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Nuclear power costs in the UK
Nuclear power costs in the UK
Colin Sweet
A s s e s s m e n t of the e c o n o m i c costs of nuclear power has been oversimplified and the supposed benefits have yet to be d e m o n s t r a t e d . Calculation of the true costs has been obscured by the use of m i s t a k e n a s s u m p t i o n s and methods leading to much confusion. T h e author sets out to unravel s o m e of the major factors involved, and d r a w s attention to the importance of more i n d e p e n d e n t research in this field. The relation b e t w e e n a better evaluation of the e c o n o m i c s of nuclear power and the determination of energy policy provides the c o n t e x t in w h i c h the analysis is m a d e . The author is w i t h the D e p a r t m e n t of Social Sciences, Polytechnic of the South Bank, B o r o u g h Road, London S E 1 0 A A , UK. The author is grateful for Lesley Rimmer's help in the preparation of this article. 1 UK Ministry of Power White Paper, Fuel Policy, Cmnd 3438, HMSO, London, 1967. 2 Costs in new pence are expressed as p/kWh and costs in old pence (pre-1971) as d/kWh, l p = 2.4d. 3 The station was Dungeness B, on which work began in 1965 and which was to be completed in 1971. The completion date is now expected to be 1980. 4 UK House of Commons Select Committee on Science and Technology, 1976, Nuclear power policy. Minutes of Evidence, Appendices and Index, p 44. 5 UK Ministry of Power White Paper. The Nuclear Power Programme, Cmnd 1083, HMSO, London, 1960.
0301-4215/78/0602-01
Demands for the extension of nuclear power's role in contributing to UK energy requirements are based primarily on the relative costs of nuclear and fossil fuels - essentially an economic argument. This paper attempts to assess the available evidence on nuclear power costs, to evaluate the adequacy of published statistics, and to determine where the balance of advantage lies. The case rests on four factors - the load factor, calculations of fuel and capital costs, research and development costs, and most importantly, whether there is net benefit over costs. In the government White Paper of 1967 on fuel policy, 1 the UK Ministry of Power stated that the time was ripe for fundamental changes in the patterns of energy demand and supply in the coming years. The changes envisaged were a large expansion in nuclear power and natural gas, and a further run down of coal. Oil consumption would expand by only a small amount. Up to that time the first generation of reactors (the Magnox programme) had failed to show that nuclear power could offer an economic advantage. Despite this, the 1967 White Paper contained a commitment to carry through a large-scale expansion of nuclear power. The principal consideration was a re-assessment of the costs of nuclear power. Notwithstanding the results of the Magnox programme, it was the clearly held view of the government that the second generation of nuclear stations (the A G R programme) would break through the floor prices of generation by the most efficient of the fossil fuel stations. Whereas the first Magnox station at Berkeley had a generating cost of 1.27 p/kWh, 2 the first AGR, which was to be commissioned 8 years after the Berkeley station, 3 was expected to achieve a cost as low as 0.52d/kWh. 4 This was a sharp change of policy. The 1960 White Paper 5 had stated that in view of the low price of oil, and the plentiful supply of coal, there was no need for an acceleration in the rate of ordering nuclear capacity. Further, the generating costs of nuclear stations were higher than originally forecast, and the cost of generation in fossil fuel stations had fallen. Five years later (1965), the dramatic projected fall in nuclear power costs nevertheless only offered the smallest marginal advantage over the costs of the best fossil fuelled stations. This was also based upon substantial external benefits built into the nuclear stations' costing. Not only were these externalities not available to fossil fuelled stations, but in the case of the differential load factors that were applied, they were advantages
07 $ 0 3 . 0 0 © 1 9 7 8 IPC Business Press
107
Nuclear power costs in the UK Table 1. Energy consumption in the UK (mtce)
Coal Oil
Nuclear and hydro Gas (North Sea)
Total
Error in
1957 (actual)
1965 (actual)
1975 1975 (projected) (actual)
p r o j e c t i o n (%)
212.9 36.7 1.7
174.7 111.7 10.2
120 145 35
--1.6 --7.4 --68
251.3
1.1
50
297.7
350
118-1 134.4 10.8 (nuclear) 1 '9 (hydro) 55.4
+ 11
320.6
that were to some degree operative only at the expense of the fossil fuelled stations. It is difficult to understand why such a large-scale investment programme in nuclear power was preferred. Not only was the projected nuclear price against the actual fossil fuelled price marginal (0-02d/kWh) but it was obvious that with such hypothetical prices, the likely error must be several times greater than the supposed marginal advantage. 6 The implication of the changes projected in the 1967 White Paper for the relative shares of nuclear and fossil fuels can be seen in Table 1. In contrast to previous projections based upon the market determined price of oil, these projections contained a commitment to a hitherto unproved energy source, whose production had been insulated from the free play of market forces by its special position in the public sector resulting from its military potential. One result of the new policy became obvious in a few years. The strengthening of the supply of nuclear energy meant that a simultaneous decision was taken to enlarge electricity's share as an energy form. Although growth of electricity demand had fallen to 3.9% per year in 1966, compared with 9.2% for the period 1953-63, the White Paper projected future demand growth of 6% per year. Under these circumstances, if consumers did not choose to use more electricity, there would be a considerable misuse of resources. The projection carried with it the assumption that electricity costs would fall, encouraging this higher consumption. If they did not fall, the alternative would either be a growing surplus of capacity in electricity supply which would raise costs further, or a system of managed demand by which no one would be able to escape the higher electricity costs. Thus the overall projections were based on linked hypothetical estimates of cost and demand factors. 6 The explanation for this preference was partly to be found in the experience of the USA from which had come new and surprisingly low generation costs in the years 1963-67, and which had been reported extensively in the OECD countries. 7 For both nuclear and non-nuclear stations, the hypothetical generation costs each include the interest charge and the station life as cost parameters, but the load factor is fixed only for nuclear power. The sum of these costs is reduced to a present value figure and divided by the present worth of kWh generated. It therefore depends crucially on the assumed load factor (see Appendix 1 ).
108
Load factors Central to the estimates of costs are the different load factors allowed for nuclear and fossil fuelled stations - 75% for nuclear stations and a much lower but variable figure for fossil fuelled stations. Placing stations in a merit order is normal to an electricity supply system, but in the ground rules of the Central Electricity Generating Board (CEGB), the 75% load factor for nuclear stations becomes a fixed cost parameter. 7 The practice of assuming a high load factor for nuclear stations is inconsistent with the overall optimization of costs in electricity supply, where one of the variables to be determined is the load factor for each station. The UK Electricity Council's objective of
ENERGYPOLICYJune
1978
Nuclear power costs in the U K Table 2. Estimated generation costs at nuclear stations at 75% load factor Magnox Berkeley Yea r of com missioning Station output (MW) Construction cost (£/kVV) Capital charges Running cost Total generation cost (d/kWh)
Hinkley Point A
Sizewell A
Wylfa
AGR Dungeness B
Hinkley Point B
1962 276 185 0.86 0.37
1965 500 155 0.73 0.30
1966 580 106 0.49 0-21
1969 1180 107 0.48 0.17
1970 1200 81 0.37 0.15
1972 1320 71 0.33 0.15
1.23
1.03
0.70
0.65
0.52
0.48
Source." T.W. Berrie, 'The economics of system planning in bulk electricity supply', in Public Enterprise, ed R. Turvey, Penguin, Harmondsworth, 1968, p 202.
Table 3. Load factors in CEGB nuclear stations to December 1975
Berkeley Bradwell Dungeness A Hinkley Point A Oldbury Sizewell Trawsfynydd Wytfa
Moving load factor (%)
Cumulative load factor (%)
84 67.6 67.7 71-8 54 71-2 70-9 16-6
79.9 72.9 69.1 66.5 50.5 61-6 59-8 23-5
Source: L.R. Howles, 'Reviewing nuclear power station achievement', Nuclear Engineering International April 1976, pp 22-23.
8 If there is a 5:1 ratio in favour of capital costs, it follows that any change in total costs as a result of changes in fuel prices must be five times the magnitude of a change in capital costs. It would, for example, require a 5% fall in fuel costs to offset a 1% rise in capital costs. If capital costs are constant this will be of no importance, but if they are dynamic then it is they and not fuel costs that are likely to determine total costs.
ENERGYPOLICYJune
1978
determining investment criteria according to long-run marginal costs is in principle, therefore, non-operable. The reason for assuming these high load factors is that the capital costs of nuclear power stations are much greater than for fossil fuelled stations, while fuel costs are held to be substantially lower. Capital costs have been estimated to be as much as five times as large as fuel costs, and therefore the target of low unit costs would only be realized by placing nuclear stations at the top of the merit order, where they would be operated at as near to maximum capacity as possible. This approach to load factors assumes that low fuel costs must always act to offset high capital costs, and that the relation between capital costs and fuel costs is constant. This requires that the relative price effect in a given period would either favour the fuel cycle or would have a nil effect. This does not accord with historical experience. Table 2 shows that the fall in generation costs with the progress of the Magnox programme was due more to the fall in capital costs than to the fall in fuel costs, although the difference is not very great. Similarly the assumption of falling fuel costs has been confounded by the sharp price rises that have occurred in the fuel supply market. The brunt of our argument is that it might be more reasonable in a dynamic construction to regard movement in the capital content and the cost of capital as the most important factor in determining total unit costs. 8 In the absence of a systems analysis that optimizes costs between different types of station, there can be trends in relative prices and outputs which cause a large misallocation of resources. For example, the emergence of surplus capacity in the supply system as a whole will mean that stations which should be on high load factor (and therefore be low-cost producers) experience a fall in their load factor and become high-cost producers. Second, the fuel cost is an independent variable, and it cannot be assumed that it will necessarily hold over time. Sharp changes in supply factors, oligopolistic pricing, technological and environmental factors, can separately or collectively diminish the advantage of nuclear power in the fuel costs cycle. Third, where the number of nuclear stations increases to a point where some if not all must operate with a fluctuating load factor, the unit costs must rise. Figure 1 provides an example of the importance of load factors for unit costs. The critical nature of the 75% load factor is shown in Table 3. The average load factor for Magnox stations based on their original design capacity for the years 1967-72 was 58%. On the derated capacity it was 62%. The derating has an effect on the published generating costs because the capital charges for the
109
Nuclear p o w e r costs in the UK 16 15
Wylfa Magnox station ~ Mognox (projected) ~ (actual)
14 13 12 Cottam (coal)
II
I0 F i g u r e 1. Influence of load factor on unit costs. Source: Price, Bottrell and Macrae, 'Experience acquired in the design and construction of operating plants', report to the 5th Foratom Congress, Florence,
1973. Note: The broken line has been added to show the estimated cost effect of the average load factors for Magnox stations.
