The Economics of Nuclear Power

Nuclear energy is, in many places, competitive with fossil fuel for electricity generation, despite relatively high capital costs and the need to internalise all waste disposal and decommissioning costs. If the social, health and environmental costs of fossil fuels are also taken into account, nuclear is outstanding.

External costs

The report of a major European study of the external costs of various fuel cycles, focusing on coal and nuclear, was released in mid 2001 - ExternE. It shows that in clear cash terms nuclear energy incurs about one tenth of the costs of coal. The external costs are defined as those actually incurred in relation to health and the environment and quantifiable but not built into the cost of the electricity. If these costs were in fact included, the EU price of electricity from coal would double and that from gas would increase 30%. These are without attempting to include global warming.

The European Commission launched the project in 1991 in collaboration with the US Department of Energy, and it was the first research project of its kind "to put plausible financial figures against damage resulting from different forms of electricity production for the entire EU". The methodology considers emissions, dispersion and ultimate impact. With nuclear energy the risk of accidents is factored in along with high estimates of radiological impacts from mine tailings (waste management and decommissioning being already within the cost to the consumer). Nuclear energy averages 0.4 euro cents/kWh, much the same as hydro, coal is over 4.0 cents (4.1-7.3), gas ranges 1.3-2.3 cents and only wind shows up better than nuclear, at 0.1-0.2 cents/kWh average.

Fuel costs are one area of steadily increasing efficiency and cost reduction. For instance, in Spain nuclear electricity cost has been reduced by 29% over 1995-2001. This involved boosting enrichment levels and burn-up to achieve 40% fuel cost reduction. Prospectively, a further 8% increase in burn-up will give another 5% reduction in fuel cost.

The cost of fuel

From the outset the basic attraction of nuclear energy has been its low fuel costs compared with coal, oil and gas fired plants. Uranium, however, has to be processed, enriched and fabricated into fuel elements, and about two thirds of the cost is due to enrichment and fabrication. Allowances must also be made for the management of radioactive spent fuel and the ultimate disposal of this spent fuel or the wastes separated from it.

Comparing electricity generation

For nuclear power plants any cost figures normally include spent fuel management, plant decommissioning and final waste disposal. These costs, while usually external for other technologies, are internal for nuclear power.

Decommissioning costs are estimated at 9-15% of the initial capital cost of a nuclear power plant. But when discounted, they contribute only a few percent to the investment cost and even less to the generation cost. In the USA they account for 0.1-0.2 cent/kWh, which is no more than 5% of the cost of the electricity produced.

The back-end of the fuel cycle, including spent fuel storage or disposal in a waste repository, contributes up to another 10% to the overall costs per kWh, - less if there is direct disposal of spent fuel rather than reprocessing. The $18 billion US spent fuel program is funded by a 0.1 cent/kWh levy.

French figures published in 2002 show (EUR cents/kWh): nuclear 3.20, gas 3.05-4.26, coal 3.81-4.57. Nuclear is favourable because of the large, standardised plants used.

The cost of nuclear power generation has been dropping over the last decade. This is because declining fuel (including enrichment), operating and maintenance costs, while the plant concerned has been paid for, or at least is being paid off. In general the construction costs of nuclear power plants are significantly higher than for coal- or gas-fired plants because of the need to use special materials, and to incorporate sophisticated safety features and back-up control equipment. These contribute much of the nuclear generation cost, but once the plant is built the variables are minor.

In the past, long construction periods have pushed up financing costs. In Asia construction times have tended to be shorter, for instance the new-generation 1300 MWe Japanese reactors which began operating in 1996 and 1997 were built in a little over four years.

Overall, OECD studies in teh 1990s showed a decreasing advantage of nuclear over coal. This trend was largely due to a decline in fossil fuel prices in the 1980s, and easy access to low-cost, clean coal, or gas. In the 1990s gas combined-cycle technology with low fuel prices was often the lowest cost option in Europe and North America. But the picture is changing.

Future cost competitiveness

The OECD does not expect investment costs in new nuclear generating plants to rise, as advanced reactor designs become standardised.

The future competitiveness of nuclear power will depend substantially on the additional costs which may accrue to coal generating plants. It is uncertain how the real costs of meeting targets for reducing sulphur dioxide and greenhouse gas emissions will be attributed to fossil fuel plants.

Overall, and under current regulatory measures, the OECD expects nuclear to remain economically competitive with fossil fuel generation, except in regions where there is direct access to low cost fossil fuels. In Australia, for example, coal-fired generating plants are close to both the mines supplying them and the main population centres, and large volumes of gas are available on low cost, long-term contracts.

A 1998 OECD comparative study showed that at a 5% discount rate, in 7 of 13 countries considering nuclear energy, it would be the preferred choice for new base-load capacity commissioned by 2010 (see Table below). At a 10% discount rate the advantage over coal would be maintained in only France, Russia and China.

