Edward Kee Nuclear Power Economics and Markets IBC - Decommissioning of Nuclear Reactors & Materials 29 – 30 September 2014; Miami, Florida
Edward Kee
Nuclear Power Economics and Markets
IBC - Decommissioning of Nuclear Reactors & Materials 29 – 30 September 2014; Miami, Florida
The NECG slides that follow are not a complete record of this presentation and discussion. The points of view, opinions, and conclusions expressed in this presentation and the accompanying discussion may not be the same as the views of NECG’s clients or the views of my colleagues.
© 2014 NECG
Disclaimer
29 Sep 2014 IBC 1
Program agenda
09.30 Changing face of nuclear economics– Electricity industry and nuclear business models– Electricity market dynamics– Impact of non-conventional natural gas– Renewable sector subsidies
10.00 Market analysis of nuclear power– Nuclear power global activity– Highlights of key markets
29 Sep 2014 2IBC
Changing face of nuclear economics
29 Sep 2014 IBC 3
Nuclearbusiness
model
Electricityindustrystructure
Electricity fundamentals
New nuclear development factors
Politics & public
opinion
29 Sep 2014 IBC 4
Politics and public opinion
Public support not sufficient
Public opposition– May rule out nuclear power (e.g., Austria)– Makes nuclear projects harder
Shapes role of government
Politics & public
opinion
29 Sep 2014 IBC 5
Electricity fundamentals
Electricity system– Long-term investments– Real-time dispatch
Value of nuclear electricity– Linked to other generation options– Availability of alternate fuels is key
Electricity fundamentals
29 Sep 2014 IBC 6
Electricity time scalesfrom seconds to centuries
Before
Physical &
financial contracts
Pre-dispatch
Dispatch & market clearing
Contract settlements
Spot marketprices
Real time system control
Decades
Months
Years
Weeks
Hours
Seconds
Real time
After
Generation investments
Investment returns
Months
Hours
Years
Reserves &
ancillary services
Decades
Real-time: Dispatch to meet demand; minimize system short-run marginal costs
Long-term: Invest to meet demand; minimize total system long-run costs
Electricity fundamentals
29 Sep 2014 IBC 7
29 Sep 2014 8IBC
Nuclear value based onprimary energy alternatives
Source: Figure ES.1; OECD Generating Costs 2010, LCOE in US$//MWh; 5% discount rate
Electricity fundamentals
Nuclear value linked toprimary energy alternatives
Source: Figure 4.10a; OECD Generating Costs 2010, LCOE in US$//MWh; 5% discount rate
South Korea:
Electricity fundamentals
29 Sep 2014 IBC 9
Electricity industry structures
Government-owned electricity sector
Investor-owned regulated utility
Electricity markets
Electricityindustrystructure
29 Sep 2014 IBC 10
Government utility
TRANSMISSION
$
MWh
RETAIL SERVICES
DISTRIBUTION
Government
Citizens andtaxpayers
CONSUMERS
$
System Dispatch
Power PlantsElectricityMinistry
Electricityindustrystructure
29 Sep 2014 IBC 11
Regulated utility
TRANSMISSION
RETAIL SERVICES
CONSUMERS
DISTRIBUTION
Utility regulator
Investors
System Dispatch
Power Plants
$
MWh
Electricityindustrystructure
29 Sep 2014 IBC 12
Electricity markets
TRANSMISSION
$
MWh
RETAIL SERVICESCONSUMERS
DISTRIBUTION
Electricity Market
Investors
Utility regulator
Power Plants
Market oversight
Electricityindustrystructure
29 Sep 2014 IBC 13
Electricity market issues
No electricity market revenue for– Capacity (may be short-term capacity market)– Clean (i.e., no CO2) operation– Long-term asset operation– Stable fuel costs
In US, low natural gas prices lead to lower market prices in on-peak periods
Out-of-market subsidies for renewables leads to distorted and even negative prices
Electricityindustrystructure
29 Sep 2014 IBC 14
Demand
Spot Price
Bids
SMP (high)
Demand (high)
Illustrative trading period (eg, an hour)
Spot price refers tosystem marginal price (SMP)
SMP (low)
Demand (low)
29 Sep 2014 IBC 15
Electricityindustrystructure
Demand
Spot Price
