POWER April 2014 - 58

NUCLEAR POWER
Driving Factors for New Nuclear Power in the U.S. and Abroad
In a conversation between Edward Kee, vice president of NERA
Economic Consulting and a long-time observer of nuclear power
issues worldwide, and POWER Contributing Editor Kennedy Maize,
Kee stressed that these are his views, and may not be the same
as the views of his NERA colleagues or clients.
POWER: What is the most important factor in
determining whether new nuclear capacity will get
built in any given country?
Kee: The most important factor for a nuclear new build decision
is how the cost of electricity from a nuclear project compares
to the cost of electricity from other sources.
The availability and cost of alternate generation fuels in a
region or country is a primary driver of this comparison. In North
America, abundant and cheap natural gas prices, combined with
low and predicable capital cost for [combined cycle gas turbine]
plants make gas-fired CCGTs a low-cost electricity option. In
countries or regions that rely on imported generation fuels (for
example, Korea and Japan), power plants burning imported coal
may have lower costs than plants using imported [liquefied natural
gas], but nuclear electricity may be the lowest cost option.
Government investments in a nuclear power project depend on
the commitment of the government to the project. In theory, this
should be based on an [integrated resource planning] process
that is similar to those used for regulated utilities. But the government
utility is likely to be a nonprofit entity with financing
through government-guaranteed debt, lowering costs. The government
may also see benefits from a nuclear power project that
go beyond the electricity sector, including increased energy security
(that is, less dependence on imported fuels), development
of nuclear industrial capability, added domestic jobs, and other
factors. For some governments, a nuclear power program may also
be a part of a general national effort to move the economy to a
higher level of technology and skills.
POWER: What about merchant plants? Can
new nuclear plants get built in a market environment
that is based on short-term, spot market
prices for energy?
Kee: Any nuclear power project is much harder in restructured
electricity markets. The difficulty is even greater if the only revenue
for a nuclear power project must come from the electricity market
(that is, a merchant nuclear project). No merchant nuclear project
has been developed. The trend appears to be toward revenue guarantees,
loan guarantees, and other mechanisms to firm up revenue
and lower costs for nuclear projects in electricity markets.
All existing nuclear power plants were built as either regulated
utility assets or as government utility assets. In the traditional
regulated and government industry approach to the electricity industry,
long-term planning was done to develop capacity expansion
plans to meet reliability, cost of service, and other objectives.
An existing and operational merchant nuclear project may be
profitable when electricity market prices are high, but that does
not mean a new nuclear power plant will be profitable. Electricity
market prices in 10 years, when a new nuclear plant would enter
commercial operation, may not be high enough for profitability.
58
There is even less certainty about electricity market prices during
the nuclear power plant's 60-year commercial operating life.
The UK Hinkley Point project may provide an example of what
must be done to get a new nuclear power plant built in an electricity
market. A package of investment incentives (for example,
long-term [contracts for differences] with high strike prices, loan
guarantees, etc.) are intended to provide long-term financial
certainty for the Hinkley Point investment. The UK Electricity
Market Reform (EMR) process is intended to encourage and guide
investment in nuclear power projects. Decades of a market-based
investment approach left the UK with a thin reserve margin and
no replacement capacity for its soon-to-be-retired nuclear fleet.
The UK EMR and the Hinkley Point deal are considered a massive
intervention in the electricity market. The UK was one of
the first countries to restructure its electricity industry (in the
early 1990s) and it now appears to be one of the first countries
to make significant modifications to the electricity market model
needed to ensure appropriate generation investment.
POWER: Is the cooperative, Finnish approach a
useful mechanism for structuring the financing of
a new nuclear build?
Kee: TVO and the Finnish Mankala structure is a viable approach
to developing and owning nuclear power plants, as demonstrated
by the TVO projects at Olkiluoto (OL1, OL2, and even
OL3). The OL3 nuclear project has project development problems
that are separate from and not caused by the TVO corporate structure
and financing approach.
The Finnish Mankala approach allows energy users (including
private for-profit companies) to join together to own a power
plant, with the owners sharing the costs and receiving a share
of the power output, without tax issues. This approach is similar
to the U.S. generation and transmission (G&T) cooperative approach,
except that the members of U.S. G&T cooperatives are all
nonprofit entities.
POWER: Some countries have pushed exports
of their technologies and nuclear vendor services.
Is this wise?
Kee: If the benefits to the country implementing an export push
strategy are greater than the costs, this may be a winning strategy.
For the U.S., the options available to push exports are largely
limited to supplying Export Credit Agency loans to non-U.S. buyers
of U.S. nuclear technology. Other countries, especially those
with a government-owned nuclear vendor, have more options
available to push exports.
Government-owned companies in the nuclear sector compete
with privately owned companies. While a private company seeks
to maximize long-term profits, a government-owned company
may focus less on earning project profits and more on gaining
market share, increasing domestic nuclear industry employment,
supporting geopolitical goals, or achieving other objectives.
Also, a government vendor may be able to take commercial risks
that a private vendor could not take. When private firms compete
head-to-head with government-owned firms in the world nuclear
power market, the private firms may have difficulty.
www.powermag.com
POWER | April 2014
http://www.powermag.com
POWER April 2014

Table of Contents for the Digital Edition of POWER April 2014
