Economics of nuclear power plants
Nuclear power construction costs have varied significantly across the world and over time. Rapid increases in costs occurred during the 1970s, especially in the United States. Recent cost trends in countries such as Japan and Korea have been very different, including periods of stability and decline in construction costs.
New nuclear power plants typically have high capital expenditure for building plants. Fuel, operational, and maintenance costs are relatively small components of the total cost. The long service life and high capacity factor of nuclear power plants allow sufficient funds for ultimate plant decommissioning and waste storage and management to be accumulated, with little impact on the price per unit of electricity generated. Additionally, measures to mitigate climate change such as a carbon tax or carbon emissions trading, favor the economics of nuclear power over fossil fuel power. Nuclear power is cost competitive with the renewable generation when the capital cost is between $2000 and $3000/kW.
Overview
The economics of nuclear power are debated. Some opponents of nuclear power cite cost as the main challenge for the technology. Ian Lowe has also challenged the economics of nuclear power.Nuclear supporters point to the historical success of nuclear power across the world, and they call for new reactors in their own countries, including proposed new but largely uncommercialized designs, as a source of new power.
The Intergovernmental Panel on Climate Change while endorsing nuclear technology as a low carbon, mature energy source, notes that nuclear's share of global generation has been in decline for over 30 years, listing barriers such as operational risks, uranium mining risks, financial and regulatory risks, unresolved waste management issues, nuclear weapon proliferation concerns, and adverse public opinion.
Solar power has very low capacity factors compared to nuclear, and solar power can only achieve so much market penetration before energy storage and transmission become necessary. This is because nuclear power "requires less maintenance and is designed to operate for longer stretches before refueling" while solar power is in a constant state of refueling and is limited by a lack of fuel that requires a backup power source that works on a larger scale.
The price of new plants in China is lower than in the Western world.
In the United States, nuclear power faces competition from the low natural gas prices in North America. Former Exelon CEO John Rowe said in 2012 that new nuclear plants in the United States "don't make any sense right now" and won't be economic as long as the natural gas surplus persists.
In 2016, the Governor of New York, Andrew Cuomo, directed the New York Public Service Commission to consider ratepayer-financed subsidies similar to those for renewable sources to keep nuclear power stations profitable in the competition against natural gas plants, which have replaced nuclear plants when they closed in other states.
A 2017 analysis by Bloomberg showed that over half of U.S. nuclear plants were running at a loss, first of all those at a single unit site.
A 2019 study by the economic think tank DIW Berlin, found that nuclear power has not been profitable anywhere in the world. The study of the economics of nuclear power has found it has never been financially viable, that most plants have been built while heavily subsidised by governments, often motivated by military purposes, and that nuclear power is not a good approach to tackling climate change. It found, after reviewing trends in nuclear power plant construction since 1951, that the average 1,000MW nuclear power plant would incur an average economic loss of 4.8 billion euros. These findings were refuted in a follow-up study, published in the International Journal for Nuclear Power, a journal issued by the pro-nuclear German Nuclear Society.
Investments
Nuclear Power requires significant upfront investment before becoming a cost stable power generation source. Nuclear power is baseload power, similar to hydro electric or methane gas power plants.Methane gas and coal power plants are cheaper to build in upfront cost but come with cost risks that nuclear plants avoid such as vulnerability to fluctuations in the global economy, energy prices, climate and health costs.
Nuclear costs upfront and ongoing are susceptible to price changes related to regulations in both site permitting and safe storage of spent fuel. However, in and of itself, nuclear projects are not inherently vastly riskier than other large infrastructure investments. After the Great Recession, when the worldwide demand for electricity fell, and regulations became more permissive of unclean but cheap energy. In Eastern Europe, a number of long-established projects are struggling to find financing, notably Belene in Bulgaria and the additional reactors at Cernavoda in Romania, and some potential backers have pulled out. Where cheap gas is available and its future supply relatively secure, this also poses a major problem for clean energy projects.
Current bids for new nuclear power plants in China were estimated at between $2800/kW and $3500/kW, as China planned to accelerate its new build program after a pause following the Fukushima disaster. However, more recent reports indicated that China will fall short of its targets. While nuclear power in China has been cheaper than solar and wind power, these are getting cheaper while nuclear power costs are growing. Moreover, third generation plants are expected to be considerably more expensive than earlier plants.
