Economics of New Reactors and

Alternatives
Jim Harding
Harding Consulting
Carnegie/NPEC Conference
February 2009
Washington, DC

How Did Keystone Address

Economics?
We started with recent Asian experience
Escalated at 4 percent real based on chemical
plant experience
After publication, we found 8-15 percent real
more correct
Borne out by new estimates from utilities and
investment banking firms

Asian Experience
Plant

MWe

COD

Yen@COD 2002$s/kW 2007$s/kW

Onagawa 3

825

Jan 2002

3.1 Billion

2409

3332

Genkai 3

1180

Feb 1994

4 Billion

2643

3656

Genkai 4

1180

Jul 1997

3.2 Billion

1960

2711

KK 3

1000

Jan 1993

3.2 Billion

2615

3617

KK 4

1000

Jan 1994

2.2 Billion

2609

3608

KK 6

1356

Jan 1996

4.2 Billion

2290

3167

KK 7

1356

Jan 1997

3.7 Billion

1957

2707

Y 5 (SK)

1000

Jan 2004

1700

2352

Y 6 (SK)

1000

Jan 2005

1656

2290

2354

3257

Average

Cost data from MIT 2003 study. Average does not include South Korean units, owing to
labor rates. Real escalation from 2002-2007 at 4 percent/year. Avg is $2950/kW w/SK.

520

1,350

500

1,300
Chemical Engineering Plant Cost Index

480

1,250

Marshall & Swift Equipment Cost Index

460

1,200

440

1,150

420

1,100

400

1,050

380

1,000

360

950

Jun-98

Jun-99

Jun-00

Jun-01

Jun-02

Provided to Keystone panel by EPRI

Jun-03

Jun-04

Jun-05

Jun-06

Marshall & Swift Equipment Cost Index

Chemical Engineering Plant Cost Index

We Estimated 4% Real Escalation

Per Year, 2002-2007

Utility Data Suggests 8% Real Might Be More

Realistic

Commodity Esc 86-03

Nickel

3.8%/yr

Ratio vs.
History
60.3%/yr
15.9x

Copper

3.3%/yr

69.2%/yr

21x

Cement

2.7%/yr

11.6%/yr

4.3x

Iron/Steel

1.2%/yr

19.6%/yr

16.3x

Heavy
construction

2.2%/yr

10.5%/yr

4.8x

Source: American Electric Power

Esc 03-07

Nuclear-Specific Data Suggests 14%

Real/Year

The Differences are Significant

0% Real

4% Real

8% Real

14% Real

Med overnight

$4050/kW

$5400/kW

$7100/kW

$9050/kW

High overnight

$4540/kW

$6050/kW

$8000/kW $10150/kW

Med overnight

10.7 c/kWh 13.4 c/kWh 16.9 c/kWh 20.7 c/kWh

High overnight

11.7 c/kWh 14.7 c/kWh 18.6 c/kWh 23.0 c/kWh

Future overnight cost estimates are in 2007 dollars, and are based on FP&Ls recent Turkey Point 6/7
estimate. Electricity costs are levelized lifecycle costs, with interest and operating costs.

Recent Estimates

Keystone - $3600-4000/kW; 8-11 cents/kWh

Real 2007 dollars, 5-6 years of construction, for operation in 2012/2013.
Would be $5600/kW (16-17 cents/kWh) at AEP escalation rate to 2013.

Standard & Poors - $4000/kW; 9-10 cents/kWh

Basis not stated; levelized fixed charge rate
Life cycle costs reflect Keystone O&M and fuel costs

Moodys - $5000-7500/kW
Basis not stated; operating and fuel costs not estimated

Florida Power & Light - $4200-6100/kW

Current dollars at COD converted to real 2007 dollars

Puget Sound Energy - $10,000/kW

Basis not stated, but consistent with FP&L plus AEP escalation rate
through completion.

Estimated Life Cycle Costs for Major Supply Options

(2007$s)
Pulverized
Coal

Capital Cost
($/kW)

Gas (CCCT) Eastern

IGCC

Wind

Nuclear

3000-4000

1000

???

