Cost of Wind vs Cost of Nuclear to Replace Coal

One of our commenters, David Bradish, has asked how wind is more cost effective than nuclear to replace coal. The short answer is: It is cheaper to build, cheaper to operate, and it is a lower risk to investors, which means that the cost of financing for wind is lower on private capital markets.

To make this case I use figures from two sources: "The Projected Costs of Generating Electricity" produced by the International Energy Agency/Nuclear Energy Agency, and "The Future of Nuclear Power" produced by MIT.

First, and most important, the cost of capital. Unlike in previous decades, much of the regulatory risk shield for utilities has been taken down by deregulation. Now new power plant projects must compete for capital on private capital markets, i.e., investors. Investors attach a cost to the money invested in terms of a return on capital. This is often expressed as a "discount rate" in financial calculations. Higher risk projects are expected to have a higher return, and thus the cost of the capital is assessed at a higher discount rate.

David had quoted a figure of $21-$31/MWh for the levelized cost of electricity from nuclear power, citing the "Projected Cost" study mentioned earlier. This does not show the whole picture, however. If you look at the cost of nuclear power in the US cited in the study, there are actually two figures. One is $30.1/MWh at a 5% discount rate. The other is $46.5/MWh at a 10% discount rate. This range shows the effect of the cost of capital on the overall cost of electricity.

The MIT study uses a cost model that includes the cost of capital, taxes and inflation. It projects cost using two capacity factors, 75% and 85%. This study cites a figure of $67/MWh as the most optimistic (40 year period, 85% capacity factor) and $79/MWh (25 year period, 75% capacity factor). It justifies the capacity factor by saying that the 90% CF cited by David has only recently been achieved by US plants, and represents a peak. 75%-85% is more in line with actual plants over their operating lifetime.

The MIT study does not include wind power in the analysis. However, the "Projected Costs" study cites the levelized cost of wind generated power as $31.1/MWh at the 5% discount rate and $47.8/MWh at the 10% discount rate.

This shows us the cost of wind generated electricity and the cost of nuclear generated electricity are roughly equivalent at the two discount rates. However, the question is, given an equal, unsubsidized playing field, where nuclear and wind were going head-to-head in private capital markets, how would investors be likely to assess the risks of the two technologies? What return on investment would they expect. In other words, what would be the discount rates associated with wind and nuclear? Would they be the same?

The MIT study says the following: "In deregulated markets, nuclear power is not now cost competitive with coal and natural gas." In order to become competitive, the nuclear power industry must deal with four critical areas: 1) Cost (including operational cost and construction time); 2) Safety (including the overall nuclear fuel cycle; 3) Waste (demonstrating workability of long term geologic disposal; 4) Proliferation (current safeguards inadequate).

The "Projected Costs" study qualitatively evaluates the regulatory risk of nuclear to be "High", whereas wind is "Medium". The operating costs of nuclear are "Medium" where wind is "Very Low". Fuel costs of nuclear are "Low", where wind is, of course, "Nil."

Given all these factors, I argue that in equal, unsubsidized competition in private capital markets, the cost of capital for wind would be closer to the 5% discount rate ($31.1/MWh) whereas the cost of capital for nuclear would be closer to, or exceed the 10% discount rate ($46.5/MWh-$79/MWh).

The other three areas involved in calculating levelized cost are construction cost ("Overnight cost") Operations and Maintenance cost (O&M) and Fuel cost. In the "Projected Costs" study, overnight cost for nuclear is $1894/kW vs $1024/kW for onshore wind. O&M cost for nuclear is $63/kW vs $27/kW for wind. Fuel cost for nuclear is $4.60/MWh vs 0 for wind. It is not clear from the study if this fuel cost is subsidized or actual.

Other costs, so-called "externalities", are associated with nuclear, but not with wind. These are environmental costs not borne by the nuclear power providers, but are transferred, usually to the government. These include the cost of mitigating the effects of open pit uranium mining on groundwater, the effects of improper disposal of toxic wastes associated with uranium refining and enriching, and the environmental effects on recycling warm water used for cooling reactors back into the environment.

In summary, then, nuclear plants are more costly to build, take longer to build, cost more to operate and maintain than wind installations. Nuclear power plants are more costly to finance. In fact, there are currently no new nuclear power plants being planned in the US, in spite of so-called "incentives" built into the 2005 EPACT. I argue that nuclear power is completely unnecessary and uneconomical, given the alternatives of aggressive energy efficiency and large-scale wind.