This was updated in 2005 with a joint report by the OECD Nuclear Energy Agency and the International Energy Agency showing that nuclear power had increased its competitiveness over the seven years. The principal changes since 1998 are increased nuclear plant capacity factors and rising gas prices. The study did not factor in any costs for carbon emissions from fossil fuel generators, and focused on over one hundred plants able to come on line 2010-15, including 13 nuclear plants. Nuclear overnight construction costs ranged from US$ 1000/kW in Czech Republic to $2500/kW in Japan, and averaged $1500/kW. Coal plants were costed at $1000-1500/kW, gas plants $500-1000/kW and wind capacity $1000-1500/kW.

At 5% discount rate nuclear, coal and gas costs are as shown above and wind is around 8 cents. Nuclear costs were highest by far in Japan. Nuclear is comfortably cheaper than coal in seven of ten countries, and cheaper than gas in all but one. At 10% discount rate nuclear ranged 3-5 cents/kWh (except Japan: near 7 cents, and Netherlands), and capital becomes 70% of power cost, instead of the 50% with 5% discount rate. Here, nuclear is again cheaper than coal in seven of ten countries, and cheaper than gas in all but two. Among the technologies analysed for the report, the new EPR if built in Germany would deliver power at about 2.38 c/kWh - the lowest cost of any plant in the study.

A 1997 European electricity industry study compared electricity costs from nuclear, coal and gas for base-load plant commissioned in 2005. At a 5% discount rate nuclear (in France and Spain) at 3.46 cents/kWh (US), was cheaper than all but the lowest-priced gas scenario. However at a 10% discount rate nuclear, at 5.07 c/kWh, was more expensive than all but the high-priced gas scenario. (ECU to US$ @ June '97 rates)

In 1999 Siemens (now Framatome ANP) published an economic analysis comparing combined-cycle gas plants with new designs, including the European Pressurised Water Reactor (EPR) and the SWR-1000 boiling water reactor. Both the 1550 MWe EPR if built as a series in France /Germany and the SWR-1000 (with an 8% discount rate) would be competitive with gas combined cycle, at EUR 2.6 cents/kWh. The current-generation Konvoi plants operating in Germany produce power at 3.0 cents/kWh including full capital costs, falling to 1.5 c/kWh after complete depreciation.

A detailed study of energy economics in Finland published in mid 2000 shows that nuclear energy would be the least-cost option for new generating capacity. The study compared nuclear, coal, gas turbine combined cycle and peat. Nuclear has very much higher capital costs than the others --EUR 1749/kW including initial fuel load, which is about three times the cost of the gas plant. But its fuel costs are much lower, and so at capacity factors above 64% it is the cheapest option.

August 2003 figures put nuclear costs at EUR 2.37 c/kWh, coal 2.81 c/kWh and natural gas at 3.23 c/kWh (on the basis of 91% capacity factor, 5% interest rate, 40 year plant life). With emission trading @ EUR 20/t CO2, the electricity prices for coal and gas increase to 4.43 and 3.92 c/kWh respectively:

In 2003 the MITpublished the outcome of a 2-year study of nuclear energy prospects in the USA. Adjusting its assumptions to those more in line with industry expectations ($1500/kW & 4 year construction, 90% capacity factor, interest rate 12%, and adding fees & taxes) the generation cost comes out at 4.2 c/kWh, the same as coal without any carbon cost.

The French Energy Secretariat in 2003 published updated figures for new generating plant. The advanced European PWR (EPR) would cost EUR 1650-1700 per kilowatt to build, compared with EUR 500-550 for a gas combined cycle plant and 1200-1400 for a coal plant. The EPR would generate power at 2.74 cents/kWh, competitively with gas which would be very dependent on fuel price. Capital costs contributed 60% to nuclear's power price but only 20% to gas's. While the figures are based on 40-year plant life, the EPR is designed for 60 years.

A UK Royal Academy of Engineering report in 2004 looked at electricity generation costs from new plant in the UK on a more credible basis than hitherto. In particular it aimed to develop "a robust approach to compare directly the costs of intermittent generation with more dependable sources of generation". This meant adding the cost of standby capacity for wind, as well as carbon values up to £30 per tonne CO₂ (£110/tC) for coal and gas. Wind power was shown to be more than twice as expensive as nuclear power.

Without the carbon increment, coal, nuclear and gas CCGT ranged 2.2-2.6 p/kWh and coal gasification IGCC was 3.2 p/kWh - all base-load plant. Adding the carbon value (up to 2.5 p) took coal close to onshore wind (with back-up) at 5.4 p/kWh - offshore wind is 7.2 p/kWh, while nuclear remained at 2.3 p/kWh. Nuclear figures were based on a conservative £1150/kW (US$ 2100/kW) plant cost (including decommissioning).

