The Nuclear Energy Agency (NEA), an agency within the Organization for Economic Cooperation and Development (OECD), and the International Energy Agency (IEA) recently published a 2005 update to their “Projected Costs of Generating Electricity” series. The study provides some interesting perspective on some ongoing discussions posted on FuturePundit and Disinterested Party regarding the costs of generating electricity using nuclear power versus other technologies.
The NEA/IEA study uses the levelized lifetime cost approach to compare generating costs for the future. This approach looks at generation costs over the plant economic lifetime, while taking into account the time value of money; that is, money spent yesterday or tomorrow does not have the same value as money spent today. Levelized costs are comprised of all components of capital, Operations and Maintainence (O&M) and fuel costs that would influence a utility’s choice of generation options, including construction, refurbishment and decommissioning, where applicable.
The study finds that at a 5% discount rate, levelized costs for nuclear range between $21 and $31 per MWh (2.1 to 3.1 cents per KWh), with investment costs representing 50% of total cost on average, while O&M and fuel represent around 30% and 20%, respectively. For gas-fired plants, the study finds levelized costs ranging from $37 to $60 per MWh (3.7 to 6 cents per KWh), with investment costs accounting for less than 15% of total costs, O&M accounting for less than 10%, and fuel costs accounting for nearly 80% of total costs, on average. The study finds levelized costs for coal-fired plants ranging between $25 and $50 per MWh (2.5 to 5 cents per KWh). Investment costs for coal plants account for just over a third of total costs, while O&M and fuel account for around 20% and 45%, respectively.
In the recent past, gas-fired generation has been the technology of choice due to relatively low capital costs, construction periods and investment risk. However, for technologies where fuel costs are a large proportion of total generating costs, volatile fuel prices can present significant risks. High volatility of natural gas prices and the future need for large, base-load sources of electricity is diverting attention away from these smaller gas generating units.
Another uncertainty for investors in new power plants will be controls on future emissions; specifically on carbon dioxide. Carbon controls or restrictions on other emissions from fossil generation could directly affect the profitability of fossil fueled power plants, thus significantly increasing the risks associated with investment in those projects.
Gas price uncertainty and the search for non-emitting electricity sources have resulted in the renewed outlook on nuclear power witnessed today. While it may seem that investment costs represent a disproportionate amount of total levelized costs for nuclear power, the relatively smaller proportion of fuel costs result in more stable costs at the residential meter since nuclear is not as susceptible to swings in fuel price.
Modularity of new designs will also provide economic advantages that could reduce these initial capital costs, while helping the industry more quickly reach the “Nth-of-a-kind” plant. A study conducted at the University of Chicago titled “the Economic Future of Nuclear Power” found that first-of-a-kind engineering (FOAKE) costs for new nuclear designs could increase capital costs by as much as 35%. The study finds that new nuclear power plants could “reach the required range of competitiveness” after construction of the first five plants.
The NEA/IEA study concludes that “none of the traditional electricity generating technologies can be expected to be the cheapest in all situations,” and “supports that…there is room and opportunity for all efficient generating technologies.” Generation from nuclear power provides clean and reliable base-load electricity that is not susceptible to fuel price swings and does not result in the emission of harmful greenhouse gases. While there are significant uncertainties in the construction and regulatory realm that must be addressed, the industry is confident that nuclear power must be a part of a reliable, diverse and secure energy mix going forward.
UPDATE BY ERIC McERLAIN: Keep in mind that the figures we quote here don't reflect retail electricity rates, which also include transmission costs. According to the most recent data from the Energy Information Administration, the average retail price of electricity for residential customers in the U.S. clocked in at 8.5 cents per KWh. However, in some areas of the country, that can be significantly higher, especially during periods of peak demand.
Technorati tags: Nuclear Energy, Environment, Energy, Politics, Technology, Economics
The NEA/IEA study uses the levelized lifetime cost approach to compare generating costs for the future. This approach looks at generation costs over the plant economic lifetime, while taking into account the time value of money; that is, money spent yesterday or tomorrow does not have the same value as money spent today. Levelized costs are comprised of all components of capital, Operations and Maintainence (O&M) and fuel costs that would influence a utility’s choice of generation options, including construction, refurbishment and decommissioning, where applicable.
The study finds that at a 5% discount rate, levelized costs for nuclear range between $21 and $31 per MWh (2.1 to 3.1 cents per KWh), with investment costs representing 50% of total cost on average, while O&M and fuel represent around 30% and 20%, respectively. For gas-fired plants, the study finds levelized costs ranging from $37 to $60 per MWh (3.7 to 6 cents per KWh), with investment costs accounting for less than 15% of total costs, O&M accounting for less than 10%, and fuel costs accounting for nearly 80% of total costs, on average. The study finds levelized costs for coal-fired plants ranging between $25 and $50 per MWh (2.5 to 5 cents per KWh). Investment costs for coal plants account for just over a third of total costs, while O&M and fuel account for around 20% and 45%, respectively.
In the recent past, gas-fired generation has been the technology of choice due to relatively low capital costs, construction periods and investment risk. However, for technologies where fuel costs are a large proportion of total generating costs, volatile fuel prices can present significant risks. High volatility of natural gas prices and the future need for large, base-load sources of electricity is diverting attention away from these smaller gas generating units.
Another uncertainty for investors in new power plants will be controls on future emissions; specifically on carbon dioxide. Carbon controls or restrictions on other emissions from fossil generation could directly affect the profitability of fossil fueled power plants, thus significantly increasing the risks associated with investment in those projects.
Gas price uncertainty and the search for non-emitting electricity sources have resulted in the renewed outlook on nuclear power witnessed today. While it may seem that investment costs represent a disproportionate amount of total levelized costs for nuclear power, the relatively smaller proportion of fuel costs result in more stable costs at the residential meter since nuclear is not as susceptible to swings in fuel price.
Modularity of new designs will also provide economic advantages that could reduce these initial capital costs, while helping the industry more quickly reach the “Nth-of-a-kind” plant. A study conducted at the University of Chicago titled “the Economic Future of Nuclear Power” found that first-of-a-kind engineering (FOAKE) costs for new nuclear designs could increase capital costs by as much as 35%. The study finds that new nuclear power plants could “reach the required range of competitiveness” after construction of the first five plants.
The NEA/IEA study concludes that “none of the traditional electricity generating technologies can be expected to be the cheapest in all situations,” and “supports that…there is room and opportunity for all efficient generating technologies.” Generation from nuclear power provides clean and reliable base-load electricity that is not susceptible to fuel price swings and does not result in the emission of harmful greenhouse gases. While there are significant uncertainties in the construction and regulatory realm that must be addressed, the industry is confident that nuclear power must be a part of a reliable, diverse and secure energy mix going forward.
UPDATE BY ERIC McERLAIN: Keep in mind that the figures we quote here don't reflect retail electricity rates, which also include transmission costs. According to the most recent data from the Energy Information Administration, the average retail price of electricity for residential customers in the U.S. clocked in at 8.5 cents per KWh. However, in some areas of the country, that can be significantly higher, especially during periods of peak demand.
Technorati tags: Nuclear Energy, Environment, Energy, Politics, Technology, Economics
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