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Examiner:
Subject:
Level and semester:
A critical study on Kennedys
Cost-Benefit-Analysis ‘New
nuclear power generation in
the UK’
Jonathan Sträng
European studies/Programmet för europastudier
Ted Fjällström
European studies/Programmet för europastudier
Lars Tomsmark Dominique Anxo Economics
Bachelor´s Thesis,Spring11
A critical study on Kennedys Cost-Benefit-
Analysis ‘New nuclear power generation in
the UK’
Bachelor thesis
Jonathan Sträng & Ted Fjällström 6/4/2011
Bachelor Thesis National Economics 2NA00E Spring 2011
Examinator: Dominique Anxo
Advisor: Lars Tomsmark 12 550 Words
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Abstract
The demand for energy is forever growing. The technology of extracting power from uranium through nuclear facilities is rather old. Core melting, nuclear bombs, uranium extraction costs and the question what to do with the wastes has hindered countries from exploiting this resource. The technology of extraction, containment and refinement has however come a far way since the beginning. There is a need of revaluing this method of generating power. What better way of doing this than making a cost and benefit analysis upon Nuclear Power. If the costs of overweight the benefits, the governments should dismount the reactors in the involved country. If it’s the other way around; benefits surpassing costs, there should be a development within this sector. In this thesis we will analyze a cost-benefit-analysis of new nuclear power generation in the UK. We will explain how a CBA is constructed, give some examples of cost and benefits of nuclear power and with this knowledge we will then
critically look at the 2006 CBA of new nuclear power in UK (Kennedy) which compares costs and benefits of nuclear new build with conventional gas-fired generation and low carbon technologies.
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1. Introduction ... 4
1.1 Background ... 4
1.2 Purpose ... 4
1.3 Problem formulation ... 5
1.4 Literature Review ... 5
1.5 Method ... 7
1.6 Structure ... 8
2. Theory ... 9
2.1 What is a Cost & Benefit Analysis ... 9
2.2 How to make a CBA ... 11
3. Costs & Benefits ... 16
3.1 Extraction cost and availability ... 16
3.2 Capital cost ... 17
3.3 Operation cost ... 19
3.4 Waste cost ... 22
3.5 Potential cost ... 23
3.6 Proliferation ... 23
3.7 Greenhouse emissions ... 24
3.8 Energy Payback ... 26
4. A Briefing of Kennedy’s CBA ... 29
4.1 Scope for new nuclear power generation? ... 29
4.2 Costs ... 29
4.3 Benefits ... 31
4.4 Net present value benefits ... 32
4.5 Summary ... 33
5. Analysis ... 34
6. Conclusion ... 42
6.1 Further Research ... 45
7. Appendix ... 46
8. References ... 50
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1. Introduction
1.1 Background
Rising prices of commodities such as oil, gas and coal, hand in hand with a growing need for energy worldwide, alters the economics of the energy sources. Asia, especially China have experienced a very high economic- and population growth, which has contributed largely to the increased energy demand. This surge in energy demand has not passed unnoticed in the world markets, where China has actively been securing oil deliveries for the future in both Africa and South America accompanied with oil prices over $100 a barrel.
With finite fossil resources, the price is expected to increase as the resources become more and more scarce. In a likely possible future scenario with escalating fossil fuel prices, people should look at alternatives. Therefore we believe it’s important to analyze the cost and benefit of nuclear power. The recent nuclear catastrophe in Japan has destroyed the belief in nuclear power for some and increased the anti-nuclear front a lot, but still we think there is a need to look at the cost and benefits.
1.2 Purpose
We are very interested in the energy area, knowing which sorts of energy source that has a future will provide great knowledge in what to invest. The purpose of this paper is to make a critical analysis on David Kennedys; Cost-Benefit-Analysis (CBA) on new nuclear power generation in UK.
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1.3 Problem Formulation
To estimate the cost and benefits of nuclear power, Kennedy has been making several simplifications. We will evaluate the consequences of simplifications.
• What are the consequences from the simplification in Kennedy’s analysis?
Another question we think are relevant if we shall be able to succeed with our review of Kennedys CBA is:
• How do you make a Cost-Benefit-Analysis?
This question is very vital in our paper, because lacking the knowledge of how a CBA is conducted makes it impossible to review one! However this is not the main question and the guidelines we will provide in how to make a CBA is on a basic level, otherwise one could write an entire study on “How to conduct a CBA” but it’s not our objective.
• What costs are associated with cost and benefit analysis made on nuclear power?
• What benefits are associated with cost and benefit analysis made on nuclear power?
The last two questions are important since they provide an understanding of the different components and their respectively weight in a CBA made on nuclear. Knowing about these costs and benefits and their expected weights will result in a better and easier review of Kennedys CBA.
1.4 Literature Review
There is extensive literature made on nuclear power and it’s competiveness in the energy market. Additional analyzing is always desirable to keep people up to date since technology of nuclear power is rapidly evolving; the plants are getting more and more effective and there are newer ways of depositing the waste. Cost and Benefit Analysis’s (CBA) are frequently used to determine how viable nuclear power is. The literature we have studied is often economic rather than financial, which means that they cannot be used as a basis for
determining possible commercial desire for developing nuclear projects. It’s up to the private sector to conduct such analysis before building their new nuclear power plants. The aim of the
6 CBA’s that we have focused on is to determine whether there is potential benefit in keeping the doors open for such types of investments.1
The CBA’s only cover a range of costs and benefits, due to time constraints and lack of complete information. Most of the CBA’s doesn’t attempt to monetize expected accident costs either. They are thought to be insignificant, not sufficiently large enough to change the results of the analysis. What we have realized from previous literature is that the most dominant cost drivers in a CBA’s done on nuclear power are the large capital costs as well as nuclear weapons proliferation associated with uranium enrichment and spent fuel management.2 An old analysis done by D.W. Pearce has however concluded that a cost-benefit approach is of limited value in the nuclear power case because of its unsuitability to such issues as the liberty of the individual and nuclear weapons proliferation.3
The dominant benefit driver is no doubt the low CO2 emissions it produces. Another
important dominant when it comes to the economics of nuclear power is the discount rate, due to the high capital requirements from the initial capital cost associated with the Engineering, procurement and construction (EPC) cost of a new nuclear power plant (NPP). Kennedy and other analysts will often consider resource costs associated with nuclear power plants relative to alternatives of gas fired generation and/or other technology, calculating the cost of
electricity generation from a specific type of power plant. This is done on a levelized basis, as we will elaborate later on. It is a combination of operating and capital costs to reach a cost per megawatt-hour (MWh).4
1 http://webarchive.nationalarchives.gov.uk/+/http:/www.berr.gov.uk/files/file39525.pdf
2 http://webarchive.nationalarchives.gov.uk/+/http://www.berr.gov.uk/files/file39525.pdf
3D.W. Pearce (1979), ´Social cost-benefit analysis and nuclear futures´, Energy Economics, 1, p 66-71
4David von Hippel, Peter Hayes, Jungmin & Tadahiro Katsuta (2011), ´Future regional nuclear fuel cycle cooperation in East Asia: Energy security cost and benefit´, Energy Policy.
