Macroeconomic factors influencing nuclear power deployment ... 1/07-Barkatullah.pdf · nuclear...
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IAEAInternational Atomic Energy Agency
Macroeconomic factors influencing nuclear power deployment in
developing countries
INPRO Dialogue Forum on Nuclear Energy Innovations Vienna, Austria
February 1-4, 2010
Nadira BarkatullahDepartment of Nuclear Energy, Planning and Economic Studies Section
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Overview
Introduction
Key macroeconomic factors
Nuclear investment decision
Nuclear investment impact
Other important considerations
Concluding comments
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Definition: “Macroeconomics involves the study of
economy as whole in light of the aggregate factors such as Gross Domestic Product, employment, Balance of Payments, etc.
Introduction
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Key macroeconomic factors
Gross Domestic Product
Employment
Balance of Payment
Price Stability and Inflation
Financial Markets and Interest Rate
Cost and Investment
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The Economics of Nuclear
Nuclear power plants are cheap to operate
Stable & predictable generating costs
Long life time
Supply security (insurance premium)
Low external costs (so far no credit applied)
High upfront capital costs can be difficult to finance
Sensitive to interest rates
Long lead times (planning, construction, etc)
Long payback periods
Regulatory/policy risks
Advantages But.....
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Cost structures of different generating options
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Nuclear Coal Natural gas
FuelO&MCapital
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IAEA 7
Gross Domestic Product and nuclear high up front capital cost
Overnight capital cost quoted for a typical 1000MW nuclear plant range from $2 - $6 billion, therefore it is a significant investment commitment
0
5
10
15
20
25
30
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89
Gross Domestic Product (GDP) in 2008 billions
More than 50% of countries have GDP below $10b
Source: IMF World Economic Outlook, October 2008
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Share of Energy Investment in GDP, by Regions
Source: IEA, World Energy Outlook 2009
0 0.5 1 1.5 2 2.5 3 3.5 4
OECD
Latin America
China
Other Asia
Other E.Europe/Eurasia
Middle East
Russia
India
Africa
World Average
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Credit availability:Local and international
Financial Infrastructure
Liquid financial markets
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Supportive exchange rate
Financial Infrastructure
Low interest rates
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Credit Rating
Moodys’ considering taking a more negative view for issuers seeking to build new NNP
WHAT THEY SEEK? Partnerships, balance sheet strengthening, increasing liquidity, etc can help utilities maintain their credit rating
WHY? Bad history, where utilities suffered rating downgrades; and currently, most utilities seeking to built nuclear generation do not appear to adjust their financial policies, a credit negative
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Nuclear Investment Decision
Influence nuclear decision?
Macro factors (inputs)
Increase in productivity/GDPEmployment Balance of paymentsPrice Stability Inflation
NO
YES!
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EmploymentNuclear investment leads to:
Direct employment in construction, operation and nuclear fuel cycle
Indirect employment in support services
India: 100,000 jobs for the 30 reactors to be completed by 2020 (oneindia, 28 July 2008)
UK: More than 100,000 jobs (18 Sep 2008, Reuters UK)US: Nuclear energy investment equals 350,000 new
jobs (Oxford Economics 2008)
The statistics vary on a country basis based on the size of the project:
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Nuclear Investment and Gross Domestic Product
GDP is a measure of economic output
Nuclear Investment-stimulates economic
activity
Nuclear Investment-stimulates economic
activity
Employment (const.,
maufact. etc
Employment (const.,
maufact. etcIncomeIncome
Pays for Goods & Services
Pays for Goods & ServicesIncrease in
Regional/National income
Creates Creates
Creates demand for
G&S
Creates
GDP
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Balance of Payments
Balance of payments (BOP): An accounting record of financial transactions (generally import and export of goods and services) of the country with the rest of the world
Surplus
Deficit
Source: Norway Statistics
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Nuclear investment and BOP
Nuclear industry can effect BOP in various ways, prominent influencing factor is through the import of fossil fuel, for example:
Higher fossil fuel prices (Jan07-Apr08) strain BOP: Gross impact was more than 2 % of GDP, 37 LIC and 25 middle income countries to have less than adequate reserve (IMF Survey, July 2008)
Nuclear vs CCGT (1000MW): Gas imports alone would worsen the BOP by 2% (depending on the actual trade balance in future years) over the lifetime of the plant. If future price of imported gas increases or the country currency depreciates, this will further dampen the BOP (IAEA study 2009)
Note: For several developing countries nuclear technology import will also impact the BOP
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IAEA Source: World Bank Database, World Development Indicators
0 10 20 30 40 50 60
Finland
Chile
Philippines
Lithuania
Japan
Korea, Rep.
United States
Ukraine
Belarus
Pakistan
Kenya
India
Jordan
Fuel Imports as percentage of exports (2007)
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74%
22%6% 9%
26%
78%94% 91%
Nuclear Coal Gas Oil
Fuel
O&M
Fuel as a percentage of marginal generating costs (USA –
2005)
Source: Global Energy DecisionsUpdated: 6/06
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Price dynamics
Source: Reuters
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Price Increase and InflationHigh fuel dependency leads to price instabilityScenario A: A country is highly dependent on Oil and Gas imports and the prices of both fuel increases (keeping exchange rate constant) – The Spiral Effect:
Price of electricity increases
Impact on Industries:Production cost
increasesConsumers: Increase incost of consumer basket
Inflationary impact: Central bank move to
contain inflation below 3% so..
Increase in interest rate leading to increase in
financing cost
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Price Stability and InflationNuclear low fuel dependency leads to price stabilityScenario B: Nuclear investment decision and stable electricity prices
Price stability
Impact on Industries:Production cost are stable
Consumers:Marginal increase
to consumer basket
Inflation is contained
No interest rate “surprises’!
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Higher Fuel PriceAdverse macroeconomic
effects:
Adverse impact on BOP
Increase in inflation
Increase in interest rate
Adverse Social effects on Low income families
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Other important considerations
Security of energy supply
Security of electricity supply
Spin-off to other sectors
Socio-cultural effects
Environmental and health benefits
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Concluding comments
Nuclear investment is a long term decision with significant macroeconomic benefits
The macroeconomic impact varies across the countries
Nuclear investment macroeconomic impact depends on the type of nuclear program (like, single unit or a series)
Low fuel cost and price stability is major influencing factors to nuclear investment decision
Nuclear industry needs a few ‘within budget and on schedule’ projects to give the industry a boost
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Thank you for your attention!
IAEA…atoms for peace.