Comments

[Rod Adams]

I have to take issue with your statement

In fact, there are currently no new nuclear power plants being planned in the US, in spite of so-called "incentives" built into the 2005 EPACT.

There may not be any plants on order yet, but there are certainly plants being planned. Companies like Progress Energy, Southern Company, Tennessee Valley Authority, Duke Power, Constellation (with its new partnership with Areva called Unistar), and Entergy are all spending a considerable amount of money in the necessary early planning stages for new plants.

I agree that there is regulatory risk, but it is pretty obvious that the risk there is less now than it was five or ten years ago and the cost of the competition, including "clean" coal has increased by factors of between 2 and 5.

Don't be surprised when the construction starts. An aircraft carrier, for example, takes a fair push before it starts visibly moving, but once it begins . . .

Nuclear plant construction is definitely in the tubes here in the US and has a long way to move. However, it only took about 20 years to build the 103 reactors now operating and producing 20% of our power (788 Billion kilowatt hours) in the US.

How long did it take to build the wind capacity to produce the 1% (0.143 Quads - roughly 42 Billion kilowatt hours in 2004 according to the Energy Information Agency) of our electricity now produced by that source?

[David Bradish]

See - http://neinuclearnotes.blogspot.com/

[Dave Erickson]

Rod, you are comparing apples and oranges when you ask "how long did it take to build the wind capacity...". As we both know, what has driven the technology selection for new generation capacity has primarily been the availability of cheap fossil fuel. Also, in the case of new nuclear, the deregulation of the electricity market has moved money into developing technologies that are perceived as less risky or costly than nuclear. That is why no new nuclear has been built in this country for nearly 30 years.

I will be interested to see of the new nuclear plants you say are "in planning" how many of those will be able to raise the capital and overcome the regulatory and political barriers to actually be constructed. As I noted in another post, no one is willing to make the bet on nuclear right now.

[David Bradish]

Dave, many people are making the bet on nuclear. Do you know that China is going to build 40 GW of nuclear by 2020? Do you know India and Russia are doing the same?

From now to 2020, it is estimated that another 100-150 GW of new nuclear are projected to be built throughout the world.

Here is a link to a bunch of quotes of people endorsing nuclear including Congress, Media, Wall Street, and Universities:

http://www.nei.org/index.asp?catnum=2&catid=117

Here is also a link to the projects going on for new nuclear build in the U.S.:

http://www.nei.org/index.asp?catnum=2&catid=344

Note that many of the companies on the list are some of the biggest utility companies in the U.S. They have the financials to back up new nuclear build.

We are interested as well in seeing how companies finance the projects and see new plants built. We are very confident in the process and structure of building new plants and are eager to see how it plays out.

After almost 50 years of experience with nuclear, I think we have learned quite a few things.

[David Bradish]

Check out the World Nuclear Association's table on nuke plants operating, under construction, planned and proposed:

http://www.world-nuclear.org/info/reactors.htm

[Dave Erickson]

David, as we discussed in another venue, financing is the key. Where is the money going? All of your self-referential citations add up to a bunch of "happy talk" about nuclear. To see the actual state of nuclear build TODAY, read the NY Times article here:
http://www.iht.com/articles/2006/03/01/business/nuke.php .

This article states

"In the United States...16 new reactors on the drawing boards, but not one has been ordered, and industry experts do not expect to see any orders until late 2007, at the earliest...

China has announced its intention of quadrupling its nuclear output in the next 20 years, which suggests about 30 more reactors, but only two are under construction.

In Western Europe...the only nuclear plant being built in Western Europe is a Finnish reactor that was the focus of 12 years of debate before construction began last year."

So even if a nuclear plant was begun in late 2007 in the US, it would not come online until 2013 at the earliest.

Regarding the climate for potential financing for nuclear, the outlook is not good according to this article.

"Many European power companies have been privatized, and the energy market has been opened up to competition in many countries. Any new construction would need to be financed by a private company, which would need to guarantee to investors that the reactor would eventually make a profit. It is not a sure bet, energy analysts say."

"It is "too early to speak about a nuclear renaissance," according to a recent report on the European market by Standard & Poors, the rating agency."

"The market environment is now significantly riskier than it was when the original nuclear plants were built."

"Operators would need to be convinced there is a sound and robust business case" for building a plant before they start devoting capital to it, Kernan said.