Therefore, comparison with other power generation methods is strongly dependent on assumptions about construction timescales and capital financing for nuclear plants. Analysis of the economics of nuclear power must take into account who bears the risks of future uncertainties. To date all operating nuclear power plants were developed by state-owned or regulated utility monopolies where many of the risks associated with political change and regulatory ratcheting were borne by consumers rather than suppliers.
Many countries have now liberalized the electricity market where these risks, and the risk of cheap competition from subsidised energy sources emerging before capital costs are recovered, are borne by plant suppliers and operators rather than consumers, which leads to a significantly different evaluation of the risk of investing in new nuclear power plants. Generation III+ reactors are claimed to have a significantly longer design lifetime than their predecessors while using gradual improvements on existing designs that have been used for decades. This might offset higher construction costs to a degree, by giving a longer depreciation lifetime.
Construction costs
"The usual rule of thumb for nuclear power is that about two thirds of the generation cost is accounted for by fixed costs, the main ones being the cost of paying interest on the loans and repaying the capital..."
Capital cost, the building and financing of nuclear power plants, represents a large percentage of the cost of nuclear electricity. In 2014, the US Energy Information Administration estimated that for new nuclear plants going online in 2019, capital costs will make up 74% of the levelized cost of electricity; higher than the capital percentages for fossil-fuel power plants, and lower than the capital percentages for some other nonfossil-fuel sources.
Areva, the French nuclear plant operator, offers that 70% of the cost of a kWh of nuclear electricity is accounted for by the fixed costs from the construction process. Some analysts argue that what is often not appreciated in debates about the economics of nuclear power is that the cost of equity, that is companies using their own money to pay for new plants, is generally higher than the cost of debt. Another advantage of borrowing may be that "once large loans have been arranged at low interest rates – perhaps with government support – the money can then be lent out at higher rates of return".
"One of the big problems with nuclear power is the enormous upfront cost. These reactors are extremely expensive to build. While the returns may be very great, they're also very slow. It can sometimes take decades to recoup initial costs. Since many investors have a short attention span, they don't like to wait that long for their investment to pay off."
Because of the large capital costs for the initial nuclear power plants built as part of a sustained build program and the relatively long construction period before revenue is returned, servicing the capital costs of first few nuclear power plants can be the most important factor determining the economic competitiveness of nuclear energy. The investment can contribute about 70% to 80% of the costs of electricity. Timothy Stone, businessman and nuclear expert, stated in 2017, "It has long been recognized that the only two numbers which matter in nuclear power are the capital cost and the cost of capital." The discount rate chosen to cost a nuclear power plant's capital over its lifetime is arguably the most sensitive parameter to overall costs. Because of the long life of new nuclear power plants, most of the value of a new nuclear power plant is created for the benefit of future generations.
The recent liberalization of the electricity market in many countries has made the economics of nuclear power generation less enticing, and no new nuclear power plants have been built in a liberalized electricity market. Previously, a monopolistic provider could guarantee output requirements decades into the future. Private generating companies now have to accept shorter output contracts and the risks of future lower-cost competition, so they desire a shorter return on investment period. This favours generation plant types with lower capital costs or high subsidies, even if associated fuel costs are higher.
A further difficulty is that due to the large sunk costs but unpredictable future income from the liberalized electricity market, private capital is unlikely to be available on favourable terms, which is particularly significant for nuclear as it is capital-intensive. Industry consensus is that a 5% discount rate is appropriate for plants operating in a regulated utility environment where revenues are guaranteed by captive markets, and 10% discount rate is appropriate for a competitive deregulated or merchant plant environment. However, the independent MIT study which used a more sophisticated finance model distinguishing equity and debt capital had a higher 11.5% average discount rate.
A 2016 study argued that while costs did increase in the past for reactors built in the past, this does not necessarily mean there is an inherent trend of cost escalation with nuclear power, as prior studies tended to examine a relatively small share of reactors built and that a full analysis shows that cost trends for reactors varied substantially by country and era.
Another important factor in estimating a NPPs lifetime cost derives from its capacity factor. According to Anthonie Cilliers, a scholar and nuclear engineer, "Because of the large capital investment, and the low variable cost of operations, nuclear plants are most cost effective when they can run all the time to provide a return on the investment. Hence, plant operators now consistently achieve 92 percent capacity factor. The higher the capacity factor, the lower the cost per unit of electricity."