Everything you want to know about Nuclear Power.


Cost of Nuclear Power.

The cost of generating power via nuclear energy can be separated into the following components:

  • The construction cost of building the plant.
  • The operating cost of running the plant and generating energy.
  • The cost of waste disposal from the plant.
  • The cost of decommissioning the plant.

Quantifying some of these costs is difficult as it requires an extrapolation into the future.

Construction Costs

Construction costs are very difficult to quantify but dominate the cost of Nuclear Power. The main difficulty is that third generation power plants now proposed are claimed to be both substantially cheaper and faster to construct than the second generation power plants now in operation throughout the world. The Nuclear Industry says its learned the lessons of economy-of-volume demonstrated by the French Nuclear Program, and that these will be employed for the new power plants. In 2005 Westinghouse claimed its Advanced PWR reactor, the AP1000, will cost USD $1400 per KW for the first reactor and fall in price for subsequent reactors. A more technical description is here. Proponents of the CANDU ACR and Gas Cooled pebble bed reactors made similar or stronger claims. However the first wave of new plants in the USA are expected to cost over $3500 per KW of capacity. Additional costs increase the price even more.

The General Electric ABWR was the first third generation power plant approved. The first two ABWR's were commissioned in Japan in 1996 and 1997. These took just over 3 years to construct and were completed on budget. Their construction costs were around $2000 per KW. Two additional ABWR's are being constructed in Taiwan. However these have faced unexpected delays and are now at least 2 years behind schedule.

Meanwhile the Chinese Nuclear Power Industry has won contracts to build new plants of their own design at capital costs reported to be $1500 per KW and $1300 per KW at sites in South-East and North-East China. If completed on budget these facilities will be formidable competitors to the Western Nuclear Power Industry.

Given the history of Nuclear Plant construction in the U.S.A., the financial industry sees the construction of the new generation of reactors as a risky investment and demands a premium on capital lent for the purpose. The Energy Bill recently passed by the US Congress assumes this risk and provides production credits of 1.8 cents per KW-Hr for the first 3 years of operation. This subsidy is equivalent to what is paid to Wind Power companies and is designed to encourage new nuclear reactor construction in the USA.

If the AP1000 lives up to its promises of $1000 per KW construction cost and 3 year construction time, it will provide cheaper electricity than any other Fossil Fuel based generating facility, including Australian Coal power, even with no sequestration charges. This promise appears to have been unfulfilled. The cost of the first AP1000 is expected to be over $3500 per KW.

Construction Cost Over-Runs

There were massive cost overruns for plants built in the USA in the 1970's and 1980's. There were several reasons for these.

  • Design Flaws. There were significant design flaws which led to the reactor leak and operator confusion that caused the Three Mile Island accident. After these were exposed, the US Nuclear Regulatory Commission (NRC), undertook an extensive review of Nuclear Plant designs and in many cases ordered changes. These changes were both expensive and time consuming to fix. They led to extensive construction delays at a time of very high interest rates and so significantly increased the cost of the Capital required to build the plant.
  • Two hurdle licensing. Up until the mid-1990's developers of nuclear power plants had to obtain both a license to build a Nuclear Power then a subsequent license to operate the plant. This also delayed the start of plant operation which significantly increased the cost of the plant. The worst situation was that of the Shoreham Plant which was completed on Long Island in New York State at a cost of 5 Billion dollars but was never allowed to operate.
  • Non-uniform designs. The US Nuclear Power Industry never achieved economies of volume because every reactor design was different. Each developer put in their own tweaks and much of the equipment was custom built for each plant. This compounded the difficulties of obtaining NRC licensing approval since the NRC had to evaluate each individual design.

In contrast the French Nuclear Power program settled on a standard design which satisfied the French Regulatory Commission. Industry was able to achieve economies of volume in the production of plants and to complete construction on time.

Operating Costs

These costs are much easier to quantify and are independently verified as they relate directly to the profitability of the Utilities which operate them. Any discrepancies are soon discovered through accounting audits. Company's that operate the USA's nuclear power reactors have made excellent profits over the last five years. The US Nuclear Power industry has at last lived up to its promise made in in 1970's to produce electricity reliably and cheaply. Since 1987 the cost of producing electricity from has decreased from 3.63 cents per KWHr to 1.68 cents per KWHr in 2004 and plant availability has increased from 67% to over 90%. The operating cost includes a charge of 0.2 cents per KW-Hr to fund the eventual disposal of waste from the reactor and for decommissioning the reactor. The price of Uranium Ore contributes approximately 0.05 cents per KWHr.

Management of Nuclear Plant Operations

It's clear from both the French and US experience that pro-active Industry organisations are vital in obtaining efficient plant utilisation and in minimising running costs. In the US in the late 1980's and early 1990's there was little pooling of knowledge and experience amongst Nuclear Power Operators. This was caused by a combination of industry inexperience, the lack of standardised designs and the fragmentation of the industry. Once again this was in contrast to the French experience where the uniform design and the single state-owned organisation allowed knowledge to be more easily shared.

