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The Economics of Nuclear Power Myths of nuclear power: A guide Moscow 5 April 2011. Steve Thomas ([email protected]) PSIRU ( www.psiru.org ), Business School University of Greenwich. Why did ordering stop in the West?. - PowerPoint PPT Presentation
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theUniversityofGreenwich
Teaching excellence for 100 years
The Economics of Nuclear Power
Myths of nuclear power: A guide
Moscow5 April 2011
Steve Thomas ([email protected])
PSIRU (www.psiru.org), Business SchoolUniversity of Greenwich
theUniversityofGreenwich
Teaching excellence for 100 years
Why did ordering stop in the West?
Nuclear power orders were easy to finance as long as utilities could pass on any costs to consumers – cost plus
Financiers knew loans would be repaid so finance was cheap & easy
In 1980 US regulators lost patience with nuclear plants that were late, over-budget & unnecessary. They made utilities pay extra costs from profits & utilities building nuclear risked bankruptcy
New ordering stopped overnight and about 80 existing orders were cancelled in mid-construction
In Europe, the introduction of competition meant companies that built plants that produced expensive power would fail
theUniversityofGreenwich
Teaching excellence for 100 years
What is the Nuclear Renaissance?
Introduction of competitive markets meant nuclear vendors knew they had to compete to survive
1998, they calculated construction costs had to be $1000/kW to compete with gas - a 1000MW reactor would cost $1bn
Nuclear designers claimed new ‘evolutionary’ designs would be safer, but simpler and therefore cheaper, <$1000/kW
New designs, Gen III+ emerged: AP1000, ESBWR, EPR
Nuclear industry claimed these would be so attractive that countries that had abandoned nuclear, eg, USA, Germany, UK, Italy would re-start ordering – a Nuclear Renaissance
theUniversityofGreenwich
Teaching excellence for 100 years
Is the Renaissance happening?
Progress was slow and by 2008, people were asking if the Renaissance would actually happen
Since Jan 2008, construction work has started on 37 reactors. Surely the Renaissance is now underway
But 24 of these are in China, 6 in Russia, 3 in Korea. One is a 1975 order for Brazil. All in countries where electricity is still effectively a monopoly and utilities are publicly owned
Only 6 orders are for designs licensable in Europe or USA
So for Gen III+ designs and for Europe and USA the Renaissance is not happening
theUniversityofGreenwich
Teaching excellence for 100 years
Why?
1. Economics and commercial risk?
2. Designs/licensing issues?
3. Opposition and bureaucracy?
theUniversityofGreenwich
Teaching excellence for 100 years
Gen III+ designs on offer
5 Gen III+ designs being evaluated by the USA:1. Areva EPR. Generic approval in France or Finland not
completed despite construction. No approval in USA or UK until 2013. 2 orders China
2. Westinghouse AP-1000. Regulatory approval in USA not before 2011. Under assessment in UK but no approval before 2012. 4 orders (China)
3. GE ESBWR, based on SBWR. US regulatory approval forecast for 2011, but all 6 potential orders in doubt
4. GE-Hitachi & Toshiba ABWR. Certified in US in 1997 but approval runs out 2012. 1 possible US project
5. Mitsubishi APWR no NRC approval end 2013. 1 possible US project
theUniversityofGreenwich
Teaching excellence for 100 years
Other designs
Areva SWR/Kerena. Update of 1970s BWR. Not developed
Areva Atmea. 1100MW PWR. At early design stage. 3-loop EPR?
Korea APR1400. 4 sold to UAE but no aircraft protection or core-catcher. Lauvergeon: like a car with no seat-belts or air bag. Gen III? Considered by S Africa, may be upgraded for Europe
Russia AES-2006. 6 Russian orders, not assessed in West
China CP-1000. 3 units in service, 15 under construction in China. Based on 1970s French design. EDF and Areva separately thinking about collaborating and S Africa thinking of buying. Gen II+?
theUniversityofGreenwich
Teaching excellence for 100 years
Regulatory Issues
In 2002, US’s Nuclear 2010 programme assumed order for Gen III+ design could be placed in 2003. Now likely that first US Gen III+ order will be nearer 2013
US NRC won’t complete generic review of 5 designs before 2012: EPR mid 2013
UK NII says Generic Design Assesment ends in June 2011: interim approvals, which would not suffice for construction of the reactors to begin in the UK, appear at the moment to be more likely than final approvals for both designs for the June 2011 timeline.