S.K. Kim, W.I. Ko, H.D. Kim, Shripad T. Revankar, W. Zhou & Daeseong Jo (2010), ´Cost- benefit analysis of BeO-UO2 nuclear fuel´, Progress in Nuclear Energy, 35, p 813-821
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1.5 Method
In this paper we started out by studying the costs and benefits associated with Nuclear Power.
The information was gathered from various databases with the intension of getting an
extensive overview in the case. We have furthermore done researched in books and articles on how to make a Cost and Benefit Analysis (CBA). When we were well read within these fields we started to make a critical analysis on David Kennedy’s CBA on Nuclear Power; to see if he had left anything out, what consequences that has entailed and also what he has succeeded with.
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1.6 Structure
Introduction Chapter 1 Describes the background, purpose, method, problem formulation and literature review of this paper.
Theory Chapter 2 Describes what a Cost and Benefit Analysis is and how to make one.
Costs and Benefits Chapter 3 Gives a summary of what costs and benefits are associated with Nuclear Power.
A Briefing… Chapter 4 Gives a summary of how Kennedy conducted his CBA.
Analysis Chapter 5 Examines the results from this model with the empirical study.
Conclusion Chapter 6 Contains the conclusion that is decided upon the results in the analysis.
Appendix Chapter 7 Explanations of the different abbreviations and calculations used in this paper. . Also included in the appendix are the tables from Kennedys CBA, which might interest the reader.
References Chapter 8 Contains all the sources used in this paper.
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2. Theory
2.1 What is a Cost Benefit Analysis?
The Cost and Benefit Analysis (CBA) is often used by decision makers. Their aim is to determine if a project is economically or financially efficient or not. This method aids them by evaluating and predicting the value of a certain project. By measuring and comparing the social costs of an investment with its social benefits, it tells us if it is an efficient use of resources or not. If the results indicate a positive net benefit, the investment is economically viable and vice versa. 5
Problems that may arise under an analysis are how to consider external effects and distorting effects. For example: Building a new plant in a populated area may destroy the scenic view for many. There is an insubstantial value associated with this. Now in a CBA it has to be priced and factored; in this case as a cost. This is called shadow pricing, which represents the social value of goods or in this case, the view.
If there are no taxes or subsidies distorting a competitive market, the market price is the same as the opportunity cost of production, which means that a customer’s willingness to pay equals the value of the resources used to produce a good.6 Here is a diagram of this market:
Figure 1
5 Brent, Robert J. (2008), Applied Cost-Benefit Analysis, Edward Elgar Publishing, p 3- 12
6 Brent, Robert J. (2008), Applied Cost-Benefit Analysis, Edward Elgar Publishing, p 109-140
10 At point A in Figure 1, the last unit supplied equals the opportunity cost of production. To the left of point A the willingness to pay is higher than the production cost; to the right the
willingness to pay is lower than the production cost. Point A is therefore an efficient
allocation of resources, the best for both private entities and the society. There is no necessity for a CBA if there aren’t any externalities or other distorting effects such as subsidies and taxes in this market, because all resources are already allocated in the private and society’s optimal solution. The shadow prices and market prices are coincided. But if it were a non- competitive market instead or if it receives distorting effects, the prices of inputs will then need to be adjusted to obtain the real cost of production. When lacking a real market price it will be replaced by shadow prices under a CBA, an educated guess on a value of certain commercial assets and effects that do not have a market price.7
Market failures arise when the allocation of goods and services is not efficient. When there is no market connection between a person consuming or producing a good and the people that are affected by that good, a market failure arises called externalities. A negative cost will in this case not be imposed on the person causing the damage since there are no market prices, instead it will be forced on others. In the corresponding scenario when the externality is positive, the cost is not imposed on the person enjoying the benefit. Usage of nuclear power reduces the level of CO2 by a substantial amount. A, in this case, positive externality like this should be valued for in a CBA. Shadow prices were adjusted from existing market prices while externalities hasn’t even been captured and valued at a market.8
7 Brent, Robert J. (2008), Applied Cost-Benefit Analysis, Edward Elgar Publishing, p 109-140 http://www.cepr.org/pubs/bulletin/dps/dp41.htm
8Harry F. Campbell, Richard P. C. (2003) ´Benefit-Cost Analysis- financial and economic appraisal using spreadsheets´, Cambridge University Press, ISBN 13- 978-0 521-52898-6 Brent, Robert J. (2008), Applied Cost-Benefit Analysis, Edward Elgar Publishing, p 145-177
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2.2 How to make a CBA
Nick Hanley (1993) has divided the CBA into eight stages. With some contributions from United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) we will go through Hanley’s stages to grasp the method of making a cost and benefit analysis:
Stage 1: Definition of Project
Every project must have a clear objective. It’s easy for the analysis to spread over several scenarios, so the first step is to define the project and see what scenarios it should be compared against. A CBA can usually only have a couple of scenarios.
Stage 2: Identification of the Project Impacts
The next step identifies the impacts with and without the project. Clarifying what effects the project will have; how the society will be affected, how will it affect the local unemployment levels or what materials and recruits will be required in the project.9
Stage 3: Which Impacts are Economically Relevant?
This step answers the question “What to count?” The effects are divided into costs and benefits, which effects will give a cost and which effects will give a benefit. The concept of costs is amenable to various interpretations. In a cost and benefit analysis the costs involves opportunity costs or giving up alternative benefits. This concept can be valid when choosing between projects. If the UK for an example determines to build a nuclear power plant, the UK will give up the opportunity of having gas power. Costs are the negative impacts resulting from a project; using up a resource, decreasing the quality or quantity of certain goods, increasing their price and so on. The positive impacts, also known as the benefits, are the opposite; an increase in quality or quantity of goods that produce a positive utility or maybe a reduction in price on them. In this stage the analyst also considers to include externalities depending on the time constraint and how much information is available.
Stage 4: Physical Quantification of Relevant Impacts
Now it’s time to appreciate a physical amount of cost and benefit flows in the project. At what time these flows take place is also identified as well as to what degree things are affected.
