Nuclear Power Economics and Project Structuring 2017 Edition Milton Caplan Chair, WNA Economics Working Group President, MZConsulting Inc. World Nuclear Fuel Cycle Toronto 27th April 2017

Objectives to highlight that new nuclear build is fully justified on the strength of today’s economic criteria to identify the key risks associated with a nuclear power project and how these may be managed to support a business case for nuclear investment to promote a better understanding of these complex topics and encourage subsequent wider discussion changes include updated additional material on nuclear capital costs, in particular evidence that capital cost inflation has peaked; and the challenges that deregulated electricity markets pose for nuclear

Outline of Report Excellent economic performance of current nuclear plants The need for substantial new electricity generating capacity worldwide Economics of new nuclear plants to compete with other forms of electricity generation Key risks of nuclear projects and how they may be mitigated Project structuring and the different ways of allocating risks The role of government in ensuring adequate electricity supply The role of financing major electricity infrastructure

Nuclear Project Profile Nuclear projects are capital intensive and have long project schedules Gas plants are fuel intensive Coal plant are balanced 35-40% Fuel 70-80% 15-20% 15-25% 5-10% 20-35% 40-50% 50-60% O&M Investment Coal Gas CCGT Nuclear General shares

Economics of Current Plants Good performance Low and stable generating costs Capacity uprates Licence extensions Political risk

Market Potential for Nuclear Power The International Energy Agency sees the demand for electricity in its New Policies Scenario growing at 1.9%/year 2014-2040 It projects good nuclear growth prospects (GWe) to 2030 in all three of its scenarios

Economics of New Plant Construction Capital cost escalation is overstated: Not universal, eg, South Korea Reflects First-of-a-Kind costs of new reactor designs Global median construction periods falling

Economics of New Plant Construction Nuclear competitiveness: On a levelised basis, nuclear is competitive System costs are low Zero carbon emissions and carbon pricing is spreading

Economics of New Plant Construction But de-regulated electricity markets plus gas without a carbon cost and subsidised renewables threaten nuclear profitability and make financing a challenge

Risks of Nuclear Projects Electricity market deregulation and revenue predictability Nuclear safety regulation Project delivery Operations Decommissioning and waste management Accident insurance Political

Project Structure and Risk Allocation

Role of Government Government support for nuclear is vital. It should include the following areas: Energy policy Regulatory and local planning Safety Radioactive waste and used fuel Decommissioning Nuclear liability Power market regulation Climate change measures

Financing Critical to the prospects for new nuclear investment. It can take various forms but a moderate cost of capital is important in view of the capital intensity of nuclear and the long development period. Utility balance sheet finance Project finance Concessions Power user investment Vendor finance

Conclusion Nuclear plants are operating very efficiently and unit operating costs are low relative to alternative generating technologies The global growth in demand for electricity creates opportunity for continued nuclear growth even when ignoring environmental considerations Nuclear energy competitiveness depends mainly on the capital required to build the plant. At discount rates of 5-8% nuclear is generally competitive with other generating technologies This cost advantage could improve with a reduction of nuclear capital costs, once FOAK costs for the currently new reactor designs are behind us, learning-by-doing has spread and construction time reduced Once a number of plants of the same design are successfully completed on time, finance will be forthcoming for subsequent units on more favourable terms When system costs are added to the plant levelised costs of different generation technologies, nuclear energy’s competitiveness as a low carbon energy source is increased further. However, the impacts of subsidised intermittent renewables and ‘un-carbon costed’ gas are depressing wholesale prices in deregulated markets and the advantages of nuclear will not be realised fully until these fundamental market design problems are addressed by policymakers New nuclear plants generate electricity at predictable, low and stable costs for 60 years of operating life and in all likelihood even longer in the future. Investment in nuclear should therefore be attractive to countries which require significant baseload amounts of low cost power over the long term