Can nuclear compete for a bigger role in the transition?
by Paul Evans and River Bennett, February 15, 2019
With plans to phase out coal-fired generators in most of Europe, nuclear is trying to compete with gas to become the most viable baseload power source to accompany renewables on the path to net-zero emissions. Both technologies have their advantages. Gas is competitively priced while nuclear generates power with almost no emissions. Right now, gas’s cost advantage is evidently great enough to tip the balance.
If nuclear advocates are to distill the debate down to a straight-up contest they must first demonstrate that nuclear generation can be competitive on cost. River Bennett and Paul Evans believe there are significant opportunities for savings which could do just that.
The lesson from Hinkley Point is that nuclear power must supply cheaper electricity in order to compete with natural gas. In 2012 prices, the plant delivers electricity at a strike price of £92.50 per megawatt hour – significantly higher than even expensive offshore wind projects and natural gas in the UK. Dieter Helm, a professor of energy economics at Oxford University, estimates that if Hinkley Point were financed through government borrowing rather than private capital it would have been roughly half the cost. This may seem a brazen subsidy, but since the public is already footing the bill through electricity prices and other direct subsidies, such a strategy would effectively save the British-taxpayer billions. Simply changing the financing model would have reduced the Levelized Cost of Energy (LCOE) to a cost in line with natural gas, but with 40 times lower carbon emissions.
Cost of baseload technologies with 3%, 7%, & 10% cost of capital:
However, allocating more taxpayer cash to nuclear projects is not necessary to reduce costs.
A 2018 report by the Energy Technology Institute, a government-backed research body, showed that huge savings are possible with simple modifications. Kirsty Gogan, the report’s author, commented that, “just by implementing best practices and achieving economies of scale it would be possible to obtain cost reductions of 30-40%”. This cost reduction is not a project manager’s spreadsheet-built fantasy either. The construction of similarly designed nuclear power plants in South Korea can deliver an LCOE of $51.37 (£39.61) per megawatt hour, even when financed with private capital at 10%.
Perhaps the most important takeaway from the ETI report is that the main cost determinant for nuclear new build is whether the plant design is complete before breaking ground. Design modifications that take place during construction have proven to significantly increase construction length and overall cost. New builds for similar designs to those experiencing overruns in the UK are being delivered at competitive prices in countries like the UAE and China. Costs came down further when the companies constructing those plants had more experience. Adopting these best practices can also improve the financing conditions of a power plant through reducing costs and risk – allowing “the borrowing of less capital, at a better rate, and with a shorter payback time” according to Gogan.
Finally, the majority of existing light water reactor designs, including Hinkley Point, are capable of operating far past their originally-licensed 35-40 year life spans: these extensions can vastly improve the economics. In the United States a number of plants are already obtaining 20 year extensions to keep generating into their 50s and beyond. Dominion Energy, the utility that manages Surry Nuclear Power Plant in Virginia, has already filed to extend the plant’s life to 80 years.
In the medium-term new technologies known as small modular reactors (SMRs) show promising cost reduction potential without compromising safety. One such technology designed by the Oregon-based company NuScale Power has already made it through the first stage of licensing at the U.S. Nuclear Regulatory Commission. NuScale also has interested utility customers in the state of Utah and most recently The Kingdom of Jordan. Modular reactors have promise since they are designed in part to reduce the length, risk, and costs associated with large-scale infrastructure projects, accomplishing much of the reactor construction as a manufactured product. Producers hope to capture similar economies of scale as the aircraft industry where Boeing and Airbus mass produce complex engineering projects.
Whilst the cost reductions with SMRs are important, they are far from revolutionary. We are not going to see electricity ‘too cheap to meter’. NuScale Power estimates they can provide electricity at an LCOE of $99 per megawatt hour for private investors and $67 per megawatt hour for a state or municipal client, with further cost reductions of up to 20% for multiple reactors. This also assumes a plant life-cycle of 40 years, which in most cases is extended. In the best-case scenario this is at a cost as low as coal when considering the whole life-cycle of the plant, and even before taking into account negative externalities from carbon emissions. Compared with gas though this is more economical, particularly in Europe. NuScale CMO Thomas Mundy commented that “beyond $5/MMBTU our technology is competitive with Combined Cycle Gas Turbines”. At the National Balancing Point, Europe’s most liquid gas exchange, natural gas has been traded at a spot price above $5/MMBTU since August 2017.
Nuclear power becomes even more economically interesting if you factor in a carbon price. Carbon prices in the European Union, measured via the Emissions Trading System (ETS) effectively tripled in 2018 – outperforming any other commodity. Research by Mckinsey Energy Insights shows that even low carbon prices will encourage the use of gas over coal, but prices above $30 per ton could make gas less attractive. With a higher carbon price and the use of best practices for plant construction, nuclear energy might just stay in the race.
- River Bennett is a researcher for the Nuclear Innovation Alliance and currently pursuing graduate studies in nuclear engineering (twitter: @riverbennett)
- Paul David Evans is a graduate student of International Energy at SciencesPo Paris. (twitter: @_pauldevans)