ESCUELA TÉCNICA SUPERIOR DE INGENIERÍA ICAI The economics of new nuclear power plants in liberalized electricity Pedro Linares, Adela 10th IAEE European Conference Vienna,
Our motivation One of the key elements of the nuclear debate is the economic viability of nuclear power Lower variable costs More stable costs But results are not concluding Disparity of assumptions Particularly, relevance of the investment cost Studies are usually based on LEC methodologies, which present some additional problems 1 / 15
The MIT results 2 / 15
Our objectives To assess the economic viability of building new nuclear power plants For the Spanish electricity system In the next 10 years This is done by determining the minimum investment cost required to enter the system (break-even cost) 3 / 15
Methodology We simulate the behavior of the electricity market with a long-term, generation-expansion model We iterate with the nuclear investment cost until new nuclear is built in the next 10 years 4 / 15
Differences with the MIT study No need to assume an investment cost for nuclear No need to assume operating hours (they should be endogenous) Allows for comparing all technologies simultaneously, and their interactions (a relevant example is renewable policy) The model does not assume sunk costs, which seems more appropriate for liberalized environments Allows for including other system constraints (available demand, shape of the load curve) Accounts for the correlation between gas, carbon and electricity prices, which affects technologies differently 5 / 15
Types of investment cost EPC (Engineering, Procurement and Construction) Owner s costs Generally, 20% higher (MIT) Nominal terms Overnight Owner s costs, real terms Does not include financing costs: 11-50% more These are the ones we will use 6 / 15
Basic assumptions (I) Scope: 2008 2050 No risk premium for nuclear, investments financed against firm s balance No dismantling costs No inflation Building times 6 years for nuclear 2 years for gas and coal 7 / 15
Basic assumptions (II) Investment costs (MIT): Gas: 637 /kw Coal: 1,725 /kw Renewable energy policy (2020 targets) 45,000 MW wind 5,300 MW solar thermal 8,000 MW solar FV 3,200 MW biomass 8 / 15
Scenarios WACC: 6% 9% 12% Gas price: 4 7 14 ($/MMBtu) Renewable targets: -25% 40% +25% Nuclear availability: 80% 85% 90% Demand growth (annual): 0,5% 1% 2% CO2 allowance price: 10 18,75 40 ( /t) Building time for nuclear: 5 6 8 years 9 / 15
Results: Break-even costs (overnight) For the central scenario, the break-even cost is 2,880 Scenario Lower end Higher end Demand 2752 2909 WACC 2260 3280 CO2 price 2626 3182 Gas price 1798 3173 Renewable targets 2747 2909 Availability 2730 3041 Building time 2565 2934 10 / 15
Results: sensitivity Nuclear is more competitive if: Demand grows faster Renewable targets are lower Lower WACC Higher CO2 prices Higher gas prices Higher availability Building times are reduced Most favorable scenario: 3,665 /kw Least favorable scenario: 1,203 /kw 11 / 15
Results: An extreme scenario Some firms think nuclear may become an option in a scenario with high gas and carbon prices: CO2 price: 100 /t Gas price: 20 $/MMBtu Rest as in the central scenario Break-even cost: 3,760 /kw 12 / 15
The real costs (overnight, MIT) Japan, Corea, 2004-08: Tipo MW Fecha Coste ( /kw) ABWR 1,325 2004 2,069 BWR 1,067 2005 2,513 ABWR 1,304 2006 1,768 OPR 995 2004 2,518 OPR 994 2005 2,207 Costs filed in the US Tipo MW Fecha Coste ( /kw) ABWR 1,371 N/A 2,198 ESBWR 3,040 2018-2020 2,648 AP1000 2,212 2016-2017 3,155 AP1000 2,234 2016-2019 2,840 AP1000 2,200 2016-2017 3,559 AP1000 2,700 2014-2015 2,610 13 / 15
Some caveats We do not account for fossil fuel price volatility Unfavorable for nuclear Renewable energies are not modeled as intermittent Unfavorable for gas We don t take into account different financing possibilities or financial profits 14 / 15
Conclusions Under the central scenario, the break-even cost for nuclear is in the lower range of the real costs for the current technology, even assuming that There are no cost overruns There are no building delays Economics as such are not a favorable element for the construction of new nuclear plants, but rather a hindrance in most scenarios Results are very sensitive to parameters, what implies a large uncertainty: Risk management is critical Some risks are socially diversifiable, some are not Reducing some of these risks would improve the chances for nuclear The question is: To what extent? Is that justified? 15 / 15
Thanks!! www.upcomillas.es/personal/pedrol Alberto Aguilera 23, E-28015 Madrid - Tel: +34 91 542 2800 - Fax: +34 91 542 3176 - http://www.iit.upcomillas.es
Nuclear availability factors 17 / 15
Cost overruns 18 / 15
Nuclear and renewables We have assumed the 2020 targets for renewables If we increase this targets, and we maintain the feedin premiums, then renewables would be enough to cover demand (other than back-up power) With no premiums and no targets, new wind is built, and the break-even cost for nuclear is similar 19 / 15