1. 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

2. 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

3. 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

4. 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

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

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

7. 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

8. 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

9. 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

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

11. Project Structure and Risk Allocation

12. 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

13. 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

14. 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