominion announced it was abandoning the

CPS had given city officials. CPS filed suit on

ACR-700 in favor of the ESBWR. In January 2009,

December 6 asking the court to clarify its rights

Dominion announced it could not agree terms

if it pulled out of the deal. The dispute escalated

with GE-Hitachi for supply of the plant. Dominion

on December 23 when NINA filed a suit that CPS

announced that it would “use a competitive

was in breach of contract and should lose the

process” to see if vendors could provide a reac-

hundreds of millions of dollars it had invested.

tor for North Anna-3 “that can be licensed and

CPS filed a counterclaim hours later for $32 bil-

built under terms acceptable to the company 108”.

lion, claiming that NRG and Toshiba had lured

Dominion expects to make its decision about a

CPS into the project through “fraudulent, defam-

supplier by the end of the first quarter in 2010.

102Nucleonicsweek,“UniStarPutsFurtherholdonNinemilePoint-3”,December10,2009.

103DailyRecord(Baltimore),“ConstellationEnergyCEO:FrenchFirmwon’tInfluenceBaltimoreGas&ElectricCo”,

April28,2009.

104Nucleonicsweek,“NRG‘Perplexed’asCPSExploresExitingPlanforNewTexasReactors”,December10,2009.

105SanAntonioExpress,“mayorCallsformeetingofReactorPartners”,January5,2010.

106Nucleonicsweek,“ExelonDropsESBwR,LooksatOtherReactorDesignsforItsTexasProject”,November27,2008.

107Greenwire,“ExelonSuspendsPlansforTexasPlant”,July1,2009.

108NuclearNews,“SalesTalksStallwithEntergy,Dominion”,February2009.

appenDices

67

Entergy

has been authorised to collect nearly $207 mil-

lion for construction and associated work on

In February 2009, Entergy asked the NRC to

Levy-1 and -2. This translates to an additional

suspend reviews of its ESBWR applications at

$5.86 per month for the average customer 114.

Grand Gulf (Texas) and River Bend (Louisiana)

In February 2009, Progress estimated the con-

because of concerns about rising prices 109. Entergy

struction cost of Levy would be $14 billion,

Chairman and CEO James Leonard said that the

excluding transmission and connection costs

company “hit a brick wall” in negotiating an engi-

of $3 billion 115.

neering, procurement, and construction contract

with GE Hitachi for the ESBWR because the price

AmerenUE

rose to upward of $10 billion, which he called well

beyond the original cost expectation 110.

Ameren announced that it would withdraw

its EPR project at Callaway (Missouri), since “the

Duke Energy

current legislation will not give us the financial

and regulatory certainty we need to complete this

Duke’s Lee (South Carolina) project is for

project 116”

two AP1000s. In September 2009, Duke said it

expected to begin operation of the first unit in

DTE Energy

2021 and the second unit in 2023 – three years

later than originally planned 111. Duke Energy

The DTE Energy project is for one ESBWR unit

estimated in November 2008 that the overnight

at the Fermi (Michigan) site. It is reported that the

costs for the two-unit Lee station would be $11

cost would be about $10 billion, but it is not clear

billion – double its previous estimate 112.

what this cost includes 117.

Progress Energy

PPL Corporation

The Harris (N Carolina) project and the Levy

PPL’s Bell Bend (Pennsylvania) project for a

(Florida) projects are both for two AP1000s.

single EPR is a joint venture between PPL as the

Progress has not been made on a commitment

main partner and Unistar. The website for the

to building these units. Progress’ tentative plan

project states that the cost of the project would

is to begin commercial operation of the first of

be $13–15 billion, including escalation, financ-

the two planned Harris units in 2019 and the

ing costs, initial nuclear fuel, contingencies, and

second in 2020. However, with lower demand

reserves 118.

growth than forecast, Progress may choose

to be partners in either Duke’s or Dominion’s

Amarillo Power

projects. The Levy plants’ timelines have also

been pushed back, from completion in 2016/17

The Amarillo project is for two EPRs and is

to 2019/20 113. Nevertheless, Progress Energy

also a joint venture with Unistar, in this case,

109Nucleonicsweek,“EntergyRevisesConstructionPlans,LooksagaintoAcquisitions”,February26,2009,p.1.

110Nucleonicsweek,“ESBwRDesignCertificationRuleToBeCompletedinSeptember2011”,November12,2009.

111Nucleonicsweek,“DukemayPushBackStartupofLeeUnits”,September10,2009.

112wNN,“DukeRaisesCostEstimateforLeePlant”,November7,2008.

113InsideNRC,“PotentialAP1000BuyersUnsureIfNRCDesignFindingwillCauseDelays”,October26,2009.