~
~\ \ ' ~ .
9 O
8
r
~
TM
•
breakeven point
7 6 5
I
20
I
I
30
I
I
40
1
I
50
I
1
I
I
60 70 Loadfactor(%)
I
l
80
I
I
90
I
I
I00
Magnox stations were adjusted so that the generating costs derived from them reflect the effect of derating - ie a proportion of the capital charges have been written off. Table 3 also shows that the moving load factor for 1975-76 has exceeded 75% for only one of the eight Magnox stations. The cumulative load factor was similarly above 75% for one station only. The average load factor for all stations based on their derated capacity was 65% in 1975-76, cumulated for the period 1963-75. If we are to make an economic assessment based on the derated capacity of Magnox reactors, but also making allowance for a period of learning for the new AGRs, a load factor of 60% would seem a more reasonable figure. C E G B generating costs
s Hansard,
110
26 May 1977.
The certainty with which statements are made about the comparative advantages of nuclear power are usually inversely related to their accuracy, for which the CEGB must bear some responsibility. As the authoritative body, the CEGB produces generating costs for each of its generating systems. These are understood to be total generating costs, and they are used as such for making comparisons between different generating systems. As one of many examples, Mr Tony Benn, UK Energy Secretary, told Parliament on 26 May 1977 that in the year 1975-76, the average generating costs of the CEGB power stations commissioned in the previous 12 years were as follows: coalfired - 0.97p/kWh; oil-fired - 1.09p/kWh; nuclear (Magnox) -0.67p/kWh. 9 Although it is made clear that these figures include interest and depreciation charges appropriate to the year in question, what is not made clear is that they have no validity for making economic comparisons between the different generating systems. In both the 1976 Annual Report of British Nuclear Fuels Limited (BNFL) and the 1977 Report of the Atomic Energy Authority (UKAEA), Sir John Hill (Chairman of the UKAEA) reproduced the above figures to show that Magnox reactors are economically superior, and in the 1977 UKAEA Report he further showed that 'The AGR stations are producing electricity substantially cheaper
E N E R G Y POLICY June 1978
Nuclear power costs in the UK
lOThe reason for the former point would appear to be because the UK Treasury did not insist on its own rules regarding public sector investment criteria, and for the latter, because the UKAEA (which is Treasury financed) has waived the very high costs of reactor R & D. This unsatisfactory situation would be improved if all costs were published. 11 US Atomic Energy Commission, Power Plant Capital Costs, Current Trends and Sensitivity to Economic Parameters, AEC WASH-1345, Washington, October 1974. 12The increase was due to two factors. First, it was admitted that the early low costs of Westinghouse and General Electric which had made such an impression internatioanlly were 'loss leaders'. The AEC 1967 figure of $ 1 3 4 / k W for a 1 0 0 0 M W light water reactor (LWR) was revalued at $ 2 4 0 / k W at 1969 prices. The cost by 1974 was raised to $ 7 2 0 / k W tor stations to be completed in 1983. Second, the rise in published costs represented a renewed attempt to measure the real costs of nuclear power in the USA. In particular the escalation factor and the cost of capital were entered in full for the first time. Together, these two items comprise in the AEC presentation the largest element in total costs. By contrast, while the direct construction cost itself had been raised from $ 7 5 / k W to $190/kW, in percentage terms this meant a fall from 75% of total cost to 30%. By giving proper weight to the cost of capital and replacement costs, the AEC had arrived at a figure which was much more convincing as a reflection of the opportunity cost of capital. In contrast, the UK authorities still adhere to the earlier costing methods which are mostly concerned with the direct costs, and which understate or ignore other cost factors.
ENERGY POLICY June 1978
than the coal or oil fired stations built at the same time as the A G R stations'. As they have been operating on suboptimal load factors since commissioning, this could hardly be true. He went on, 'The same will be true of the next nuclear stations to be ordered'. This capacity to predict the future is difficult to refute, as it must be based on unpublished information that is contradictory to what little has been published so far on A G R costs. Accounting costs are not indicators of economic worth, and are no guide to the future. In this case, the A G R capital costs that have been published suggest that the accounting cost figures for Magnox stations cannot be used as a guide for AGRs, which have much greater capital costs. The picture is further confused by the annual figures published by the CEGB in its Statistical Yearbook, which are labelled 'costs of generation'. These are the only published production cost figures, and they are works costs figures - which makes them more remote from true generation costs than the accounting costs given to the UK Parliament. The works cost for 1975-76 was 0.39p/kWh, which does not compare with the figure of 0.67p/kWh given for the same year. How these figures relate to each other is not clear - neither of them are the costs of generation per unit of power. What renders the situation even more unsatisfactory is that it appears that the CEGB do calculate what they call 'total generating costs', and which are in principle economic costs, when they secure tenders from construction companies for their power stations. As with the accounting costs given above, total generating costs are not published. Finally, the situation is confounded by the fact that the accounting costs, which are meant to measure the costs of the past, are not true accounting costs. In particular, they do not measure the true costs of capital (although this may change with the A G R stations) and most importantly they include only a very minor element o f R & D costs? °
Capital costs The generating costs discussed above subsume estimates of capital costs. In 1974 the US Atomic Energy Commission (now ERDA) carried through a major reassessment of the capital costs of nuclear power in the USA, and revealed a five-fold increase in capital costs estimates over the previous 8 years. Ira2 The unwillingness in the UK to reveal the full costs of nuclear power is related to the political and institutional factors peculiar to the nuclear industry. But at the economic level it has created real difficulties in the formulation of energy policy. The expectations of the A G R programme depended more on achieving significantly lower capital costs over the previous Magnox than upon anything else. As has been shown, the importance of low fuel costs loses its significance (even if the costs do fall!) unless capital costs are falling or are constant. The UK House of Commons Select Committee on Science and Technology was led to believe in 1967 that the very small marginal advantage then projected for nuclear power would widen as economies of scale were realized in the nuclear engineering industry. While the cost of coal- and oil-fired stations was £50-55/kW, and the second A G R (Hinkley B) was quoted at the low figure of £93.80/kW, the difference in these respective capital costs did not look impressive enough to provide a basis for long-term investment
111
Nuclear power costs in the UK Table 4. Cost of nuclear stations (£ million)
Date of original estimate Original estimate at prices at above dates Current estimated actual costs (at prices as actually paid or anticipated to be paid) Current estimated costs at constant prices ruling at date(s) of original estimates
Source: Hansard, 28 October Atom, N o 2 3 0 , December 1975.
Projected costs Actual costs
350300
1975;
/
25o
2co 3
•.;?o,
Ioo 5o
0
~ I 1950
I 60
I 70
I 1980
Year of commissioning
Figure 2. Construction costs of nuclear and coal fired stations, actual and p r o j e c t e d (at current prices). Based on E.J. Pipe, CEG8 paper presented to IAEA Conference, Istanbul, 1969. The curve showing actual AGR construction costs is based on the most recent data.
