Low Carbon Energy Technology Roadmap and Nuclear New Build

Transcription

1 Low Carbon Energy Technology Roadmap and Nuclear New Build TM on Establishing a National Position for New Nuclear Power Programmes and the Pre-Feasibility Studies Vienna, Austria, October 27-30, 2015 Jae Man Noh (JaeMan.Noh@oecd.org) OECD/NEA Nuclear Development Division

2 Low Carbon Energy Technology Roadmap Henri PAILLERE OECD/NEA Nuclear Development Division

3 IEA Flagship Publication, Energy Technology Perspectives 60 Sectors 60 Technologies Gt CO Power generation 41% Industry 19% Transport 19% Buildings 13% Other transformation 8% Source: Energy Technology Perspectives End-use fuel and electricity efficiency 38% CCS 14% End-use fuel switching 9% Renewables 30% Power generation efficiency and fuel switching 2% Nuclear 7% 6 C Scenario business-as-usual; no adoption of new energy and climate policies 2 C Scenario - energy-related CO 2 -emissions halved by 2050 through CO 2 -price and strong policies

4 Nuclear since 2010, update of early roadmap Fukushima Daiichi accident (March 2011) Impact on energy policies & public acceptance Safety evaluations and upgrades Aftermath of financial crisis ( ) and economic crisis Uranium market depreciation Shale gas revolution in the US (and US coal prices ) Cost overruns and delays in some FOAK Gen III projects Lower than anticipated costs for onshore wind and solar PV 4

5 Objectives of the roadmap update Provide an overview of nuclear energy today, and areas of potential growth (regional analysis) Identify key technological milestones and innovations that can help support ambitious growth in nuclear energy Identify barriers to nuclear development Recommendations to policy-makers on how to reach milestones & address barriers Case studies developed with experts to support recommendations 5

6 Nuclear in the 2 C Scenario (2DS) (All capacities are gross capacities) 930 GW by 2050 (down from 1200 GW) 17% share electricity (down from 24%) But still a formidable challenge (multiply current capacity by 2.3 in 35 years) 6

7 Nuclear capacity additions In 2014, 3 construction starts, 5 GW connected! (<< 12 GW/year needed this decade) Nuclear is not on track to meet 2DS targets 7

8 Roadmap actions and milestones 8

9 Key actions for the next 10 years Offer same level playing field to all low C technologies (electricity markets) Industry to build on time and to budget, FOAK NOAK Enhance standardisation, harmonise C&S and regulatory requirements Continue to share information & experience (among regulators and among operators) to improve safety Public acceptance must be strengthened (post F safety upgrades, fact-based information) Develop long-term strategy for radwaste management

10 Nuclear New Build: Insight into Financing Project Structure and the Supply Chain Marco Cometto and Jan Horst Keppler OECD/NEA Nuclear Development Division 10

11 Overview Since 2000, the construction of 77 new reactors was started and 47 were connected to the grid. Very different forms of project management and financing in different contexts have generated broad experience. Based on conceptual analysis, expert opinion and 7 case studies, the OECD/NEA study identifies perspectives for commercially sustainable new build focusing on: a) Managing long-term electricity price risk (Part I), b) Project and supply chain management during construction (Part II). Timeline of the study and key contributions: Launch of study in Spring Two international workshops (available on o Electricity Prices and Nuclear New Build, September o Project and Logistics Management in Nuclear New Build, March Contribution for cases studies from EdF and US DOE. Contribution of external consultants (C. Savage, M. Mancini & G. Locatelli). Study reviewed and approved by WPNE and NDC. Final publication in July

12 Nuclear New Build in Transition Discontinuous technological change as Generation II nuclear power plants are substituted by larger and often more complex Generation III+ plants (FOAK risks as well as licensing and regulatory change). Transition from West to East. Loss of expertise and human capital in many countries. A complex supply chain with quality control issues and varying degrees of externalisation. Very long time frames from design and licensing to construction, operations and decommissioning. Changes in nuclear new build can take a decade or more until all contributing factors settles at their economically optimal equilibrium level. Shifts in political and social support after Fukushima. Changes in the electricity market structure (at least in OECD Europe) 12

13 Part I: Financing 1. NPV calculations following methodology Carbon Pricing study (NEA, 2011) based on average daily prices for gas, CO2 and electricity. 2. Cost data from Projected Costs of Generating Electricity (IEA/NEA, 2010). 3. Illustrate different behaviours of technologies with high and low investment requirements in the face of electricity price risk and assess their respective option value with respect to market risk: o Share of fixed investment costs in nuclear: 73%-85%. o Share of fixed investment costs of gas: 8%-13%. 4. Additional research on modelling investor risk taking into account tax effects, the capital structure, and the main sources of risk: o Construction Risk (uncertainty in overnight cost level and construction lenght) o Operational Risk (uncertainty on achievable load factor) o Electricity Market Risk 13

14 NPV NPV and Price Risk with High Fixed Costs: Nuclear NPV calculation for nuclear and gas plants under different electricity price scenarios. Both technologies yield the same NPV at base price (by adjusting overnight costs). Permanent price fall [-10% to -70%] occurs after commissioning [0-50 years]. The NPV of a Nuclear Power Plant in Function of a Fall in Electricity Prices and the Onset of the Price Fall Years after Commissioning (r = 5%) NPV under certainty 1 E+09 0 E+00 0% -1 E+09-2 E+09-10% -20% Average Price Fall -30% -40% -50% -60% -70% E+09-4 E+09 Years after Commissioning -5 E+09-6 E+09 14

