NEA press room

Press kit: Economics of nuclear power

How much does nuclear production of electricity really cost? Through a series of reports and joint publications with the International Energy Agency, the OECD Nuclear Energy Agency (NEA) has sought to clarify the competitiveness of nuclear vis-à-vis other power generation options. These studies show that in regulated markets (with prices set at long-term average costs) nuclear energy is very competitive, and in liberalised markets (with carbon pricing and volatile electricity prices) the competition is played out between gas-fired power generation and nuclear power. This press kit provides an overview of these findings and inc ludes FAQs on the economics of nuclear power.

Nuclear economics: the basics

In terms of economic competitiveness at the plant production level, no single power generation technology has a clear overall advantage globally or even regionally. Competitiveness depends on national or even regional circumstances.
Cost competitiveness depends primarily on the local characteristics of each particular market and their associated financing costs, as well as CO₂ and fossil fuel prices.
The lower the cost of financing, the better the performance of capital-intensive, low-carbon technologies such as nuclear energy or wind power.
Overall, current production costs are higher for renewable energy technologies than for fossil and nuclear technologies, even with modest carbon pricing.

What most affects the cost of nuclear power?

Nuclear power has much in common with other low-carbon technologies in that it is capital-intensive with large upfront costs, while operating costs are low and operating lifetimes are long. Because most of the costs are associated with construction, nuclear power is particularly sensitive to any changes in these costs as a plant is being built.
Among the many factors which affect the overall cost of nuclear power, the three most important are overnight costs, financing costs (or discount rates) and the construction time of the nuclear power plant.

Overnight costs - These are the costs which would be incurred if a given power plant could be built “overnight”, and therefore the investment excludes financing costs. They include pre-construction or owner’s costs, engineering, procurement, construction and contingency costs.
Financing costs - The high costs of a nuclear power plant mean that its overall economics also depend greatly on the cost of capital or financing costs (the interest rate). These rates are the rate of return on investment. The cost of capital (which may range from roughly 3 to 10%) depends on potential investors’ assessments of the risk factors involved. This will vary depending on who the investors are (for example, governments, large utilities or private investors), the legal and regulatory framework in which the plant will be built, as well as national energy policy and the political background.

Despite having lower lifetime costs (per unit of electricity produced) than renewable technologies, nuclear power is the most sensitive technology to discount rates. Higher discount rates also have the effect of reducing the benefits from longer operating lifetimes of nuclear power plants. Hence the structure and cost of financing is of considerable importance to investments in nuclear capacity.

Construction time - the longer the project takes to complete, the longer interest payments accrue without investors recouping their investment. Construction delays, which are common in new nuclear programmes or when building non-standard designs, can therefore greatly increase costs.

What other factors affect the competitiveness of nuclear-generated electricity?

The competitiveness of nuclear power compared with other technologies is also affected by location (i.e. specific siting conditions), electricity prices, the price of carbon and gas prices.

Electricity prices - The profitability of an operational nuclear power plant depends considerably on electricity prices. The higher they are, the better nuclear power fares in both relative and absolute terms from an investor’s perspective, because electricity prices determine nuclear power’s profit margin, given the relatively low operating costs.
Carbon prices - Carbon pricing will increase the competitiveness of nuclear energy against coal and to a lesser extent against gas (see Carbon pricing and the competitiveness of nuclear power). In the competition between nuclear and gas, carbon pricing will favour nuclear in a range up to EUR 50/ tCO₂ (the five-year 2005-2010 EU ETS average was slightly over EUR 14), provided that unmitigated coal stays in the market. Otherwise, increasing carbon prices continue to favour nuclear over carbon-emitting technologies.
Gas prices - What capital costs are to the competitiveness of nuclear energy, gas prices are to the competitiveness of gas-fired power generation, which spends a full two-thirds of its lifetime costs on fuel (for nuclear, fuel accounts for a far lower proportion of costs at around 10 – 16%). From an investor’s perspective, if gas prices are low, the relative profitability of gas increases. If they are high, in relative terms nuclear power is more profitable.