la D. Henderson, 'The unimportance of being right', The Listener, 27 October 1977; and C. Sweet, Supplementary Proof of Evidence to the Windscale Enquiry, Department of the Environment, 1977. 14 Select Committee on Science and Technology, op cit, Ref 4, pp 381-383. is Ibid, pp 431-435 and 491-495. 16 R & D expenditures are always large for nuclear power and in the early years they will be equal to or greater than the construction costs. For the years 196273, R & D costs have been put at £813 million (see John Surrey and William Walker, 'Energy R & D: A U K perspective', Energy Policy, Vol 3, No 2, June 1975, pp 90-115), and total R & D inputs must exceed £ 1OOO million. A precise figure is beyond calculation as in the early years civilian reactor costs cannot be separated from military expenditures, It can, continued on p 113
112
Dungeness B
Hinkley Point B
31 March 1965
31 March 1966
Hartlepool
Heysham
Total COSt 31 October 1968 30 November 1970
89
95
92
142
418
280
140
220
240
880
186
126
158
174
644
decisions. The Select Committee was assured that in the period up to 1975, reductions of up to £10/kW could be expected relative to the Hinkley B costs? Beyond that date further reductions of £15-25/kW for a programme of a further 16 000-20 000 M W of the CEGB's medium-term programme were promised. 4 The 1967 White Paper ] fully supported the CEGB's case and stated that a 20% fall in generation costs might be achieved through the life of the A G R programme. Total generation costs were expected to fall below 0.4p/kWh (at constant 1966 prices). These projections of increased returns to scale and falling unit costs proved to be a total chimera. Between 1965 and 1975 the cost of four A G R stations rose by 50% at constant prices according to official figures (Table 4). More recent estimates have raised A G R costs further (see Figure 2) and unofficial estimates place the total cost of the first A G R programme at over £3000 million. 13
Research and development The R & D input into the nuclear reactor programme was accepted in 1967 as a cost, in the form of a royalty paid by the CEGB to the U K A E A , fixed at 0.014d/kWh. It was understood that this was less than the actual R & D input into the reactor programme, the true cost of which was treated as confidential. ~4 It was stated that the U K A E A ' s policy was to secure a recovery of R & D costs according to what the market would stand. As there was only one buyer in England and Wales and only one in Scotland, it is difficult to understand what is meant by a market in this context. The writing-off of a substantial part of the R & D costs was accepted as being a 'benefit to the nation'J 4 For the purposes of economic assessment, how much was written off?. The N C B memorandum presented to the 1967 Select Committee suggests that the real cost of R & D lay between 0.03d and 0.05d/kWh, which is 2-3 times higher than the proposed U K A E A royalty. ]5'~6 Finally, it should be noted that while the R & D royalties payable to the U K A E A were published in 1967, it appears that the practice today is not to include these in the computation of CEGB generation costs. 17 Our conclusion is that the U K nuclear power industry has been subject to the same rapid rise in costs as that in the USA. The 1967 projections have not proved to be sound in the U K any more than they were in the USA. The difference is that neither the CEGB, the U K A E A , nor the UK government have been prepared to concede that this is the case. Their reluctance to make judgments on the basis of even an approximate economic cost is possibly because it would
E N E R G Y P O L I C Y June 1 9 7 8
Nuclear power costs in the UK Table 5. Nuclear fuel cycle costs ($/kg) a
Uranium oxide UF6 conversion Enrichment Fabrication Shipping Reprocessing Waste Aggregate
(1) (2} (3) (4) 1968-1980 1969 only 1970-1980 19'72only
(5) 1976
(6) 1977b
(7)
1976(IAEA) BNFL
19l Recycling via THORP
17.5 1-32 30 86 8 27.4 4.3 174.52
66 9.7 80-120 120-150
66 7.7 110 123-5
339-500
1336
15.4 2.31 26 82.5
17.5 2.53 26 70
22 1.35 42 70
32-5
45
35
5
158.71
161 "03
175"35
--
(8l
296-450 120-150
292.4 17.24 182 122.4 425
8.6 197.2
--
150-300
425
150-300
425"7 -645.7
732'5
905-1400
1038-64
1601.8
Sources: Column (1) - Bonanni et al; 'Nuclear fuel costs trends up to 1 980', paper presented at IAEA Conference on Economics of Nuclear Fuels, Gottwaldo, 1968. Column (2) - D. Hundt, 'Fuel cycle costs for medium sized light water reactors', IAEA Conference, Istanbul, 1 969. Column (3) - ' E d u c a t i o n and research in the nuclear fuel cycle', Chapter 1 in The Nuclear Fuel Cycle, ed D. Eliot and L. Weaver, University of Oklahoma Press, Norman, 1972 Column (4) - US AEC, The Nuclear
Industry
1973, W A S H - 1 174, US Government Printing Office, Washington, 1973. Columns (5), ( 7 ) - R. Krymm, 'A new look at nuclear power costs', IAEA Bulletin, Vo118, N o 2 , 1 9 7 7 , p p 2 - 1 1 . Columns (6), (8), (9) - BNFL and CEGB figures in paper FOE 101 submitted as evidence to the Windscale inquiry, 1977. Note: Columns (1) to (8) show the trend in reprocessing costs. Allowances should be made for the general rise in prices for these and all other costs shown. Not all
the fuel costs items are comparable with each other across the columns, but the table does show how reprocessing costs have moved generally and their proportional influence on fuel cycle costs. Columns (7) to (9) purport to give the full cost of the fuel cycle in AGR/LWR type reactors, so far as the data are available. a All figures are at current (January 1978) values. b Converted from sterling at a rate of $1.7 = £1.
require a major re-assessment of the whole nuclear power programme. At a time when this programme has become the subject of increasing public interest and there is concern over the noneconomic factors, this reluctance is understandable but shortsighted. Fuel c y c l e c o s t s
continued from p 112 however, be seen that an economic assessment, which must include R & D expenditures, will call for a very substantial upward revision of nuclear generation costs. 17Private communication to the author from the CEGB. la See Nuclear News, Vol 17, No 12, September 1974, p 37; Geoffrey Greenhalgh, The Times, 26 November 1974; and Simon Rippon, 'Making the case for nuclear power', Nuclear Engineering International, September 1974, pp 7 4 1 - 7 4 3 . 19 'Future prospects for energy supply and demand', Atom, No 193, February 1973, pp 38-39.
ENERGYPOLICYJune
1978
It was almost univerally assumed 10 years ago that fuel cycle costs would fall or remain constant (see Table 5). Some analysts did allow for small rises in the price of uranium by 1980, but with no significant effect on the cost of the fuel cycle. Why were they all mistaken? First, they accepted the contemporary price as the real price, not recognizing that there were substantial subsidies included in earlier military programmes. Second, they used the method widely employed in nuclear power projections of making extrapolations from historic cost - a notoriously unreliable guide to future prices. Third, there was a large element of wishful thinking. In 1974, when oil prices were rising rapidly, a theory emerged that the cost advantage of nuclear power was not only large but inviolable, and that nuclear power was insensitive to price movements. 18 This required one to believe that the markets had been replaced by a vacuum. It was not appreciated, for example, that one effect of the rise in the price of oil would be an upsurge in prices in the nuclear supply markets. A U K A E A Study
Group report in 1973 stated, 'Fossil fuel prices - eg fuel oil may well rise in real terms in future years, whilst nuclear prices should fall as existing plants are built ... Combining possible new capital costs and fuel cost changes mentioned above means that by 1990 the generating costs of an A G R station would be only two thirds of an oil fired station'.~9
113
N u c l e a r 90wer costs in the U K 26 24 22 f _
20 18 16 14
E
12 10 8 G 4
I I 1 I 1 I I I 1968 69 70 7! 72 75 74 75q976 Yeor of dehvery
Figure 3. Price o f immediate delivery.
uranium
for
2°Hansard, 11 April 1974. 21 N u c l e a r Power Financial Considerations, Atomic Industrial Forum, Washington, 1973. 22 C. AIIday (British Nuclear Fuels Ltd), s t a t e m e n t at the Windscale public inquiry into reprocessing facilities, June 1977. 23 However, it must be admitted that the area for t r a d e - o f f prices b e t w e e n nuclear and fossil fuels is one w h e r e the state of k n o w l e d g e precludes firm statements. T r a d e - o f f prices for uranium oxide and oil on the w o r l d markets have been calculated on many occasions. Perhaps the most authoritative are those of Krymm and associates at the International A t o m i c Energy Authority, w h i c h indicate that the price of uranium oxide is still substantially b e l o w the tradeo f f price with oil. But these estimates in all cases are unacceptable because they assume that the o t h e r costs in the nuclear fuel cycle will remain constant.
114
This highly optimistic report came after the current CEGB accounting cost figures for 1972-73 showed that nuclear power was lagging in terms of the 1967 expectation, and was still more expensive to produce than power from oil-fired stations. 2° As nuclear power expanded, the suppliers found themselves facing a situation where the former subsidies were being withdrawn and they had to adjust themselves to fully commercial markets, where prices had to reflect fully the high and rising resource costs. At the same time, they found themselves in conditions which strongly favoured the seller. The result has been that the cost of the nuclear fuel cycle has exploded. The capital inputs for all six stages of the fuel cycle are exceptionally large. This is reflected in the unit costs of all these stages in the fuel cycle (Table 5). In the production of uranium metal, the cost of exploration, mining and drilling in the USA is said to amount to $15/1b, and these capital costs comprise 40% of the ore value. 2~ Mining firms have therefore been unwilling to expand their activities until they are assured of good return on their capital. The uneconomic 1970 price (minimum of $5/1b) has given way in conditions of relative scarcity to a price escalation that has been no less dramatic than that of oil (see Figure 3). Spot prices today are eight times those of 197073 and contract prices five to six times higher. There is no reason to believe that new discoveries will bring the price down, as the market is subject to oligopolistic control as well as political constraints, which make the emergence of a free market impossible. BNFL's quoted price for the domestic market in reprocessing services of £250/kg 22 represents an eightfold increase on the previously quoted prices. Again, the reason is the exceptionally high capital costs of nuclear technology. Price increases of these orders of magnitude render obsolete the contention that fuel cycle price increases do not affect the competitiveness of nuclear power. Especially in the context of the revealed high capital costs, the exceptional rise in the running costs can have more than a marginal effect, and could price nuclear power out of the market. While it is generally agreed that real energy costs will rise for the next decade, there will be plentiful supplies of some fuels, notably oil and natural gas, which will exert countervailing pressures against the higher cost producers. 23 Neither the CEGB nor the U K A E A publish or provide breakdowns of the fuel cycle cost for the UK, and it is only possible to estimate the relative proportion of the different costs by analogy from US or French breakdowns. Now that the reprocessing and waste disposal costs and enrichment costs, for example, are known to be much higher than were previously estimated, the effects of these as well as the rise in uranium costs call for detailed information and analysis. The supposed benefit of recycling plutonium and uranium is also emerging as a question of major importance about which there is little published information so far. With imperfections in our knowledge of the relative fuel cycle costs of nuclear and non-nuclear power generation systems, it is foolish to make firm statements. There has clearly been an element of artificiality in fuel cycle costs and more information is needed. From the projections shown in Table 6 it can be seen that, notwithstanding what happens to the non-nuclear fuels, large increases in nuclear costs are due in the short to medium term. Table 6 contradicts official
ENERGY
POLICY
June 1978
Nuclear power costs in the UK Table 6. Estimated nuclear costs in the UK, 1975 and 1980 (p/kWh)
Capital costs a Construction (annuitised) Interest during construction
Magnox 1975 Load factor 60% 65%
1980 Load factor 6O% 65%
AGR 1980 Load factor 60% 65%
0.26
0-28
0.27
0.25 0.1
0-26
0.26
--
--
0.11
R 8" D
0.08
0-07
0.08
0-07
0.08
0-07
Subtotal
0.36
0.33
0.36
0.33
0.46
0.42
Fuel costs Fuel cycle (actual) + OE~Mb
0.3322
0-3922
0.3322
0.3322
0-3322
0.33~
Escalation in fuel cycle + O&M c
--
-
--
--
0-4745
0.4745
0-4745
0.4745
Subtotal
0-3322
0.3922
0.8667
0.8667
0-8667
0.8667
Total costs
0.7522
0.7222
1.2267
1-1967
1.3267
1.2867
a Capital costs for the Magnox are calculated on historic, not replacement costs and at a constant 10% interest. Capital costs for the AGRs are estimated on a total construction cost of £ 8 0 0 million. On a capacity of 5 1 0 0 MW this amounts to £156/kW. This could be an underestimation by as much as 25%. The interest rate is 1 0%, including construction period. b Fuel cycle costs (actual) are CEGB figures for 1975-76. They should be read to include O & M. They doubled in the two years 1 9 7 3 - 7 4 to 1975-76, but the fuel costs were stable, the increase being most prominent in fuel handling. There is an unexplained discrepancy in the CEGB breakdown of fuel and O & M costs. In 1 9 7 4 - 7 5 fuel handling cost first appears
as
O-0378p/kWh
Yearbook
(CEGB Statistical
1974-75).
