The Economics of Nuclear Power - Nuclear Issues Briefing Paper 8

Published October 31st, 2000 - 02:00 GMT

Nuclear power is cost competitive with other forms of electricity generation in the OECD except in regions where there is direct access to low-cost fossil fuels.  

 

The decreasing cost of fossil fuels in the past decade has eroded nuclear power's previous cost advantage in many OECD countries.  

 

Fuel costs for nuclear plants are a minor proportion of total generating costs and often about one-third those for coal-fired plants.  

 

In assessing the cost competitiveness of nuclear energy, decommissioning and waste disposal costs are taken into account. 

 

The relative costs of generating electricity by coal, gas and nuclear plants vary considerably from country to country, due to location. Coal is and will probably remain an economically attractive option in countries such as Australia where there is access to abundant domestic coal resources.  

 

Gas is also competitive for base-load power in many places, particularly with combined-cycle plants. Nuclear energy is, in many places, competitive with fossil fuel fired electricity generation, despite the relatively high capital costs and the need to internalise all waste disposal and decommissioning costs.  

 

If non-internalised social, health and environmental costs for fossil fuels are taken into account in the future, nuclear will be more attractive.  

 

THE COST OF FUEL:  

From the outset the basic attraction of nuclear energy has been its low fuel costs compared with coal, oil and gas fired plants. Uranium, however, has to be processed, enriched and fabricated into fuel elements. At least three quarters of the fuel cost is due to enrichment and fabrication.  

 

Allowances must then be made for the management of radioactive spent fuel and the ultimate disposal of this spent fuel or the wastes separated from it, so-called "back end" costs.  

 

Nonetheless with these back end costs included, the total fuel costs of a nuclear power plant in the OECD are typically about one-third of those of a coal-fired plant and about one-quarter to one-fifth of those of a gas combined-cycle plant.  

 

COMPARISON WITH OTHER FORMS OF ELECTRICITY GENERATION:  

The OECD has collected data to enable estimates of the cost competitiveness of electricity production to be made among different OECD countries. All planning, construction and operating costs are included. For nuclear power plants these include fully costed estimates for spent fuel management, plant decommissioning and final waste disposal. 

 

Decommissioning costs are estimated to be between 9-15 percent of the initial capital cost of a nuclear power plant, but when discounted contribute only a few percent to the investment cost and even less to the generation cost. In USA they range 0.1 to 0.2 cents per kilowatt hour, hence no more than 5 percent of the cost of the electricity produced.  

 

The back-end of the fuel cycle, including spent fuel storage or disposal in a waste repository, contributes up to another 5 percent to the overall costs per kWh, - less if there is direct disposal of spent fuel rather than reprocessing. The $16 billion US spent fuel program is funded by a 0.1 cent/kWh levy. 

 

The cost of nuclear power generation has remained steady over the last decade- a result of declining fuel (including enrichment), operating and maintenance costs being offset by rising investment costs.  

 

In general the construction costs of nuclear power plants are significantly higher than for coal or gas fired plants because of the use of special materials, together with the need to incorporate sophisticated safety features and back-up control equipment. 

 

Together these can contribute up to half of the nuclear generation cost.  

This higher plant cost has sometimes been exacerbated by long construction periods, increasing the cost of capital.  

 

In Asia construction times have tended to be shorter, for instance the new-generation 1300 MWe Japanese reactors which started up in 1996 and 1997 were built in a little over four years. 

 

Overall, the OECD studies have shown a trend of decreasing advantage of nuclear over coal. This trend has been chiefly due to a decline in fossil fuel prices over the 1980s, especially where there is access to low-cost, clean coal, or gas. In the 1990s gas combined-cycle technology with low fuel prices has often been the lowest-cost option in Europe and North America.  

 

FUTURE COST COMPETITIVENESS:  

The OECD expects that investment costs in new nuclear generating plants are not likely to rise, as advanced reactor designs become standard. The future competitiveness of nuclear power will depend substantially on the additional costs which may accrue to coal generating plants.  

 

The real costs of meeting targets for reducing sulfur dioxide and greenhouse gas emissions and how these costs will be attributed to fossil fuel plants remain uncertain.  

 

Overall, and under current regulatory measures, the OECD expects nuclear to remain economically competitive with fossil fuel generation, except in regions where there is direct access to low cost fossil fuels (such as Australia, with coal-fired generating plants close to both the mines supplying them and the main population centres).  

 

The most recent OECD comparative study shows that at a 5 percent discount rate, in 7 of 13 countries considering nuclear energy, it would be preferred for new base-load capacity commissioned by 2010; see Table below. At 10 percent discount rate the advantage over coal would be maintained in only France, Russia and China.  