UK construction start not before 2013
theUniversityofGreenwich
Teaching excellence for 100 years
Impact of Fukushima on design reviews
Experience with TMI, Chernobyl suggests it will take a long time – 5 years? - to work out what happened at Fukushima
Designers will then take at least 5 years to modify designs to take account of lessons
How can UK and USA complete generic design reviews is lessons from Fukushima are not known?
theUniversityofGreenwich
Teaching excellence for 100 years
What determines nuclear power cost? Construction cost and time, cost of capital and
reliability
Paying construction cost & interest expected to account for about 2/3 of cost of power. The reliability of the plant (load factor) determines how thinly fixed costs can be spread
Operations & maintenance cost. Expected to be low but British Energy went bust because O&M more than revenue.
theUniversityofGreenwich
Teaching excellence for 100 years
Little impact for investment decisions, but major commitment by public Decommissioning & waste disposal provision. If cost
accurately forecast, provisions collected and invested safely, not a major cost today. Discounted away
But no experience of high-level waste disposal and little experience of decommissioning.
How can we forecast what this will cost & how do we ensure provisions are safe and earn interest at the rate expected?
We are asking a future generation to clean up our waste. If provisions are inadequate, they will have to pay as well
theUniversityofGreenwich
Teaching excellence for 100 years
Little impact for investment decisions, but major commitment by public Fuel cost. Nuclear fuel purchase is a small part of the
generation cost. But if nuclear was expected to make a major contribution on climate change, uranium resources would be important
Environmental impact of uranium mining substantial but in developing countries
Insurance and liability cover. International treaties mean governments bear the main risk but even limited cover is expensive.
theUniversityofGreenwich
Teaching excellence for 100 years
Construction cost
Renaissance sold to public on a promise of US$1000/kW
Most serious recent estimates & bids are for about $6000/kW
EPR, AP1000 and ABWR have bid more than $6000 in all contests entered (UAE, Canada & S Africa) in past 3 years
Have real costs escalated or was $1000/kW an unrealistic target?
theUniversityofGreenwich
Teaching excellence for 100 years
Cost of capital: Is nuclear too risky?
Banks not willing to be exposed to commercial risk of nuclear power, who can take that risk?
• Consumers via cost pass-through, tax-payers via government loan guarantees or vendors via ‘turnkey’ contracts
• Are tax-payers, elec consumers or vendors willing?
• Are turnkey contracts credible after Olkiluoto?
• Will the Electricity Directive allow cost pass-through?
• Is fixed ‘C’ price desirable or feasible? Would it be enough?
theUniversityofGreenwich
Teaching excellence for 100 years
Loan guarantees
Central to US efforts. Loan guarantees allowed for 100% of borrowing up to 80% of cost. EPR offered loan guarantees worth about $8bn
If fee is ‘economic’, no advantage to loan guarantees because risk is same if you are a bank or a government
Loan guarantees for Olkiluoto not state aid according to Commission because fee paid, but what was the fee?
Vogtle (USA) selling to monopoly market & guaranteed cost recovery. Loan guarantees not essential and fee 1-1.5%
Calvert Cliffs (an EPR) selling to competitive market (PJM). Fee 11.6%. Project expected to be abandoned
theUniversityofGreenwich
Teaching excellence for 100 years
Generation III+. Simpler or more complex?
