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Economic Models and SMR
IAEA Technical Meeting Economic Analysis of High Temperature Gas Cooled Reactors and Small Modular Reactors
August 25-28, 2015Vienna, Austria
ByDr. Nadira Barkatullah
So what do Economist?
2 -
Do economist sell economy class tickets?
Economist contribution to economic development! Hmm….sounds
like a very important position
Sure to become economist!!!
OverviewThe Economics of Nuclear and SMR
Economic Models and SMR
What Economic Model to Use?
What other Economic Aspects to Consider?
Concluding Comments
Relatively low fuel cost Price stability Performance of nuclear
reactors Long life time Guarantee for energy supply Security of Supply Clean source of energy Economic development: job
creation, industrial development, etc
Complex and highly capital intensive
Sensitive to interest rates
Long lead times (planning, construction, etc)
Long payback periods
Construction cost uncertainty
Deregulated electricity market or despatch risk
Regulatory/policy risks
Key Challenges to the Nuclear Power
Key Advantages of the Nuclear Power
4
The Economics of Nuclear
LR
Less Complex and lower upfront capital costs vs LR
Less sensitive to interest rates
Shorter lead times (planning, construction, etc) and shorter payback periods vs LR
Base Load and security of supply
Site flexibility
Fit to smaller grids
Suitable for non-electric applications - desalination
Key Advantages
5
5
The Economics of SMRKey Challenges
Completion risk
Cost uncertainty
Other Financial Risks
Regulatory/policy risks (revised safety measures)
New financing structures required to attract private investors
Economies of scale SMR vs LR
So how to assess the economic competitiveness of SMR
The Economics of SMR
Generation Cost
Total investment Cost
Life Cycle Cost
LevelisedCost
Overnight Cost
KEY Economic
Criteria
7
7
The Economics of SMRYes there are economic models to assess that but…
Data requirements
Good understanding of
8
Total electricity generation cost
Total Capital Cost Total Operational Cost
Total Construction Cost
DecommissioningCost
Refurbishment Cost
Operations and Maintenance Cost
Carbon Cost
Waste ManagementCost
Taxes
The Economics of SMR
Total Construction Cost
Total Construction
Cost
Escalation Cost
Overnight Cost
FinancingCost
Major component for LR (upto 80%)
The Economics of SMR
Comparatively less for SMR due to shorter
construction duration
10
EPC cost:• Direct cost: equipment,
materials and labour • Indirect costs: plant design,
engineering and support services
Contingency cost: unforeseencost, generally taken as apercentage figure of EPC costOwner’s cost:
• site evaluation• site preparation• general adm.• staff and operator
training• legal, inspections• local taxes, etc.
EPC is Approx. 80% -main cost component
Off-Site Infrastructure, cost (Grid adjustment, roads) is additional cost – in some instances for LR up to 30%
The Economics of SMROvernight Capital Cost
Overnight costs excludes interest, finance and escalation costs during construction
Total investment cost So what are the other main components of the total investment cost
in addition to overnight cost?Others
Subsidies/Taxes
Inflation(general CPI)
Cost escalation: Cost escalation - reflect price increases during construction, it is similar to inflation but more specific to
particular items than is general inflation
Financing cost :Financing cost, the main cost element is Interest During
Construction (IDC)
Overnight cost
The Economics of Nuclear
Economic Models and SMRVarious factors impact economic competitiveness
Generation Cost
RevenueInvestment Risk
Clean PowerNon-electrical
Oher aspects
IAEA Models Applicable to SMR
Model of Energy Supply Strategy Alternatives and their General Environmental Impacts
MESSAGE FINPLAN
Financial Analysis of Electric Sector Expansion Plans
Sophisticated model to evaluate various generation technologies
Economic Models and SMR
MESSAGE - An Energy Chain
Useful• Heat• Light• Motive power• etc.
Primary• Crude oil
• Coal• Natural gas
• etc.
Secondary• Kerosene• Electricity• Diesel• Gas• etc.
Final• Diesel• Kerosene• Electricity• Gas• etc.
Resources• Crude oil• Coal• Natural gas
Extraction, Import, …
Conversion, processing: power plants, refinery…
Transmission, distribution, …
Household, industries, …
3/30
IAEA Models Applicable to SMR
MESSAGE - A Simple Energy Supply Model (Physical Flow )
CoalExtraction
Coal R
esources
Gas Import
Prim
ary Coal
Prim
ary Gas
Coal PowerPlant
Gas Power
Hydro PowerPlant
Electricity
Electricity
Gas
Coal
CoalTransport&Distribution
ElectricityTransport&Distribution
Plant
Gas Transport & Distribution
Industrial Heat
Industrial Electricity
Coal Ind.
Gas Ind
Elec. Ind.
RESOURCES PRIMARY SECONDARY FINAL DEMAND
SMR
LR
IAEA Models applicable to SMR
defined constraints on new investment, market penetration rates for new technologies, fuel availability,trade and environmental emissions
Optimization of an objective function (e.g. least cost, lowest environmental impact, maximum self-sufficiency)
IAEA Models Applicable to SMRMESSAGE: How does it work?
