economic models and smr · pdf fileoverview the economics of nuclear and smr economic models...

Economic Models and SMR

IAEA Technical Meeting Economic Analysis of High Temperature Gas Cooled Reactors and Small Modular Reactors

August 25-28, 2015Vienna, Austria

ByDr. Nadira Barkatullah

So what do Economist?

2 -

Do economist sell economy class tickets?

Economist contribution to economic development! Hmm….sounds

like a very important position

Sure to become economist!!!

OverviewThe Economics of Nuclear and SMR


What Economic Model to Use?

What other Economic Aspects to Consider?

Concluding Comments

Relatively low fuel cost Price stability Performance of nuclear

reactors Long life time Guarantee for energy supply Security of Supply Clean source of energy Economic development: job

creation, industrial development, etc

Complex and highly capital intensive

Sensitive to interest rates

Long lead times (planning, construction, etc)

Long payback periods

Construction cost uncertainty

Deregulated electricity market or despatch risk

Regulatory/policy risks

Key Challenges to the Nuclear Power

Key Advantages of the Nuclear Power

4

The Economics of Nuclear

LR

Less Complex and lower upfront capital costs vs LR

Less sensitive to interest rates

Shorter lead times (planning, construction, etc) and shorter payback periods vs LR

Base Load and security of supply

Site flexibility

Fit to smaller grids

Suitable for non-electric applications - desalination

Key Advantages

5

5

The Economics of SMRKey Challenges

Completion risk

Cost uncertainty

Other Financial Risks

Regulatory/policy risks (revised safety measures)

New financing structures required to attract private investors

Economies of scale SMR vs LR

So how to assess the economic competitiveness of SMR

The Economics of SMR

Generation Cost

Total investment Cost

Life Cycle Cost

LevelisedCost

Overnight Cost

KEY Economic

Criteria

7

7

The Economics of SMRYes there are economic models to assess that but…

Data requirements

Good understanding of

8

Total electricity generation cost

Total Capital Cost Total Operational Cost

Total Construction Cost

DecommissioningCost

Refurbishment Cost

Operations and Maintenance Cost

Carbon Cost

Waste ManagementCost

Taxes


Total Construction Cost

Total Construction

Cost

Escalation Cost

Overnight Cost

FinancingCost

Major component for LR (upto 80%)


Comparatively less for SMR due to shorter

construction duration

10

EPC cost:• Direct cost: equipment,

materials and labour • Indirect costs: plant design,

engineering and support services

Contingency cost: unforeseencost, generally taken as apercentage figure of EPC costOwner’s cost:

• site evaluation• site preparation• general adm.• staff and operator

training• legal, inspections• local taxes, etc.

EPC is Approx. 80% -main cost component

Off-Site Infrastructure, cost (Grid adjustment, roads) is additional cost – in some instances for LR up to 30%

The Economics of SMROvernight Capital Cost

Overnight costs excludes interest, finance and escalation costs during construction

Total investment cost So what are the other main components of the total investment cost

in addition to overnight cost?Others

Subsidies/Taxes

Inflation(general CPI)

Cost escalation: Cost escalation - reflect price increases during construction, it is similar to inflation but more specific to

particular items than is general inflation

Financing cost :Financing cost, the main cost element is Interest During

Construction (IDC)

Overnight cost

The Economics of Nuclear


IAEA Models G4-ECONPVCCINCAS

Input-output Models

No model is right or wrong!Garbage in garbage out


Economic Models and SMRVarious factors impact economic competitiveness

Generation Cost

RevenueInvestment Risk

Clean PowerNon-electrical

Oher aspects

IAEA Models Applicable to SMR

Model of Energy Supply Strategy Alternatives and their General Environmental Impacts

MESSAGE FINPLAN

Financial Analysis of Electric Sector Expansion Plans

Sophisticated model to evaluate various generation technologies


MESSAGE - An Energy Chain

Useful• Heat• Light• Motive power• etc.

Primary• Crude oil

• Coal• Natural gas

• etc.

Secondary• Kerosene• Electricity• Diesel• Gas• etc.

Final• Diesel• Kerosene• Electricity• Gas• etc.

Resources• Crude oil• Coal• Natural gas

Extraction, Import, …

Conversion, processing: power plants, refinery…

Transmission, distribution, …

Household, industries, …

3/30


MESSAGE - A Simple Energy Supply Model (Physical Flow )

CoalExtraction

Coal R

esources

Gas Import

Prim

ary Coal

Prim

ary Gas

Coal PowerPlant

Gas Power

Hydro PowerPlant

Electricity

Electricity

Gas

Coal

CoalTransport&Distribution

ElectricityTransport&Distribution

Plant

Gas Transport & Distribution

Industrial Heat

Industrial Electricity

Coal Ind.

Gas Ind

Elec. Ind.