Bids
SMP (high)
Demand (high)
Illustrative trading period (eg, an hour)
SMP with low gas prices
SMP (low)
Demand (low)
29 Sep 2014 IBC 16
Electricityindustrystructure
SMP (high)
High natural gas prices
Low natural gas prices
PlantA
Plant B
Demand
Spot Price
Bids
SMP
Demand
Illustrative trading period (eg, an hour)
Total cost of power –High natural gas prices
Gas-fired uniton margin
Profits
29 Sep 2014 IBC 17
Electricityindustrystructure
PlantA
Plant B
Demand
Spot Price
Bids
SMP
Demand
Illustrative trading period (eg, an hour)
Total cost of power –Low natural gas prices
Gas-fired uniton margin
– lowergas prices
ProfitsLosses
29 Sep 2014 IBC 18
Electricityindustrystructure
Demand
Spot Price
Bids
Illustrative trading period (eg, an hour)
Out-of-market subsidies(e.g., PTC) - distorts bidding
SMP (negative)Demand
29 Sep 2014 IBC 19
Units (e.g., nuclear) bidding into market as price-takers or must-run will pay to operate when SMP is negative
Electricityindustrystructure
Uncertain revenue inelectricity markets
Market investments based on future revenues
Hard to predict future electricity market revenue– Market simulations with range of assumptions (new
entry, fuel prices, demand, market rules, etc.)– Scenarios to reflect major uncertainties and identify
key revenue risks and opportunities
New nuclear time-lines make this really difficult – Revenue starts at COD (10 years after project start)– Project operates for 60 years (or more)
Electricityindustrystructure
29 Sep 2014 IBC 20
Nuclear business models
Government or regulated utility
IPP with power contracts
Energy user cooperatives
Merchant project selling into market
Nuclearbusiness
model
29 Sep 2014 IBC 21
Nuclear project cash flow
0 10 20 30 40 50 60 70 80 90 100 110 120
Cost Revenue
10+ year development and construction period
Illustrative
Uncertain revenue
Liabilities for decommissioning and spent fuel disposition
Prolonged outage possible, with high cost and no revenue
Significant fixed costs (fuel + O&M)
Large and uncertain capital cost
Nuclearbusiness
model
29 Sep 2014 IBC 22
Traditional power projectbusiness models
Government utilityMonopoly utility rates; government guarantees
Regulated utilityMonopoly utility rates; corporate guarantees
Long-term PPA IPP
Ultimate credit sources Owner / Operator
Nuclearbusiness
model
29 Sep 2014 IBC 23
Government utility
TRANSMISSION
$
MWh
RETAIL SERVICES
DISTRIBUTION
Government
Citizens andtaxpayers
CONSUMERS
$
System Dispatch
Nuclear PlantElectricityMinistry PPA
Nuclear Plant
29 Sep 2014 IBC 24
Nuclearbusiness
model
Regulated utility
TRANSMISSION
RETAIL SERVICES
CONSUMERS
DISTRIBUTION
Utility regulator
Investors
System Dispatch
Nuclear Plant
Nuclear Plant
PPA
$
MWh
29 Sep 2014 IBC 25
Nuclearbusiness
model
Cooperative model
Cooperative (e.g., TVO)Cooperative member LT projected demand
Ultimate credit sources Owner / Operator
Nuclearbusiness
model
29 Sep 2014 IBC 26
Electricity markets
TRANSMISSION
$
MWh
RETAIL SERVICESCONSUMERS
DISTRIBUTION
Electricity Market
Investors
Utility regulator
Nuclear Plant
Market oversight
29 Sep 2014 IBC 27
Hedge contract
Nuclearbusiness
model
Merchant projectbusiness model
Merchant nuclear project developer
Expected power sales into electricity market
Hedge contracts (e.g., CfDs) with energy users
Out-of-market subsidies (e.g., carbon benefits)
Other (e.g., government loan guarantees)
Ultimate credit sources Owner / Operator
Nuclearbusiness
model
29 Sep 2014 IBC 28
Summary
Electricity fundamentals set nuclear value
Electricity industry structure defines options
Proven nuclear business models - government, regulated, cooperative
US electricity market issues (natural gas and renewable subsidies) may mean– Early retirements (e.g., Kewaunee & Vermont Yankee)– More decommissioning projects in near term
Nuclearbusiness
model
Electricityindustrystructure
Electricity fundamentals