Lifetime extension

Another factor which affects the economics of nuclear power generation is the lifetime extension of a nuclear power plant. In simple terms, a lifetime extension results in a total lifetime cost reduction and therefore a reduction in the costs per unit of electricity produced. It is becoming common practice to extend the lifetime of nuclear power plants beyond the original estimate in the design (for example, by 10-year increments, or in other circumstances from 40 to 60 years).

Why does location matter?

Currently, the attraction of investing in a nuclear power plant will also depend its location, or the type of market (regulated or deregulated) in which it operates.

If the electricity market is regulated (such as in China), investors in a nuclear power plant can determine what the return on their investment will be, thus making an investment more appealing. In liberalised markets such as Europe (where gas sets market prices), the price of electricity fluctuates. This presents a challenge for investors. However, in some liberalised markets price guarantees exist. In Europe, it is also likely that electricity prices will remain high or even increase in the foreseeable future. This increases the competitiveness of nuclear power.

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Historic trends

Early promise of nuclear power

The commissioning of the Obninsk nuclear power plant near Moscow in 1954 (the first electricity-producing nuclear power plant) signalled the start of a period of growth for the new global nuclear industry, with an average of seven reactors being built annually up to 1965. Construction accelerated in the mid-1960s and gained further momentum following the first oil shock of 1973/1974, as countries sought to reduce independence on oil-fired power.

Nuclear energy expansion

At that time, in most countries electricity utilities were government-owned enterprises, as electricity supply was seen as a government responsibility. If the utility was state-owned or state-backed, investment in nuclear could be financed directly through the state budget or supported by an implicit government guarantee. Many utilities were therefore able to invest in new nuclear power plants in the 1970s and 1980s, as opposed to the current position in most OECD countries today where many electricity markets are liberalised. During these two decades, hundreds of nuclear power plants were built.

Nuclear reactor construction starts, 1951 – 2011

Source: World Energy Outlook 2011

Nuclear energy slowdown

However, the nuclear industry did enter a major downturn from 1980, triggered by rising costs and delays, coupled with safety concerns following the Three Mile Island accident in 1979 in the United States. Moreover, in the 1980s the price of oil fell back, notably after 1986, which removed much of the incentive to support nuclear expansion (coupled with the effects of the Chernobyl accident that year). High interest rates in the early 1980s also discouraged capital-intensive investments such as nuclear power plants.
In the 1980s and 1990s, the dominant trend was to move away from oil-fired generation. In the 1990s, the prevailing alternatives were coal and gas. Since 2000, this trend has continued with a marked development of gas-fired generation, mainly combined-cycle gas turbines (CCGTs).

Renewed interest in nuclear power

Since the mid-2000s, global nuclear capacity has been on an upward trend, largely because of rapid development in Asia, but also power uprates (a process which enables the power output of reactors to be increased) and life extensions at existing sites in OECD countries. The renewed interest in nuclear power has stemmed from the need to satisfy in a cost effective manner rapidly growing electricity demand in the emerging economies, as well as efforts to achieve environmental policy objectives such as mitigating greenhouse gas emissions (nuclear power operation produces no greenhouse gas emissions). In 2010, nuclear power plants supplied 13% of the world’s electricity and 22% in OECD countries.

Fukushima

Following the 2011 Fukushima Daiichi accident, global nuclear safety reviews are expected to lead to regulatory changes that will slow or delay plans for expansion and mandate additional investment to improve safety at existing plants. However, the impact on generation III nuclear power plants is expected to be limited.
Refer to Outlook for nuclear power for further information.

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Risks

Why do nuclear power projects carry risk for investors?

Potential investors are particularly aware of the high capital cost and technical complexity of nuclear power plants, which present risks during both construction (delays and cost overruns) and operation (possible unplanned outages).

Construction

It is the construction phase of a nuclear power project which is generally considered the most risky for investors. This is especially true for “first-of-a-kind” plants and for new nuclear programmes. Large amounts of capital must be invested early on, while returns will not begin to flow until the plant enters operation a few years later.

Does the price of fuel affect the cost of nuclear energy?