 

A 1997 European electricity industry study compared electricity costs from nuclear, coal and gas for base-load plant commissioned in 2005. At 5 percent discount rate nuclear (basically in France & Spain) was, @ 3.46 cents/kWh (US), cheaper than all but the lowest-priced gas scenario, but at 10 percent discount rate nuclear, @ 5.07 c/kWh, was more expensive than all but the high-priced gas scenario. (ECU to US$ @ June 97 rates)  

 

In 1999 Siemens published economic analysis comparing combined-cycle gas plants with new designs, both the European Pressurised Water Reactor (EPR) and the SWR-1000 boiling water reactor. Capital costs for these in Germany, at 1750 and 1000 MWe respectively, are both EUR 1250/kW, compared with EUR 1375/kW for a 1550 MWe version of the EPR, and EUR 1500/kW for the 1350 MWe Advanced Boiling Water Reactor, two of which are now operating in Japan.  

 

Looking at power costs, both the 1550 MWe EPR if built as a series in France or Germany and the SWR-1000 (with 8 percent discount rate) are competitive with gas combined cycle, at EUR 2.6 cents/kWh, but once depreciated their costs fall to about 1.5 cents/kWh compared with gas at 2.5 cents (capital being 60 percent of the nuclear plant costs but only 15 percent of the gas plant costs).  

 

The current-generation Konvoi plants operating in Germany produce power at 3.0 cents/kWh including full capital costs, and 1.5 c/kWh after complete depreciation. Part of the operational cost saving is due to improved fuel burn-up, and Siemens chart the 50 percent increase in PWR burn-up (on thermal, not electrical basis) from 30 MWd/kg U in 1974 to 45 MWd/kg in 1998, and BWR from 23 to 40 over the same period, coupled with increased physical reliability of the Siemens fuel.  

 

A detailed study of energy economics in Finland published in mid 2000 shows that nuclear energy would be the least-cost option for new generating capacity. The study compared nuclear, coal, gas turbine combined cycle and peat.  

 

While nuclear has very much higher capital costs than the others (EUR 1749/kW including initial fuel load, about 3 times the cost of the gas plant), its fuel costs are much lower, and hence at capacity factors above 64 percent it is the cheapest option.  

 

At 80 percent capacity factor, nuclear works out at EUR 2.36 c/kWh, gas 2.69, coal 2.54 and peat 3.26 c/kWh. At 90 percent (Finland's norm for nuclear plants) the nuclear advantage increases, at 2.15 c/kWh compared with 2.41 for coal and 2.61 for gas. Gas is cheapest only below about 55% capacity. A real interest rate of 4.5 percent was used in the study.  

 

These show that a doubling of fuel prices would result in the electricity cost for nuclear rising about 9 percent, that for coal rising 31 percent and that for gas 66 percent. These are similar figures to those from the 1992 OECD report (Figure below). Gas prices have already risen significantly since the study.  

 

An important aspect of plant choice relates to a country's international balance of payments position. Nuclear power is very capital-intensive compared with systems based on fossil fuels, where the fuel costs are relatively much more significant.  

 

Therefore where the choice for a country such as Japan or France lies between importing large quantities of fuel or spending a lot of capital at home, economic and not simply cost considerations apply.  

 

Development of nuclear power in such situations has the effect of stimulating local industries which build the plant and at the same time of minimizing long-term commitments to buying fuels abroad.  

 

Overseas purchasing commitments for the life of a new coal-fired plant in Japan, for example, would be subject to price rises and could become a more serious drain on foreign currency reserves than with less costly uranium.  

 

FACTORS FAVORING URANIUM:  

Uranium has the advantage of being a highly concentrated source of energy which is therefore easily and cheaply transportable, the quantities needed being very much less than for coal or oil.  

 

One kilogram of natural uranium will yield about twenty thousand times as much energy as the same amount of coal. It is therefore intrinsically a very portable and tradable commodity.  

 

In addition, because the fuel cost contribution to the overall cost of electricity produced is relatively small, even a large fuel price escalation will have relatively little effect. For instance a doubling of the 1997 U3O8 price would increase the fuel cost for a light water reactor 30 percent and the electricity cost about 7 percent (whereas doubling the gas price would add 70 percent to the price of electricity from that source).  

 

REPROCESSING & MOX:  

If spent fuel is reprocessed and the recovered plutonium and uranium is used in mixed oxide fuel (MOX) more energy is extracted from the original fuel. The costs of achieving this are large, but are offset by not needing enrichment and particularly the smaller amount of high-level wastes.  

 

Seven UO2 fuel assemblies give rise to one MOX assembly plus some vitrified high-level waste, resulting in only about 35 percent of the volume, mass and cost of disposal.  

Source:www.uic.com.au

© 2000 Mena Report (www.menareport.com)

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