Politics & public
opinion
29 Sep 2014 IBC 29
Market analysis of nuclear power
29 Sep 2014 IBC 30
29 Sep 2014 31IBC
Global nuclear - all
0 20 40 60 80 100 120Iran
ArmeniaNetherlands
SloveniaBelarus
South AfricaBulgariaMexico
RomaniaUAE
BrazilArgentinaHungarySlovakiaPakistanFinland
SwitzerlandCzech Republic
BelgiumSpain
TaiwanGermanySwedenUkraine
UKCanada
IndiaSouth Korea
RussiaChinaJapan
FranceUSA
Operation Construction
29 Sep 2014 32IBC
Global nuclear – after 2000
0 5 10 15 20 25 30 35 40
Belarus
Brazil
Finland
France
UAE
Pakistan
Japan
USA
South Korea
Russia
India
China
Operation Construction
29 Sep 2014 33IBC
Role of government
China
IndiaRussia
KoreaUSAFranceJapan
UAE
UK
-10
0
10
20
30
40
50
60
70
80
New
nuc
lear
und
er c
onst
ruct
ion
and
plan
ned
(GW
e)
Role of Government
Long-term nuclear power
strategy
Nuclear fleet build in home
country
Nuclear is low cost energy option
National nuclear
vendor & supply chain
Nuclear learning &
scale benefits
Nuclear industrial capacity
development
Vendor ownership – nationalnuclear industrial strategy
Export market sales +
ownership
29 Sep 2014 IBC 34
Country activity
A look at key countries:– China– India– UAE– Turkey– US– Japan
29 Sep 2014 35IBC
China
Large and active build program
Focus on Chinese designs– CPR1000/ACPR1000 – now “Hualong One”– CAP1400 (larger version of AP1000)
Using domestic nuclear build program to build national nuclear industry– Exporting plants to Pakistan now– Plans to sell CAP1400 into export market soon
29 Sep 2014 36IBC
India
3-Phase nuclear plan– Locally-designed PHWRs– Fast breeder reactors– Thorium fuelled reactors
Re-joined international nuclear industry in 2008– Able to buy significant stockpiles of uranium– Promise to buy multiple “western” LWR units– Third-party liability law is a complicating factor– Only Russians building LWR to date
29 Sep 2014 37IBC
UAE
Fast-track approach for new nuclear countries
First sale of Korean APR1400 in export market
4 Barakah units– First two units under construction– On schedule
Nuclear + RO desalination– Replace gas-fired generators + thermal desalination
29 Sep 2014 38IBC
Turkey
Long-term efforts to start nuclear power program
Current approach seems viable– BOO projects, with foreign ownership and operation– Power sales
Part of output through PPA with government utility Rest of output to market
Akkuyu (Mediterranean) – Rosatom
Sinop (Black Sea) – MHI + GDF/Suez + Itochu
29 Sep 2014 39IBC
US
Two new nuclear plants – 4 AP1000 units (Summer and Vogtle)
TVA completion of Watts Bar 2
New project activity today– Merchant COL applications – moving slowly or on hold– Standard design review moving slowly
Economic stress on existing merchant units
29 Sep 2014 40IBC
Japan
Nuclear units still in post-Fukushima shutdown; recent discussion of early retirement for 7 units
Large economic impact from– Shift to imported LNG, oil, and other fuels– Building new coal power plants
Potential restructuring of electricity industry– Potential for nuclear plant issues as in US– Proposed approach for keeping existing units
profitable (like UK CfD)
29 Sep 2014 41IBC
UK
UK existing nuclear fleet nearing retirement
UK has one of the first electricity markets
In recent years, UK moved to– Reform the electricity markets– Provide incentives for new nuclear– Negotiate Hinkley Point C deal (EU State Aid review)
NuGen and Horizon moving ahead
29 Sep 2014 42IBC
Nuclear Decommissioning Outlook
US - early retirements (merchant units and maintenance issues); may be more coming
UK - old gas-cooled reactors will be closed and decommissioned
Japan – some units will not restart
Germany – political shutdowns
France – may retire some older units
29 Sep 2014 43IBC
© Copyright 2014 NECGAll rights reserved
Edward Kee
Nuclear Economics Consulting Group+1 (202) [email protected]
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