One of the distinct advantages of nuclear energy is the low exposure to fuel price risk, because fuel costs are a small share of the total cost, and certainly not as important as overnight costs, financing costs and construction time. Fossil-fuelled plants generally have a much higher fuel price risk. Furthermore, uranium and fuel cycle services can be, and generally are, bought under long-term contracts and from politically stable countries.

Qualitative assessment of generating technology risks
Technology	Unit size	Lead time	Capital cost/kW	Operating cost	Fuel cost	CO₂ emissions	Regulatory risk
CCGT	Medium	Short	Low	Low	High	Medium	Low
Coal	Large	Long	High	Low	Medium	High	High
Nuclear	Very large	Long	High	Low	Low	Nil	High
Hydro	Very large	Long	Very high	Very low	Nil	Nil	High
Wind	Small	Short	High	Medium	Nil	Nil	Medium

Uncertainties after Fukushima

Following the Fukushima Daiichi accident, investors in new nuclear power plants may demand higher risk premiums on lending or require stronger guarantees and government incentives, making the financing of new plants more challenging. Investment in new nuclear capacity may be delayed, but those countries with policies pursuing nuclear energy have largely not changed course.

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Projected cost of nuclear-generated electricity

OECD studies comparing the cost of electricity generation from different sources indicate that nuclear power is highly competitive on a lifetime cost per kWh basis (particularly when the costs of carbon-dioxide emissions of other power generation options are taken into account). Projected Costs of Generating Electricity (2010) calculates the levelised costs of electricity (LCOE; costs of generating electricity over a plant lifetime) from nuclear and fossil-fuel thermal power stations and from renewable technologies. The study covers 21 countries and gathered cost data for 190 power plants ¹.

Nuclear power is most competitive at low discount rates:

When interest rates on financing (discount rates) are low (5%), nuclear is the most competitive power generation technology.
When discount rates are higher (10%), coal and gas are as competitive as nuclear power, especially in regions where coal is inexpensive (such as in Australia or certain regions in the United States).

The relative competitiveness of different power generation technologies in each country is highly sensitive to the discount rate and slightly less, but still significantly sensitive, to the projected prices for CO₂, natural gas and coal.

The graphs below show the levelised costs of electricity for different technologies in different regions, at 5 and 10% discount rates.

Regional ranges of LCOE for nuclear, coal, gas and onshore wind power plants (5% discount rate)

Source: Projected Costs of Generating Electricity, IEA/ NEA, 2010

At a 5% discount rate, the levelised cost of nuclear electricity generation in OECD countries ranges between 29 USD/MWh (Korea) to 82 USD/MWh (Hungary). Construction costs represent by far the largest share of total levelised costs, around 60% on average, while operation and maintenance costs represent around 24% and fuel cycle costs around 16%. These figures include costs for refurbishment, waste treatment and decommissioning after a 60-year lifetime.

Regional ranges of LCOE for nuclear, coal, gas and onshore wind power plants (10% discount rate)

Source: Projected Costs of Generating Electricity, IEA/ NEA, 2010 (p19)

At a 10 percent discount rate, the levelised cost of nuclear electricity generation in OECD countries range between 42 USD/MWh (Korea) and 137 USD/MWh (Switzerland). The share of investment in total levelised generation cost is around 75% while the other cost elements, operation and maintenance costs and fuel cycle costs, represent 15% and 9% respectively. These figures also include costs for refurbishment, waste treatment and decommissioning after a 60-year lifetime.

Study assumptions

Projected Costs of Generating Electricity (2010) assumes a nuclear power plant lifetime of 60 years, based on projections for generation III+ reactor designs. Most of the nuclear power cost estimates reviewed in this study are based on generation III+ designs, which promise enhanced safety features and better economics than many generation II/III reactors currently in operation. The study also assumes that the average lifetime load factor of nuclear generation is 85%. The load factor is an important performance indicator measuring the ratio of net electrical energy produced during the lifetime of the plant to the maximum possible electricity that could be produced at continuous operation. The study also assumes a CO₂ reference cost of USD 30/tCO₂ for all OECD countries.

