Economics of Nuclear Power Plant Investment: Monte Carlo Simulations of Generation III/III+ Investment Projects

Abstract

This paper analyzes nuclear power plant investments using Monte Carlo simulations of economic indicators such as net present value (NPV) and levelized cost of electricity (LCOE). In times of liberalized electricity markets, largescale decarbonization and climate change considerations, this topic is gaining momentum and requires fundamental analysis of cost drivers. We adopt the private investors' perspective and ask: What are the investors' economics of nuclear power, or-stated differently-would a private investor consider nuclear power as an investment option in the context of a competitive power market? By focusing on the perspective of an investor, we leave aside the public policy perspective, such as externalities, cost-benefit analysis, proliferation issues, etc. Instead, we apply a conventional economic perspective, such as proposed by Rothwell (2016) to calculate NPV and LCOE. We base our analysis on a stochastic Monte Carlo simulation to nuclear power plant investments of generation III/III+, i.e. available technologies with some experience and an extensive scrutiny of cost data. We define and estimate the main drivers of our model, i.e. overnight construction costs, wholesale electricity prices, and weighted average cost of capital, and discuss reasonable ranges and distributions of those parameters. We apply the model to recent and ongoing investment projects in the Western world, i.e. Europe and the United States; cases in non-market economies such as China and Russia, and other non-established technologies (Generation IV reactors and small modular reactors) are excluded from the analysis due to data issues. Model runs suggest that investing in nuclear power plants is not profitable, i.e. expected net present values are highly negative, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even extending reactor lifetimes from currently 40 years to 60 years does not improve the results significantly. We conclude that the economics of nuclear power plants are not favorable to future investments, even though additional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered.

Evaluating nuclear power's suitability for climate change mitigation: technical risks, economic implications and incompatibility with renewable energy systems

“…Since World War II, there were expectations that commercial nuclear power would become rapidly economic in the following decade (Ullmann, 1958;Pittman, 1961) and become the major energy source for electricity generation (Seaborg, 1970;Weinberg, 1971;Rose, 1974). Not a single one of the more than 600 reactors built since 1951 has been built solely through private capital and in a competitive market environment (Bradford, 2012;Wealer et al, 2018).…”

“…Taking into account current trends in so called "Generation III" nuclear power plants, an analysis of current and prospective investments in nuclear power plants reveals that they do not yield profitable returns. The economic losses can be shown for a specific investment project: The investor into a 1,600 MW Gen III nuclear power plant, i.e., about 10 bn US$, would face a loss, i.e., a negative net present value, in the range of minus five to minus 10 billion US_2018$ (Wealer et al, 2021a). This is exactly what is currently happening in all of the newbuild sites that only survive due to massive subsidies and/or captured consumers, such as the Vogtle project in Georgia (USA), the Olkiluoto (Finland) and Flamanville (France) projects in Europe (Barkatullah and Ahmad, 2017, p. 133-134), and the Hinkley Point C project in the UK.…”

“…Furthermore, additional costs (dismantling, long-term radioactive wastes storage) and the societal costs of accidents are not taken into account in these calculations. The expected levelized costs of electricity in a largescale Monte Carlo model analysis with varying investment costs, construction duration, and electricity prices, yields an expected value of nuclear electricity 160 US$/MWh, and a distribution of the LCOE between 91 and 222 US$/MWh (Wealer et al, 2021a).…”

“…However, the history of nuclear power is full of unresolved technical challenges that can only be controlled to some extent, so security risks and economic failures remain (MIT, 2018;OECD and NEA, 2020). From a technological innovation systems perspective, nuclear power is on the decline for quite some time (Markard et al, 2020) and it has never become an economic technology able to compete with others (Davis, 2012;Wealer et al, 2021a;Aghahosseini et al, 2023;Haywood et al, 2023).…”

Pathway Analysis of a Zero-Emission Transition in the Nordic-Baltic Region

“…In case of Sweden, no decision for new NPPs have been done and the life-time of the present NPP fleet will expire well before the year 2050. NPPs also encounter major economic challenges because of high investment costs [52,53]. However, if political decisions in Finland and Sweden were made to extend the use of the present NPPs beyond 2050, though improbable, the use of the cheapest option (wind power) in the scenarios would decrease.…”