In the following years, however, the same cost is changed to O.0713p/kWh - more than double and the figure for 1 9 7 5 - 7 6 is given in the same table as O. 1646p/kWh, which is a yet further doubling of the fuel handling costs. This means that the fuel handling is costing considerably more than the fuel itself (O.0982p/kWh). c The escalation in fuel and O & M costs by 1980 is the result of two factors - the rapid increase in these costs in the last two years referred to above, and the anticipated effect of the large rise in nuclear fuel costs. This is not yet reflected in the CEGB works costs, but will be by 1980 and beyond.
statements (particularly those from the UKAEA) and suggests that only larger price increases in fossil fuels will leave nuclear power as the low cost source of electricity - but this is unlikely. It is probable that oil-fired stations, since the 1974 price rise, have been more expensive producers than nuclear stations, but in the last 3 years the real costs of oil have fallen substantially on the world market, and the signs are that this trend will not be reversed until there is a shortage of oil. The relative costs of the best coal-fired stations compared with the best projected (but hitherto unrealized) nuclear power prices indicate that these two generation systems are highly competitive. Table 6 does not provide a true economic cost for nuclear power generation costs. We can only estimate rather generally the differences that escalation in uranium costs will make to Magnox and A G R reactors. The Magnox consumes more uranium, but the AGR estimate has to allow for enrichment toll charges, which are a major item. In capital costs we have had to be content with accepting historic cost figures for Magnox reactors, while the full cost of the AGR programme is not yet finally known.
ENERGY POLICY June 1978
115
Nuclear p o w e r costs in the UK Table 7. Costs and benefits of an illustrative 100 G W nuclear reactor programme (£ billion) Year 1-10
Reactor capital costs a
Fuel cycle costs Capital b Running c
8.34 4.84 e
5
Revenue d
Cash f l o w
Present value
--18.04
--11.10
Operation
--
-
11-20
15.44
-
8.26
10.05
22.07
--11.59
-- 2.70
21-30
15.44
-
24.79
16.70
66.27
9.29
+ 0.84
31-40
8.34
--
42-70
22.47
110.37
36.35
+ 1.20
Assumptions: 1 0 0 0 M W reactors; 65% load factor; 1 0% interest charge; uranium oxide - $40/Ib; enrichment toll charges $ 1 0 0 / k g SWU. Benefits over 5 0 years would be larger than over 4 0 years if it was decided not to build any more reactors and the consequent gains were greater than the costs of decommissioning. No decommissioning costs have been estimated because there is no basis on which an estimate can yet be made.
a Capital costs for the 100 reactors of 1000MW capacity each are based on figures given by the US AEC in Power Plant Capital Costs, Current Trends and Sensitivity to Economic Parameters, W A S H 1345, October 1974. b The capital cost for nuclear fuel cycles relates to the Atomic Industrial Forum report Nuclear Power Financial Considerations 1973. The rounded figure of £5 billion underestimates the likely capital costs of the fuel cycle.
c Running costs are based upon the analysis of the fuel cycle given in Tables 5 and 6. d Revenue is based upon a long average sales price by the generating boards of 2.3p/kWh. e Cost of fuel inventory for all reactors in the programme.
N e t benefits
24 The cash flow problem is quite different for a smaller scale programme, especially if construction of the reactors is spaced over time so that the benefits from one reactor can accrue within its lifetime. If the programme is intensive, the benefits of the early reactors must be used to provide funds for those that follow. As a result the benefits accumulate over time and after 3 0 years they become positive.
116
Table 7 sets out the net benefits of a full scale nuclear pFogramme of 100 GW which is the scale of programme that the CEGB and the U K A E A have constantly urged. Much of the data used have been transposed from the performances of the US LWRs, since the data provided by US authorities are much fuller than those from the UK. Allowing for the substantial margin of error that must qualify the value of any large-scale long-term exercise, the results do not confirm that nuclear power is the most economical option. It can be seen that there are no net benefits until after 20 years. It should be noted that this is based upon using a price of 2.36p/kWh (40 mills) which is almost double the 1980 price estimated in Table 6. This is broadly consistent with the UK Department of Energy's expectation that energy prices will increase in real terms by 50-100% by the year 2000. Nevertheless it is a maximum rather than a minimum figure, and if we were to assume a low figure of 1.2p/kWh there would be no net benefits at all in the 100 GW programme. Benefits take so long to accrue for two reasons - the very high capital cost of nuclear installations and the size of the programme. This means that the cash flow of the authority responsible for such a large programme is subject to constant demands, which are made severe by the long lead time of 10 years that is assumed. Starting three new 1000 MW reactors every year for a period of 30 years would unquestionably be the greatest investment in one technology ever undertaken in the U K economy. 24 Long-term planning is essential for a technology as complex as nuclear power. Many of the present problems arise from trying to telescope the time periods for R & D. The fact that nuclear power development has time requirements that are asymmetrical to those of other technologies, and that experience has shown that it is sensitive to many factors, makes it unsuitable as a 'front runner' in any energy scenario. The constraints that exist in nuclear power and their consequence for energy policy are being understood only slowly,
ENERGY
POLICY June 1978
Nuclear p o w e r costs in the UK
because of the overoptimistic and even euphoric perspectives introduced into the energy debates of the 1960s. The recent analyses of the UK Department of Energy are still marked by an apparently unresolved conflict between the short- to medium-term energy supply estimates, which for the UK show an oversupply rather than an energy gap, and the longer-term requirements, which call for heavy investment in energy R & D. To fit a nuclear power programme into a perspective which spans both these periods and which still retains some overall coherence in its policy objectives is proving exceptionally difficult. The technological uncertainties alone make any decision that satisfies either social criteria or economic criteria unlikely, when a large nuclear power programme is under consideration. 25 From this confusing and difficult situation in which the nuclear power industry finds itself, one proper conclusion of this study is that there would be important benefits in increasing the flow of information, which would improve the quality of research, especially in the field of costing nuclear programmes and evaluating their social overhead costs.
Appendix 1 The costs of different nuclear stations may be compared most simply by computing total costs and assuming the same load factor for all projects. This method is less satisfactory for comparing different types of power stations, because different load factors are used for different types of station. Many statistical comparisons nevertheless ignore this objection. Using the simple method, the incremental costs can be expressed as follows: e = 100 (iC + 0 + F) E where e = unit energy cost (p/kWh), F ---- annual fuel cost (£/year), c = construction cost (£), E = net electricity generated (kWh/year), O -- operating costs (£/year) and i = interest and depreciation charge (% per year). These factors may be further analysed as follows: 25 See UK Department of Energy, Energy Policy Review, February 1977; Energy
Commission Paper No I : Working Document on Energy Policy, published for the Energy Commission by the Department of Energy, London, 1977; CEGB Corporate Plan 1977, CEGB, London, 1977. All three projections favour the maximum estimate of 560600 mtce, which would require a substantial nuclear power programme of one new power station every two years. But they admit these projections may be overoptimistic. The CEGB minimum plan for the 1990s is for only 2 GW of new capacity compared with 17 GW in its maximum plan. Nuclear power is technologically unsuited to perform as the variable energy option. The present excess capacity in electricity supply makes it especially difficult to make policy decisions to meet the demand anticipated by the maximum estimates for the 1990s.
ENERGY POLICY June 1978
E = 8760 L K where L = load factor (%) and K = net rated capacity of plant (kW).
F=Cf E n where C f = fuel cost, fed to reactor (£/kg of U) and n = plant thermal efficiency (kWh/kg of U). Therefore e can be expressed in terms of production functions as follows: 6'
-
-
100 C 0 100 Cf 8760.~ ( i ~ + ~ ) + ~ n (fixed costs)
(fuel costs)
O/K can be regarded as a near constant, but C/K is the most important factor in the fixed cost function. L is overall the most important variable affecting the real costs. The relative proportions of fixed costs and fuel costs has been given as follows (% of total costs):
117
Nuclear p o w e r costs in the UK
Fuel Capital Operating and maintenance
Nuclear 14 71 15
Oil 71 23
Coal 57 33
6
10
Appendix 2 Works costs at Magnox and fossil fuel stations, 1974-76 (p/kWh)
26 Figures obtained from the Department of Trade and Industry memorandum, minutes of evidence to the House of Commons Select Committee on Science and Technology, 1972-73. The revalued accounting costs are meant to offer full generating costs. The Department of Trade and Industry memorandum states, 'This has been done by revaluing all costs at 1972 money values, by using annuities for capital charges in place of those associated with straight line depreciation, and by assuming a common load factor of 75% ... The difficulties of revaluing assets at a time of rising prices are well known ... the figures must therefore be treated with some reserve ... With these adjustments the nuclear stations appear the most expensive in 1972 but care is needed in the interpretation of the Table as it tends to conceal the effect of the advances in technology.
118
Nuclear Coal and oil
1974-75 0-2508 0.7538
1975-76 0.3922 0.9504
%change 56 25
That the trend towards a rising fuel cost has escalated rapidly is seen in figures for 1976-77, supplied to the author by the CEGB on 15 September 1977, which show fixed costs of 0.24p/kWh and fuel costs of 0.45p/kWh.
