Reactor Economics 2008 Reactor Economics 2008

Jim Harding

National Academy of Sciences/National Research Council Panel

January 22, 2008

Washington, DC

How Do Current Estimates Compare? How Do Current Estimates Compare? What Factors Are Most Important?What Factors Are Most Important?

• Capital cost is most important• EIA - $2083/kW• MIT - $2000-2500/kW (2003)• Keystone - $3600-4000/kW (June 2007)• S&P - $4000/kW (May 2007)• Moody’s - $5000-6000/kW (October 2007)• FP&L - $5200-7800/kW (Fall 2007)

• Operating costs less important but not insignificant• Assumptions and methodology often opaque• Life cycle cost estimates range from 5-17 cents/kWh• Why is this so?

The Easy Reasons – for all resourcesThe Easy Reasons – for all resources

• Lack of a consistent economic methodology• Capital cost usually stated in mixed current dollars at COD, rather

than discounted real dollars• Subsidies often included in cost estimates, though they affect price

not cost• Very important for long lead time, capital intensive units

• Example: Keystone high case for nuclear was $2950/kW overnight, $4650/kW mixed current dollars at COD, and $4000/kW in discounted 2007 dollars.

• All the same number!

Nuclear Power is TougherNuclear Power is Tougher• Lack of recent North American nuclear construction experience• Historical reliance on “studies” and vendor software

• Studies often reference each other• Software assumes Asian construction practices, and excludes owner’s costs –

contingency, escalation, interest during construction, land, transmission, and oversight. Long lead time for recalculating

• Little incentive to be accurate or up-to-date; no real money being spent• MIT chose actual Asian values, but assumed no real escalation

• Long lead time; licensing, siting, rate recovery and financing uncertainties. Very problematic in states with deregulated retail markets.

• Escalation during construction not considered; first of a kind premiums and learning curves instead

• Supply-chain imbalances not considered (skilled labor, sub-suppliers)• Transmission costs and lead time usually not considered

Recent Asian ExperienceRecent Asian ExperiencePlant MWe COD Yen@COD 2002$s/kW 2007$s/kW

Onagawa 3 825 Jan 2002 3.1 Billion 2409 3332

Genkai 3 1180 Feb 1994 4 Billion 2643 3656

Genkai 4 1180 Jul 1997 3.2 Billion 1960 2711

KK 3 1000 Jan 1993 3.2 Billion 2615 3617

KK 4 1000 Jan 1994 2.2 Billion 2609 3608

KK 6 1356 Jan 1996 4.2 Billion 2290 3167

KK 7 1356 Jan 1997 3.7 Billion 1957 2707

Y 5 (SK) 1000 Jan 2004 1700 2352

Y 6 (SK) 1000 Jan 2005 1656 2290

Average 2354 3257

Cost data from MIT 2003 Future of Nuclear Power study. Average does not include South Korean units, owing to labor rates. Real escalation from 2002-2007 at 4 percent/year.

Major Keystone AssumptionsMajor Keystone Assumptions• Take Asian experience at face value (important)• Escalate at EPRI estimate for heavy construction, 2002-2007 in low

case and through COD in high case (very important)• 5-6 year construction period and no major finance or regulatory issues;

conventional IOU financing (all very important)• Use current spot prices for uranium, and predicted enrichment prices

for long term fuel prices (not very important)• O&M and capacity factor at current fleet average; include

decommissioning, capital additions, and A&G; 30-40 year life (somewhat important)

• Life cycle cash flows discounted at weighted after tax cost of capital (somewhat important; first year cost – “rate shock” - can be twice as high as levelized life cycle cost)

• No major new transmission required (important, but site specific)

Real Escalation is the Biggest Real Escalation is the Biggest ProblemProblem

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Marshall & Swift Equipment Cost Index

Provided to Keystone panel by EPRI

Chemical Engineering Plant Cost Index

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Steeper Curve Than in the Mid 80s

Commodity Esc 86-03 Esc 03-07 Ratio vs. History

Nickel 3.8%/yr 60.3%/yr 15.9x

Copper 3.3%/yr 69.2%/yr 21x

Cement 2.7%/yr 11.6%/yr 4.3x

Iron/Steel 1.2%/yr 19.6%/yr 16.3x

Heavy construction

2.2%/yr 10.5%/yr 4.8x

Source: American Electric Power

Four Percent Real May Be Too Low

Escalation Likely Worse for Nuclear Escalation Likely Worse for Nuclear

• Industry moribund in Western Europe, US, and Russia since TMI and Chernobyl

• Twenty years ago (US): 400 suppliers, 900 N-Stamp holders; today 80 and 200

• Only one forge for large parts – Japan Steel Works; maybe Creusot Forge (France)

• Skilled labor and contractor limits• World uranium production well below current

consumption

Recent EstimatesRecent Estimates

• Keystone - $3600-4000/kW; 8-11 cents/kWh• Discounted real 2007 dollars; would be $5600/kW (16-

17 cents/kWh) at AEP escalation rate from 2002-COD• Standard & Poor’s - $4000/kW; 9-10 cents/kWh

• Basis not stated; levelized fixed charge rate• Life cycle costs reflect Keystone O&M and fuel costs

• Moody’s - $5000-6000/kW• Basis not stated; operating and fuel costs not estimated

• Florida Power & Light - $5200-7800/kW• Basis not stated; major transmission included

Keystone “Updated” Lifecycle Costs

Cost Category Low Case High Case

Capital Costs 6.0 7.9-10.5

Fuel 1.6 2.0

Fixed O&M 1.3 1.8

Variable O&M 0.5 0.5

Total (Levelized Cents/kWh) 9.4 12.2-14.8

Costs are in real discounted 2007 cents/kWh. Highest high case based on Moody’s capital cost. Low high and low case exclude South Korea.

