April 9, 2011

Economics of Nuclear - A reverse learning curve

Here are some interesting perspectives on the economics of nuclear power.

Moody's perspective on nuclear in June of 2009 - when they were still quite bullish about the safety record of nuclear. 

"The likelihood that Moody's will take a more negative rating position for most issuers actively seeking to build new nuclear generation is increasing."

Before 2007, price estimates of $4000/kw for new U.S. nukes were common, but by October 2007 Moody's Investors Service report, "New Nuclear Generation in the United States," concluded, "Moody's believes the all-in cost of a nuclear generating facility could come in at between $5,000 – $6,000/kw."  That same month, Florida Power and Light, "a leader in nuclear power generation," presented its detailed cost estimate for new nukes to the Florida Public Service Commission. It concluded that two units totaling 2,200 megawatts would cost from $5,500 to $8,100 per kilowatt — $12 billion to $18 billion total!  In 2008, Progress Energy informed state regulators that the twin 1,100-megawatt plants it intended to build in Florida would cost $14 billion, which "triples estimates the utility offered little more than a year ago." That would be more than $6,400 a kilowatt.  (And that didn't even count the 200-mile $3 billion transmission system utility needs, which would bring the price up to a staggering $7,700 a kilowatt).

These estimates are validated by the recent history in Texas. In September 2007, NRG Energy filed a full application to build 2 reactors totaling 2,700 MW of capacity for a cost of $10B or $13B taking into account financing costs. 

In October 2009, the main contractor on the project, Toshiba informed the investors that the project was likely to cost $4B more than estimated. That would put the cost per kW at between $5,185 and $6,296 per kW - assuming that there aren't any more cost overruns in the future. 

As a result, CPS Energy a 50% stakeholder, pulled out, reducing its stake in the project to 7.625%. The company that stepped in to pick up the slack? Tokyo Electric Power Company. Yes, the very same company that manages the Fukushima reactors. I'm guessing they aren't going to have a lot of appetite for investing in US nuclear projects anytime soon. 

In comparison, the capital cost for new natural gas plants are approximately $1,000 per kW for a standard plant and $2,000 per kW for a natural gas plant with carbon capture and sequestration. http://www.eia.doe.gov/oiaf/beck_plantcosts/index.html

Moody's conclusion in 2007 - "Companies that build new nuclear plants will see marked increases in their business and operating risks because of the size and complexity of these projects, the extended time they take to build, and their uncertain final cost and cost recoveries. The report's author, Moody's vice president, senior credit officer Jim Hempstead, commented: "To the extent that a company develops a financing plan that overly relies on debt financing, which has an effect to reduce the consolidated key financial credit ratios, regardless of the regulatory support associated with current cost recovery mechanisms, there is a reasonably high likelihood that credit ratings will also 

Here is a comment from Nuclear Engineering International on the capital costs of nuclear, also dated October 2007. "At least in the USA, this is probably the weakest link: granted that the industry has to address potential skills shortages, decommissioning costs, long-term waste management concerns, supply chain constraints, licensing and regulatory uncertainties, amongst many other issues – but faced with a lower credit rating, there aren't many company boards that would give the go-ahead to a new nuclear plant."

And this trend of cost over runs and reverse learning curve is also occurring outside the US in places like France and Finland who are quite committed to nuclear. 
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