Estimated total generating costs for power stations under construction (p/ k Wh at 75% loadfactor, January 1972prices) 26 1971 accounting costs
Magnox Coal Oil
0-43 0.41 0.39
1971 accounting costs revalued as a generating cost at a 10% interest charge 0.64-1.07 0.39-0.65 0.42-0.46
ENERGY POLICY June 1978
Colin Sweet
A s s e s s m e n t of the e c o n o m i c costs of nuclear power has been oversimplified and the supposed benefits have yet to be d e m o n s t r a t e d . Calculation of the true costs has been obscured by the use of m i s t a k e n a s s u m p t i o n s and methods leading to much confusion. T h e author sets out to unravel s o m e of the major factors involved, and d r a w s attention to the importance of more i n d e p e n d e n t research in this field. The relation b e t w e e n a better evaluation of the e c o n o m i c s of nuclear power and the determination of energy policy provides the c o n t e x t in w h i c h the analysis is m a d e . The author is w i t h the D e p a r t m e n t of Social Sciences, Polytechnic of the South Bank, B o r o u g h Road, London S E 1 0 A A , UK. The author is grateful for Lesley Rimmer's help in the preparation of this article. 1 UK Ministry of Power White Paper, Fuel Policy, Cmnd 3438, HMSO, London, 1967. 2 Costs in new pence are expressed as p/kWh and costs in old pence (pre-1971) as d/kWh, l p = 2.4d. 3 The station was Dungeness B, on which work began in 1965 and which was to be completed in 1971. The completion date is now expected to be 1980. 4 UK House of Commons Select Committee on Science and Technology, 1976, Nuclear power policy. Minutes of Evidence, Appendices and Index, p 44. 5 UK Ministry of Power White Paper. The Nuclear Power Programme, Cmnd 1083, HMSO, London, 1960.
0301-4215/78/0602-01
Demands for the extension of nuclear power's role in contributing to UK energy requirements are based primarily on the relative costs of nuclear and fossil fuels - essentially an economic argument. This paper attempts to assess the available evidence on nuclear power costs, to evaluate the adequacy of published statistics, and to determine where the balance of advantage lies. The case rests on four factors - the load factor, calculations of fuel and capital costs, research and development costs, and most importantly, whether there is net benefit over costs. In the government White Paper of 1967 on fuel policy, 1 the UK Ministry of Power stated that the time was ripe for fundamental changes in the patterns of energy demand and supply in the coming years. The changes envisaged were a large expansion in nuclear power and natural gas, and a further run down of coal. Oil consumption would expand by only a small amount. Up to that time the first generation of reactors (the Magnox programme) had failed to show that nuclear power could offer an economic advantage. Despite this, the 1967 White Paper contained a commitment to carry through a large-scale expansion of nuclear power. The principal consideration was a re-assessment of the costs of nuclear power. Notwithstanding the results of the Magnox programme, it was the clearly held view of the government that the second generation of nuclear stations (the A G R programme) would break through the floor prices of generation by the most efficient of the fossil fuel stations. Whereas the first Magnox station at Berkeley had a generating cost of 1.27 p/kWh, 2 the first AGR, which was to be commissioned 8 years after the Berkeley station, 3 was expected to achieve a cost as low as 0.52d/kWh. 4 This was a sharp change of policy. The 1960 White Paper 5 had stated that in view of the low price of oil, and the plentiful supply of coal, there was no need for an acceleration in the rate of ordering nuclear capacity. Further, the generating costs of nuclear stations were higher than originally forecast, and the cost of generation in fossil fuel stations had fallen. Five years later (1965), the dramatic projected fall in nuclear power costs nevertheless only offered the smallest marginal advantage over the costs of the best fossil fuelled stations. This was also based upon substantial external benefits built into the nuclear stations' costing. Not only were these externalities not available to fossil fuelled stations, but in the case of the differential load factors that were applied, they were advantages
07 $ 0 3 . 0 0 © 1 9 7 8 IPC Business Press
107
Nuclear power costs in the UK Table 1. Energy consumption in the UK (mtce)
Coal Oil
Nuclear and hydro Gas (North Sea)
Total
Error in
1957 (actual)
1965 (actual)
1975 1975 (projected) (actual)
p r o j e c t i o n (%)
212.9 36.7 1.7
174.7 111.7 10.2
120 145 35
--1.6 --7.4 --68
251.3
1.1
50
297.7
350
118-1 134.4 10.8 (nuclear) 1 '9 (hydro) 55.4
+ 11
320.6
that were to some degree operative only at the expense of the fossil fuelled stations. It is difficult to understand why such a large-scale investment programme in nuclear power was preferred. Not only was the projected nuclear price against the actual fossil fuelled price marginal (0-02d/kWh) but it was obvious that with such hypothetical prices, the likely error must be several times greater than the supposed marginal advantage. 6 The implication of the changes projected in the 1967 White Paper for the relative shares of nuclear and fossil fuels can be seen in Table 1. In contrast to previous projections based upon the market determined price of oil, these projections contained a commitment to a hitherto unproved energy source, whose production had been insulated from the free play of market forces by its special position in the public sector resulting from its military potential. One result of the new policy became obvious in a few years. The strengthening of the supply of nuclear energy meant that a simultaneous decision was taken to enlarge electricity's share as an energy form. Although growth of electricity demand had fallen to 3.9% per year in 1966, compared with 9.2% for the period 1953-63, the White Paper projected future demand growth of 6% per year. Under these circumstances, if consumers did not choose to use more electricity, there would be a considerable misuse of resources. The projection carried with it the assumption that electricity costs would fall, encouraging this higher consumption. If they did not fall, the alternative would either be a growing surplus of capacity in electricity supply which would raise costs further, or a system of managed demand by which no one would be able to escape the higher electricity costs. Thus the overall projections were based on linked hypothetical estimates of cost and demand factors. 6 The explanation for this preference was partly to be found in the experience of the USA from which had come new and surprisingly low generation costs in the years 1963-67, and which had been reported extensively in the OECD countries. 7 For both nuclear and non-nuclear stations, the hypothetical generation costs each include the interest charge and the station life as cost parameters, but the load factor is fixed only for nuclear power. The sum of these costs is reduced to a present value figure and divided by the present worth of kWh generated. It therefore depends crucially on the assumed load factor (see Appendix 1 ).
108
Load factors Central to the estimates of costs are the different load factors allowed for nuclear and fossil fuelled stations - 75% for nuclear stations and a much lower but variable figure for fossil fuelled stations. Placing stations in a merit order is normal to an electricity supply system, but in the ground rules of the Central Electricity Generating Board (CEGB), the 75% load factor for nuclear stations becomes a fixed cost parameter. 7 The practice of assuming a high load factor for nuclear stations is inconsistent with the overall optimization of costs in electricity supply, where one of the variables to be determined is the load factor for each station. The UK Electricity Council's objective of
ENERGYPOLICYJune
1978
Nuclear power costs in the U K Table 2. Estimated generation costs at nuclear stations at 75% load factor Magnox Berkeley Yea r of com missioning Station output (MW) Construction cost (£/kVV) Capital charges Running cost Total generation cost (d/kWh)
Hinkley Point A
Sizewell A
Wylfa
AGR Dungeness B
Hinkley Point B
1962 276 185 0.86 0.37
1965 500 155 0.73 0.30
1966 580 106 0.49 0-21
1969 1180 107 0.48 0.17
1970 1200 81 0.37 0.15
1972 1320 71 0.33 0.15
1.23
1.03
0.70
0.65
0.52
0.48
Source." T.W. Berrie, 'The economics of system planning in bulk electricity supply', in Public Enterprise, ed R. Turvey, Penguin, Harmondsworth, 1968, p 202.
Table 3. Load factors in CEGB nuclear stations to December 1975
Berkeley Bradwell Dungeness A Hinkley Point A Oldbury Sizewell Trawsfynydd Wytfa
Moving load factor (%)
Cumulative load factor (%)
84 67.6 67.7 71-8 54 71-2 70-9 16-6
79.9 72.9 69.1 66.5 50.5 61-6 59-8 23-5
Source: L.R. Howles, 'Reviewing nuclear power station achievement', Nuclear Engineering International April 1976, pp 22-23.
8 If there is a 5:1 ratio in favour of capital costs, it follows that any change in total costs as a result of changes in fuel prices must be five times the magnitude of a change in capital costs. It would, for example, require a 5% fall in fuel costs to offset a 1% rise in capital costs. If capital costs are constant this will be of no importance, but if they are dynamic then it is they and not fuel costs that are likely to determine total costs.
ENERGYPOLICYJune
1978
determining investment criteria according to long-run marginal costs is in principle, therefore, non-operable. The reason for assuming these high load factors is that the capital costs of nuclear power stations are much greater than for fossil fuelled stations, while fuel costs are held to be substantially lower. Capital costs have been estimated to be as much as five times as large as fuel costs, and therefore the target of low unit costs would only be realized by placing nuclear stations at the top of the merit order, where they would be operated at as near to maximum capacity as possible. This approach to load factors assumes that low fuel costs must always act to offset high capital costs, and that the relation between capital costs and fuel costs is constant. This requires that the relative price effect in a given period would either favour the fuel cycle or would have a nil effect. This does not accord with historical experience. Table 2 shows that the fall in generation costs with the progress of the Magnox programme was due more to the fall in capital costs than to the fall in fuel costs, although the difference is not very great. Similarly the assumption of falling fuel costs has been confounded by the sharp price rises that have occurred in the fuel supply market. The brunt of our argument is that it might be more reasonable in a dynamic construction to regard movement in the capital content and the cost of capital as the most important factor in determining total unit costs. 8 In the absence of a systems analysis that optimizes costs between different types of station, there can be trends in relative prices and outputs which cause a large misallocation of resources. For example, the emergence of surplus capacity in the supply system as a whole will mean that stations which should be on high load factor (and therefore be low-cost producers) experience a fall in their load factor and become high-cost producers. Second, the fuel cost is an independent variable, and it cannot be assumed that it will necessarily hold over time. Sharp changes in supply factors, oligopolistic pricing, technological and environmental factors, can separately or collectively diminish the advantage of nuclear power in the fuel costs cycle. Third, where the number of nuclear stations increases to a point where some if not all must operate with a fluctuating load factor, the unit costs must rise. Figure 1 provides an example of the importance of load factors for unit costs. The critical nature of the 75% load factor is shown in Table 3. The average load factor for Magnox stations based on their original design capacity for the years 1967-72 was 58%. On the derated capacity it was 62%. The derating has an effect on the published generating costs because the capital charges for the
109
Nuclear p o w e r costs in the UK 16 15
Wylfa Magnox station ~ Mognox (projected) ~ (actual)
14 13 12 Cottam (coal)
II
I0 F i g u r e 1. Influence of load factor on unit costs. Source: Price, Bottrell and Macrae, 'Experience acquired in the design and construction of operating plants', report to the 5th Foratom Congress, Florence,
1973. Note: The broken line has been added to show the estimated cost effect of the average load factors for Magnox stations.
