What’s the Price of Nuclear Power? (probably higher than you think)

Eighteen separate plants with 28 individual utility-scale nuclear projects are working their way through the Nuclear Regulatory Commission. Each share a common characteristic with their operating cousins built in the 1970’s and 1980’s: their actual construction price will be far more than today’s estimates–generally between $8,000 to $10,000/kW. (And as I will explain in a separate post next week, micro nuclear, such as designed 125 MW and 335 MW models, is no panacea with cost problems associated with first generation technology.)

Hoping to reduce the rate of construction cost increases, utilities today are using lump sum pricing and standardized designs to better manage the construction and completion risks. However, nuclear fuel price uncertainty–both purchase and disposal of spent fuel costs–may also push up future operating costs. Future nuclear fuel reprocessing is the answer everywhere but the U.S.

Long-cycle Production = Cost Inflation

The New York Times reported on January 18, 1984: “3/4 of [U.S.] reactors cost consumers at least double what was promised,” and “in 28% of cases, final cost was more than four times the estimate.” The developers of those plants were heavily criticized a quarter-century ago for their steeply rising cost of construction.

Today, the final construction costs are all but forgotten because of our fleet of 104 nuclear plants produce electricity for less than 2 cents/kWh and are this country’s most reliable electricity generators. But to the extent that long-cycled production still exists, the likelihood of significant cost inflation remains, unfortunately.

In currently operating nuclear plants, the average construction period was 9.3 years with the longest 23.5 years. In Japan, close attention to modularization and construction sequencing have reduced construction times for the ABWR reactor design. For example, Unit 7 at the Kashiwazaki-Kariwa Nuclear Power Plant, the largest nuclear plant in the world, began construction on July 1, 1993, was complete on December 17, 1996, and achieved first criticality on July 2, 1997—four years after the first shovel of dirt was turned!

But the latest cost estimates of new nuclear plants have strikingly grown. For comparison purposes, today’s cost of a state-of-the-art pulverized coal supercritical power plant is on the order of $2,000 to $2,500/kW. The expected construction cost of an IGCC without carbon capture is over $3,000/kW compared to nuclear’s $8,000–10,000/kW price tag.

• NRG, also using Japan’s ABWR reactor technology, initially estimated the two proposed units at the South Texas Project would cost $5.4 billion in testimony to an Atomic Safety and Licensing Board hearing two years ago. The estimates climbed to a reported range of $6 to $7 billion less than a year ago. The latest estimate, released Monday June 29 has the price just passing through $10 billion less financing costs, or about $5,000/kW.
• Florida Power & Light submitted an estimate to their Public Service Commission late last year for their proposed two-unit Turkey Point plant in $12.1 to $17.5 billion range (in 2007 $) that includes an allowance for funds during construction (assumed 11.04%) and an inflation multiplier of 2.5% over the project. In April, FPL’s estimates ranged from $12 billion to $24 billion depending on the size of the plant (2,200 to 3,000 MW) finally selected or about $6,000 to $8,000/kW.
• Duke Energy has also increased the estimated cost of their proposed William States Lee III nuclear plant. The original estimate was submitted to the North Carolina Utilities Commission with its 2005 Integrated Resource Plan where the utility estimated the price at $4 billion to $6 billion. By November 2008, the estimate had risen to $11 billion or about $10,000/kW.
• Progress Energy recently updated their cost estimate for their proposed two unit Levy Plant to $17 billion or about $8,000/kW.

Rising Fuel Prices

On the variable cost side of the ledger, the conventional wisdom seems to overestimate the future supply of uranium fuel. I have some concerns about nuclear fuel supplies going forward.  The focus of the new global nuclear push (47 under construction), especially when the China (12 under construction), Russia (8) and India (6) building plans are considered, is going to put pressure of the global uranium supply. As demand increases, uranium fuel supply chains will tighten which could portend a uranium-fuel prices price surge after 2013 for several reasons:

• The U.S.-Russia program to take Russian highly enriched weapons-grade uranium and blend it down to reactor-grade fuel (some U.S. observers call this “uranium impoverishment”) will end in 2013 and Russia has made it clear that it has no intention of resuming the program. That program has generated 24 million pounds of reactor fuel annually and has been kept the price of uranium fuel in the U.S. artificially low.  (A good summary of the current status of the “megatons to megawatts” program is here.)
• Cameco Corp, a key producer of uranium fuel, predicts a supply deficit of approximately 400 million pounds of U₃O₈ by 2018 in the latest 10-year outlook. The problem, according to Cameco, is the need to develop new mines. But mine development is difficult and expensive. Prices will have to rise before developers will commit capital to new mines. The EIA data on uranium purchases is starting to show this trend of steep fuel price increases.
• Many utility long-term nuclear fuel contracts will be up for renegotiation by 2013.

On the other hand, the very fact of increasing demand and rising prices might spur the entrepreneurial process to accomplish what now if not known or even imagined. Market institutions, however, will be needed for a supply response to a demand response.

The “Decision” to Defer Reprocessing

Our self-imposed vulnerability to future nuclear fuel price uncertainty is unlikely to be reconsidered by the current administration. In 1977, the Carter Administration placed a permanent moratorium on commercial reprocessing and recycling of plutonium produced in U.S. nuclear power plants. As a result, approximately 97% of the recoverable uranium and plutonium from used nuclear fuel (UNF) became nonrecoverable waste products. In 1993, President Clinton reaffirmed the U.S. deferral policy that discouraged reprocessing and research.

In France, the AREVA La Hague plant has a commercial reprocessing capacity of 1,700 metric tons of UNF per year, equivalent to annual UNF discharges from 90 to 100 light water reactors. For more than 20 years, this company’s reprocessing agreements have been in effect with the French nuclear program, Japanese power companies, and 29 European power companies, which are located in Germany, Belgium, Switzerland, and the Netherlands. From 1990 to 2007, the La Hague site has reprocessed approximately 23,600 metric tons of UNF for the recovery and recycling of uranium and plutonium for new fuel.

A Missed Opportunity?

Here’s a question to ponder: Would we be more energy independent today if the $100 billion invested in the study of Yucca Mountain had been invested in building a nuclear fuel reprocessing facility?