Transcript The Economics of Nuclear Power Presentation at the launch

Demystifying Nuclear Energy:
Do the Economics Stack Up?
Presentation to the Energia Klub:
Budapest, April 23, 2008
Prof Steve Thomas ([email protected])
PSIRU (www.psiru.org)
University of Greenwich
Outline
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The World Market for Nuclear Plants
Hang-over plants in Eastern Europe
US developments: Nuclear Power 2010
UK: Nuclear power back with a vengeance?
Olkiluoto: Demonstration of new nuclear
technology or that nothing has changed?
• Key determinants of nuclear economics
• Need for and extent of public subsidies
• Conclusions
Why disagreement on nuclear costs?
• There has always been an assumption that new
plants would be much cheaper and more reliable
than existing plants
• Forecasts of nuclear costs and performance are
generally made by those with a vested interest in
nuclear and have invariably been optimistic
• Few orders have been placed in the past two
decades on which to base forecasts
• Very little real data on construction and operating
cost is published
• All the designs being considered in the West are
unproven. Only one plant worldwide of modern
design has significant construction experience
NPPs under construction worldwide
Country
Site
Type
Vendor
Size MW
Const start
% built
Operation
China
Hongyanhe
PWR
China
1000
2007
15
?
Lingao 3, 4
PWR
China
2 x 1000
2005, 06
40, 30
2010, ?
Ningde
PWR
China
1000
2008
5
?
Qinshan 2-3,4
PWR
China
2 x 610
2006, 07
30, 30
2010, 11
Sanmen 1, 2
AP1000
Westinghouse
2 x 1100
2009, 09
0, 0
2013, 13
Taishan 1, 2
EPR
Areva NP
2 x 1600
2009, 09
0, 0
2013, 13
Yangjiang 1, 2
AP1000
Westinghouse
2 x 1100
2009, 09
0, 0
2014, 14
Taiwan
Lungmen 1, 2
ABWR
GE-Hitachi
2 x 1300
1999
60, 60
2010
Finland
Olkiluoto 3
EPR
Areva NP
1600
2005
30
2011
France
Flamanville 3
EPR
Areva NP
1700
2007
5
2012
India
Kaiga 4
Candu
India
202
2002
96
2008
Kudankulam 1, 2
WWER
Russia
2 x 917
2002
83, 73
2009
Rajasthan 5, 6
Candu
India
2 x 202
2002
97, 85
2008
Iran
Bushehr
WWER
Russia
915
1975
99
?
Japan
Tomari 3
PWR
Mitsubishi
866
2004
84
2009
Korea
Shin Kori 1, 2
PWR
Doosan
2 x 1000
2006, 07
57, 57
2010, 11
Shin Wolsong 1
PWR
Doosan
1000
2007
41
2011
Chasnupp
PWR
China
300
2005
25
2011
Pakistan
Hangover plants
Country
Site
Type
Vendor
Size MW
Const
start
Const
stop
% built
Restart
2008?
Argentina
Atucha 2
HWR
Siemens
692
1981
1994
80
?
Bulgaria
Belene 1, 2
WWER
Russia
2 x 1000
1987
1991
0
Prob
Brazil
Angra 3
PWR
Siemens
1275
1976
?
10
?
N Korea
Kedo 1, 2
PWR
S Korea
2 x 1000
1997
2003
33
No
Romania
Cernavoda 3, 4, 5
Candu
AECL
3 x 655
1983
?
23, 12, 8
2009
Russia
Balakovo 5
WWER
Russia
950
1987
?
High
?
Kalinin 4
WWER
Russia
950
1987
?
High
?
Kursk 5
RBMK
Russia
925
1985
?
High
?
Volgodonsk 2
WWER
Russia
950
1987
?
High
?
Slovakia
Mochovce 3, 4
WWER
Russia
2 x 405
1983
1990
40, 30
Possible
Ukraine
Khmelnitsky 3, 4
WWER
Russia
2 x 950
1986
1990
30, 15
?