****He said there is no evidence yet to suggest that.****

S&P analyst specializing in corporate bonds, stating that there is no evidence that there is a business case for building a nuclear plant today?

So we wait for nuclear? I don't think so. We don't have the time. We don't have the need. The zero carbon power generating technology required now, exists today. Why spend another dollar or another moment waiting for nuclear. We might as well be waiting for Godot.

[Farron Trent]

Wind power (much like solar) has some major problems to overcome before it's a viable power source. One of these problems is its unreliability - you need to build a large energy storage capacity into the system in order to insure a consistent flow of sufficient energy. Another problem is inefficiency of wind power relative to land use.

That said nuclear is a very, very stupid answer to the problem since it ignores the increasing environmental costs of extracting and refining radioactive ores, costs of disposal (which is never a totally fool proof thing anyway and will always carry risk) and the fact that without subsidies it is much more expensive than current energy costs or alternative power costs. Clean coal is even stupider still and more expensive while providing no real benefits (only a slight lessening of problems compared to non-clean coal - still one of the most environmentally harmful fuels imaginable).

My suggestion of all currently available power sources would be geothermal - it's reliable, constant, relatively cheap (not much more than generating power through non-clean coal sources - much cheaper than clean coal or nuclear) and is useable with currently available technology. MIT estimated that the geothermal power available from just the US alone would supply the world's energy needs for several thousand years at least (one study suggested 30,000 years depending on growth rates). Using geothermal power combined with good battery technology for use in vehicles and machinery we could run just about everything on this basis and at least largely eliminate the need for petrol. We could produce by this means a close to zero carbon dioxide emission based society without the need to curtail industry or economic growth and without massive costs associated with solar, wind power, clean coal or nuclear energy.

Just my opinion though.

PS the US and Australia are interestingly enough best placed to extract geothermal energy most efficiently of just about any countries, interesting because these two countries use proportionately more energy than anyone else.

[eric doyle]

Folks,
The wind blows very lightly and inconsistently where I live. Face fact, we have hard decisions to make. I want an effective answer to climate change and that means nuclear power. You can't have your cake and eat it, too.

[David Nicholson]

There is no incentive for a utility to provide less expensive electricity. They are the biggest fans of global climate change concerns. It allows them to focus on restricting supply and increasing price in the interest of "saving the planet". There is no "market" for electricity. The tiering of rates is designed to tax people who use the product. 38 cents per kwh in California for homeowners. Expecting a utility to endorse nuclear power is like expecting OPEC to endorse an increase in the flow of oil. It isn't profitable.

[JPDay]

You should read the Energy Independence and Security Act of 2007. See Section XIII on "Smart Grid". There you will see another hidden cost of solar and especially wind power. The Smart Grid concept includes "autoresponse" which means the utilities have to build a network inside your home to monitor and control power consuming devices as a means of limiting power demand when the wind stops blowing and the clouds cover the solar array.

The network is bi-directional and that means they will be able to monitor what devices you use and when you use them in your home. They decide what and when to turn of anything they want to turn off. The technology exists now to run the network throughout your home in the wiring, which means they can shut off outlets and anything plugged into them.

Not only that, but they want to install time-of-use water meters that can tell the utilities and others when you flush, how many times, when you shower, take a bath, and so on. All because regulators refuse to build new nuclear power plants, we enter the world of Orwell about 25 years later than predicted.

What price do you put on your freedom and privacy?

[Dave Erickson]

We've already entered the world of Orwell, friend. And it's not because of Demand Response systems. It's called the Patriot Act, the War on Terror, etc. Regarding your point, the "Smart Grid" approach is another artifact of the type of thinking that gives rise to the "build a bunch of nuclear power plants" solution. The point with renewables is to make them 1) appropriately scaled; 2) local; 3) opportunistic. This way you minimize the transmission infrastructure. You design the replacement portfolio to service the load profile of the locality where the renewable resource is available. Regarding Demand Response, this is a strategy that has been discussed for a long time, independently of renewables. It has been implemented on a voluntary basis for years. The point is, Demand Response is a system that needs to be designed in to allow more intelligent use of grid-connected resources. Nobody is going to be forcing anyone to do it. Demand response works better in the commercial sector, and that's where it will be deployed first. Primarily because it saves businesses a lot of money, and it is transparent to their operations.

[hypotheken berekenen]

It is great to see such blog.Thanks guys keep going like this.