~
~\ \ ' ~ .
9 O
8
r
~
TM
•
breakeven point
7 6 5
I
20
I
I
30
I
I
40
1
I
50
I
1
I
I
60 70 Loadfactor(%)
I
l
80
I
I
90
I
I
I00
Magnox stations were adjusted so that the generating costs derived from them reflect the effect of derating - ie a proportion of the capital charges have been written off. Table 3 also shows that the moving load factor for 1975-76 has exceeded 75% for only one of the eight Magnox stations. The cumulative load factor was similarly above 75% for one station only. The average load factor for all stations based on their derated capacity was 65% in 1975-76, cumulated for the period 1963-75. If we are to make an economic assessment based on the derated capacity of Magnox reactors, but also making allowance for a period of learning for the new AGRs, a load factor of 60% would seem a more reasonable figure. C E G B generating costs
s Hansard,
110
26 May 1977.
The certainty with which statements are made about the comparative advantages of nuclear power are usually inversely related to their accuracy, for which the CEGB must bear some responsibility. As the authoritative body, the CEGB produces generating costs for each of its generating systems. These are understood to be total generating costs, and they are used as such for making comparisons between different generating systems. As one of many examples, Mr Tony Benn, UK Energy Secretary, told Parliament on 26 May 1977 that in the year 1975-76, the average generating costs of the CEGB power stations commissioned in the previous 12 years were as follows: coalfired - 0.97p/kWh; oil-fired - 1.09p/kWh; nuclear (Magnox) -0.67p/kWh. 9 Although it is made clear that these figures include interest and depreciation charges appropriate to the year in question, what is not made clear is that they have no validity for making economic comparisons between the different generating systems. In both the 1976 Annual Report of British Nuclear Fuels Limited (BNFL) and the 1977 Report of the Atomic Energy Authority (UKAEA), Sir John Hill (Chairman of the UKAEA) reproduced the above figures to show that Magnox reactors are economically superior, and in the 1977 UKAEA Report he further showed that 'The AGR stations are producing electricity substantially cheaper
E N E R G Y POLICY June 1978
Nuclear power costs in the UK
lOThe reason for the former point would appear to be because the UK Treasury did not insist on its own rules regarding public sector investment criteria, and for the latter, because the UKAEA (which is Treasury financed) has waived the very high costs of reactor R & D. This unsatisfactory situation would be improved if all costs were published. 11 US Atomic Energy Commission, Power Plant Capital Costs, Current Trends and Sensitivity to Economic Parameters, AEC WASH-1345, Washington, October 1974. 12The increase was due to two factors. First, it was admitted that the early low costs of Westinghouse and General Electric which had made such an impression internatioanlly were 'loss leaders'. The AEC 1967 figure of $ 1 3 4 / k W for a 1 0 0 0 M W light water reactor (LWR) was revalued at $ 2 4 0 / k W at 1969 prices. The cost by 1974 was raised to $ 7 2 0 / k W tor stations to be completed in 1983. Second, the rise in published costs represented a renewed attempt to measure the real costs of nuclear power in the USA. In particular the escalation factor and the cost of capital were entered in full for the first time. Together, these two items comprise in the AEC presentation the largest element in total costs. By contrast, while the direct construction cost itself had been raised from $ 7 5 / k W to $190/kW, in percentage terms this meant a fall from 75% of total cost to 30%. By giving proper weight to the cost of capital and replacement costs, the AEC had arrived at a figure which was much more convincing as a reflection of the opportunity cost of capital. In contrast, the UK authorities still adhere to the earlier costing methods which are mostly concerned with the direct costs, and which understate or ignore other cost factors.
ENERGY POLICY June 1978
than the coal or oil fired stations built at the same time as the A G R stations'. As they have been operating on suboptimal load factors since commissioning, this could hardly be true. He went on, 'The same will be true of the next nuclear stations to be ordered'. This capacity to predict the future is difficult to refute, as it must be based on unpublished information that is contradictory to what little has been published so far on A G R costs. Accounting costs are not indicators of economic worth, and are no guide to the future. In this case, the A G R capital costs that have been published suggest that the accounting cost figures for Magnox stations cannot be used as a guide for AGRs, which have much greater capital costs. The picture is further confused by the annual figures published by the CEGB in its Statistical Yearbook, which are labelled 'costs of generation'. These are the only published production cost figures, and they are works costs figures - which makes them more remote from true generation costs than the accounting costs given to the UK Parliament. The works cost for 1975-76 was 0.39p/kWh, which does not compare with the figure of 0.67p/kWh given for the same year. How these figures relate to each other is not clear - neither of them are the costs of generation per unit of power. What renders the situation even more unsatisfactory is that it appears that the CEGB do calculate what they call 'total generating costs', and which are in principle economic costs, when they secure tenders from construction companies for their power stations. As with the accounting costs given above, total generating costs are not published. Finally, the situation is confounded by the fact that the accounting costs, which are meant to measure the costs of the past, are not true accounting costs. In particular, they do not measure the true costs of capital (although this may change with the A G R stations) and most importantly they include only a very minor element o f R & D costs? °
Capital costs The generating costs discussed above subsume estimates of capital costs. In 1974 the US Atomic Energy Commission (now ERDA) carried through a major reassessment of the capital costs of nuclear power in the USA, and revealed a five-fold increase in capital costs estimates over the previous 8 years. Ira2 The unwillingness in the UK to reveal the full costs of nuclear power is related to the political and institutional factors peculiar to the nuclear industry. But at the economic level it has created real difficulties in the formulation of energy policy. The expectations of the A G R programme depended more on achieving significantly lower capital costs over the previous Magnox than upon anything else. As has been shown, the importance of low fuel costs loses its significance (even if the costs do fall!) unless capital costs are falling or are constant. The UK House of Commons Select Committee on Science and Technology was led to believe in 1967 that the very small marginal advantage then projected for nuclear power would widen as economies of scale were realized in the nuclear engineering industry. While the cost of coal- and oil-fired stations was £50-55/kW, and the second A G R (Hinkley B) was quoted at the low figure of £93.80/kW, the difference in these respective capital costs did not look impressive enough to provide a basis for long-term investment
111
Nuclear power costs in the UK Table 4. Cost of nuclear stations (£ million)
Date of original estimate Original estimate at prices at above dates Current estimated actual costs (at prices as actually paid or anticipated to be paid) Current estimated costs at constant prices ruling at date(s) of original estimates
Source: Hansard, 28 October Atom, N o 2 3 0 , December 1975.
Projected costs Actual costs
350300
1975;
/
25o
2co 3
•.;?o,
Ioo 5o
0
~ I 1950
I 60
I 70
I 1980
Year of commissioning
Figure 2. Construction costs of nuclear and coal fired stations, actual and p r o j e c t e d (at current prices). Based on E.J. Pipe, CEG8 paper presented to IAEA Conference, Istanbul, 1969. The curve showing actual AGR construction costs is based on the most recent data.