9 Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p 8-9
http://www.unescap.org/drpad/vc/orientation/M5_lnk_7.htm#4
12 Under this stage there is a lot uncertainty when determining certain effects. Measures could be taken to reach a good estimation by identifying the risk and calculating the probability, one will then reach an expected value. As an example, the probability that a nuclear plant will last 30 years is 20 %, a 60 % chance it will last 40 years and 20 % it will last 50 years.10
Expected value for nuclear plants lifetime is then:
(0.2 x 30) + (0.6 x 40) + (0.2 x 50) = 6 + 24 + 10 = 40 Stage 5: Monetary Valuation of Relevant Effects
Some of the effects are not valued in money and can be hard to compare with effects that are.
To be able to compare the costs with the benefits, they have to be expressed in the same unit.
The most common and convenient measurement is money, in any currency, within CBA models. If future costs arise, they have to be considered in future market prices and if needed one must correct the market prices of some effects i.e. shadow pricing. Many of the
environmental flows lack correct market prices. Non-market valuation methods have to be used to estimate their values. There are three ways assessing them: 11
• Use value – direct use of a resource
• Option value – the possibility of future use
• Nonuse value – value of preserving the resource
Peter Söderbaum raises critique against the neoclassic way of determined everything in monetary terms. Politicians and decision makers need simple answers to complex problems.
But as you reduce many dimensions into one, there is a loss of information. He takes the decision of preserving or exploiting a forest as an example. The Total Economic Value is calculated by summing up the actual Use Value + Option Value + Existence Value (or nonuse value). All of them are estimated in money. The use value is the net income for the logging company for cutting down the trees. The option value is the monetary value of preserving, cutting or using the forest in some other purpose, later at some point in time. Even existence value, which is the value of the species that dwell in the forest, is valued in money. The use value may well be easy to calculate in money but the option value and existence value is
10 Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p 9- 11
11 Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p11-16
AvP. Richard G. Layard,Richard Layard,Stephen Glaister (1994), Cost-Benefit Analysis, Cambridge University Press p 100-115
13 difficult. This becomes problematic when making a cost and benefit analysis. There is a large loss of information and a big uncertainty when estimating the values. The distribution of costs and benefits are distorted. Still the neoclassic economists choose to value everything in a monetary way and after they have made their estimation, a decision maker will rely on their simple numbers to make a choice possibly with large impacts.12
Stage 6: Discounting of Cost and Benefit Flows
After the costs and benefits have been appreciated in monetary terms, the analyst should now alter them into present value (PV). This is desirable when different alternatives in a project span over several years into the future. Money will then have a time value. Comparing diverse costs and benefits is hard without reaching this present value. It is done by a technique called discounting. By reducing future streams of costs and benefits we will get the present value of these flows, enabling the comparison.
In this case the discount rate is an interest rate of 10 %. If you have 100£ of investment, in one year’s time it will become:
PV = 100 x (1+0.1) = £110
So after one year the £110 will thus be worth the same as 100£ now. We say that the present value of getting £110 one year from now is £100.13
Stage 7: Applying the Net Present Value Test
The aim of this stage is to compare the sum of the discounted gains with the sum of the discounted losses. If the gains exceed the losses the investment will have an efficient shift in resource allocation.
Net Present value (NPV) is todays aggregated value of a series cash flows occurring in the future. It is calculated in today’s monetary value in order to make future incomes comparable with incomes from other potential projects. The annual net cash flows over the investments life need to be estimated. One unit today accounts for 1 plus the interest rate next year (1+i).
12 Peter Söderbaum (2001), Ecological economics: a political economic approach to environment and development, Earthscan Publications Ltd. P 53-56
13 Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p 16-17
http://www.unescap.org/drpad/vc/orientation/M5_lnk_7.htm#4
14 In the discounting process future incomes therefore needs to be taken back to the starting point by dividing the next year amount with 1+r. The higher the interest rate used, the lower the value of future payments is.14
Here is an example of an investment flow:
t (years) 0 1 2
Investment -£100 £50 £150
The net present value at an interest rate of 10 percent is given by: 15
NPV = -100 + 50/ (1+0.1)1 + 150/ (1+0.1)2 = £69.42
This is the general model for reaching the sum of the net present value (NPV). C0, C1...Cn are the flows of costs while B0, B1...Bn are the benefits. The discount rate is r.
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Stage 8: Sensitivity Analysis
In the final stage one examines what happens if the given data changes. In a CBA the analyst must make predictions regarding upcoming physical flows. These judgments can be very uncertain and that is why one tries to cover several outcomes in the last stage by answering the question “What if?”. A sensitivity analysis means recalculating the NPV with certain changes in these parameters:
• The discount rate
• Physical quanitities & qualities of inputs
• Shadow prices of these inputs
14 Brent, Robert J., (1997), Applied Cost-Benefit Analysis, Edward Elgar, Lyme
Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p 17-19
15 http://www.unescap.org/drpad/vc/orientation/M5_lnk_7.htm#4
16 http://www.unescap.org/drpad/vc/orientation/M5_lnk_7.htm#4
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• Physical quanitities & qualities of outputs
• Shadow prices of outputs
• Length of the project life span
When this is done, the parameter that the NPV is most sensitive to will be revealed. This parameter can then undergo further controlling to enhance the forecast. The decision upon NPV in long term effects will however mostly depend on the discount rate.
This finalizes the ground principles of a Cost and Benefit Analysis.17
17 Nick Hanley and Clive L. Spash (1993), Cost-Benefit Analysis and the Environment, Edward Elgar Publishing Inc. p 19-20
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3. Costs and Benefits
Our objective here is to describe some, not all, of the costs and benefits involved in nuclear power. This is to give an overview of the sector and to comprehend which of the costs and benefits that have the most weight and importance in an analysis. Previous literature suggest that the most dominant cost drivers in a Cost-Benefit Analysis (CBA) on nuclear power are the large capital costs as well as nuclear weapons proliferation associated with uranium enrichment and spent fuel management. Whilst the dominant benefit driver is the low CO2
emissions it produces. But to know the dominant cost-benefit driver’s effects, they should be presented and identified first.
3.1 Extraction cost and availability
If there should be a development of nuclear capacity, it is important to have knowledge of the supply of fuel. From the 2003 MITs Future of Nuclear power study it was concluded that the availability of uranium would not be a problem in the case of a huge nuclear expansion.
Today more than 400 reactors are in operation worldwide,18 but given global uranium resources it’s possible to more than double the existing number of reactors according to the study. Below is a table from the OECD/IAEA Red Book (2007) that shows the amount of recoverable uranium at a price under 130 dollar/kg which is ~13 million metric tons. This would be enough to supply 800 reactors with a 1000 MW capacity.