USA
Watts Bar
PWR
Whouse
1165
1972
1985
60
Yes
The World Market for Nuclear Plants
• Reports of a revival in nuclear ordering are
premature
• 439 units are already in service
• Only 21 units are under active construction
• A further 6 plants are on order, all in China,
awaiting construction start
• 18 plants are part complete but no work
appears to be taking place
The World Market for Nuclear Plants
• Of the 27 plants under construction or on
order, 17 are in China or India and 13 are
supplied by China, Russia or India
• The plants supplied by China are mainly
based on a 1970s French design
• The plants supplied by Russia are also based
on a 1970s design
• The plants supplied by India are based on a
1960s Canadian design
• Of the 18 ‘stalled’ plants, 13 are in Eastern
Europe or the Former Soviet Union and 10 of
these are of 1970s or earlier Russian design
Designs available
3 most credible generation III designs are:
1. Areva NP EPR, based on Areva N4 and Siemens
Konvoi. 4 orders. Regulatory approval in France
and Finland but not USA before 2011 at earliest
2. Westinghouse AP-1000, based on AP-600. AP-600
abandoned due to high costs. Regulatory approval
in USA (Feb 2006) but not offered in Europe. 4
orders (all China)
3. GE ESBWR, based on SBWR. No orders for
SBWR or ESBWR. US regulatory approval in
2009/10, but not offered in Europe
Also Mitsubishi APWR and GE-Hitachi ABWR and
Korean APWR
Russia, India and China
• Russia is offering a new version of the
WWER-1000, AES-92 in China, Russia and
Bulgaria. Units are in operation in China and
under construction in India and Iran
• It has two new designs under development,
WWER-1200 and WWER-640 but these are
a long way from completion
• China is likely to continue to import one or
two plants and then ‘copy’ these for further
orders
• India may abandon its old technology if the
agreement with USA becomes operational
World market for new nuclear orders
• Western vendors active in Europe—Areva &
Westinghouse—have 8 orders: Olkiluoto
(Finland), Flamanville (France) China (6 units)
• China, Korea and Japan have consistently
over-estimated their ordering rate for 25
years but may order a few new plants
• No other new orders likely to be placed in
the next 2-3 years except for USA (see
later)
E Europe and FSU: Hangover plants
Attractions
• Construction looks advanced (shell complete before
internal work)
• Completion likely to allow profitable power exports
• Mochovce & Belene seem to replace Bohunice &
Kozloduy
But
• Designs out of date. If building to below today’s
standards was unacceptable, upgrading expensive
• Much of the equipment has been stored for 15 yrs.
It could need expensive work or replacement
• Issues about quality of existing work. Showing it is
up to standard would be expensive, and remedial
work could be very expensive.
Eastern Europe: Hangover plants
Bulgaria
• Belene construction started 1987, stopped
1991, 45% complete
• Contract awarded to Atomstroyexport in
2006, but can it be financed? The contract
was expected to be signed ‘soon’ in Jan 2008
Slovak Rep
• ENEL promised to complete Mochovce 3 & 4
when it bought Slovenske Elektrarne in 2005
• Work might restart in 2008?
Eastern Europe: Hangover plants
Romania
• Only civil work carried out at Cernavoda 3-5, no
equipment, so a new order. What design?
• 7 companies inc Enel, Suez, RWE, Iberdrola, CEZ
involved in the bid. . Many hurdles to overcome
Russia
• 4 plants have been ‘nearly complete’ for 10 years
• Work on Kalinin 4 reported to restart in Jan 2008 for
completion in 2011
• Internal pressure to complete Kursk 5 (Chernobyl type)
but is that politically feasible? No funds before 2009
• Other 2 plants seem stalled
Ukraine
• Political pressure for Khmelnitsky 3 & 4 but not priority
Eastern Europe: New orders
Lithuania/Poland/Estonia/Latvia
• A plant that would supply these countries could be
built replacing the output of the Ignalina RBMK
(closed 2009). No solid plans have been made and a
start-up date of 2015 looks very optimistic
Czech Rep
• Little current government support
Kalinin
• New proposal by Russia to build 2 AES-92 units to
supply European markets
Hungary
• ?