114NuclearNews,“TheFloridaPSCApprovedRateRecoveryforNewReactors”,November2009.

115NuclearNews,“EPCContractSignedforTwoAP1000s”,February2009.

116Ameren,“AmerenUERequestsSponsorstowithdrawmissouriCleanandRenewableEnergyConstructionBillsinGeneral

Assembly”,pressrelease,April23,2009,http://ameren.mediaroom.com/index.php?s=43&item=634

117TinaLam,“DTEAppliesforAnotherNuclearPlant”,DetroitFreePress,September19,2008,

http://www.freep.com/apps/pbcs.dll/article?AID=/20080919/NEwS05/809190398

118http://www.bellbend.com/faqs.htm

68 ThEECONOmICSOFNUCLEARPOwER:ANUPDATE

with Amarillo Power. A combined Construction

it is not subject to the state-level authority that

and Operation License had not been applied for

other utilities are. It also has better access to

by the end of 2009.

capital and has no concerns about its credit

rating. It therefore does not require (and is

FPL

not eligible for) federal credit guarantees. It is

therefore not a coincidence that it has been at

The Turkey Point project is for two AP1000s.

the forefront of efforts to restart nuclear order-

In November 2009, the Florida Public Service

ing. The prospects for its two planned AP1000

Commission (the state utility regulatory body)

units at the Bellefonte site – one of the earliest

approved FPL to begin collecting the construc-

identified projects under the Nuclear Power

tion cost of these two units from consumers in

2010 programme – have been clouded by the

2010 119. The commission has approved FPL’s

proposal by TVA to complete two partially built

recovery of $62.7 million in costs 120. FPL told the

units, on which work was stopped in the mid-

Florida Public Service Commission that it forecast

1980s. In December 2009, TVA published an

an overnight construction cost for Turkey Point

environmental impact statement for different

in the range of $3,108-4,540/kW 121. However, in

expansion plans, but none of these included a

September 2009, FPL said the expected range of

second AP1000 unit for Bellefonte, so it would

costs had increased from $12.1-17.8 billion to

seem the second unit is effectively cancelled 123.

$15-18 billion and, as a result, the completion

If the construction permits for the partially built

dates were likely to be pushed back from the 2018

units can be reinstated, completing these may

and 2020 dates already announced 122.

be a much cheaper way to meet demand than

building a new unit. TVA has estimated the

TVA

overnight construction cost for the two AP1000

units would be $5.6-10.4 billion 124.

The Tennessee Valley Authority is very dif-

ferent to other US utilities because it is 100%

owned by the federal government. As a result,

119NuclearNews,“TheFloridaPSCApprovedRateRecoveryforNewReactors”,November2009.

120TendersInfo,“UnitedStates:FloridaNuclearUtilitiesRecoverExpansionCosts”,October22,2009.

121NuclearEngineeringInternational,“PowermarketDevelopments”.

122Nucleonicsweek,“FP&LContinuingwithPlanstoBuildReactors,butmayChangeSchedule.”

123NuclearNews,“TVAAnnouncedtheIssuanceofItsBellefonteDraftEIS”,December2009.

124ChattanoogaTimes,“EstimatesRise”.

pdate un a

ower:

ThE Economics oF nuclEar

uclear Pn

PoWEr: an uPdaTE

By steve Thomas

The Economics of

Cost estimates for new nuclear plants have been escalating at

nuclear accident. Yet, in recent years, governments have become

an alarming rate, and in the past decade, construction cost-

increasingly determined in their attempts to maintain existing

estimates have increased five-fold, with every expectation that

nuclear plants in service and revive nuclear ordering, on the

costs will increase further as the designs are firmed up. In ad-

grounds that nuclear power is the most cost-effective way to

dition, there are the unsolved problems of waste disposal and

combat climate change. Some of this apparent paradox is rela-

the high susceptibility of the technology to failure. Up to now,

tively easily explained by the difference between the running

nuclear power plants have been funded by massive public sub-

costs only of nuclear power, which are usually relatively low,

sidies. For Germany the calculations roughly add up to over

and the overall cost of nuclear power – including repayment

100 billion Euros and this preferential treatment is still going

of the construction cost – which is substantially higher. The

on today. As a result the billions set aside for the disposal of

objective of this report is to identify the key economic param-

nuclear waste and the dismantling of nuclear power plants rep-

eters that determine the cost of nuclear electricity, commenting

resent a tax-free manoeuvre for the companies. In addition the

on their determining factors. It shows that without subsidies

liability of the operators is limited to 2.5 billion Euros – a tiny

and guarantees from electricity consumers and taxpayers, new

proportion of the costs that would result from a medium-sized

nuclear power plants will not be built.

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