Life Cycle and Operating Costs Also Life Cycle and Operating Costs Also VaryVary

• Nuclear O&M costs estimates often do not include• A&G costs• Net capital additions• Decommissioning

• Nuclear fuel cost estimates often do not include• Current spot prices for uranium• Likely increase in enrichment prices

• Life cycle cost estimates often use simplified levelized fixed charge rates rather than more complex discounted cash flows

Pulverized Coal

Gas (CCCT) Eastern IGCC

Wind Nuclear

Capital Cost ($/kW)

2438 700 2795 1700 4000

Total cost (cents/kWh)

5.8 6.8 6.8 7.1 8.9

CO2 Capture Cost ($/kW)

940 470 450 NA NA

Cost for CCS (cents/kWh)

6.2 2.8 3.4 NA NA

Cents/kWh 12.0 9.6 10.2 7.1 8.9-9.8

Cents/kWh (credits $10-30)

6.2-7.9 7-7.7 7.1-8.7 7.1 8.9-9.8

S & P Assessment - w/ carbon controls

Keystone operating costs are used instead of those estimated by S&)

US Projections – Decades AgoUS Projections – Decades Ago

Construction start Estimated Overnight Actual Overnight % Over

1966-1967 $560/kW $1170/kW 209%

1968-1969 $679/kW $2000/kW 294%

1970-1971 $760/kW $2650/kW 348%

1972-1973 $1117/kW $3555/kW 318%

1974-1975 $1156/kW $4410/kW 381%

1976-1977 $1493/kW $4008/kW 269%

Mark Gielecki and James Hewlett, Commercial Nuclear Power in the United States: Problems and Prospects, US Energy Information Administration, August 1994. Data is in 2002 dollars.

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Nine Mile Point 2 Watts Bar 1

Comanche Peak 2

Copyright Jonathan G. Koomey 2007

Comanche Peak 1

US Economics – Two Decades Ago

Koomey, Jonathan, and Nate Hultman. 2007. “A Reactor-Level Analysis of Busbar Costs for US nuclear plants,” 1970-2005, forthcoming in Energy Policy

Jeff Combs, President, Ux Consulting Company, Price Expectations and Price Formation, presentation to Nuclear Energy Institute International Uranium Fuel Seminar 2006

Fuel cycle steps MIT This analysis

Uranium $30/kg $300/kg

Enrichment $100/SWU $140-340/SWU

Fabrication $275/kg $275/kg

Disposal $400/kg $400/kg

Reprocessing $1000/kg $1500-2000/kg

Fuel cycle cost

Open 0.5 cents/kWh 1.6-2 cents/kWh

Closed 2 cents/kWh 3.4-4.3 cents/kWh

Differential 4x 2-3.5x

Reprocessing Is Still ExpensiveReprocessing Is Still Expensive

Approximately 5.25 kgs of spent fuel must be reprocessed to obtain 1 kg of MOX.

Supplemental SlidesSupplemental Slides

Efficiency and Renewables Can Be Efficiency and Renewables Can Be Disruptive TechnologiesDisruptive Technologies

A disruptive technology is often cheaper than the operating cost of the existing system

Demand is not limited to growth in serviceEfficiency resources cost less than operating costs for

existing gas (or coal with carbon taxes); they pay for themselves with +3x more carbon savings per dollar

Wind was disruptive from 2002-2005 and may be againPhotovoltaics may soon become oneOnly disruptive energy technologies can grow fast enough

to solve climate challenges

Rapid Worldwide Growth in Renewables

Technical Innovation Driven by Technical Innovation Driven by StandardsStandards

Figure 1 - Annual Lost-Opportunity Achievable Potential Supply Curve

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Northwest Power Planning Council, Achievable Savings, August 2007

Utility Programs Are Also Important

Figure 10 - Annual Utility Program Conservation Savings1980 - 2005

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Northwest Power Planning Council, Achievable Savings, August 2007

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NW CFL Market Shares

US CFL Market Shares

Figure 8 -Estimated ENERGY STAR CFL Market Share for the Northwest and U.S., 2000-2006

Sources: NW CFL sales 2000-2006: PECI and Fluid Market Strategies sales data reports; and NEEA estimate of an additional 1.5 million WAL-MART CFLs sold region-wide in 2006 (See Appendix A [Section 9.1.1] of MPER3 for more detail); U.S. and NW population estimates 2000-2006: U.S. Census 2004; U.S. market shares and non-CFL sales 2000-2005: Itron California Lamp Report (2006); U.S. market share 2006: D&R International (personal communication).

Compact Fluorescent Market Penetration

The Bottom LineThe Bottom Line

• Twenty years from light water reactor technology will be roughly the same as it is today

• Efficiency resources, wind turbine technology, and photovoltaics are improving rapidly

• Take one example --- Nanosolar• started by the Google founders, backed also by Swiss Re• Building two 430 MW/yr thin film PV production facilities this

year in Germany and California, using a technology they equate to printing newspapers

• Currently shipping and reportedly profitable at $0.99/watt (not including installation and balance of system)

• The cheapest, least risk strategy is rapid development of efficiency resources