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Carbon pricing and the competitiveness of nuclear energy

A recent NEA study entitled Carbon Pricing, Power Markets and the Competitiveness of Nuclear Energy (2011) assesses the competitiveness of nuclear power against coal- and gas-fired power generation in liberalised electricity markets with either CO₂ trading or carbon taxes. It uses daily price data for electricity, gas, coal and carbon from 2005 to 2010, which encompasses the first years of the European Emissions Trading System (EU ETS), the world’s foremost carbon trading framework.

Main findings

Even with modest carbon pricing, competition in electricity markets will be played out between nuclear energy and gas-fired power generation. Coal-fired power generation is not competitive once carbon pricing is introduced.
Low to medium-high carbon prices will improve the competitiveness of nuclear energy in a liberalised electricity market in all cases. Very high carbon prices may make gas more competitive than nuclear, but only if unmitigated coal stays in the market.
Nuclear energy is competitive against gas if one out of three categories - investment costs, electricity prices or carbon capture and storage deployment - is favourable. It dominates the competition as soon as two out of three categories are favourable.
The competitive advantage of different power generation options in a liberalised market is dependent on the configuration of seven variables. With respect to nuclear energy and gas, these factors will determine which yields higher profits. They are: overnight costs, financing costs, gas prices, carbon prices, profit margins, electricity prices and carbon capture and storage (CCS).

Nuclear power and gas

Nuclear power and gas are currently the two most competitive electricity generation options upon the introduction of carbon pricing in liberalised electricity markets. However, nuclear power does not necessarily become the most profitable as carbon prices rise.

The competitiveness of nuclear energy depends on significant but not overly high carbon prices. Even though the profitability of nuclear power increases in this scenario, its competitiveness against gas decreases. This is because the profitability of gas actually improves disproportionately with high and very high carbon prices (assuming that no carbon capture and storage is introduced).

The competitiveness of nuclear energy against gas also declines rapidly with falling gas prices, which almost unilaterally determine the profitability of gas.

The study also shows that between 2005 and 2010, nuclear power made far higher profits than coal- or gas-fired power generation once capital costs are amortised. Operating an existing nuclear power plant in Europe is currently very profitable.

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Outlook for nuclear power

Downward revision of projected growth

Following the Fukushima Daiichi accident, a few countries have already changed their nuclear energy policies, either abandoning previous steps towards building new plants, as in Italy, or accelerating or introducing timetables for the phase-out of nuclear plants, as in Germany and Switzerland. Alongside expectations of lower natural gas prices, this led the IEA to revise downwards by roughly 10% projected growth for nuclear power compared with 2010 projections. However, several non-OECD countries and many OECD countries are expected to press ahead with plans to install additional nuclear power plants.

Possible changes in the economics of nuclear power

After the Fukushima Daiichi accident, the relative economics of nuclear power compared with other generating technologies may change, although this is still unknown and estimates are difficult to provide. It is possible that financing may become more difficult to secure, and finance providers may demand tougher financing conditions, driving up the cost of capital.

Access to financing will be key

With the liberalisation of electricity markets, access to financing and national support policies for individual technologies designed to reduce financing risks (such as feed-in tariffs, loan or price guarantees) are likely to play an important role in determining final power generation choices.

Forthcoming NEA studies

The economics of the back end of the fuel cycle (last quarter 2012)
The economics of long-term operation of nuclear power plants (last quarter 2012)
Interaction of nuclear energy and renewables: system effects in low-carbon electricity systems (last quarter 2012)

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Related NEA reports and publications

Carbon Pricing, Power Markets and the Competitiveness of Nuclear Power
This study assesses the competitiveness of nuclear power against coal- and gas-fired power generation in liberalised electricity markets with either CO₂ trading or carbon taxes. It uses daily price data for electricity, gas, coal and carbon from 2005 to 2010, which encompasses the first years of the European Emissions Trading System (EU ETS), the world’s foremost carbon trading framework. The study shows that even with modest carbon pricing, competition for new investment in electricity markets will take place between nuclear energy and gas-fired power generation, with coal-fired power struggling to be profitable. Executive summary. (2011)