18 http://www.euronuclear.org/info/encyclopedia/n/nuclear-power-plant-world-wide.htm
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19
A positive point is that the economics of nuclear power is very insensitive to the input price of uranium and prices of numerous hundreds of dollars a kilo would not make nuclear power economically unviable.20 According to IAEA the potential resources is much higher due to the fact that some countries doesn’t even report their reserves.21 This means that the potential resources are much higher compared to the stated amount, which further increases the
situation positively of future uranium availability.
3.2 Capital cost
The upfront capital cost of building a nuclear plant is the largest certain cost. Because of large capital cost before the plant starts to generate income, the return of the investment is very slow. Just to regain the initial upfront cost may take decades.22
Looking around the world, it’s frequently countries where the tax- and rate-payers finances the capital cost of new reactors, such as China and Russia for example, that invests more heavily in nuclear.23 As pointed out above the cost of nuclear power is dominated by the up-
19 http://web.mit.edu/nuclearpower/pdf/nuclearpower-update2009.pdf
20 http://web.mit.edu/nuclearpower/pdf/nuclearpower-update2009.pdf p. 12-13
21 http://www.iaea.org/OurWork/ST/NE/NEFW/documents/RawMaterials/RTC-Ghana-2010/5.RedBook.pdf
22 http://www.theatlantic.com/business/archive/2011/02/why-are-new-us-nuclear-reactor-projects- fizzling/70591/
23 Grundwald , Michael. (3/28/2011), ’Academic Search Elite’ , The Real Cost of Nuclear Power 177 p. 2
18 front cost, when looking at natural gas plants the cost driver is gas prices and the capital cost for coal plants is a mix of up-font cost and fuel prices. In a likely future scenario of escalating prices of depletable natural resources, the capital cost of a Nuclear power plant (NPP) will not be significantly increased but it will be troublesome for natural gas plants and have a
noteworthy effect on the cost of coal plants. 24
The capital cost can be split into EPC (Engineering, procurement and construction), Owners cost (Land, Administration etc.), cost escalation and inflation.25 The construction cost is very high for NPP, much higher than for gas- and coal-plants. This is mainly due to the use of special materials, costly safely features and back-up control equipment.26
Another important issue is the supply chain, there is for example just one company in the whole world that makes forgings for the reactor pressure vessels. This Japanese company has obligations to other industries as well so the availability of these forgings is limited.
A fresh example of the construction cost is the new generation (Generation III+) of reactors EPR that Areva is building in Olkilouto facility (Finland). It was first estimated to be up and running in 2009, but is still under construction and the new date for startup is set at the beginning of 2013. In the middle of 2010 the budget had been overreached by 50% from the original budget of 3 billion Euros, it’s very likely that the end price will be much higher.
Nowadays the expected costs for new EPR plants are to exceed $6.5 billion. However this is the first generation III reactors being built and it has been various problems in the supply chain, and some of the delay can be explained by poor quality concrete. Even when looking at cost history for building nuclear power plant in USA the average cost is overdue by 200- 400%.2728
Considering that the Olikilou facility in Finland is the first generation III+ plant being built one would suspect the cost being very high, but that the construction cost for following generation III+ plants constructed will be greatly reduced. This is because of when
constructing a new type of nuclear plants; workers will gain new experience and learn how to build the plants in a more and more efficient way for every plant they construct. The same
24 http://web.mit.edu/nuclearpower/pdf/nuclearpower-update2009.pdf
25 http://www.world-nuclear.org/info/inf02.html
26 http://www.world-nuclear.org/info/inf02.html
27http://www.world-nuclear-news.org/NN-Startup_of_Finnish_EPR_pushed_back_to_2013-0806104.html
28 Allison Macfarlane (03-04/2010), ‘A Panacea For Future Energy Needs?’, Environment 52 p.40
19 goes for choosing the suppliers of material, replacing those not delivering what promised or in time.29
3.3 Operational cost
The operation cost is the second largest cost after the up-front cost. To operate a nuclear facility there is costs associated to fuel, supply, administration and workers.
The cost of fuel (uranium) is not high compared to other types of plants, such as coal- and gas-plants where the fuel cost range between 80-93% of all operational cost, the same cost for nuclear is around 26% of the operational costs. In the fuel cost all cost associated to the enrichment of natural uranium is accounted for as well as the waste disposal fund. 30
31
As seen above the cost of uranium only contributes to 42% of the nuclear fuel cost. Because of this the effect of uranium prices on the fuel cost is the following:
29 http://classic-
web.archive.org/web/20070415012109/http://www.anl.gov/Special_Reports/NuclEconSumAug04.pdf#page=1 3 p. 5
30 http://nuclearfissionary.com/2010/03/15/operating-costs-of-a-nuclear-power-plant/
31 http://nuclearfissionary.com/2010/03/15/operating-costs-of-a-nuclear-power-plant/
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32
The picture above examines the effect of uranium price on the fuel cost and shows a linear correlation between the price of uranium and the fuel cost. Doubling the price of uranium from $25 to $50 will increase fuel cost from $0.50 to $0.62 per KWh, an increase of 25%.
This cost will be even lower in future nuclear plants, since there is a stable decrease in the cost of nuclear fuel. Old plants have fuel cost up to 40% while newer plants have as low cost of fuel as 15% of the operational cost, this because of better efficiency when it comes to the fuel use.33
The highest individual operational cost is the cost of the employees.34 Forsmark nuclear power plant in Sweden for example with an electric output around 3,160 MW has 970 employees35, this of course generate a considerate amount of cost.
The supply of materials to the nuclear plant is also included in the operational costs; here everything from a new pair of working gloves to maintenance and refueling outages.36 There is a need for continual replacement of still working vital components in the nuclear plants;
this is done to maintain the safety of the plant by lowering the chance of ending up with equipment in bad condition. These cost of continues replacements/repairs is high, but may be counterbalance by improved performance of the plant37 this can be seen by the operation capacity factor which now is over 90% the same number in 1980 was 56%.38
32 http://www.world-nuclear.org/info/inf02.html
33 http://www.world-nuclear.org/info/inf02.html
34 http://nuclearfissionary.com/2010/03/15/operating-costs-of-a-nuclear-power-plant/
35 http://www.vattenfall.se/sv/about-forsmark.htm
36 http://www.eia.doe.gov/cneaf/nuclear/page/analysis/nuclearpower.html
37 http://nuclearfissionary.com/2010/03/15/operating-costs-of-a-nuclear-power-plant/
38 http://www.eia.doe.gov/cneaf/nuclear/page/analysis/nuclearpower.html
21 The cost of operating a nuclear facility safely is very large for countries that don’t already have the necessary infrastructure needed to handle the electric output. There is also a need for a trained workforce that can construct and operate the plant. Nowadays there are just a small number of people who have the necessary specialized skills that are needed to construct a nuclear power plant.39
The overall operational cost (sum of fuel cost, employee, administration, supply and contribution to waste management fund) in USA 2008 was ~$0,0186/KWh.40 The low operational cost of nuclear power is approximately equal to the operational costs for a coal plant and considerably lower than for a natural gas plant.41
The following picture shows the marginal cost of operating and maintaining different power plants, excluding the indirect costs or capital.
