The economic future of nuclear power in competitive markets

Capital Costs and Risks

High capital costs are the largest single barrier to financing and building new nuclear plants, accounting for some 70% of total generating costs of new nuclear plant (see Figure 2). Under current estimates these capital costs would need to be reduced by some 35%-50% before new nuclear plants can compete with new coal and gas fired generating technologies. Certainly such reductions are possible, but would require a number of measures, including reactor designs that are tailored to market needs at competitive prices and that reduce the cost of enhanced safety, and reducing the uncertainties associated with regulation and with post-operational liabilities.

New nuclear plants are sometimes divided into evolutionary and innovative designs. Evolutionary designs can be defined as those not requiring a prototype for development and are generally understood to include incremental improvements on existing designs or technologies. Innovative designs, defined as those which may require a prototype for demonstration, offer perhaps a greater potential for competitive advances, primarily because they can be designed explicitly for current and future market conditions. Yet with the exception of the development of the Pebble Bed Modular Reactor (PBMR) in South Africa, and the Advanced Light Water Reactor (ALWR) in the USA, no advanced reactor development has identified as its primary goal a commercially competitive reactor that will meet and beat prevailing market prices, with increased efficiency, profitability and performance, as well as enhanced safety. The development of most advanced reactor designs, prompted by the TMI accident, focus on enhanced safety, but with a cost premium.

New nuclear plants also have high financial risks that are not necessarily unique to nuclear power. Uncertainties, risks and liabilities are economically significant because they carry a cost, sometimes high, that can be reduced or managed more or less. They in fact have tipped the balance in some of the recent decisions to shut down operating plants in the U.S. before their operating licenses have expired. Therefore, reducing financial uncertainties will be just as important as reducing nominal costs.

Cost-Effective Safety

Improving the cost-effectiveness of safety-related investments can contribute to the financeability of new plants. While the share of safety costs as a percent of total costs for a new NPP cannot be determined with any precision, some estimates range up to 40-60%.

There are a number of approaches being explored to reduce the costs of enhanced safety in new reactor designs, many of which include making a standard of no significant off-site consequences even under worst-case accident scenarios (instead of specifying a number of individual performance requirements and regulations).

The safety risks associated with current nuclear plants have already been reduced to very low levels, while the financial risks associated with building new nuclear power plants are large and growing. Some sense of economic proportion needs to be defined.

This question of diminishing returns is not unique to nuclear safety, but in fact governs most environmental and health protection standards. It must be unequivocally stated that the level of safety-related expenditures is not a measure of a plant’s safety level. What has to be accomplished is to reduce safety costs while not compromising safety.

Managing Liabilities for Decommissioning and Waste Disposal

Post-operational liabilities, namely the costs and risks associated with NPP decommissioning and waste and spent fuel disposal, are perhaps, after capital costs, the second most important impediment to financing new nuclear plants. The engineering plans and cost estimates for decommissioning and waste disposal have been thoroughly researched and are regularly updated. Nonetheless, present cost estimates will surely differ from the costs ultimately incurred, because the circumstances on which these costs are predicated will surely change. What will matter in the end is not so much the precision of relevant engineering cost estimates, but how a company is prepared to deal with unanticipated change.

Most of the nuclear industry is not well equipped to deal with the uncertainties that surround their post-operation activities. As a result, significant economic costs and inefficiencies are likely to be incurred by the industry and by society, and the financial risks associated with these post-closing operations can grow rapidly unchecked. The focus should be on prudence rather than foresight, and on the possible financial provisions for uncertainties in post-closing costs for nuclear power plants. The choice of how expensive and how efficient decommissioning and waste disposal will be is largely political.