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March 29, 2023
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As policy momentum for nuclear energy grows in some countries, challenges remain for wider acceptance. Here is a look at the considerations.
With continuous geopolitical turmoil at Europe’s doorstep, national governments on the continent are rethinking their energy strategies.
One option European energy ministers are reconsidering is nuclear energy, a base-load source that has come a long way since the world’s first nuclear reactor powered four 200-watt light bulbs in the Idaho desert in 1951.1 Today’s global nuclear fleet comprises 440 reactors, which generate 10% of the world’s electricity and is the world’s second largest source of low-carbon power, according to the International Energy Agency (“IEA”).2
Most new nuclear projects today are breaking ground in China.3
Meanwhile, Europe’s nuclear infrastructure continues to age: 80% of its reactors are three or more decades old, while in the United States almost 90% are that age.4
Contrast this with China, where no reactor is more than three decades old.5 Newer economies favour nuclear energy, while in many OECD countries reactors are being retired.
This sunsetting arises from policy choices made when the security of supply and decarbonization did not influence the policy agenda. Surging energy prices coupled with Europe’s goal to reduce its dependence on imported fossil fuels — while also advancing the continent’s decarbonization ambitions — cast a new light on nuclear energy.
While policy momentum for more nuclear reactors may be growing in some countries, economic challenges remain. A major one is whether nuclear power can compete on cost, or perhaps more importantly, whether it provides economic value as dependable low-carbon generation in a decarbonized power system.
The simple approach to comparing the costs of power production of different technologies is to estimate their annualized production cost over their expected operational life. However, this metric is increasingly questioned as a relevant basis for decision-making.6 From a system point of view, what matters is not the standalone cost of different technologies but their incremental value as part of a portfolio of different technologies.
Moreover, power system planners in the context of the energy transition face deep uncertainties regarding the potential rate of deployment and cost evolution of other low-carbon technologies, including variable renewables and storage technologies. Dependable sources of low-carbon baseload power generation such as nuclear therefore have a portfolio value and an option value that system planners should fully weigh.
Standalone Versus System Value of Nuclear Power
Comparing the costs of different power generation technologies on a standalone basis misses the crucial question of how they interact in a power system and work together to ensure efficient dispatch and security of supply. Power system planners have long known the shortcomings of the simple levelized cost of energy (“LCOE”) approach when comparing different power generation technologies.7
The economic value of newly built nuclear power generation for a power system goes beyond simple LCOE comparison with other low-carbon technologies once one considers the dispatch features of nuclear power generation and the full integration cost of different low-carbon technologies in that power system.
In contrast with other large-scale, low-carbon power generation technologies such as solar and wind power, nuclear power generation is controllable, does not depend on sunshine or wind, and operates with load-following capability, with power meted out as demand shifts.
Moreover, nuclear as a large-scale source of power generation can be deployed in locations with existing network connections (e.g., in Europe on the sites of existing plants undergoing decommissioning) and therefore requires little or no new network reinforcement. This contrasts with the network connection and reinforcement costs incurred by other low-carbon decentralized technologies, which can range from €5 per megawatt hour (“MWh”) for rooftop solar power to €35 per MWh for offshore wind; this is an externality that critics overlook when analyzing grid costs in expanding decarbonized power systems.8
The economic value of newly built nuclear power generation for a power system can therefore exceed the value of other low-carbon technologies that are not dependable or flexible and that incur integration costs.
Power system planners have begun to resort to advanced modeling tools that can both capture the system value of different technologies and account for their individual costs to optimize the mix.
Firms such as FTI Consulting and its subsidiary Compass Lexecon have developed advanced analytics based on their power system modeling capability that have been used to support utilities and authorities in estimating the value of new nuclear build and other low-carbon technologies from a whole power system perspective. These advanced modeling tools have been applied for a range of client projects to provide a quantified estimate of the economic value of nuclear power. For example, Compass Lexecon supported Foratom, the Brussels-based trade association for the nuclear energy industry in Europe, in estimating the power system costs under different nuclear capacity scenarios using advanced modeling tools. The study highlights the full economic value of new nuclear energy for power systems on the path to decarbonization.