42
Nuclear has by far the lowest operating cost compared to coal, gas and oil.
39 Allison Macfarlane (03-04/2010), ‘A Panacea For Future Energy Needs?’, Environment 52 p.39
40 http://nuclearfissionary.com/2010/03/15/operating-costs-of-a-nuclear-power-plant/
41 http://www.eia.doe.gov/cneaf/nuclear/page/analysis/nuclearpower.html
42 http://www.world-nuclear.org/info/inf02.html
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3.4 Waste cost
A nuclear power plant always produces some radioactive waste in all parts of its cycle. There is a large cost associated with the disposal and managing of it. It embodies around 5 – 10 % of the total cost associated with nuclear power. Most governments make it obligatory for nuclear utilities to put an extra levy for the management and disposal of their wastes. The consumers of electricity will then pay maybe 0.1 cent/KWh as in the USA. The money then goes into a waste fund, ultimately internalizing the costs. Nuclear power is one of few energy producing technologies that actually takes full responsibility for all its wastes and including this in the cost of the product. The goal is to protect people and the environment from the radioactive waste, lowering the rate or concentration of radiation that is released back in nature. This is done by isolation or dilution. Different wastes need different methods of disposal. There is low, intermediate and high level, depending on their radioactivity. High level waste is exactly as it sounds; the most radioactive waste. It is the fission products and transuranic elements generated from burning uranium fuel in the nuclear reactor. It is not only very radioactive but hot as well and requires cooling besides from shielding. There are both long lived and short lived components. The high level waste stands for 95 % of the total radioactivity emitted.
These wastes have to decay under controlled circumstances in several decades before they are disposed, initially kept in large water pools at the reactor site. Some countries have central storage facilities where the waste is stored after several years of decaying in the pools. There is also an option of dry storages in shielded metal casks, as well as short-term storages in metal containers for reprocessing the liquid high level waste. It is this kind of waste that is one of the reasons that people fears the development of nuclear power.43
This cost of storing high level waste vary from country to country, depending on how safe it’s stored but also the availability of land is sometimes a problem. The storing needs a large land area which some countries do not possess. Plans for disposal of nuclear waste should be developed before construction of nuclear plants in nuclear emerging countries, to avoid large unexpected future costs.44
43 http://www.world-nuclear.org/info/inf04.html http://www.iea.org/papers/2010/nuclear_roadmap.pdf
44 Allison Macfarlane (2010), ‘Nuclear Power - A panacea for future energy needs?’, Environmentalmagazine, 52 (2), 37, 43.
23
3.5 Potential costs
Uranium mining produces uranium tailings (the rocks that is left after extraction of uranium from the ore) these “rocks” can contain radon and radium, some of these tailings can be windblown and thereby threaten the communities in the area by contaminating the
groundwater with radon. The cost of this is however incorporated in the uranium prices and not that large, one keeps the tailings in sludge pools near the milling site.45 However this is not completely safe, catastrophic events can occur such as a large earthquake that might affect nearby communities largely. This goes for fossil fuels as well, coal milling uses pods too and the extraction of oil can be very devastating for the nature, taking the deep water horizon last year as an example.
Under this heading the catastrophe in Japan fits well, the fail in the Daiichi plant was due to the tsunami created by an earthquake. The flooding of the plant destroyed the emergency power system, which therefore was unable to pump cooling water to the fuel rods. However the cost of preventing this from happening would not be high; if the diesel generators weren’t situated on the ground floor under the water level they would not be swamped, simply putting them above the waterline. This was not done because the designers thought that the 10m seawall would be enough in such a scenario.46
3.6 Proliferation
There are great concerns about proliferation of nuclear weapons and the link to nuclear power.
The risk of an attack on nuclear reactors in war exists, and can have very serious
consequences. Such attacks has already been carried out by USA, Israel, Iran and Iraq, the targeted reactors was International Atomic Energy Agency (IAEA) safeguarded reactors and members of the Non-Proliferation of nuclear weapons treaty. To this point there has been thirteen attacks targeted at nuclear reactors. This may happen again in the future and because
45 Allison Macfarlane (03-04/2010), ‘A Panacea For Future Energy Needs?’, Environment 52 p.43
46 Jeffrey Kluger, Eben Harrell, Bill Powell, Bryan Walsh (3/28/2011), ‘Fear Goes Nuclear’, Special Report Nuclear Disaster, 177, p. 3
24 of the possible consequences from a successful strike on nuclear reactors, some argue that nuclear power shall have some security premiums.47
To fight the proliferation one has developed small and medium size reactors that should be proliferation safe. But these reactors are only at conceptual level.48
3.7 Greenhouse emissions
Global warming has become a major concern for the whole world in recent time. Increasing average temperature on earth’s air and oceans can generate great external costs which we want to avoid. Our energy systems have a lifecycle that are likely to be contributing to this global warming. The gases that seem to be the cause of it are CO2, CH4, N2O, and
chlorofluorocarbons and they are often linked to burning fossil fuel. Technologies such as Solar-and nuclear electricity generation are thought to be carbon-free. This is because they do not generate any carbon dioxide in their process. If we nonetheless include the whole lifecycle of nuclear power, one will see that some CO2 emissions arise from extracting the uranium, enrichment of it, constructing the plant, operating it and finally disposing the associated materials. Estimating the amount of emissions will depend on the method of enriching the uranium. Enrichment is required to get a controlled nuclear reaction in light-water reactors.
One of the methods of enriching the uranium is called gaseous diffusion. This method uses around 50 times more energy than the gaseous centrifuge method. The amount of emissions will then also depend on the source of this energy.49
47 Henry Sokolski (08-09/2010), ‘The High and Hidden Costs of Nuclear Power’, Policy Review p.62
48 Paul Nelson (07-08/2010), ‘Reassessing the Nuclear Renaissance’, Bulletin of the Atomic Scientists p. 17
49 http://www.nrc.gov/materials/fuel-cycle-fac/ur-enrichment.html http://nuclearinfo.net/Nuclearpower/TheBenefitsOfNuclearPower
Vasilis M. Fthenakis & Hyung Chul Kim (2007), ´Greenhouse-gas emissions from solar electric- and nuclear power: A life-cycle study´, Energy Policy, 35, 2549-2557
25 A wide estimation on the emissions would be 3.5–100 g CO2-eq./kWh for nuclear power, varying from country to country, and in the US it is averaged to 16–55 g CO2-eq./kWh.
