Share risks and benefits for competitive projects, report finds

10 January 2017

Capital costs are key to the competitiveness of nuclear power projects, a new report from the World Nuclear Association concludes. The essential characteristics for structuring a nuclear project, the report says, is a suitable sharing of risks and benefits.

The Association said the aim of the report - titled Nuclear Power Economics and Project Structuring and an update from the 2012 edition - is to "highlight that new nuclear build is justified in many countries on the strength of today's economic criteria and, secondly, to identify the key risks associated with a nuclear power project and how these may be managed to support a business case for nuclear investment."

The World Nuclear Association says, "Nuclear power is an economic source of electricity generation, combining the advantages of security, reliability, virtually zero greenhouse gas emissions and cost competitiveness." The report notes that existing nuclear power plants "function well with a high degree of predictability". These plant are operating "more efficiently than in the past and unit operating costs are low relative to those of alternative generating technologies."

However, the Association notes, "In some electricity markets, especially those that are deregulated, subsidised intermittent renewable generation and gas-fired generation not penalised by carbon costs are creating economic difficulties for all baseload generators, including nuclear."

The report notes that, in deregulated markets, increased revenue uncertainty is hampering investment in capital intensive projects such as nuclear new build. It adds that if system and external costs of competitor technologies are added to the plant-level costs, the competiveness of nuclear is enhanced. "In order for these advantages of nuclear to be fully realised, policymakers need to address fundamental market design problems," it says. "In some countries, deregulated markets are being partially re-regulated in order to place monetary value on the qualities that nuclear power brings."

The Association notes that some countries have imposed nuclear-specific taxes. These, it suggests, have in some cases "deprived operators of the economic incentive to continue to operate existing plants."

New build projects

The report says the overall economics of new nuclear plants are dominated by their capital costs. In the assessment of new capacity, studies show that capital costs including accrued interest account for around 65-85% of the levelised cost of a new nuclear plant.

"Structuring a nuclear new-build project for success requires the identification and understanding of the various risks associated with a project of such magnitude and complexity," the Association says. "Projects must be structured to reduce and share risks amongst key stakeholders in a way that is both equitable and that encourages each project participant to fulfil its responsibilities."

"The business case for nuclear ultimately depends on the structure of risk allocation between operators, investors, governments, suppliers and customers," the report says. It concludes that there is "no single way to structure a nuclear project; a number of project models can succeed." However, it notes, "The essential characteristic is a suitable sharing of risks and benefits."

Government policies

For a nuclear power project to be successful it needs governmental support "in the form of policies that affirm its value and which establish a framework for its operations," the report says. "As a starting point, government should commit to nuclear power as a part of national energy strategy and, in countries facing a likelihood of change in governing party, this should include a considerable degree of cross-party consensus."

World Nuclear Association director general Agneta Rising said, "Without effective markets that encourage the right long term investments and fair treatment for nuclear in electricity markets the world runs a serious risk of failing to meet its needs for clean and affordable electricity."

Rising added, "Many governments want to encourage low carbon electricity generation to help meet their objectives of reducing greenhouse gas emissions. But too many of these policies, by supporting only renewables, are threatening the operation of low carbon nuclear generation as well as fossil fuels, wiping out the environmental benefits that the policies should achieve."

The World Nuclear Association has developed a vision for the future of electricity, referred to as Harmony. This is based on the International Energy Agency's 2-degree scenario which aims to avoid the most damaging consequences of climate change and requires a large increase in nuclear energy. Harmony envisages a diverse mix of low-carbon generating technologies deployed in such a manner that the benefits of each are maximised while the negative impacts are minimised. The Association's target for nuclear energy is to provide 25% of electricity in 2050, requiring roughly 1000 GWe of new nuclear capacity to be constructed.

Researched and written
by World Nuclear News