RESOURCES PRIMARY SECONDARY FINAL DEMAND

SMR

LR

IAEA Models applicable to SMR

defined constraints on new investment, market penetration rates for new technologies, fuel availability,trade and environmental emissions

Optimization of an objective function (e.g. least cost, lowest environmental impact, maximum self-sufficiency)

IAEA Models Applicable to SMRMESSAGE: How does it work?

MESSAGE – input and outputOUTPUT

MESSAGE

INPUT

Existing Energy System Structure

Base year energyflows and prices

Energy demandprojections (MEAD)

Technology and resource options & their techno-economic performance

Technical andpolicy constraints

0

100

200

300

400

500

600

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

TWh

biomassgeothhydronucleargasdieselfuel oilcoal

Primary and final energy mixBuild Schedule for power plants Import dependenceInvestment requirementsEmissions and waste Resource use


MESSAGE – some prominent features

Environmental factors like emissions and wastes Climate change mitigation

options Sustainable development

targetsSecurity of supply concerns “Technological Learning”, to

reflect innovation and improvements in economic efficiency of technologies.


INPUT

Investment programme (= capacity additions) & operating expenses

Economic and fiscal parameters (inflation, escalation, exchange rates, taxes)

Financial parameters (credits, bonds…)

For each year:

Cash flows Balance Sheet,

Statement of Sources, Applications of Funds

Financial Ratios: - Working Capital Ratio- Leverage ratio - Debt Repayment Ratio- …- Global Ratio

OUTPUT

FINPLAN


The generation technology chosen

Is it financially viable?

MESSAGE

Investment decision

G4-ECON – Generation IV-Excel calculation of nuclear systemsEconomic Models and SMR

Levelized unit electricity cost (LUEC) in $/MWh

Developed under the Generation IV International Forum (GIF)

For multiple types of nuclear energy systems

SMR LR


Levelised Cost of Electricity Generation (LCOE) total cost (capital and operational cost)

total amount of electricity expected to be generated over the plant’s lifetime

the discount rate used in LCOE calculations reflects the return on capital for an investor

comparing the unit costs of different technologies over their economic life.

G4-ECON LCOE is not price!

Economic Models and SMRG4-ECON

Simplifies the cost data

Why? It is developed in view of advanced reactors for which detailed economic data may be not available

Time

Cost

Total lump-sum capital cost (TLCC)

Fuel, non-fuel O&M, and capital replacements as average value

Levelised Life Cycle Cost

Limitations: Discount rate sensitivity

New version soon!

SMR units built over time

Cost


Then, the PVCC model is a generic model taking into account

(1) economy of scale(2) multiple units(3) learning rates (4) construction

schedule(5) unit timing,(6) plant design.

Factors affecting comparative costs of SMR vs LR

250MW

250MW 250

MW250MW

250MW x 4

Note: PVVC – developed by Westinghouse

Present Value Capital Cost (PVCC) Model

LUEC and PV

Applicable to a comparative investment risk assessment of the deployment scenarios with SMRs vs LR

Integrated model for competitiveness assessment of SMRs (INCAS)*

, *Politecnico di Milano, Italy


Integrated model that includes separate models

Multiple models

The Net Present Value (NPV); The Internal Rate of Return (IRR); The Payback Time (PBT); The Profitability Index (PI); and The Levelized Unit Electricity Cost (LUEC).

Generation Cost

Revenue Model

Investment Model

Indicators

Financial model

Integrated model for competitiveness assessment of SMRs (INCAS)*

, *Politecnico di Milano, Italy

Economic Models and SMRINCAS

The strategic security of fuel supply

External Factors Model

The degree of possible localization of an energy project

The benefits for local industry The factors related to land use

The environmental laws (e.g., carbon tax, local emission constraints, etc.)

The security of energy supply


Investment Model External Factors

Multivariate Evaluation Model

Decision about Technology investment


Input Output Model* Based on the macroeconomic economy wide view


* Created by Wassily Leontief, work got Nobel Price in 1973 for his work

Economy consists of various industries

Input


Output – 300MW

Input Output Model*

What Model to Use?What is the objective of the assessment ?

• Comprehensive analysis accounting for all supply chain

• Data availability

Also assists with feasibility of the project

MESSAGE/FINPLAN

SMR comparison to LR or other generation technologies

What Model to Use?

INCAS

Simplified model Limited data on cost

Multiple units Over time Learning rate

Mulivariate analysis External factors Qualitative factors

VS

PVCC

G4 ECONS

What Model to Use?

Macro economic impacts of how SMR output will impact economic growth

Macroeconomic models like input-output models

What Other Economic Aspects to Consider?

Remote area The Grid System

Desalination

Regulatory Policy

Understanding the economic of SMR is imperative Model selection depends on the objective of the analysis i.e.,

SMR vs other generation technologies or SMR vs LRImportant to understand model data requirements Model choice depends on the type of economic analysis and

technology choiceOther factors need to be considered to assess economic

competitiveness of SMR and specific markets All models have limitations - no model is right or wrong

36

Concluding Comments

37

Thank You!

economic models and smr · pdf fileoverview the economics of nuclear and smr economic models...

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