Compared to solar irradiation from 40 to 180 g CO2-eq./kWh overall and 17–39 g CO2- eq./kWh in the US. In Sweden the largest energy company called Vattenfall has made their own estimation on their emissions from their nuclear power. Calculating the whole lifecycle the total amount of CO2 is 6.5 – 7.1 g CO2-eq./kWh. As amongst the lowest in the world it surely beats the emissions of fossil fuel. Estimating 400 g CO2-eq./kWh for natural gas and 700 g CO2-eq./kWh for coal. Vattenfall’s nuclear power actually emits less CO2 than any of its other energy sources which include wind, solar, hydro and biomass. So by using nuclear power, we dampen the potential threats of global warming and therefore the external costs of it.50
This is a graph from the International Atomic Energy Agency (IAEA). It shows another estimation of the highest and lowest amount of CO2 emissions, indirect and direct, from some of the major energy power sources.51
50 http://oneplanetfellows.pbworks.com/f/Greenhouse_Gas_Emissions_Solar_Nuclear_Energy_Policy- inPress.pdf
http://www.world-nuclear.org/info/inf100.html
http://gryphon.environdec.com/data/files/6/7315/epd26.pdf http://gryphon.environdec.com/data/files/6/7310/epd21.pdf
Vasilis M. Fthenakis & Hyung Chul Kim (2007), ´Greenhouse-gas emissions from solar electric- and nuclear power: A life-cycle study´, Energy Policy, 35, 2549-2557
51 http://www.world-nuclear.org/info/inf100.html
26 In an example from 2006, the world’s nuclear power provided 2594 TWh of electricity. Now if it were coal and natural gas plants that would have produced this electricity, 3904 million tons of carbon dioxide would have been released into the atmosphere. That’s around 13 % of the annual emissions of fossil fuel which is 29 195 million tons of CO2. If 25 new 1000 MWe plants are built each year for the next 39 years, the growth of the carbon dioxide could be reduced by 15 - 25 % in the year 2050. That’s a 1000 new large plants, generating 1000 GWe altogether.52
3.8 Energy Payback
Payback is the time it takes for an individual power plant to pay for itself in terms of energy it needs over its lifecycle. If an energy sector experiences rapid development, there is a concern that the growth generates a massive need for energy. This can be done in such an extent that the whole industry produces no energy because new energy is used to fuel the production of future power plants, leading to a temporary net deficit of energy so called energy cannibalism.
A study made on Sweden’s 3090 MWe Forsmark power plant could reassure that the energy balance is not a problem within nuclear power.53
Petajoul (PJ) per 1000 Megawatt-electrical (MWe). The input over 40 years:
Mining & milling 5.5
Conversion 4.1
Enrichment 23.1 Fuel fabrication 1.2 Build, operate & decommission
plant 5.2
Waste management 4.3
TOTAL 43.4
52 Allison Macfarlane (2010), ‘Nuclear Power - A panacea for future energy needs?’, Environmentalmagazine, 52 (2), 36–38.
53 http://www.enn.com/energy/article/32208
http://www.world-nuclear.org/info/default.aspx?id=424&terms=Energy%20Analysis http://www.azimuthproject.org/azimuth/show/Energy+cannibalism
27 These electrical inputs in PJ might have come from coal fired plant so they have been
multiplied by 3 to create some marginal. Details: Re mining: 42% of U comes from Rossing (0.025%U), 37% from Olympic Dam (0.042%U), 21% from Navoi (ISL).
Enrichment: 20% Eurodif (diffusion), 60% Urenco, 20% Tenex (both centrifuge) - over 90%
of energy input for it is from nuclear. Forsmarks output is 7.47 TWh/year per Gigawatt- electrical. So that’s 299 Terrawatt-electrical or 3226 PJ after 40 years of operation. Input is then 1.35 % of the output. 54
The energy balance can however differ a lot from plant to plant. Here is data from a more typical nuclear power plant:
Mining & milling 2.0
Conversion 9.2
Enrichment 3.3
Fuel fabrication 5.8 Build, operate & decommission
plant 30.7
Waste management 1.5
TOTAL 52.5 PJ
In this case the mining was done in Australia’s Ranger mine, where there were very good grades of uranium. The enrichment of uranium is done through centrifuge, which I mentioned earlier, uses much less energy. At an output of 7 TWh/year, this plant produces 280 TWh or 3024 PJ over 40 years, input being 1.74 % of the output. The payback for building a similar 1000 MWe plant, costing 25 PJ, will have an energy payback time of only about 4 months.55
54 http://www.world-nuclear.org/info/default.aspx?id=424&terms=Energy%20Analysis
55 http://www.world-nuclear.org/info/inf100.html
28 These figures show the input in percent of a lifetimes output for various technologies:
Input % of
lifetime output
Hydro 2.3
0.5
Nuclear (centrifuge enrichment) 1.7 2.3
Nuclear (diffusion enrichment) 4.2 6.5
Coal 5.9
14
Natural gas 16.7
20
Solar 8-10
27
Wind 1.3
4.9
* In IAEA 1994, TecDoc 753.56
There are two figures gathered from each technology, the highest measured and the lowest measured. Using centrifuge enrichment for the nuclear power gives an input percentage of 2.3
% of lifetime output. Even at its most, due to maybe low mining grades, we can clearly see that the nuclear power has far better points than natural gas, coal and solar. This means that the payback time is often less for nuclear plants than these other technologies and that the efficiency is high in terms of energy output.
56 http://www.world-nuclear.org/info/default.aspx?id=424&terms=Energy%20Analysis
29
4. A Briefing of Kennedys CBA
Here we will explain in which manner Kennedy conducted his CBA: New nuclear power generation in the UK and his results.
4.1 Scope for new nuclear power generation?
The first thing Kennedy looked at was if there was is a scope for new nuclear power
generation in the UK. If there is no need for new capacity then there wouldn’t be any need for the study. Investment in new generation shall only take place to replace retirement of existing capacity and to meet demand growth of electricity. Given the expected electricity annual demand growth of 1% (0.6GW) which Kennedy used from the Department of Trade and industry and planned retirement of plants, he concludes that there will be a scope of adding at least 6GW of new nuclear capacity over the period 2021-2025, and a need of 14GW in the period 2018-2025. However in his analysis he states that the base case assumption is that new nuclear plant can be added from 2021, this would allow for an 8-year pre-construction and a 6-year construction. So the need of new capacity before 2021 will have to be from some other source of power generation, leaving a scope of approximately 6GW of new nuclear capacity.