la D. Henderson, 'The unimportance of being right', The Listener, 27 October 1977; and C. Sweet, Supplementary Proof of Evidence to the Windscale Enquiry, Department of the Environment, 1977. 14 Select Committee on Science and Technology, op cit, Ref 4, pp 381-383. is Ibid, pp 431-435 and 491-495. 16 R & D expenditures are always large for nuclear power and in the early years they will be equal to or greater than the construction costs. For the years 196273, R & D costs have been put at £813 million (see John Surrey and William Walker, 'Energy R & D: A U K perspective', Energy Policy, Vol 3, No 2, June 1975, pp 90-115), and total R & D inputs must exceed £ 1OOO million. A precise figure is beyond calculation as in the early years civilian reactor costs cannot be separated from military expenditures, It can, continued on p 113
112
Dungeness B
Hinkley Point B
31 March 1965
31 March 1966
Hartlepool
Heysham
Total COSt 31 October 1968 30 November 1970
89
95
92
142
418
280
140
220
240
880
186
126
158
174
644
decisions. The Select Committee was assured that in the period up to 1975, reductions of up to £10/kW could be expected relative to the Hinkley B costs? Beyond that date further reductions of £15-25/kW for a programme of a further 16 000-20 000 M W of the CEGB's medium-term programme were promised. 4 The 1967 White Paper ] fully supported the CEGB's case and stated that a 20% fall in generation costs might be achieved through the life of the A G R programme. Total generation costs were expected to fall below 0.4p/kWh (at constant 1966 prices). These projections of increased returns to scale and falling unit costs proved to be a total chimera. Between 1965 and 1975 the cost of four A G R stations rose by 50% at constant prices according to official figures (Table 4). More recent estimates have raised A G R costs further (see Figure 2) and unofficial estimates place the total cost of the first A G R programme at over £3000 million. 13
Research and development The R & D input into the nuclear reactor programme was accepted in 1967 as a cost, in the form of a royalty paid by the CEGB to the U K A E A , fixed at 0.014d/kWh. It was understood that this was less than the actual R & D input into the reactor programme, the true cost of which was treated as confidential. ~4 It was stated that the U K A E A ' s policy was to secure a recovery of R & D costs according to what the market would stand. As there was only one buyer in England and Wales and only one in Scotland, it is difficult to understand what is meant by a market in this context. The writing-off of a substantial part of the R & D costs was accepted as being a 'benefit to the nation'J 4 For the purposes of economic assessment, how much was written off?. The N C B memorandum presented to the 1967 Select Committee suggests that the real cost of R & D lay between 0.03d and 0.05d/kWh, which is 2-3 times higher than the proposed U K A E A royalty. ]5'~6 Finally, it should be noted that while the R & D royalties payable to the U K A E A were published in 1967, it appears that the practice today is not to include these in the computation of CEGB generation costs. 17 Our conclusion is that the U K nuclear power industry has been subject to the same rapid rise in costs as that in the USA. The 1967 projections have not proved to be sound in the U K any more than they were in the USA. The difference is that neither the CEGB, the U K A E A , nor the UK government have been prepared to concede that this is the case. Their reluctance to make judgments on the basis of even an approximate economic cost is possibly because it would
E N E R G Y P O L I C Y June 1 9 7 8
Nuclear power costs in the UK Table 5. Nuclear fuel cycle costs ($/kg) a
Uranium oxide UF6 conversion Enrichment Fabrication Shipping Reprocessing Waste Aggregate
(1) (2} (3) (4) 1968-1980 1969 only 1970-1980 19'72only
(5) 1976
(6) 1977b
(7)
1976(IAEA) BNFL
19l Recycling via THORP
17.5 1-32 30 86 8 27.4 4.3 174.52
66 9.7 80-120 120-150
66 7.7 110 123-5
339-500
1336
15.4 2.31 26 82.5
17.5 2.53 26 70
22 1.35 42 70
32-5
45
35
5
158.71
161 "03
175"35
--
(8l
296-450 120-150
292.4 17.24 182 122.4 425
8.6 197.2
--
150-300
425
150-300
425"7 -645.7
732'5
905-1400
1038-64
1601.8
Sources: Column (1) - Bonanni et al; 'Nuclear fuel costs trends up to 1 980', paper presented at IAEA Conference on Economics of Nuclear Fuels, Gottwaldo, 1968. Column (2) - D. Hundt, 'Fuel cycle costs for medium sized light water reactors', IAEA Conference, Istanbul, 1 969. Column (3) - ' E d u c a t i o n and research in the nuclear fuel cycle', Chapter 1 in The Nuclear Fuel Cycle, ed D. Eliot and L. Weaver, University of Oklahoma Press, Norman, 1972 Column (4) - US AEC, The Nuclear
Industry
1973, W A S H - 1 174, US Government Printing Office, Washington, 1973. Columns (5), ( 7 ) - R. Krymm, 'A new look at nuclear power costs', IAEA Bulletin, Vo118, N o 2 , 1 9 7 7 , p p 2 - 1 1 . Columns (6), (8), (9) - BNFL and CEGB figures in paper FOE 101 submitted as evidence to the Windscale inquiry, 1977. Note: Columns (1) to (8) show the trend in reprocessing costs. Allowances should be made for the general rise in prices for these and all other costs shown. Not all
the fuel costs items are comparable with each other across the columns, but the table does show how reprocessing costs have moved generally and their proportional influence on fuel cycle costs. Columns (7) to (9) purport to give the full cost of the fuel cycle in AGR/LWR type reactors, so far as the data are available. a All figures are at current (January 1978) values. b Converted from sterling at a rate of $1.7 = £1.
require a major re-assessment of the whole nuclear power programme. At a time when this programme has become the subject of increasing public interest and there is concern over the noneconomic factors, this reluctance is understandable but shortsighted. Fuel c y c l e c o s t s
continued from p 112 however, be seen that an economic assessment, which must include R & D expenditures, will call for a very substantial upward revision of nuclear generation costs. 17Private communication to the author from the CEGB. la See Nuclear News, Vol 17, No 12, September 1974, p 37; Geoffrey Greenhalgh, The Times, 26 November 1974; and Simon Rippon, 'Making the case for nuclear power', Nuclear Engineering International, September 1974, pp 7 4 1 - 7 4 3 . 19 'Future prospects for energy supply and demand', Atom, No 193, February 1973, pp 38-39.
ENERGYPOLICYJune
1978
It was almost univerally assumed 10 years ago that fuel cycle costs would fall or remain constant (see Table 5). Some analysts did allow for small rises in the price of uranium by 1980, but with no significant effect on the cost of the fuel cycle. Why were they all mistaken? First, they accepted the contemporary price as the real price, not recognizing that there were substantial subsidies included in earlier military programmes. Second, they used the method widely employed in nuclear power projections of making extrapolations from historic cost - a notoriously unreliable guide to future prices. Third, there was a large element of wishful thinking. In 1974, when oil prices were rising rapidly, a theory emerged that the cost advantage of nuclear power was not only large but inviolable, and that nuclear power was insensitive to price movements. 18 This required one to believe that the markets had been replaced by a vacuum. It was not appreciated, for example, that one effect of the rise in the price of oil would be an upsurge in prices in the nuclear supply markets. A U K A E A Study
Group report in 1973 stated, 'Fossil fuel prices - eg fuel oil may well rise in real terms in future years, whilst nuclear prices should fall as existing plants are built ... Combining possible new capital costs and fuel cost changes mentioned above means that by 1990 the generating costs of an A G R station would be only two thirds of an oil fired station'.~9
113
N u c l e a r 90wer costs in the U K 26 24 22 f _
20 18 16 14
E
12 10 8 G 4
I I 1 I 1 I I I 1968 69 70 7! 72 75 74 75q976 Yeor of dehvery
Figure 3. Price o f immediate delivery.
uranium
for
2°Hansard, 11 April 1974. 21 N u c l e a r Power Financial Considerations, Atomic Industrial Forum, Washington, 1973. 22 C. AIIday (British Nuclear Fuels Ltd), s t a t e m e n t at the Windscale public inquiry into reprocessing facilities, June 1977. 23 However, it must be admitted that the area for t r a d e - o f f prices b e t w e e n nuclear and fossil fuels is one w h e r e the state of k n o w l e d g e precludes firm statements. T r a d e - o f f prices for uranium oxide and oil on the w o r l d markets have been calculated on many occasions. Perhaps the most authoritative are those of Krymm and associates at the International A t o m i c Energy Authority, w h i c h indicate that the price of uranium oxide is still substantially b e l o w the tradeo f f price with oil. But these estimates in all cases are unacceptable because they assume that the o t h e r costs in the nuclear fuel cycle will remain constant.
114
This highly optimistic report came after the current CEGB accounting cost figures for 1972-73 showed that nuclear power was lagging in terms of the 1967 expectation, and was still more expensive to produce than power from oil-fired stations. 2° As nuclear power expanded, the suppliers found themselves facing a situation where the former subsidies were being withdrawn and they had to adjust themselves to fully commercial markets, where prices had to reflect fully the high and rising resource costs. At the same time, they found themselves in conditions which strongly favoured the seller. The result has been that the cost of the nuclear fuel cycle has exploded. The capital inputs for all six stages of the fuel cycle are exceptionally large. This is reflected in the unit costs of all these stages in the fuel cycle (Table 5). In the production of uranium metal, the cost of exploration, mining and drilling in the USA is said to amount to $15/1b, and these capital costs comprise 40% of the ore value. 2~ Mining firms have therefore been unwilling to expand their activities until they are assured of good return on their capital. The uneconomic 1970 price (minimum of $5/1b) has given way in conditions of relative scarcity to a price escalation that has been no less dramatic than that of oil (see Figure 3). Spot prices today are eight times those of 197073 and contract prices five to six times higher. There is no reason to believe that new discoveries will bring the price down, as the market is subject to oligopolistic control as well as political constraints, which make the emergence of a free market impossible. BNFL's quoted price for the domestic market in reprocessing services of £250/kg 22 represents an eightfold increase on the previously quoted prices. Again, the reason is the exceptionally high capital costs of nuclear technology. Price increases of these orders of magnitude render obsolete the contention that fuel cycle price increases do not affect the competitiveness of nuclear power. Especially in the context of the revealed high capital costs, the exceptional rise in the running costs can have more than a marginal effect, and could price nuclear power out of the market. While it is generally agreed that real energy costs will rise for the next decade, there will be plentiful supplies of some fuels, notably oil and natural gas, which will exert countervailing pressures against the higher cost producers. 23 Neither the CEGB nor the U K A E A publish or provide breakdowns of the fuel cycle cost for the UK, and it is only possible to estimate the relative proportion of the different costs by analogy from US or French breakdowns. Now that the reprocessing and waste disposal costs and enrichment costs, for example, are known to be much higher than were previously estimated, the effects of these as well as the rise in uranium costs call for detailed information and analysis. The supposed benefit of recycling plutonium and uranium is also emerging as a question of major importance about which there is little published information so far. With imperfections in our knowledge of the relative fuel cycle costs of nuclear and non-nuclear power generation systems, it is foolish to make firm statements. There has clearly been an element of artificiality in fuel cycle costs and more information is needed. From the projections shown in Table 6 it can be seen that, notwithstanding what happens to the non-nuclear fuels, large increases in nuclear costs are due in the short to medium term. Table 6 contradicts official
ENERGY
POLICY
June 1978
Nuclear power costs in the UK Table 6. Estimated nuclear costs in the UK, 1975 and 1980 (p/kWh)
Capital costs a Construction (annuitised) Interest during construction
Magnox 1975 Load factor 60% 65%
1980 Load factor 6O% 65%
AGR 1980 Load factor 60% 65%
0.26
0-28
0.27
0.25 0.1
0-26
0.26
--
--
0.11
R 8" D
0.08
0-07
0.08
0-07
0.08
0-07
Subtotal
0.36
0.33
0.36
0.33
0.46
0.42
Fuel costs Fuel cycle (actual) + OE~Mb
0.3322
0-3922
0.3322
0.3322
0-3322
0.33~
Escalation in fuel cycle + O&M c
--
-
--
--
0-4745
0.4745
0-4745
0.4745
Subtotal
0-3322
0.3922
0.8667
0.8667
0-8667
0.8667
Total costs
0.7522
0.7222
1.2267
1-1967
1.3267
1.2867
a Capital costs for the Magnox are calculated on historic, not replacement costs and at a constant 10% interest. Capital costs for the AGRs are estimated on a total construction cost of £ 8 0 0 million. On a capacity of 5 1 0 0 MW this amounts to £156/kW. This could be an underestimation by as much as 25%. The interest rate is 1 0%, including construction period. b Fuel cycle costs (actual) are CEGB figures for 1975-76. They should be read to include O & M. They doubled in the two years 1 9 7 3 - 7 4 to 1975-76, but the fuel costs were stable, the increase being most prominent in fuel handling. There is an unexplained discrepancy in the CEGB breakdown of fuel and O & M costs. In 1 9 7 4 - 7 5 fuel handling cost first appears
as
O-0378p/kWh
Yearbook
(CEGB Statistical
1974-75).
