Nuclear Internalized Costs

What is meant by "internalized costs"?

Internalized costs are the costs which can be accurately accounted for in our current systems. In energy production, these costs typically consist of capital costs, financing costs, operation and maintenance costs, and exploration costs. Some energy options incur these costs in various stages such as extraction, transportation and refinement. Profits and taxes are excluded wherever possible in order to isolate the pure cost of production.

Nuclear energy is the first energy option covered in this series where up-front capital costs dominate the overall cost picture. This requires a more precise estimation of effects such as financing costs, cost increases during construction and capital utilization rates (capacity factor). An example of the influences of these factors on the ongoing UK case is shown below. Thus, we have to take a very brief look at these cost elements before moving on.

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Financing costs

Financing costs have a very large influence on the economics of capital-intensive technologies. For example, the LCOE of a technology where all costs are in the form of an up-front capital investment with an expected lifetime of 50 years will increase by a factor of 5 if the discount rate is increased from 0% to 10%.

Financing costs (discount rate) for energy infrastructure typically consist of four main elements: the time-value of money (~0-6% to keep the financial system stable based on regional GDP growth rates), a risk premium (~1-5% to compensate for losses due to accidents or underperformance), operating costs for the financial sector (~1-2% estimated from mortgage rates relative to central bank rates), and some clean profits to investors. This study will exclude investor profits, but it should be noted that a technology will not be deployed if investors do not see a clear profit potential.

Cost escalation under construction

Nuclear power plants typically have long construction times. These years involve some financing costs even before the plant generates any revenue. In addition, nuclear suffers from a "cost escalation curse" as illustrated below for the rather extreme US case. This implies that, by the time that the plant is actually fully constructed, real costs are often significantly higher than original estimates.

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Capital utilization

Given a certain discount rate for future electricity, it is obviously best to get as much value as early as possible out of a capital-intensive generating technology. The capital cost component of the LCOE is inversely proportional to the capacity factor, implying that halving the capacity factor would almost double the LCOE of a capital-intensive technology like nuclear. It is therefore understandable that the global average capacity factor of nuclear plants is generally quite high (below), affording little freedom for load following.

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Internalized costs of nuclear

The costs of nuclear reactors vary greatly from case to case. Overnight capital costs of plants reviewed by the IEA ranged from $1556/kW in Korea to $5858/kW in the Czech Republic. Nuclear energy is currently exclusively used for electricity, but estimates for transport and heating will also be given below for comparison to other energy options.

Electricity

The LCOE of nuclear power is given below as a function of the two most important variables: plant capital costs and financing costs. Other assumptions include a $10/MWh fuel cycle cost, O&M costs expressed as a linear function of capital costs based on data in the aforementioned IEA report (also roughly $10/MWh on average), a plant lifetime of 50 years and a 90% capacity factor. A high capital utilization rate is selected for fair comparison to other capital-intensive technologies enjoying priority dispatch. The Excel datasheet used to create this figure can be accessed here.

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In addition, the effect of capital cost escalation under construction is illustrated below for several compounded escalation rates and construction times. The illustration is based on overnight costs of $4000/kW.

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Heating

The cost of using nuclear generated electricity for heat is given below.

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Transport

In order to facilitate an apples-to-apples comparison for transport costs from electricity sources, an estimate of power-to-liquids costs will be given here. Even though this article targets current internalized costs, estimated costs of mature (beyond 2020) power-to-H2 processes will be used. Assumptions include the following: $1500/kW capital costs, $60/kW.yr O&M costs, 10 year lifetime, 5% cost of capital, 80% conversion efficiency and 90% capacity factor.

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Numbers are based on PEM electrolysis in this report and Fischer-Tropsch syngas conversion numbers from this book. These costs are quite optimistic and show that the resulting synfuel costs are increasingly dominated by energy costs at an electricity cost beyond $30/MWh.

Commenting

In order to assist in finding the consensus view on the internalized costs of nuclear energy, please follow these simple commenting guidelines:

Three types of comments are welcome, each introduced by a keyword:

  1. DATA: Please give your opinion on any of the numbers presented in the article. Of particular interest is the average global capital cost of a nuclear plant at commissioning ($/kW) and the appropriate discount rate excluding investor profits (%). Each DATA comment will be weighted by the number of "likes" when the data is ultimately processed.
  2. REBUTTAL: If you strongly disagree with an existing DATA comment, please write a short rebuttal. The "likes" received by a REBUTTAL comment will subtract from the "likes" of the DATA comment. A REBUTTAL comment can once again be rebutted to reduce its weighting.
  3. CORRECTION: If you see a serious error in the numbers presented in the above analysis, please correct me so that I can correct the article.

Miscellaneous guidelines:

  • Make sure your comment gives only one piece of information (use multiple comments for multiple pieces of information).
  • Keep things short.
  • Please try to be as objective as at all possible. For this process to work, we all need to be in the mindset of dialectic instead of debate.
  • Externalities, potential technological breakthroughs and other energy options are off-topic.

Many comments are welcome. More data = greater accuracy.