4.2 Costs
Secondly, when now concluded that there is a need for new electricity capacity the cost and benefit analysis can begin.
Kennedy starts with the costs side of nuclear power by pointing out the uncertainties associated with costs, for example the construction time that vary from 60 up to 120 month and cost of capital ranging from 5 to 10%. These differences in the capital cost have a large impact in the levelised cost (LEC).
Levelised cost is the way Kennedy has accounted for the costs, and can be described as below:
30 The levelised cost (life cycle cost) is equal to the life discounted cost of using a generation asset converted into an equivalent unit cost of generation57, in our case £/MWh.
It = investment expenditure in the year t
Mt = Operation and maintenance expenditures in the year t Ft = Fuel expenditure in the year t
Et = Electricity generation in the year t r = Discount rate
n = Life of the system
This is a way to cover all the direct cost of a project and convert them into a present value monetary unit. External costs are however not accounted for in the LEC and therefor needs to be added to complete the cost side.
The LEC appointed to new nuclear generation by Kennedy is £30/MWh, which were the average cost estimations of new nuclear build in UK from 10 institutions (Centrica, Deloitte, E.ON, HSBC, Ilex, KPMG, Lehmans, Morgan Stanley, PB Power and UBS). He uses this cost as a low costs scenario and introduces a central and a high cost scenario too, this to modeling a range of cases for the key variables. Because some of the cost are exogenous and some are endogenous, for example Government policy will affect the LEC of nuclear. To battle this problem Kennedy as said before models different scenarios, we will not go into detail about how he concluded the central and high LEC but the result is £30/MWh for the low cost scenario, £37.5/MWh for the central, £40.20/MWh for the central high case and 44£/MWh in the high cost scenario.
With these cost estimations the relative cost of nuclear can be regarded as a cost/benefit compared to a gas-plant, a benefit if the LEC of nuclear is lower than the LEC of gas and a cost if the LEC is higher for nuclear. Kennedy compares with gas plants because it’s the most likely alternative investment.
57 http://www.decc.gov.uk/assets/decc/statistics/projections/71-uk-electricity-generation-costs-update-.pdf p. i
31 The LEC used for gas plants in his analysis is based on different gas price scenarios, and ends up with a low case LEC of £25/MWh, central of £35/MWh and a high gas price case of
£45/MWh.
When comparing the LEC of nuclear and gas the timeframe used is 40 years (t=40), which is the expected life time operation for a nuclear power plant. Than the LEC differential between the two power sources are multiplied by annual electric output to give an annual nuclear cost/penalty advantage. This cost advantage or penalty is view as a social cost/benefit and shall be discounted over 40 years. The discount rate used is a Social time preference rate (STPR) of 3.5% for the first 30 years and 3% from 31 to 75 years. The STPR are a lower discount rate that are applied to a long-term public-sector investment project, this since individuals tend to discounts long-term projects much more than the society as a whole.58 The result of comparing the different scenarios (low-central-central high-high LEC of nuclear and low-central-high LEC of gas);
“Gas-fired plant has a cost advantage over nuclear in the central and low gas price cases.
Nuclear plant has a cost advantage in the low nuclear cost and high gas price scenarios.”
By comparing the NPV of the cost advantage/penalties, gas plants is a less costly choice if the probability is the same for all scenarios, since the sum of the cost advantage scenarios is larger in the gas case.
4.3 Benefits
When the cost side has been estimated, it’s time to look at the benefits of nuclear power. If the benefits of nuclear power turn out to be greater than the cost advantage of gas, than such investments should be encourage.
First Kennedy attempts to estimate how much the carbon emissions will be reduced if adding 6GW of new nuclear power capacity relative to 6GW of gas generated power. The result from these estimations is an annual reduction of more than 4 million tons of carbon, if adding nuclear instead of gas plants. If the commitment of reducing carbon emission were to decline then the value of less emission would decrease, in an extreme case with no commitments of reducing carbon the value of carbon emission reduction would be zero. To battle the
uncertainties of the commitment or in other words the value of carbon emission reduction
58 http://www.economics-dictionary.com/definition/social-time-preference-rate.html
32 Kennedy uses three different carbon prices scenarios, a low, central and high price. These prices are figures from the Department for Environment, Food and Rural Affairs (DEFRA) estimations of the social cost of carbon. Where the present value of social cost associated to carbon over 40 years ranges from £1.3 to £3.2 billion/GW.
The second benefit measured is the security of supply benefit of nuclear power. The security of supply benefit is the cost if an interruption in the supply of gas to gas plants occurs (weather etc.). If adding 6GW of nuclear until 2025 the expected gas consumption would be reduced by 7% and the estimated probability of a major gas interruption (3.5GW) is 2%, giving a NPV of £8.6 billion for the cost of interruptions over 30 years. However the cost of interruptions can be reduced by increasing the backup gas storage capacity. The cost of 1 GW backup is estimated to NPV £100 million and 10 GW backup would mitigate the risk of fuel interruptions. This implies that in an economic point of view one should add 10 GW of backup storage for a cost of NPV £1 billion and avoid the £8.6 billion cost of interruptions.
The security of supply can therefore be seen as the avoided cost of not having to back up gas fired power plants with oil distillated capacity. Kennedy concludes that this benefit is too small in magnitude to make the case for nuclear, but will support the case and should be viewed as one benefit in the order of £1 billion.
4.4 Net Present Value benefit
These are the cost and benefit Kennedy has accounted for in his analysis and the last step is to look at the total net benefit of nuclear power. The net benefit of adding 6GW of nuclear power compared to a do nothing scenario where 6GW of gas plants are added instead, is the sum of all benefits (environment, security of supply) net of any nuclear cost penalties. Table 12 in the appendix shows the welfare balance NPV over 40 years. Nuclear had a net benefit in central/high gas prices, central/low nuclear cost scenarios, and non-zero carbon prices
scenarios, and negative in low gas price/high nuclear cost scenarios. To calculate the NPV benefit Kennedy sums the present value of benefits and costs, for example “PV benefit of low + central + high cost scenarios divided by 3 gives a PV of £2134.3 million/GW. PV of
security of supply is estimated to be the same in all scenarios so it will be £500 million/GW.
Summing the benefits together gives the benefits a PV of £2634.3 million/GW. The next step is to do the same with the costs and then sum the gains and losses together, which gives a NPV benefit of approximately £6 billion for a 6GW, in the central gas price, high carbon
33 price scenario. The net benefit for the different scenarios is expressed in Table 12 in the appendix.