15 NPV NPV and Price Risk with High Fixed Costs: Gas The NPV of a Gas-Fired Power Plant in Function of a Fall in Electricity Prices and the Onset of the Price Fall Years after Commissioning (r = 5%) NPV under certainty 1 E+09 0 E+00 0% -1 E+09-2 E+09-10% Average Price Fall -20% -30% -40% -50% -60% -70% E+09-4 E+09 Years after Commissioning -5 E+09-6 E+09 Gas plants can leave the market with losses limited to the investment costs. Nuclear keeps producing at decreasing net revenue levels, but losses for investors are higher. Option value of exiting the market is consistently higher for a gas than for a nuclear PP. Investor in a capital-intensive technology would greatly benefit from a PPA or CfD. 15

16 Frequency NPV Distribution of the whole nuclear project Fixed Price - PPA Low Electricity Price Risk Medium Electricity Price Risk High Electricity Price Risk Net Present Value of Cash Flows (Million Euros) o Distribution of NPV for a NPP including construction. o CfD or long term contracts reduce NPV variability, but construction risk remains important. o Shortfall risk as an alternative metric for investor risk. 16

17 Risk exposure for debt-holders 30% Decrease in electricity prices 50% Decrease in electricity prices o o o o Metric for risk: total value of the debt losses as percentage of total financial investment. No losses for bond-holders in a wide range of scenarios even at 30% to 50% price falls. At low debt ratios risk for bond-holders is limited even for large electricity price falls. At 70% DR and above, electricity market risk for bondholders starts to be important. 17

18 Choices about Electricity Market Design are Technology Choices Levelised Costs of Electricity (LCOE) under Different Financing and Regulatory Arrangements (USD/MWh, Commissioning 2018) Gas CCGT Coal IGCC Nuclear PWR Publicly Owned Utility (POU) Merchant Power Plant Investor Owned Utility (IOU) Source: California Energy Commission (2010), Comparative Costs of California Central Station Electricity Generation 18

19 Key Results of Part I Long-term electricity price risk impacts technologies with high fixed costs over-proportionately and requires appropriate long-term arrangements (long-term contracts, PPA, CfD, FIT). Low carbon technologies such as nuclear are high fixed cost technologies. o Absence of long-term arrangements will favour fossil-fuel technologies and increased GHG emissions Institutional choices (regulated vs. deregulated markets) are neither technology-neutral nor environmentally neutral. Due to selective subsidisation, current electricity market prices would not allow any new dispatchable capacity to be built, which requires discussion about mark-ups. 19

20 Part II - Project Management: Vertical Integration vs. Competition Nuclear new build characterised by large scales, long time frames, complexity and externalities ( an accident anywhere is an accident everywhere ). Three basic models of project management: 1. Turnkey project by integrated reactor vendor 2. Operator-assembler works with key sub-contractors 3. EPC contractor working with competitive procurement The theory of transaction costs (Coase, Williamson) holds that vertical integration should substitute for contractual relationships if there are: a) High frequency of transactions Not necessarily the case in nuclear, b) Industrial assets are specific, i.e. not commoditised Very much the case in nuclear. Model 1 and 2 can reduce uncertainties and provide clear interlocutor for customers and governments. Model 3 may have advantages in reducing costs. More competitive, less vertically integrated, industry requires commoditisation through international standard-setting, such as harmonisation of RCC-M and ASME engineering codes. 20

21 Issues in Project Management On cost reduction s through learning-by-doing (economies of scale): o Areva shows cost reductions in French reactor programme per series on average 16% between first and last unit; o Taishan EPR benefits from reductions in key cost indicators of up to 50% compared to Flamanville (EDF) or Olkiluoto (Areva); o Study by École des Mines says 12% cost reduction from first to second reactor in batch. On project management o No single model of project management, different customers want different things; o Transfer of lessons learned needs to be consciously organised o Completion of design, early contract involvement (EWI) and early work agreements (EWA) must precede final contract o Plan for long-lead time between authorisation to proceed (ATP) and first concrete o Clear governance but off-site team must support not manage on-site team. Modularisation, standardisation, benchmarking o Modularisation holds promise but no panacea, requires up-front investment and scale o Initiatives on quality standards (NQSA, NUPIC) under way but no global standard o Benchmarking of best practice as in oil and gas might be logical next step. The global harmonisation of design and quality codes (RCC-M, ASME, NSQ-100) is a necessary step towards a more competitive and better integrated supply chain. 21

22 Lessons Learnt and Policy Conclusions PART I 1. Market design, technology choices and CO2 emissions are linked. Electricity price risk introduces bias against high-capital-cost, low-carbon technologies such as nuclear. 2. Decarbonisation and NNB require in addition to carbon taxes long-term electricity price arrangements. (See OECD-IEA-NEA-ITF report to Ministers on Aligning Policies for a Transition to a Low Carbon Economy). 3. Even with high leverage, nuclear projects pose limited risks to bondholders. Equity holders face an higher risk. PART II a. Advance the convergence and standardisation of engineering codes and quality standards in the global nuclear industry. b. Introduce explicit change management in order to find balance between prescriptive approach and flexibility. c. Design completion and long lead-times for preparation are required d. Soft issues such as leadership, team building, experience, incentives and trust remain key elements and need conscious nurturing and investment. 22

23 Thank you For your attention The Technology Road Map is available on The nuclear new built and system cost studies are available on