MESSAGE – input and outputOUTPUT
MESSAGE
INPUT
Existing Energy System Structure
Base year energyflows and prices
Energy demandprojections (MEAD)
Technology and resource options & their techno-economic performance
Technical andpolicy constraints
0
100
200
300
400
500
600
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
TWh
biomassgeothhydronucleargasdieselfuel oilcoal
Primary and final energy mixBuild Schedule for power plants Import dependenceInvestment requirementsEmissions and waste Resource use
IAEA Models Applicable to SMR
MESSAGE – some prominent features
Environmental factors like emissions and wastes Climate change mitigation
options Sustainable development
targetsSecurity of supply concerns “Technological Learning”, to
reflect innovation and improvements in economic efficiency of technologies.
IAEA Models Applicable to SMR
INPUT
Investment programme (= capacity additions) & operating expenses
Economic and fiscal parameters (inflation, escalation, exchange rates, taxes)
Financial parameters (credits, bonds…)
For each year:
Cash flows Balance Sheet,
Statement of Sources, Applications of Funds
Financial Ratios: - Working Capital Ratio- Leverage ratio - Debt Repayment Ratio- …- Global Ratio
OUTPUT
FINPLAN
IAEA Models Applicable to SMR
The generation technology chosen
Is it financially viable?
MESSAGE
Investment decision
G4-ECON – Generation IV-Excel calculation of nuclear systemsEconomic Models and SMR
Levelized unit electricity cost (LUEC) in $/MWh
Developed under the Generation IV International Forum (GIF)
For multiple types of nuclear energy systems
SMR LR
Economic Models and SMR
Levelised Cost of Electricity Generation (LCOE) total cost (capital and operational cost)
total amount of electricity expected to be generated over the plant’s lifetime
the discount rate used in LCOE calculations reflects the return on capital for an investor
comparing the unit costs of different technologies over their economic life.
G4-ECON LCOE is not price!
Economic Models and SMRG4-ECON
Simplifies the cost data
Why? It is developed in view of advanced reactors for which detailed economic data may be not available
Time
Cost
Total lump-sum capital cost (TLCC)
Fuel, non-fuel O&M, and capital replacements as average value
Levelised Life Cycle Cost
Limitations: Discount rate sensitivity
New version soon!
SMR units built over time
Cost
Economic Models and SMR
Then, the PVCC model is a generic model taking into account
(1) economy of scale(2) multiple units(3) learning rates (4) construction
schedule(5) unit timing,(6) plant design.
Factors affecting comparative costs of SMR vs LR
250MW
250MW 250
MW250MW
250MW x 4
Note: PVVC – developed by Westinghouse
Present Value Capital Cost (PVCC) Model
LUEC and PV
Applicable to a comparative investment risk assessment of the deployment scenarios with SMRs vs LR
Integrated model for competitiveness assessment of SMRs (INCAS)*
, *Politecnico di Milano, Italy
Economic Models and SMR
Integrated model that includes separate models
Multiple models
The Net Present Value (NPV); The Internal Rate of Return (IRR); The Payback Time (PBT); The Profitability Index (PI); and The Levelized Unit Electricity Cost (LUEC).
Generation Cost
Revenue Model
Investment Model
Indicators
Financial model
Integrated model for competitiveness assessment of SMRs (INCAS)*
, *Politecnico di Milano, Italy
Economic Models and SMRINCAS
The strategic security of fuel supply
External Factors Model
The degree of possible localization of an energy project
The benefits for local industry The factors related to land use
The environmental laws (e.g., carbon tax, local emission constraints, etc.)
The security of energy supply
Economic Models and SMRINCAS
Investment Model External Factors
Multivariate Evaluation Model
Decision about Technology investment
Economic Models and SMRINCAS
Input Output Model* Based on the macroeconomic economy wide view
Economic Models and SMR
* Created by Wassily Leontief, work got Nobel Price in 1973 for his work
Economy consists of various industries
Input
What Model to Use?What is the objective of the assessment ?
• Comprehensive analysis accounting for all supply chain
• Data availability
Also assists with feasibility of the project
MESSAGE/FINPLAN
SMR comparison to LR or other generation technologies
What Model to Use?
INCAS
Simplified model Limited data on cost
Multiple units Over time Learning rate
Mulivariate analysis External factors Qualitative factors
VS
PVCC
G4 ECONS
What Model to Use?
Macro economic impacts of how SMR output will impact economic growth
Macroeconomic models like input-output models
Understanding the economic of SMR is imperative Model selection depends on the objective of the analysis i.e.,
SMR vs other generation technologies or SMR vs LRImportant to understand model data requirements Model choice depends on the type of economic analysis and
technology choiceOther factors need to be considered to assess economic
competitiveness of SMR and specific markets All models have limitations - no model is right or wrong
36
Concluding Comments
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