Even since Kennedy’s conclusion is that there are a net benefit of new nuclear power
generation, he concludes that an economic case against nuclear arises when the probability of low gas prices or high nuclear cost is much higher than the probabilities for the other
scenarios. But in a world with commitment to carbon reduction and a gas price over 37 pence/therm59 nuclear is likely to be justified.
4.5 Summary
Lastly, Kennedy summarizes his work pointing out that the economics of nuclear depends critically on assumptions about future gas prices, carbon prices and nuclear cost prices. In some of these scenarios nuclear has a net benefit and in some gas fired-plants has a net benefit over nuclear, therefore a judgment has to be made about the probabilities of the different scenarios. This is very hard since many of these probabilities are endogenous and depend on policy decision. For example carbon, if the UK government remains committed to its long- term carbon reduction plans than the scenario with high carbon prices shall have a larger probability. The same goes for nuclear cost, where policy to improve planning processes would decrease the probability for the high cost nuclear scenario.
59The therm (symbol thm) is a non-SI unit of heat energy equal to 100,000 British thermal units (BTU). It is approximately the energy equivalent of burning 100 cubic feet (often referred to as 1 Ccf) of natural gas.
http://en.wikipedia.org/wiki/Therm
34
5. Analysis
By using the data and the previous studies we have in this paper we can now start to examine David Kennedy’s CBA. Going through his point of view step by step, as we did describing the CBA in theory, will ease the process and understanding.
Stage 1: Definition of Project
Every project must have a clear objective. It’s easy for the analysis to spread over several scenarios, so the first step is to define the project and see what scenarios it should be compared against. A CBA can usually only have a couple of scenarios.
Kennedys CBA has a clear objective; the analysis compares new nuclear build against
conventional gas-fired generation and low carbon technologies such as coal plants with CCS, wind etc.
In the CBA Kennedy will try to answer the following two questions:
• What is the scope for new nuclear power generation given the existing generation capacity stock and its likely evolution?
• What is the net economic benefit associated with nuclear relative to a do nothing case where new investment in electricity generation is likely to flow to gas-fired plant?
The first question is quite easy to give a reasonable answer to. First one have to look at existing power plants expected retirement and the assumed electricity demand growth. The estimations given by Kennedy for the first question is a low scope of 6 GW new nuclear capacity, which would result in a nuclear capital stock that doesn’t exceed the current one.
Then there’s a more aggressive build schedule in which the new build will replace existing capacity and meet demand growth, the need for new power capacity is up to 14 GW.
With the knowledge of a possible scope for new nuclear power of 6 GW, the CBA can start to estimate the second, exceedingly complex, main question.
35 The different key variables used in the analysis are: alternative nuclear costs, gas prices and carbon prices. By using different scenarios, the CBA becomes more complex but much more interesting; since the future is unknown the author of a CBA has to use different scenarios in which the key variables change. We believe that Kennedy’s choice of variables is well thought out. As we explained earlier60 the cost of bringing a nuclear power plant online is massive, therefore different discount rates, policies, construction delays, etc. have very large impacts. The price of gas is the main cost driver for the operational cost of gas fired plants (around 90% of the operation-cost) as mentioned before61, it therefore has great impact in the economics of gas plants. The same goes for carbon which affects the economics of nuclear alternative positively and gas negatively, if there are a social cost value for carbon emissions Stage 2: Identification of the Project Impacts
The next step is to clarify what effects the project will have; how the society will be affected, how will it affect the local unemployment levels or what materials and recruits will be required in the project.
Kennedy emphasizes the need for new generation capacity now and in the future, the environmental effects with and without nuclear development, as well as the security of such an investment as reduced costs of insuring against fuel supply interruptions. Kennedy does however not mention how many people will be recruited if UK were to expand its Nuclear Power. Forsmarks nuclear power plant has 970 employees. This is a considerable amount of recruits which would surely decrease unemployment in the area of interest and be a large cost for the producer. In Kennedy’s case the nuclear plants that might be added in the UK will have a capacity between 1 to 1.6 GW. Forsmark is a 3 GW plant but nuclear plants in all sizes still have higher employees than their fossil counterparts.
This is an example of a simplification Kennedy has used. He chooses to calculate the general cost of operation and management within a nuclear power plant in comparison to gas plants.
Without mentioning how many new jobs the investment will generate, excludes a decent benefit. This benefit might have been to use for the decision makers.
60 Cost and Benefit – selection p. 16
61 Cost and Benefit – selection p. 16
36 Stage 3: Which Impacts are Economically Relevant?
This step answers the question “What to count?” The effects are divided into costs and benefits, which effects will give a cost and which effects will give a benefit. Costs are the negative impacts resulting from a project; using up a resource, decreasing the quality or quantity of certain goods, increasing their price and so on. The positive impacts, also known as the benefits, are the opposite; an increase in quality or quantity of goods that produce a positive utility or maybe a reduction in price on them.
In most CBA where cost of different power sources is compared with each other, LEC is used to compare the direct cost associated with the power plan t and external cost will be added.
Kennedy has four different levelized cost scenarios; low case is £30/MWh which was the average number of estimated nuclear cost from different international sources, central case
£37.5/MWh, central high £40.20/MWh and a high cost case of 43.7£/MWh. Some of the sources used (MIT, IEA/NEA, OECD, Canadian Nuclear As.) are reliable, but since the cost model is different in different countries it would be better to use only numbers from UK instead.
Using UK Electricity Generation Cost Update from 2010 the calculated LEC for new generation nuclear power is much higher (£99/MWh). Included in this is a FOAK premium, that reflects the contractors and OEM:s expectations of additional cost undertaking the first projects.62 When more power is built the LEC is expected to be £67/MWh63 (10% discount rate) still much higher than Kennedy’s high case of £43.7/MWh.
This critique however can be seen as somehow hindsight, because the high estimations that is a better fix didn’t exist in 2007. But according to the Projected Cost of Generation Electricity 2005 Update, the LEC with 10% discount rate is between 30-60£/MWh64. Which indicates that Kennedy might have used a little too optimistic LEC? Things that have led to higher LEC since 2005-2007, are increased resource prices and the Finnish New Generation NPP that were way over budget. Due to the recent Japanese nuclear accident the LEC might increase even further if security of new NPP will have to increase.
62 http://www.decc.gov.uk/assets/decc/statistics/projections/71-uk-electricity-generation-costs-update-.pdf p. 14
63 http://www.decc.gov.uk/assets/decc/statistics/projections/71-uk-electricity-generation-costs-update-.pdf p. iv
64 http://www.ied-pt.org/pt/PDF%20-%20Confer%C3%AAncia%202/Dujardin%20Electricity%20costs.pdf