US Initiative: Nuclear Power 2010
Last nuclear order in USA not cancelled was 1974 (68
cancellations). Extensive guarantees & subsidies back
the Bush Nuclear 2010 programme of 2002. The Energy
Policy Act 2005 offered 3 main types of support
• A limited number of new nuclear power plants to
receive a $18/MWh production tax credit up to $125m
per 1000MW (about 80 per cent of what the plant
could earn if it ran continuously)
• Federal loan guarantees covering up to 80 per cent of
the debt involved in the project (not the total cost)
• Up to $500m in risk insurance for units 1-2 and $250m
for units 3-6. This insurance is to be paid if delays not
due to the licensee slow licensing of the plant
• Support for R&D funding worth $850m and help with
historic decommissioning costs worth $1.3bn.
• Total cost of this programme was around €15bn
US Initiative: Nuclear Power 2010
• Several groups declared an interest, eg, ‘Nustart’
consortium and Dominion but no orders placed yet
• [Dominion CEO Capps] ‘We aren’t going to build a
nuclear plant anytime soon. Standard & Poor’s and
Moody’s would have a heart attack. And my chief
financial officer would too.’
• [TXU CEO John Wilder] said there were now projects
totalling about 26GW lining up for limited federal
incentives, which could provide ‘anywhere from a
$2/MWh advantage to a $20/MWh advantage.’ He said
he didn’t believe it would be known which companies
would receive those benefits until about 2012. ‘Quite
frankly, that’s all the difference between these
projects working or not working,’ he said.
• Exelon Nuclear’s President Crane said that the
incentives were a key factor in his company’s decision
to prepare a COL. But other factors would influence
whether Exelon commits to building a new reactor.
US Initiative: Nuclear Power 2010
• Sticking point is loan guarantees:
• Nuclear industry lobbying for 100% debt
coverage for up to 80% of the project cost
• Energy Bill passed by Senate allowed for up
to $18.5bn in loan guarantees for new
nuclear power plants in 2008/09
• Any orders would demonstrate government
can get nuclear plants built by compelling
taxpayers and customers to pay for them
UK: Nuclear back with a vengeance?
2006
• 8 years needed for designs to be given safety
consent and sites to be approved
• First plant not ordered till 2015 and 6 years
construction so first power 2021
• 6000MW total (effectively replaces existing
capacity) new nuclear capacity by 2026
• Decisions to be taken by private companies
• Wicks (Energy Minister): [Is that the Government’s
position? No direct subsidies and no indirect
subsidies?’] ‘No cheques will be written, there will
be no sweetheart deals. we are going to look very
carefully at that [waste and decommissioning] to
make sure that the full costs of new nuclear waste
are paid by the market.’
UK: Nuclear back with a vengeance?
2008
• Companies claim new plant could be online by 2017
• Nuclear White Paper: ‘Nuclear is currently one of the
cheapest low-carbon electricity generation technologies.
Our conclusion remains that not having nuclear as an option
would increase the costs of delivering these goals.’
• Hutton (Business Minister): ‘Britain will become increasingly
reliant on nuclear power for its energy needs over the next
two decades. We need the maximum contribution from
nuclear sources. I'd be very disappointed if it's not
significantly above the current level.’
• Nuclear consultation of Feb 2008 promised that a fixed
price for waste disposal and decommissioning would be set
the day a company starts building a nuclear plant
• What other guarantees and subsidies will government give,
eg, loan guarantees?
How are low costs produced? Olkiluoto
• Construction price reported to be €3bn,
€2000/kW, higher than all recent forecasts
• Will this cost be met? Is it really fixed? Is it a
‘loss-leader’?
• Export credit guarantees from France & Sweden
• Syndicate led by Bayerische Landesbank (BLB) gave
€1.95bn loan (60% of cost) at 2.6% nominal
• PVO, main customer, is not-for-profit organisation
owned by energy intensive companies
• Output is contracted for the life of the plant to
PVO owners at prices set to cover all costs
Olkiluoto: What is the experience?
• Problems: poor quality concrete and welds, delays in
design completion, problems with subcontractors,
inadequate protection against aircraft crashes
• Costs appear to be €1-1.5bn over budget
• Plant is 2 years late and penalty clauses reached
the maximum at 12 months
• Turnkey contract under strain:
Areva ‘Areva-Siemens cannot accept 100 per cent
compensation responsibility, because the project is
one of vast co-operation.’