A 2004 report from the Canadian Energy Research Institute gives an updated comparison of generation costs for Ontario. As well as comparing different fuels and technologies for base-load power, it compares public and private investor funding in deriving the actual levelised power cost. Both the new ACR-700 and the well-proven Candu-6 units are examined for the nuclear case.

A 2004 report from the University of Chicago, funded by the US Department of Energy, compares the levelised power costs of future nuclear, coal, and gas-fired power generation in the USA. Various nuclear options are covered, and for ABWR or AP1000 they range from 4.3 to 5.0 c/kWh on the basis of overnight capital costs of $1200 to $1500/kW, 60 year plant life, 5 year construction and 90% capacity. Coal gives 3.5 - 4.1 c/kWh and gas (CCGT) 3.5 - 4.5 c/kWh, depending greatly on fuel price.

The levelised nuclear power cost figures include up to 29% of the overnight capital cost as interest, and the report notes that up to another 24% of the overnight capital cost needs to be added for the initial unit of a first-of-a-kind advanced design such as the AP1000, defining the high end of the range above. For more advanced plants such as the EPR or SWR1000, overnight capital cost of $1800/kW is assumed and power costs are projected beyond the range above. However, considering a series of eight units of the same kind and assuming increased efficiency due to experience which lowers overnight capital cost, the levelised power costs drop 20% from those quoted above and where first-of-a-kind engineering costs are amortised (eg the $1500/kW case above), they drop 32%, making them competitive about 3.4 c/kWh.

A 2004 probabilistic analysis of comparative levelised power costs for new plants in Croatia showed gas combined cycle 5.8 c/kWh, coal 5.2 c/kWh and nuclear 4.8 c/kWh.

Generally, plant choice is likely to depend on a country's international balance of payments situation. Nuclear power is very capital-intensive while fuel costs are relatively much more significant for systems based on fossil fuels. Therefore if a country such as Japan or France has to choose between importing large quantities of fuel or spending a lot of capital at home, simple costs may be less important than wider economic considerations.

Development of nuclear power, for instance, could provide work for local industries which build the plant and also minimise long-term commitments to buying fuels abroad. Overseas purchases over the lifetime of a new coal-fired plant in Japan, for example, may be subject to price rises which could be a more serious drain on foreign currency reserves than less costly uranium.

FACTORS FAVOURING URANIUM

Uranium has the advantage of being a highly concentrated source of energy which is easily and cheaply transportable. The quantities needed are very much less than for coal or oil. One kilogram of natural uranium will yield about 20,000 times as much energy as the same amount of coal. It is therefore intrinsically a very portable and tradeable commodity.

The fuel's contribution to the overall cost of the electricity produced is relatively small, so even a large fuel price escalation will have relatively little effect. For instance, a doubling of the 2002 U₃O₈ price would increase the fuel cost for a light water reactor by 30% and the electricity cost about 7% (whereas doubling the gas price would add 70% to the price of electricity).

REPROCCESSING & MOX

There are other possible savings. For example, if spent fuel is reprocessed and the recovered plutonium and uranium is used in mixed oxide (MOX) fuel, more energy can be extracted. The costs of achieving this are large, but are offset by MOX fuel not needing enrichment and particularly by the smaller amount of high-level wastes produced at the end. Seven UO₂ fuel assemblies give rise to one MOX assembly plus some vitrified high-level waste, resulting in only about 35% of the volume, mass and cost of disposal.

OECD/IEA, 1992, Electricity Supply in the OECD, (above Figure from Annex 9).
OECD/ IEA NEA 1998, Projected Costs of Generating Electricity
OECD/ IEA NEA 2005, Projected Costs of Generating Electricity- update
OECD, 1994, The Economics of the Nuclear Fuel Cycle.
Nuclear Europe Worldscan 7-8/97
NEI: US generating cost data
Siemens Power Journal, Dec 1999.
Tarjanne & Rissanen, 2000, in Proceedings 25th International Symposium, Uranium Institute.
Percebois J. 2003, The peaceful uses of nuclear energy, Energy Policy 31, 101-08, Jan 2003
Gutierrez, J 2003, Nuclear Fuel - key for the competitiveness of nuclear energy in Spain, WNA Symp.
Nucleonics Week 20/2/03.
Royal Academy of Engineering 2004, The costs of generating electricity.
ExternE web site
Canadian Energy Research Institute, August 2004, Levelised Unit Electricity Cost Comparison Š Ontario.
University of Chicago, August 2004, The Economic Future of Nuclear Power.
Feretic D, & Tomsic Z, 2004, Probabilistic analysis of electrical energy costs, Energy Policy 33,1; Jan 2005.

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