17002500

5000

Capital charges
(cents/kWh)

6.3

2.1

9.0

7.1-13

10.4

Delivered Fuel
(cents/kW)

4.0

8.8

4.0

1.7

O&M
(cents/kWh)

2.2

1.1

2.2

2.9

Cents/kWh

12.5

12.2

15.2

8-14

15.0

These are Standard & Poors estimates, not mine. Essentially all the bottom line
numbers have doubled in three years!

So What Happened to Solar Over

this Period?

It went down in cost, despite rising materials costs and supply-chain

imbalances. Roughly 30 percent 9 percent eaten away by materials
cost escalation
Perceived as a disruptive technology (i.e., potentially cheaper than
marginal operating and fuel costs of the existing system) in many parts
of the world
How many new phone lines did MaBell build after the cell phone?
Only disruptive technologies have unlimited growth potential they
can cannibalize the existing system and grow quickly enough to
address climate problems
Efficiency resources meet that definition cost less than gas or coal.
3x more carbon savings per dollar than new supplies.
Photovoltaics are now disruptive in high cost regions grid parity may
be a few years away for most of the world

Rapid Renewable Growth Worldwide

Recent worldwide annual growth in PV production capacity is +50% per year. Note
that PV industry projections for 2005-2010 were nearly flat.

The Vendors Underestimated

All figures in MW-dc of Cells

Not flat through 2010, but 50% annual global growth

More poly-silicon available than commonly thought.
Increasing production of thin film

Much growth has shifted to China, Taiwan, Malaysia

US expansion is mainly thin film; also growing rapidly
Source: Travis Bradford, Solar Energy Market Update, April 2008. Units are MW of annual
production capacity.

Fast Growing Production Capacity

Massive Plants expected through 2010:
Sharp 2 GW (2010)
Kyocera 500 MW (2009)
Sanyo 350 MW (2008)
First Solar 450 MW (2009)
United Solar 300 MW (2010)
SunPower 500 MW + (2010)
Suntech 1 GW + (2010)
Q-Cells 1 GW? (2010)
Conergy 250 MW (2008)

Source: Bradford, ibid. April 2008

Ever-Q 300 MW (2010)

Solland 500 MW (2010)
Schott 480 MW (2010)
SolarWorld 1 GW (2010)
Yingli 600 MW (2010)
Motech 450 MW (2010)
Trina 660 MW (2010)
E-Ton 300 MW (2009)
JA Solar 275 MW (2008)

PV Production and Installed Capacity Are

Taking Off

Source: Prometheus Institute and Photon Magazine numbers for worldwide capacity and
projects underway. Lets go back to slide 12 off the chart! Plus 60%/yr annual average
growth rate; much faster in recent years

Grid Parity Accelerates at

$4/Watt

Note: if new resource options like nuclear cost 12-16+ cents/kWh, then
Seattle and Fargo look like Boston!

15

Ibid.

In the last six months

Nearly all major PV manufacturers are sharing quantified
plans for achieving grid parity ~ 2010
Nanosolar announces 1 GW/yr CIGS production tool for
$1.65 million (10-30 MW/yr is typical)
Big utilities are jumping in
Iberdrola builds wind, PV, and solar thermal (Spain)
Eon/Schuco and Enel/Sharp building thin-film plants in Germany
and Italy, respectively
Endesa building PV plant with Isofoton in Spain
Electricite de France takes major stake in Nanosolar
PG&E announces 800 MW PV project for 12 cents/kWh
SCE rate-basing 50 MW/yr at $3.50/watt installed
Long Island Power Authority 50 MW solicitation
PSE&G announces major PV financing program

The Bottom Line

Coal and nuclear power are expensive
Financial crisis hurts all large capital intensive
options
Efficiency remains the cheapest supply option
PV is at or near parity with new resources in most
of the world, and is rapidly nearing grid parity
Utility eligibility for solar ITC is big, especially with
collapse of tax equity market
Every utility and policy maker needs to stay on top of
this technology

Supplemental Slides

Nuclear, Coal, and Gas All

Vulnerable Going Forward
Nuclear
Industry moribund in Western Europe, US, and Russia since TMI
and Chernobyl
Twenty years ago (US): 400 suppliers, 900 N-Stamp holders;
today 80 and 200
Only one forge for large parts Japan Steel Works
Uranium production well below global consumption

Coal
Imminent carbon controls, rail constraints
Rapidly rising international coal prices

