The Cost of Electricity From Nuclear Power Stations
Abstract
The economic viability of a power station depends on the cost of the electricity it produces. This depends on a range of factors, some of which can only be calculated once the plant reaches the end of its life. In order to estimate the cost of electricity before a plant is built a model called the levelized cost of electricity is used. For a nuclear power plant the most important contributing factor to the cost of electricity is the cost of building the plant and any financing costs associated with this. Modern nuclear power plants are large complex engineering projects and costs can be extremely high. However the long lifetime of a nuclear power station means that the cost of electricity can still be relatively low.
Keywords
Capital cost; levelized cost of electricity; LCOE; lifetime cost; decommissioning cost; discount rate; commodity cost; labor cost
The cost of electricity from a power plant of any type depends on a range of factors. First there is the cost of building the power station and buying all the components needed for its construction. In addition, most large power projects today are financed using loans so there will also be a cost associated with paying back the loan, with interest. Then there is the cost of operating and maintaining the plant over its lifetime, including fuel costs. Finally the overall cost equation should include the cost of decommissioning the power station once it is removed from service.
It would be possible to add up all these cost elements to provide a total cost of building and running the power station over its lifetime, including the cost of decommissioning, and then dividing this total by the total number of units of electricity that the power station produced over its lifetime. The result would be the real lifetime cost of electricity from the plant. Unfortunately such a calculation could only be completed once the power station was no longer in service. From a practical point of view, this would not be of much use. The point in time at which the cost-of-electricity calculation of this type is most needed is before the power station is built. This is when a decision is made to build a particular type of power plant, based normally on the technology that will offer the least cost electricity over its lifetime.
Levelized Cost of Energy Model
In order to get around this problem, economists have devised a model that provides an estimate of the lifetime cost of electricity before the station is built. Of course, since the plant does not yet exist, the model requires a large number of assumptions to be made. In order to make this model as useful as possible, all future costs are also converted to the equivalent cost today by using a parameter known as the discount rate. The discount rate is almost the same as the interest rate and relates to the way in which the value of one unit of currency falls (most usually, but it could rise) in the future. This allows, for example, the maintenance cost of a nuclear steam turbine 20 years into the future to be converted into an equivalent cost today. The discount rate can also be applied the cost of electricity from the nuclear plant in 20 years time.
The economic model is called the levelized cost of electricity (LCOE) model. It contains a lot of assumptions and flaws, but it is the most commonly used method available for estimating the cost of electricity from a new power plant.
When considering the economics of new power plants the levelized cost is one factor to consider. Another is the overall capital cost of building the generating facility. This has a significant effect on the cost of electricity, but it is also important because it shows the financial investment that will have to be made before the power plant generates any electricity. The comparative size of the investment needed to build different types of power stations may determine the actual type of plant built, even before the cost of electricity is taken into account. This is of importance with nuclear power plants as their capital cost is among the highest of all generating technologies. Capital cost is usually expressed in terms of the cost per kilowatt of generating capacity to allow comparisons between technologies to me made.
When comparing different types of power station, there are other factors that need to be considered too. The type of fuel, if any, that is used is one. A coal-fired power station costs much more to build than a gas-fired power station, but the fuel it burns is relatively cheap. Natural gas is more expensive than coal and it has historically shown much greater price volatility than coal. This means that while the gas-fired station may require lower initial investment, it might prove more expensive to operate in the future if gas prices rise dramatically.
Renewable power plants can also be relatively expensive to build. However, they normally have no fuel costs because the energy they exploit is from a river, from the wind, or from the Sun and there is no economic cost for taking that energy. That means that once the renewable power plant has been paid for, the electricity it produces will have a very low cost. All these factors may need to be balanced when making a decision to build a new power station.
For a nuclear station, the cost of fuel is normally considered to be low compared to fossil fuel plants. Estimates vary, but according to the US Nuclear Energy Institute the cost of fuel accounts for around 28% of the cost of electricity from a nuclear power plant compared to 78% for a coal-fired power plant and 89% for a gas-fired power plant. This means that any volatility in nuclear fuel prices will have a smaller effect on the cost of electricity than it would in a gas-fired power plant.
Capital Cost
The capital cost of a nuclear power plant makes one of the greatest contributions to the overall cost of electricity from nuclear power. Nuclear power plants are large and complex projects that will usually take a long time to build. They use a range of high-technology materials including steel for the reactor vessel and more exotic materials in nuclear-specific parts of the plant such as control rods or fuel casings. There will also be a large amount of concrete. This means that not only is a project expensive because of its scale, but also that it may be vulnerable to changes in commodity prices that could affect overall cost during construction.
For the latest third-generation projects, there is also the danger of cost overruns resulting from the fact that early versions of these plants are essentially prototypes based on designs that have never been built before. Two European pressurized reactors under construction, one in France and other in Finland, have experienced lengthy time and cost overruns as a consequence of problems during construction. In 2015, the cost of the Finnish plant was estimated to have risen from an initial €3.2 billion to €8.5 billion with similar cost escalation for the French plant.
Table 10.1 contains figures for the overnight cost1 of nuclear power plants in the United States based on figures from the US Energy Information Administration (EIA). The figures are from the EIA’s Annual Energy Outlook series and refer to the cost of a plant in the year previous to the date of the report.
Table 10.1
Overnight Capital Cost of Nuclear Power Plants
| Year | Overnight Capital Cost ($ per kW) |
| 2001 | 1729 |
| 2003 | 1750 |
| 2005 | 1694 |
| 2007 | 1802 |
| 2009 | 2874 |
| 2011 | 4567 |
| 2013 | 4700 |
| 2015 | 4646 |
Source: US Energy Information Administration.2
The 2001 report estimated the overnight cost of a nuclear power station in 2000 to be $1729 per kW. Costs remained relatively static for the following 6 years, so that the 2007 report estimated the cost in 2006 to be $1802 per kW. By the time of the 2009 report, the cost had risen sharply to $2874 per kW, and in the 2011 report, it had risen sharply again to $4567 per kW. Since then the estimated costs have stabilized once more and the 2015 report estimated the cost for a plant commissioned in 2014 to be $4646 per kW.
The capital cost of nuclear power in the United States makes it one of the most expensive types of plant to build. The cost is similar to offshore wind and is only exceeded in the 2015 EIA report by coal power with carbon capture and storage and by fuel cells.
Capital costs depend on local conditions and vary from country to country. According to the IEA, the capital cost of nuclear power across the OECD ranges from $2021 per kW in South Korea to $6215 per kW in Hungary. Costs in China were estimated to be $1807 per kW and $2615 per kW for two separate nuclear projects. These variations depend upon factors such as commodity costs and labor costs as well as upon ensuring that projects are completed to schedule.3
The LCOE From a Nuclear Power Station
The LCOE from a nuclear power plant in the United States in 2015 was estimated by Lazard to be between $97 per MWh and $136 per MWh.4 This was broadly similar to the cost of electricity from a coal-fired power plant (without carbon capture and storage) but more expensive than onshore wind power, utility solar power, or electricity from a natural gas combined cycle power plant. It is important to note that the nuclear cost estimate from Lazard does not include the cost of decommissioning which could have a significant effect on the actual cost of power.
As with capital cost, the LCOE varies from country to country. IEA analysis suggests that at a similar discount rate (7%) the cost varies between $40 per MWh in South Korea and $101 per MWh in the United Kingdom; it was $37 per MWh and $48 per MWh for the two Chinese projects cited above.