The Insurance Value of Nuclear Power Generation
Uncertainty remains around the ability to scale up the different low-carbon and storage technologies necessary to meet the ambitious policy targets for the energy transition. Scenarios relying solely on the deployment of wind and solar alongside storage technologies may face limits; therefore, maintaining existing nuclear plants and building new ones in some countries can also be seen as having insurance value. Similarly, nuclear generation can be considered a partial hedge against extreme weather that can affect low-carbon technologies and have a system effect. In countries that lack substantial carbon pricing today, investment in nuclear and other low-carbon technologies can serve as insurance against the future introduction of carbon pricing.
Nuclear power generation can serve as insurance to power systems on the path to decarbonization by facilitating the integration of variable renewables while reducing the reliance on yet unproven large-scale storage systems necessary to ensure the security of supply in such power systems. As shown in the IEA’s World Energy Outlook 2022, while nuclear energy is projected to play a bigger role worldwide in all scenarios, the United States and the European Union are projected to reduce nuclear capacity in the Stated Policy scenario but increase it in the Announced Pledge and Net Zero scenarios.9
Capturing this insurance value requires advanced power system simulation techniques that can account for uncertainties through Monte Carlo or least regret analysis framework and technology-specific deployment potentials that account for supply chain or resource availability constraints.
FTI Consulting and Compass Lexecon have applied these advanced modeling tools for a range of clients to provide a quantified estimate of the insurance value of nuclear power. Compass Lexecon supported the French Nuclear Energy Society in estimating the value of nuclear new build in France in the context of large-scale retirements of nuclear plants in coming decades and strong growth of renewables. The next step was to estimate whether there would be option value to build a new series of plants and insurance value against potential limits in the growth of renewable energy sources (“RESs”) and supporting short- and long-term storage technologies. The study highlights the optimal insurance, which is the share of nuclear power in the mix in 2050 depending on key parameters such as the evolution of the costs of RESs; short-term and long-term storage; and the costs of nuclear.
Providing dependable, low-cost and environmentally friendly power ranks as the core conundrum for the next generation. The economics are complex and require advanced analytics. Decisions should be thoughtful and based on all relevant evidence.
Footnotes:
1: “9 Notable Facts About the World’s First Nuclear Power Plant - EBR-I.” U.S. Dept. of Energy. (June 18, 2019). https://www.energy.gov/ne/articles/9-notable-facts-about-worlds-first-nuclear-power-plant-ebr-i
2: "Nuclear Power in the World Today." World Nuclear Association. (Updated March 2023). https://world-nuclear.org/information-library/current-and-future-generation/nuclear-power-in-the-world-today.aspx
3: "Plans for New Nuclear Reactors Worldwide." World Nuclear Association. (March 2023). https://world-nuclear.org/information-library/current-and-future-generation/plans-for-new-reactors-worldwide.aspx
4: "Nuclear Power in a Clean Energy System." International Energy Agency. (May 2019). https://www.iea.org/reports/nuclear-power-in-a-clean-energy-system
5: "Country Nuclear Power Profiles: China." International Atomic Energy Agency. (Updated 2022). https://cnpp.iaea.org/countryprofiles/China/China.htm
6: "In search of a level playing field for electricity costs." Toulouse School of Economics. (April 11, 2018). https://www.tse-fr.eu/search-level-playing-field-electricity-costs
7: "In search of a level playing field for electricity costs." Toulouse School of Economics. (April 11, 2018). https://www.tse-fr.eu/search-level-playing-field-electricity-costs
8: Average estimates derived from literature review of: “Agora: The Integration Costs of Wind and Solar Power (2015).” https://static.agora-energiewende.de/fileadmin/Projekte/2014/integrationskosten-wind-pv/Agora_Integration_Cost_Wind_PV_web.pdf. Nuclear Energy Agency: “The Full Costs of Electricity Provision” (2018). https://www.oecd-nea.org/jcms/pl_14998/the-full-costs-of-electricity-provision?details=true. DNV-GL: “Cost-Benefit Analysis of Offshore Transmission Network Designs.” (2020). https://www.nationalgrideso.com/electricity-transmission/document/182936/download
9: “World Energy Outlook 2022.” International Energy Association. (October 2022). https://www.iea.org/reports/world-energy-outlook-2022
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.
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March 29, 2023
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