In the following years, however, the same cost is changed to O.0713p/kWh - more than double and the figure for 1 9 7 5 - 7 6 is given in the same table as O. 1646p/kWh, which is a yet further doubling of the fuel handling costs. This means that the fuel handling is costing considerably more than the fuel itself (O.0982p/kWh). c The escalation in fuel and O & M costs by 1980 is the result of two factors - the rapid increase in these costs in the last two years referred to above, and the anticipated effect of the large rise in nuclear fuel costs. This is not yet reflected in the CEGB works costs, but will be by 1980 and beyond.
statements (particularly those from the UKAEA) and suggests that only larger price increases in fossil fuels will leave nuclear power as the low cost source of electricity - but this is unlikely. It is probable that oil-fired stations, since the 1974 price rise, have been more expensive producers than nuclear stations, but in the last 3 years the real costs of oil have fallen substantially on the world market, and the signs are that this trend will not be reversed until there is a shortage of oil. The relative costs of the best coal-fired stations compared with the best projected (but hitherto unrealized) nuclear power prices indicate that these two generation systems are highly competitive. Table 6 does not provide a true economic cost for nuclear power generation costs. We can only estimate rather generally the differences that escalation in uranium costs will make to Magnox and A G R reactors. The Magnox consumes more uranium, but the AGR estimate has to allow for enrichment toll charges, which are a major item. In capital costs we have had to be content with accepting historic cost figures for Magnox reactors, while the full cost of the AGR programme is not yet finally known.
ENERGY POLICY June 1978
115
Nuclear p o w e r costs in the UK Table 7. Costs and benefits of an illustrative 100 G W nuclear reactor programme (£ billion) Year 1-10
Reactor capital costs a
Fuel cycle costs Capital b Running c
8.34 4.84 e
5
Revenue d
Cash f l o w
Present value
--18.04
--11.10
Operation
--
-
11-20
15.44
-
8.26
10.05
22.07
--11.59
-- 2.70
21-30
15.44
-
24.79
16.70
66.27
9.29
+ 0.84
31-40
8.34
--
42-70
22.47
110.37
36.35
+ 1.20
Assumptions: 1 0 0 0 M W reactors; 65% load factor; 1 0% interest charge; uranium oxide - $40/Ib; enrichment toll charges $ 1 0 0 / k g SWU. Benefits over 5 0 years would be larger than over 4 0 years if it was decided not to build any more reactors and the consequent gains were greater than the costs of decommissioning. No decommissioning costs have been estimated because there is no basis on which an estimate can yet be made.
a Capital costs for the 100 reactors of 1000MW capacity each are based on figures given by the US AEC in Power Plant Capital Costs, Current Trends and Sensitivity to Economic Parameters, W A S H 1345, October 1974. b The capital cost for nuclear fuel cycles relates to the Atomic Industrial Forum report Nuclear Power Financial Considerations 1973. The rounded figure of £5 billion underestimates the likely capital costs of the fuel cycle.
c Running costs are based upon the analysis of the fuel cycle given in Tables 5 and 6. d Revenue is based upon a long average sales price by the generating boards of 2.3p/kWh. e Cost of fuel inventory for all reactors in the programme.
N e t benefits
24 The cash flow problem is quite different for a smaller scale programme, especially if construction of the reactors is spaced over time so that the benefits from one reactor can accrue within its lifetime. If the programme is intensive, the benefits of the early reactors must be used to provide funds for those that follow. As a result the benefits accumulate over time and after 3 0 years they become positive.
116
Table 7 sets out the net benefits of a full scale nuclear pFogramme of 100 GW which is the scale of programme that the CEGB and the U K A E A have constantly urged. Much of the data used have been transposed from the performances of the US LWRs, since the data provided by US authorities are much fuller than those from the UK. Allowing for the substantial margin of error that must qualify the value of any large-scale long-term exercise, the results do not confirm that nuclear power is the most economical option. It can be seen that there are no net benefits until after 20 years. It should be noted that this is based upon using a price of 2.36p/kWh (40 mills) which is almost double the 1980 price estimated in Table 6. This is broadly consistent with the UK Department of Energy's expectation that energy prices will increase in real terms by 50-100% by the year 2000. Nevertheless it is a maximum rather than a minimum figure, and if we were to assume a low figure of 1.2p/kWh there would be no net benefits at all in the 100 GW programme. Benefits take so long to accrue for two reasons - the very high capital cost of nuclear installations and the size of the programme. This means that the cash flow of the authority responsible for such a large programme is subject to constant demands, which are made severe by the long lead time of 10 years that is assumed. Starting three new 1000 MW reactors every year for a period of 30 years would unquestionably be the greatest investment in one technology ever undertaken in the U K economy. 24 Long-term planning is essential for a technology as complex as nuclear power. Many of the present problems arise from trying to telescope the time periods for R & D. The fact that nuclear power development has time requirements that are asymmetrical to those of other technologies, and that experience has shown that it is sensitive to many factors, makes it unsuitable as a 'front runner' in any energy scenario. The constraints that exist in nuclear power and their consequence for energy policy are being understood only slowly,
ENERGY
POLICY June 1978
Nuclear p o w e r costs in the UK
because of the overoptimistic and even euphoric perspectives introduced into the energy debates of the 1960s. The recent analyses of the UK Department of Energy are still marked by an apparently unresolved conflict between the short- to medium-term energy supply estimates, which for the UK show an oversupply rather than an energy gap, and the longer-term requirements, which call for heavy investment in energy R & D. To fit a nuclear power programme into a perspective which spans both these periods and which still retains some overall coherence in its policy objectives is proving exceptionally difficult. The technological uncertainties alone make any decision that satisfies either social criteria or economic criteria unlikely, when a large nuclear power programme is under consideration. 25 From this confusing and difficult situation in which the nuclear power industry finds itself, one proper conclusion of this study is that there would be important benefits in increasing the flow of information, which would improve the quality of research, especially in the field of costing nuclear programmes and evaluating their social overhead costs.
Appendix 1 The costs of different nuclear stations may be compared most simply by computing total costs and assuming the same load factor for all projects. This method is less satisfactory for comparing different types of power stations, because different load factors are used for different types of station. Many statistical comparisons nevertheless ignore this objection. Using the simple method, the incremental costs can be expressed as follows: e = 100 (iC + 0 + F) E where e = unit energy cost (p/kWh), F ---- annual fuel cost (£/year), c = construction cost (£), E = net electricity generated (kWh/year), O -- operating costs (£/year) and i = interest and depreciation charge (% per year). These factors may be further analysed as follows: 25 See UK Department of Energy, Energy Policy Review, February 1977; Energy
Commission Paper No I : Working Document on Energy Policy, published for the Energy Commission by the Department of Energy, London, 1977; CEGB Corporate Plan 1977, CEGB, London, 1977. All three projections favour the maximum estimate of 560600 mtce, which would require a substantial nuclear power programme of one new power station every two years. But they admit these projections may be overoptimistic. The CEGB minimum plan for the 1990s is for only 2 GW of new capacity compared with 17 GW in its maximum plan. Nuclear power is technologically unsuited to perform as the variable energy option. The present excess capacity in electricity supply makes it especially difficult to make policy decisions to meet the demand anticipated by the maximum estimates for the 1990s.
ENERGY POLICY June 1978
E = 8760 L K where L = load factor (%) and K = net rated capacity of plant (kW).
F=Cf E n where C f = fuel cost, fed to reactor (£/kg of U) and n = plant thermal efficiency (kWh/kg of U). Therefore e can be expressed in terms of production functions as follows: 6'
-
-
100 C 0 100 Cf 8760.~ ( i ~ + ~ ) + ~ n (fixed costs)
(fuel costs)
O/K can be regarded as a near constant, but C/K is the most important factor in the fixed cost function. L is overall the most important variable affecting the real costs. The relative proportions of fixed costs and fuel costs has been given as follows (% of total costs):
117
Nuclear p o w e r costs in the UK
Fuel Capital Operating and maintenance
Nuclear 14 71 15
Oil 71 23
Coal 57 33
6
10
Appendix 2 Works costs at Magnox and fossil fuel stations, 1974-76 (p/kWh)
26 Figures obtained from the Department of Trade and Industry memorandum, minutes of evidence to the House of Commons Select Committee on Science and Technology, 1972-73. The revalued accounting costs are meant to offer full generating costs. The Department of Trade and Industry memorandum states, 'This has been done by revaluing all costs at 1972 money values, by using annuities for capital charges in place of those associated with straight line depreciation, and by assuming a common load factor of 75% ... The difficulties of revaluing assets at a time of rising prices are well known ... the figures must therefore be treated with some reserve ... With these adjustments the nuclear stations appear the most expensive in 1972 but care is needed in the interpretation of the Table as it tends to conceal the effect of the advances in technology.
118
Nuclear Coal and oil
1974-75 0-2508 0.7538
1975-76 0.3922 0.9504
%change 56 25
That the trend towards a rising fuel cost has escalated rapidly is seen in figures for 1976-77, supplied to the author by the CEGB on 15 September 1977, which show fixed costs of 0.24p/kWh and fuel costs of 0.45p/kWh.
Estimated total generating costs for power stations under construction (p/ k Wh at 75% loadfactor, January 1972prices) 26 1971 accounting costs
Magnox Coal Oil
0-43 0.41 0.39
1971 accounting costs revalued as a generating cost at a 10% interest charge 0.64-1.07 0.39-0.65 0.42-0.46
ENERGY POLICY June 1978