Wednesday, January 07, 2009

"Business Risks and Costs of New Nuclear Power"

Business-Risks-Costs-New_Nuclear-PowerIn case some of you missed it, the Climate Progress blog has picked up a study by Craig Severance, Business Risks and Costs of New Nuclear Power [PDF]. The report has quite a number of holes in it, in my opinion, and the biggest hole has to do with a flawed assumption in how the study calculates the cost of electricity from a new nuclear plant. We've been discussing and debating the study over at Climate Progress and the author has been great in responding to most everyone's critiques.

So what's the flaw?

The study claims that a new nuclear plant's capital costs, when all is said and done, will be about $10,500/kW. Many studies that I'm aware of estimate that a new nuclear plant will cost between $5,000-$8,000/kW for the all-in construction costs. Mr. Severance's capital cost assumptions are quite a bit higher than the highest estimate but whatever. That's not the flaw of the study's cost numbers. The flaw is how the cost of electricity from a new nuclear plant is calculated.

Apparently, the cost of electricity from a new nuclear plant comes out to 25-30 cents/kWh, "triple current U.S. electricity rates." The studies I've seen come out to less than half of that number. So what gives? It appears to be the study's assumption for how fast a utility pays off a nuclear plant.

The study assumes a payback period of 40 years. That's way too long. A new nuclear plant will probably be setup to pay back its loans for construction in 15-20 years and maybe faster depending on the financing agreements. Investors don't wait 40 years to receive their money back and in fact 15-20 years is a long time for any investment. Changing this one assumption in the study basically cuts the cost of electricity from a nuclear plant in half and becomes more in line with the conclusions from the other studies I've seen. I've explained this in more detail here.

This is just one of the problems with the study that I, and many others, have found. We're having quite a spirited discussion and debate over at Climate Progress so if you have the time, please do check it out.

Update: The Heritage Foundation blog has their own thoughts on the study.

7 comments:

Charles Barton said...

Such conclusions might have been justified by projewcting the inflation rates for power facilities that prevailed between 2002 and 2007 ahead into the next decade. But the crash of 2008 not has altered our perception of the future and written paid to such projections. It will be4 some time before we know what future costs we may expect for all forms of power generation during the next few years.

Anonymous said...

With the current economic downturn the price of many of the material needed to build a nuclear plant has gone down considerably. Not to mention that interest rates are so low right now, a utility could issue 30 year power bonds at VERY favorable rates, and by the time the plant came online the economy would be back on the upturn ready to use the extra power.

That said, we are about to hit a period of very serious inflation, so if plants don't get off the ground soon they may never happen. The government is pulling a billion dollars out of thin air, and when you increase the supply of money at the same time production is going down inflation is the only result.

gunter said...

Severeance's estimate is consistent with what both Moody's and Standard & Poor's concluded sometime ago---it is not possible to reliably estimate the final all in cost of nuclear.

Final cost estimates are best guestimates as well as steadily moving targets--upwards.

perdajz said...

Gee Gunter, ya really think that after all this, Moody's and/or Standard and Poor's have a leg to stand on? After scrutinizing their role in the mortgage backed meltdown, are you really suggesting these agencies are credible authorities on the economics of nuclear power?

StephanieB said...

Interested in Nuclear Power? Check out this story http://www.dmagazine.com/ME2/Audiences/dirmod.asp?sid=&nm=&type=MultiPublishing&mod=PublishingTitles&mid=7155F7796F354F21B1183937D847D6DF&tier=4&id=EC420EF0C28C431B82F0DE4D387B21D5&AudID=91D6A3BAF82C4E7A83278901E7E75565

Anonymous said...

Anyone going to the "Managing Outage and New build Risk" conference in Orlando next week (http://www.ds-energy2009.com/)?

Bryan Kelly said...

For some ideas on the construction cost and schedule aspects of the CAP study see:

Surety Bonds for Nuclear Energy Facility Construction Cost-Savings