Projected Costs of Generating Electricity
This joint report by the International Energy Agency (IEA) and the OECD Nuclear Energy Agency (NEA) is the seventh in a series of studies on electricity generating costs. It presents the latest data available for a wide variety of fuels and technologies, including coal and gas (with and without carbon capture), nuclear, hydro, onshore and offshore wind, biomass, solar, wave and tidal as well as combined heat and power (CHP). For the first time, the report contains an extensive sensitivity analysis of the impact of variations in key parameters such as discount rates, fuel prices and carbon costs on the levelised cost of electricity. Readers will find full details and analyses, supported by over 130 figures and tables, in this report which is expected to constitute a valuable tool for decision makers and researchers concerned with energy policies and climate change. (2010)

Technology Roadmap: Nuclear Energy
This joint report by the International Energy Agency (IEA) and the OECD Nuclear Energy Agency (NEA) develops a growth path for nuclear technology to 2050, and identifies technology, financing, policy and public engagement milestones that need to be achieved to realise the technology’s full potential. (2010)

The Financing of Nuclear Power Plants
Many countries have recognised that greater use of nuclear power could play a valuable role in reducing carbon dioxide emissions. However, given the high capital cost and complexity of nuclear power plants, financing their construction often remains a challenge. This is especially true where such financing is left to the private sector in the context of competitive electricity markets. This study examines the financial risks involved in investing in a new nuclear power plant, how these can be mitigated, and how projects can be structured so that residual risks are taken by those best able to manage them. Given that expansion of nuclear power programmes will require strong and sustained government support, the study highlights the role of governments in facilitating and encouraging investment in new nuclear generating capacity. (2009)

Nuclear Energy Data
Nuclear Energy Data, the OECD Nuclear Energy Agency’s annual compilation of statistics and country reports on nuclear energy, contains official information provided by OECD member country governments on plans for new nuclear plant construction, nuclear fuel cycle developments as well as current and projected nuclear generating capacity to 2035. For the first time, it includes data for Chile, Estonia, Israel and Slovenia, which recently became OECD members. Key elements of this edition show a 2% increase in nuclear and total electricity production and a 0.5% increase in nuclear generating capacity. They also show excess conversion and enrichment capacities in OECD Europe, and insufficient capacity to meet requirements in the North American and Pacific regions. Further details are provided in the publication’s numerous tables, graphs and reports. (2011)

Nuclear Energy Outlook
To celebrate its 50th anniversary, the OECD Nuclear Energy Agency launched its first Nuclear Energy Outlook (NEO) on 16 October 2008. It responds to the changing dynamics and renewed interest in nuclear energy and arrives at a moment when energy security, climate change and the cost of energy have become priorities in both short-term and long-term energy policies. The NEO provides projections up to 2050 to consider growth scenarios and potential implications on the future use of nuclear energy. It also offers unique analyses and recommendations on the possible challenges that lie ahead. (2008)

Nuclear Energy Today
Nuclear Energy Today aims to provide, in a simple, short and clear style, authoritative and factual information on the main aspects of nuclear energy in today’s world. Written for a broad readership, primarily policy makers, as well as interested members of the public, academics, journalists and industry leaders, this publication helps contribute to a better understanding of this source of energy. (2005) (2012 edition forthcoming).

1) Data was provided for 111 plants by the participants in the expert group representing 16 OECD member countries (Austria, Belgium, Canada, Czech Republic, France, Germany, Hungary, Italy, Japan, Korea, Mexico, Netherlands, Slovak Republic, Sweden, Switzerland and United States), for 20 plants by 3 non-member countries (Brazil, Russia and South Africa) and for 39 plants by industry participants [ESAA (Australia), EDF (France), Eurelectric (European Union) and EPRI (United States)]. In addition, the NEA Secretariat also collected data for 20 plants under construction in China using both publicly available and official Chinese data sources.

The total sample comprises 34 coal-fired power plants without carbon capture, 14 coal-fired power plants with carbon capture, 27 gas-fired plants, 20 nuclear power plants, 18 onshore wind power plants, 8 offshore wind power plants, 14 hydropower plants, 17 solar photovoltaic plants, 20 combined heat and power (CHP) plants and 18 plants based on other fuels or technology.

Last reviewed: 6 July 2012