1. the University of Greenwich Teaching excellence for 100 years The Economics of Nuclear Power Myths of nuclear power: A guide Moscow 5 April 2011 Steve Thomas (stephen.thomas@gre.ac.uk) PSIRU (www.psiru.org), Business Schoolwww.psiru.org University of Greenwich

2. the University of Greenwich Teaching excellence for 100 years Why did ordering stop in the West?  Nuclear power orders were easy to finance as long as utilities could pass on any costs to consumers – cost plus  Financiers knew loans would be repaid so finance was cheap & easy  In 1980 US regulators lost patience with nuclear plants that were late, over-budget & unnecessary. They made utilities pay extra costs from profits & utilities building nuclear risked bankruptcy  New ordering stopped overnight and about 80 existing orders were cancelled in mid-construction  In Europe, the introduction of competition meant companies that built plants that produced expensive power would fail

3. the University of Greenwich Teaching excellence for 100 years What is the Nuclear Renaissance?  Introduction of competitive markets meant nuclear vendors knew they had to compete to survive  1998, they calculated construction costs had to be $1000/kW to compete with gas - a 1000MW reactor would cost $1bn  Nuclear designers claimed new ‘evolutionary’ designs would be safer, but simpler and therefore cheaper, <$1000/kW  New designs, Gen III+ emerged: AP1000, ESBWR, EPR  Nuclear industry claimed these would be so attractive that countries that had abandoned nuclear, eg, USA, Germany, UK, Italy would re-start ordering – a Nuclear Renaissance

4. the University of Greenwich Teaching excellence for 100 years Is the Renaissance happening?  Progress was slow and by 2008, people were asking if the Renaissance would actually happen  Since Jan 2008, construction work has started on 37 reactors. Surely the Renaissance is now underway  But 24 of these are in China, 6 in Russia, 3 in Korea. One is a 1975 order for Brazil. All in countries where electricity is still effectively a monopoly and utilities are publicly owned  Only 6 orders are for designs licensable in Europe or USA  So for Gen III+ designs and for Europe and USA the Renaissance is not happening

5. the University of Greenwich Teaching excellence for 100 years Why? 1. Economics and commercial risk? 2. Designs/licensing issues? 3. Opposition and bureaucracy?

6. the University of Greenwich Teaching excellence for 100 years Gen III+ designs on offer 5 Gen III+ designs being evaluated by the USA: 1. Areva EPR. Generic approval in France or Finland not completed despite construction. No approval in USA or UK until 2013. 2 orders China 2. Westinghouse AP-1000. Regulatory approval in USA not before 2011. Under assessment in UK but no approval before 2012. 4 orders (China) 3. GE ESBWR, based on SBWR. US regulatory approval forecast for 2011, but all 6 potential orders in doubt 4. GE-Hitachi & Toshiba ABWR. Certified in US in 1997 but approval runs out 2012. 1 possible US project 5. Mitsubishi APWR no NRC approval end 2013. 1 possible US project

7. the University of Greenwich Teaching excellence for 100 years Other designs  Areva SWR/Kerena. Update of 1970s BWR. Not developed  Areva Atmea. 1100MW PWR. At early design stage. 3-loop EPR?  Korea APR1400. 4 sold to UAE but no aircraft protection or core- catcher. Lauvergeon: like a car with no seat-belts or air bag. Gen III? Considered by S Africa, may be upgraded for Europe  Russia AES-2006. 6 Russian orders, not assessed in West  China CP-1000. 3 units in service, 15 under construction in China. Based on 1970s French design. EDF and Areva separately thinking about collaborating and S Africa thinking of buying. Gen II+?

8. the University of Greenwich Teaching excellence for 100 years Regulatory Issues  In 2002, US’s Nuclear 2010 programme assumed order for Gen III+ design could be placed in 2003. Now likely that first US Gen III+ order will be nearer 2013  US NRC won’t complete generic review of 5 designs before 2012: EPR mid 2013  UK NII says Generic Design Assesment ends in June 2011: interim approvals, which would not suffice for construction of the reactors to begin in the UK, appear at the moment to be more likely than final approvals for both designs for the June 2011 timeline.  UK construction start not before 2013

9. the University of Greenwich Teaching excellence for 100 years Impact of Fukushima on design reviews  Experience with TMI, Chernobyl suggests it will take a long time – 5 years? - to work out what happened at Fukushima  Designers will then take at least 5 years to modify designs to take account of lessons  How can UK and USA complete generic design reviews is lessons from Fukushima are not known?

10. the University of Greenwich Teaching excellence for 100 years What determines nuclear power cost?  Construction cost and time, cost of capital and reliability  Paying construction cost & interest expected to account for about 2/3 of cost of power. The reliability of the plant (load factor) determines how thinly fixed costs can be spread  Operations & maintenance cost. Expected to be low but British Energy went bust because O&M more than revenue.

11. the University of Greenwich Teaching excellence for 100 years Little impact for investment decisions, but major commitment by public  Decommissioning & waste disposal provision. If cost accurately forecast, provisions collected and invested safely, not a major cost today. Discounted away  But no experience of high-level waste disposal and little experience of decommissioning.  How can we forecast what this will cost & how do we ensure provisions are safe and earn interest at the rate expected?  We are asking a future generation to clean up our waste. If provisions are inadequate, they will have to pay as well

12. the University of Greenwich Teaching excellence for 100 years Little impact for investment decisions, but major commitment by public  Fuel cost. Nuclear fuel purchase is a small part of the generation cost. But if nuclear was expected to make a major contribution on climate change, uranium resources would be important  Environmental impact of uranium mining substantial but in developing countries  Insurance and liability cover. International treaties mean governments bear the main risk but even limited cover is expensive.