Gas
High price and volatility; hedges and other protections thin
At $13/million BTU, only $75.40/bbl of oil equivalent

Start with the Nuclear Renaissance

It isnt cheap - capital cost is growing rapidly

EIA - $2083/kW (2005)

Keystone - $3600-4000/kW (June 2007)
S&P - $4000/kW (May 2007)
Moodys - $5000-6000/kW (October 2007)
FP&L - $5700-8020/kW (Fall 2007)
Puget Sound Energy - $10,000/kW (January 2008)

Operating costs less important but not insignificant

Discounted life cycle cost estimates range from 6-18
cents/kWh.
Inconsistent economic methodologies (e.g., mixed vs real
current dollars at different completion dates)

Whats Wrong Here?

Finance capital cost for 2 coal or nuclear units
may be larger than the utilitys book value. Bet
the company
Rate shock and physical bypass first year cost is
1.6x levelized cost, or not appreciably better than
todays photovoltaics. Bet the company and
consumer
Delays and further cost escalation. Bet the
company
Huge capital flows diverted from more promising
options. Bet the consumer

Estimating Cost is Tough

No recent North American or European nuclear construction

experience
Historical estimates were targets more than estimates
Software assumes Asian construction practices, and excludes owners
costs contingency, escalation, interest during construction, land,
transmission, and oversight. No delays
No incentive to be accurate; no real money being spent

Often not considered:

Escalation during construction; first of a kind premiums and learning
curves instead
Supply-chain problems (key parts, leadtimes, skilled labor, sub-suppliers,
uranium)
Transmission costs and lead time
Finance and siting challenges

Current Market Dynamics

Crystalline vs. Thin Film

Current market dynamics suggest prices and costs not

correlated
Source: Bradford, ibid.

Module Price Forecasts

Source: Bradford, ibid, April 2008.

US DOE, Solar Energy Industry Forecast: Perspective on US Solar Market Trajectory, May
2008.

US DOE, Solar Energy Industry Forecast: Perspective on US Solar Market Trajectory, May
2008.

Steeper Curve Than in the Mid 80s

Chemical Engineering Plant Cost Index
600.0
avg. slope from 1959 - 2005 ~ 3.5 %/yr
avg. slope from 2002 - 2005 ~ 7.4 %/yr

500.0

Index

400.0

300.0

200.0

100.0

0.0
1950.00

1960.00

1970.00

1980.00
Year

1990.00

2000.00

2010.00

The International Challenge

370 GWe of existing nuclear capacity in 20+ nations
All retired, with or without life extension, by 2030-2050
Socolow/Pacala wedge 1 GTe of carbon avoidance; 7
GTe are required

700+370=1070 GWe of nuclear capacity required by 2050-2060

21 GWe per year on average
23 new enrichment plants
10 Yucca Mountain repositories
36 new reprocessing plants and 100+ MOX plants, if fuel is
recycled

Is it possible? Can it happen without weapons

proliferation?

Retirements Quicken by 2020

Capacity
in MWe

Projection 2005-2047 of Net Nuclear Reactor/Capacity Start-up and Shut-down

of Units operating or Under Construction in the World in 2005

7,000

Estimate on the Basis of 40 Years of Mean Lifetime (32 years for Germany)
(in MWe and Number of Units)

Number of
reactors

2,000
2049

2047

2045

2043

2041

2039

2037

2035

2033

2031

2029

2027

2025

2023

2021

2019

2017

2015

2013

2011

2009

2007

2005

-3,000

-3

-8,000

-8

-13,000

-13
Capacity connection / retrieval

-18,000

Reactors added / retrieved

-23,000

-28,000

-18

-23
Net decennial balance:
- 47,069 MWe
- 80 reactors

-33,000

- 171,323 MWe
- 197 reactors

- 100,570 MWe
- 106 reactors

- 38,212 MWe
- 44 reactors

-28

-33
Source: IAEA PRIS

Mycle Schneider Consulting

Loccum, 19 January 2007

Forecasts of International Capacity by 2030

Source

GW 2030

GW/yr

% world
electricity

Net
additions

Outside
OECD
and
Russia

IEA Reference
(WEO)

415

2 GW

10%

45

100

IEA Advanced

519

6.5 GW

15%

149

50

US EIA

481

4.7 GW

12%

110

72

Institute for Energy

Economics (Japan)