The US industry has has since gone through several cycles of consolidation and the operation of the USA's fleet of Nuclear Reactors has mostly been taken over by specialist companies that specialize in this activity. In addition the industry has learned the benefits of pooling knowledge. This combination has demonstrably improved the performance of the US reactor fleet and is reflected in the share price of the nuclear operation companies.

Waste Disposal

In the USA, Nuclear Power operators are charged 0.1 cents per KW-Hr for the disposal of Nuclear Waste. In Sweden this cost is 0.13 US cents per KW-Hr. These Countries have utilized these funds to pursue research into Geologic disposal of waste and both now have mature proposals for the task. In France the cost of waste disposal and decommissioning is estimated to be 10% of the construction cost. So far provisions of 71 billion Euros have been acquired for this from the sale of electricity.

Decommissioning Costs

The US industry average cost for decommissioning a power plant is USD $300 million. The funds for this activity are accumulated in the operating cost of the plant. The French and Swedish Nuclear Industries expect decommissioning costs to be 10 -15 % of the construction costs and budget this into the price charged for electricity. On the other hand the British decommissioning costs have been projected to be around 1 Billion pounds per reactor. Cleaning up the Hanford Nuclear Weapons reactor is budgeted at 5.6 Billion dollars but may cost 2 to 3 times this much.

Model of Projected Costs

The following simple model gives a reasonable guideline to the cost in US cents of electricity per KW-Hr based on various assumptions for construction cost, interest rate and construction time. The model assumes that the capital for the entire project is delivered up-front before construction commences. This is a conservative approach. A better financing deal would to acquire capital as it needs to spent during construction. A 40-year lifetime is assumed. The operating costs are assumed to be 1.3 cents per KW-Hr in line with the second best-quartile of the American Nuclear Plant average. The plant availability is assumed to be 90% in-line with the full American average since 2000. The plant is assumed to have a 1 GW capacity.

The current discount interest rate in the USA is about 5%. China appears to be taking the Nuclear Power industry at its word that it can deliver generating power at USD$1500 per KW of capacity. As of August 30th, 2005, reports state that China expects to pay USD$6 Billion dollars for 4 GW worth of Nuclear Plant and that this will come on-line by 2010. Reports from December, 2006 state that the Chinese have contracted to buy 4 Westinghouse AP1000's with start up expected in 2013. The final price of the contract is unclear this time. If the Nuclear Power Industry delivers generating capacity at $1500 per kilowatt it will likely place the price of electricity produced at around 3 US cents per KWHr. This would be similar to the price of electricity generated by Eastern Australian Coal-Power which is in the range of 2.2 - 4.5 AUD cents per KWHr. It will be well worth watching to see if the Industry can deliver this outcome. Reports from 2009 indicate the initial cost of an AP1000 in America is over $3500 per KW.

The construction costs expected by the Chinese are far lower than what the Nuclear Industry delivered in the 1980's. For example the ill-fated Shoreham facility, which was never allowed to operate, cost 5 Billion dollars for a plant rated at 1 GW. Case 5, shown below, shows the what our model predicts for this scenario.

Case 1, Construction Cost = $1 Billion. (Westinghouse claim for its AP1000 reactor after volume production.)

(The numbers in all the tables are the costs to generate electricity in US cents per KWHr for different interest rates and construction times)

Interest rate 3 years 4 years 5 years 7 years
5% 2.2 2.3 2.4 2.7
6% 2.4 2.5 2.7 3.1
7% 2.6 2.8 3.0 3.6
8% 2.8 3.0 3.3 4.4
9% 3.0 3.3 3.7 5.5
10 % 3.3 3.6 4.2 7.2

Case 2, Construction Cost = $1.4 Billion. (Westinghouse claim for its first AP1000 reactor)

Interest rate 3 years 4 years 5 years 7 years
5% 2.6 2.8 2.9 3.3
6% 2.9 3.0 3.2 3.8
7% 3.1 3.3 3.6 4.6
8% 3.4 3.7 4.1 5.6
9% 3.7 4.1 4.7 7.1
10 % 4.0 4.6 5.4 9.5

Case 3, Construction Cost = $2.0 Billion.

Interest rate 3 years 4 years 5 years 7 years
5% 3.2 3.4 3.6 4.1
6% 3.5 3.9 4.1 4.9
7% 3.9 4.2 4.6 6.0
8% 4.3 4.7 5.3 7.4
9% 4.7 5.3 6.1 9.6
10 % 5.2 6.0 7.1 13.1

Case 4, Construction Cost = $2.5 Billion.

Interest rate 3 years 4 years 5 years down 7 years
5% 3.7 3.9 4.2 4.9
6% 4.1 4.4 4.8 5.9
7% 4.6 4.9 5.5 7.2
8% 5.0 5.5 6.3 9.0
9% 5.6 6.3 7.4 11.7
10 % 6.2 7.1 8.6 16.1

Case 5, Construction Cost = $5 Billion (Shoreham, Long Island, 1985).

Interest rate 3 years 4 years 5 years 7 years
5% 5.8 6.1 6.5 7.6
6% 6.6 7.1 7.6 9.2
7% 7.5 8.1 8.9 11.3
8% 8.5 9.4 10.5 14.2
9% 9.5 10.7 12.4 18.2
10 % 10.7 12.3 14.7 24.1