13. the University of Greenwich Teaching excellence for 100 years Construction cost  Renaissance sold to public on a promise of US$1000/kW  Most serious recent estimates & bids are for about $6000/kW  EPR, AP1000 and ABWR have bid more than $6000 in all contests entered (UAE, Canada & S Africa) in past 3 years  Have real costs escalated or was $1000/kW an unrealistic target?

14. the University of Greenwich Teaching excellence for 100 years Cost of capital: Is nuclear too risky?  Banks not willing to be exposed to commercial risk of nuclear power, who can take that risk? Consumers via cost pass-through, tax-payers via government loan guarantees or vendors via ‘turnkey’ contracts Are tax-payers, elec consumers or vendors willing? Are turnkey contracts credible after Olkiluoto? Will the Electricity Directive allow cost pass-through? Is fixed ‘C’ price desirable or feasible? Would it be enough?

15. the University of Greenwich Teaching excellence for 100 years Loan guarantees  Central to US efforts. Loan guarantees allowed for 100% of borrowing up to 80% of cost. EPR offered loan guarantees worth about $8bn  If fee is ‘economic’, no advantage to loan guarantees because risk is same if you are a bank or a government  Loan guarantees for Olkiluoto not state aid according to Commission because fee paid, but what was the fee?  Vogtle (USA) selling to monopoly market & guaranteed cost recovery. Loan guarantees not essential and fee 1-1.5%  Calvert Cliffs (an EPR) selling to competitive market (PJM). Fee 11.6%. Project expected to be abandoned

16. the University of Greenwich Teaching excellence for 100 years Generation III+. Simpler or more complex?  US Department of Energy (2003): New Generation III+ designs... have the advantage of combining technology familiar to operators of current plants with vastly improved safety features and significant simplification is expected to result in lower and more predictable construction and operating costs  ESBWR = Economic Simplified Boiling Water Reactor  Lauvergeon (2010): the cost of nuclear reactors has "always" gone up with each generation, because the safety requirements are ever higher. "Safety has a cost,"  Roussely (2010): The resulting complexity of the EPR, arising from the choice of design, specifically the level of power, the containment, the core catcher and the redundancy of the security systems is certainly a handicap for its construction and therefore its cost.

17. the University of Greenwich Teaching excellence for 100 years Generation III+. Too much or too little redundancy?  HSE, ASN, STUK (2009): ‘The EPR design, as originally proposed by the licensees and the manufacturer, AREVA, doesn't comply with the independence principle, as there is a very high degree of complex interconnectivity between the control and safety systems.’  Roussely (2010): The resulting complexity of the EPR, arising from the choice of design, specifically the level of power, the containment, the core catcher and the redundancy of the security systems is certainly a handicap for its construction and therefore its cost.

18. the University of Greenwich Teaching excellence for 100 years Impact of Fukushima on construction costs All significant accidents to date beyond design basis: Browns Ferry, TMI, Chernobyl, 9/11  Browns Ferry: Need for independent systems for each unit  TMI: Need for redundancy  Chernobyl: Need for ‘passive’ safety – if everything fails, plant will naturally revert to safe state  9/11: Need for containments to be strong enough to withstand collision with large aircraft  Are we asking too much of designers to imagine all possible events sequences?  Too early to say what design modifications will be needed but likely to be extensive and expensive

19. the University of Greenwich Teaching excellence for 100 years Multi-speed regulatory requirements?  Lauvergeon (2010): [Is] there is going to be a nuclear [market] at two speeds — meaning a high-tech, high-safety mode for developed countries and a lower-safety mode for emerging countries?  S Africa may buy from China (Gen II+), Korea (Gen III)  NRC Commissioner Apostolakis (2010): The core catcher included in designs of new reactors to be constructed in Europe will not be required in the US because its benefits cannot be shown to outweigh its costs  Is AP1000 licensable in Europe?

20. the University of Greenwich Teaching excellence for 100 years The myth of the French nuclear programme  France built 58 large reactors in 20 years under ideal conditions. Scale economies, standardisation, technical progress, learning, cheap component production methods, no public opposition, supportive regulation  But real construction costs tripled over 20 years  Roussely: while the average capacity of nuclear power worldwide - measured by the capacity factor - has increased significantly over the past fifteen years, the French nuclear plant capacity has sharply declined in recent years  After 2 years construction, Flamanville is 2 years late and 50% over-budget

21. the University of Greenwich Teaching excellence for 100 years Why no Renaissance?  US NRC Commissioner Jaczko (2010): ‘What utilities are looking at right now, is developing and preserving the option... to construct a reactor at some point in the future, if they receive a license. I think the process really now is more about the option to build, than it is about construction.’  Gen III plants are too expensive & will only be built if consumers pay the extra and consumers or taxpayers take the risk  To protect reactors against core melt and aircraft crashes makes them too expensive

22. the University of Greenwich Teaching excellence for 100 years Other impacts of Fukushima Reviews needed of:  Accident liability arrangements – who pays for accidents  Siting criteria – earthquakes, evacuation zones  Decommissioning arrangements  Use of Mixed Oxide Fuel  Spent fuel ponds – a major risk if not in the containment  Are existing plants safe enough?

23. the University of Greenwich Teaching excellence for 100 years Conclusion  Why for entire 50 years of commercial history have nuclear costs always gone up?  Yet again, nuclear industry has promised: ‘we have learnt from our mistakes, we have new designs that will solve past problems, this time we will get it right’. How many last chances will we give them  Main problem is not money wasted on uneconomic plants or that large numbers of reactors will be built, but opportunity cost of continuing to neglect options that will deliver  Delays and extra costs from Fukushima may be the final straw for the Nuclear Renaissance