US Department of Energy (2003): New Generation III+ designs ... have the advantage of combining technology familiar to operators of current plants with vastly improved safety features and significant simplification is expected to result in lower and more predictable construction and operating costs
ESBWR = Economic Simplified Boiling Water Reactor Lauvergeon (2010): the cost of nuclear reactors has "always"
gone up with each generation, because the safety requirements are ever higher. "Safety has a cost,"
Roussely (2010): The resulting complexity of the EPR, arising from the choice of design, specifically the level of power, the containment, the core catcher and the redundancy of the security systems is certainly a handicap for its construction and therefore its cost.
theUniversityofGreenwich
Teaching excellence for 100 years
Generation III+. Too much or too little redundancy? HSE, ASN, STUK (2009): ‘The EPR design, as originally
proposed by the licensees and the manufacturer, AREVA, doesn't comply with the independence principle, as there is a very high degree of complex interconnectivity between the control and safety systems.’
Roussely (2010): The resulting complexity of the EPR, arising from the choice of design, specifically the level of power, the containment, the core catcher and the redundancy of the security systems is certainly a handicap for its construction and therefore its cost.
theUniversityofGreenwich
Teaching excellence for 100 years
Impact of Fukushima on construction costsAll significant accidents to date beyond design basis: Browns
Ferry, TMI, Chernobyl, 9/11 Browns Ferry: Need for independent systems for each unit TMI: Need for redundancy Chernobyl: Need for ‘passive’ safety – if everything fails,
plant will naturally revert to safe state 9/11: Need for containments to be strong enough to
withstand collision with large aircraft
Are we asking too much of designers to imagine all possible events sequences?
Too early to say what design modifications will be needed but likely to be extensive and expensive
theUniversityofGreenwich
Teaching excellence for 100 years
Multi-speed regulatory requirements?
Lauvergeon (2010): [Is] there is going to be a nuclear [market] at two speeds — meaning a high-tech, high-safety mode for developed countries and a lower-safety mode for emerging countries?
S Africa may buy from China (Gen II+), Korea (Gen III)
NRC Commissioner Apostolakis (2010): The core catcher included in designs of new reactors to be constructed in Europe will not be required in the US because its benefits cannot be shown to outweigh its costs
Is AP1000 licensable in Europe?
theUniversityofGreenwich
Teaching excellence for 100 years
The myth of the French nuclear programme
France built 58 large reactors in 20 years under ideal conditions. Scale economies, standardisation, technical progress, learning, cheap component production methods, no public opposition, supportive regulation
But real construction costs tripled over 20 years
Roussely: while the average capacity of nuclear power worldwide - measured by the capacity factor - has increased significantly over the past fifteen years, the French nuclear plant capacity has sharply declined in recent years
After 2 years construction, Flamanville is 2 years late and 50% over-budget
theUniversityofGreenwich
Teaching excellence for 100 years
Why no Renaissance?
US NRC Commissioner Jaczko (2010): ‘What utilities are looking at right now, is developing and preserving the option ... to construct a reactor at some point in the future, if they receive a license. I think the process really now is more about the option to build, than it is about construction.’
Gen III plants are too expensive & will only be built if consumers pay the extra and consumers or taxpayers take the risk
To protect reactors against core melt and aircraft crashes makes them too expensive
theUniversityofGreenwich
Teaching excellence for 100 years
Other impacts of Fukushima
Reviews needed of: Accident liability arrangements – who pays for
accidents
Siting criteria – earthquakes, evacuation zones
Decommissioning arrangements
Use of Mixed Oxide Fuel
Spent fuel ponds – a major risk if not in the containment
Are existing plants safe enough?
theUniversityofGreenwich
Teaching excellence for 100 years
Conclusion
Why for entire 50 years of commercial history have nuclear costs always gone up?
Yet again, nuclear industry has promised: ‘we have learnt from our mistakes, we have new designs that will solve past problems, this time we will get it right’. How many last chances will we give them
Main problem is not money wasted on uneconomic plants or that large numbers of reactors will be built, but opportunity cost of continuing to neglect options that will deliver
Delays and extra costs from Fukushima may be the final straw for the Nuclear Renaissance