480

4.7 GW

NA

110

100

GW per year is calculated by assuming no existing worldwide capacity is retired before 2030

Proliferation is the Big Problem

700 GWe net additions make a wedge
EIA and IEA forecasts show near zero net
growth in non-Asia OECD through 2030
Projected growth in India and China keeps
nuclear at current fraction of supply (2-6%)
Bulk handling facilities are the problem
reprocessing and enrichment

Jeff Combs, President, Ux Consulting Company, Price Expectations and Price

Formation, presentation to Nuclear Energy Institute International Uranium Fuel
Seminar 2006

Reprocessing Is Still Expensive

Fuel cycle steps
Uranium
Enrichment
Fabrication
Disposal
Reprocessing
Fuel cycle cost
Open
Closed
Differential

MIT
$30/kg
$100/SWU
$275/kg
$400/kg
$1000/kg

This analysis
$300/kg
$140-340/SWU
$275/kg
$400/kg
$1500-2000/kg

0.5 cents/kWh

1.6-2 cents/kWh

2 cents/kWh

3.4-4.3 cents/kWh

4x

2-3.5x

Approximately 5.25 kgs of spent fuel must be reprocessed to obtain 1 kg of MOX.

Technical Innovation Driven by

Standards

Utility Programs Are Also

Important
Figure 1 - Annual Lost-Opportunity Achievable Potential Supply Curve

A c h ie v a b le P o t e n t ia l ( a M W )

100
2005 (aMW/yr)

90

2007 (aMW/yr)

80

2009 (aMW/yr)

70

20011 (aMW/yr)

60

20013 (aMW/yr)

50

2015 - 2024 (aMW/yr)

40
30
20
10
0
$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

Levelized Cost (2004$/MWH)

Northwest Power Planning Council, Achievable Savings, August 2007

$120

Historical Northwest Utility Programs

Figure 10 - Annual Utility Program Conservation Savings
1980 - 2005
160

120
100
80
60
40
20
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

Savings (aM W )

140

Year

Northwest Power Planning Council, Achievable Savings, August 2007

Compact Fluorescent Market Penetration

Figure 8 -Estimated ENERGY STAR CFL Market Share for the Northwest and U.S., 2000-2006

34%
32%
30%
28%
26%
24%
22%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

NW CFL Market Shares

2006 Q 4

2006 Q 3

2006 Q 2

2006 Q 1

2005 Q 4

2005 Q 3

2005 Q 2

2005 Q 1

2004 Q 4

2004 Q 3

2004 Q 2

2004 Q 1

2003 Q 4

2003 Q 3

2003 Q 2

2003 Q 1

2002 Q 4

2002 Q 3

2002 Q 2

2002 Q 1

2001 Q 4

2001 Q 3

2001 Q 2

2001 Q 1

2000 Q 4

US CFL Market Shares

Sources: NW CFL sales 2000-2006: PECI and Fluid Market Strategies sales data reports; and NEEA estimate of an additional 1.5 million WAL-MART CFLs sold
region-wide in 2006 (See Appendix A [Section 9.1.1] of MPER3 for more detail); U.S. and NW population estimates 2000-2006: U.S. Census 2004; U.S. market shares
and non-CFL sales 2000-2005: Itron California Lamp Report (2006); U.S. market share 2006: D&R International (personal communication).

Updated Lifecycle Costs

Cost Category

Low Case

High Case

Capital Costs

6.0

7.9-12.7

Fuel

1.6

2.0

Fixed O&M

1.3

2.5

Variable O&M

0.5

0.5

Total (Levelized
Cents/kWh)

9.4

12.9-17.7

Low case is Keystone, without South Korean units. High cases cover
Keystone through Puget capital cost estimates. First year 1.7 times higher.

Why Take Solar in Seattle

Seriously?

Rapidly rising costs and risks for all new conventional

resources, including nuclear, coal, gas, and wind
Rapidly falling cost, and increasing efficiency and
production capacity for PV at or approaching parity
with all the above in many parts of the world!
Building integrated materials wont stop at the border
Imminent major investments by NW utilities
Consistent with community values
Digestible size, no transmission required
Possibility of state or federal RPS carve-out for solar or
feed-in tariffs