TVO ‘I don’t believe that Areva says this, the
realisation of the project is Areva’s responsibility’
• Now speculation Areva will sue TVO because they
have taken too long to carry out checks
• Concrete pouring problems also at Flamanville
What has gone wrong at Olkiluoto?
• Sept 2005: Problems with strength & porosity of
concrete for the reactor building base slab and
manufacturing of the pressure vessel and steam
generators "some weeks" behind schedule.
• Feb 2006: Problems with qualifying pressure vessel
welds & delays in detailed engineering design
• Oct 2006: TVO discovers that 3 of 4 of the ‘hot
legs’ were not made to specification
• Mar 2007: damaged steel liner for the containment
must be repaired
• Aug 2007: Delays due to design changes needed to
make the plant able to withstand aircraft crash
• Sept 2007: Steel containment liner being repaired
in 12 places to fix deformations and weld problems
discovered in June
What determines nuclear power cost?
• Construction cost & time, and cost of capital.
Repaying construction cost and interest is
expected to account for about 2/3 of the
cost of power
• Operating performance. The reliability of
the plant (load factor) determines how thinly
fixed costs can be spread
• Operations & maintenance cost. British
Energy went bust because it could not even
cover its operating cost from revenue.
Important factors not seen in discounted
cash flow (DCF) analyses
• Decommissioning & waste disposal provision. If cost
is accurately forecast and provisions are collected
and invested safely, this is not a major cost. But
there is no experience of high-level waste (HLW)
disposal and little experience of decommissioning
• 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
• Insurance and liability cover. International treaties
mean governments bear the main risk but even
limited cover is expensive.
Construction costs
• In late 1990s, nuclear industry forecast new
designs would cost $1000/kW (€660/kW)
• Forecasts from 2002-04 assumed €1000-1500/kW
• Olkiluoto contract price (2004) €2000/kW
• After 3 years construction, it is 50% over-budget
• From 2004, ‘China effect’ means commodities are
increasing in price by 10% per year or (much) more
• Recent cost estimates from US, much higher
– Keystone - €2400-2700/kW (June 2007)
– S&P - $2700/kW (May 2007)
– Moody’s - $3350-4000/kW (Oct 2007)
– FP&L - $3800-5400/kW (Fall 2007)
– Puget Sound Energy - $6,700/kW (Jan 2008)
Cost of capital
• Previously, if problems with a nuclear plant,
costs were paid by consumers. Was this fair?
• Investment risk was low because consumers
were bearing the risk and lenders were sure
to be paid back. So interest rate low
• But in an electricity market, if things go
wrong, the plant owner goes bankrupt &
lenders lose the money
• So investment risk & interest rate is high
• Government credit guarantees are vital if
plants are to be built in a competitive market
Need for subsidies and guarantees:
A wish list
• 15 year power purchase agreement indexed
to costs
• Turnkey construction contract
• Performance/reliability guarantee
• A guarantee on operating costs
• A cap on decommissioning liabilities and
waste (esp spent fuel)
• Insurance guarantees against regulatory and
judicial delays and the consequences of
events elsewhere in the world
Conclusions (1)
• Cost-reducing factors - learning, technical
change, scale & number economies - have had
little impact on nuclear costs so far. Why?
• Skills in the nuclear area are eroding fast &
forgetting is more likely than learning
• Major bottlenecks in manufacturing large
components
• Little experience with current designs
• ‘China effect’ is raising costs rapidly
• Waste & decommissioning costs are guesses
Conclusions (2)
• Liberalisation of electricity industries raises
cost of capital and shifts economic risk to
share-holders – are they willing to bear it?
• US government subsidies and guarantees
worth about $15bn not sufficient for new
orders there
• Loan guarantees worth $20bn now on offer
in US. Will it be enough? Will orders be
possible when subsidies are not offered?
Conclusions (3)
• UK programme still some time from first
order. Guarantees & subsidies will be needed
• Olkiluoto is unique - Underpriced turnkey
contract, uneconomic loan, loan guarantees,
cost-plus power contract for life of plant,
not-for-profit utility
• Experience with construction at Olkiluoto
awful. After 2 years, construction about 2
years late and costs nearly 50% above
contract. Is it a one-off or a symptom of
likely problems?