TY - UNPB

T1 - Economics of Nuclear Power Plant Investment

T2 - Monte Carlo Simulations of Generation III/III+ Investment Projects

AU - Wealer, Ben

AU - Bauer, Simon

AU - Göke, Leonard

AU - Hirschhausen, Christian von

AU - Kemfert, Claudia

N1 - An earlier version of this paper was presented at the 41st Annual IAEE International Conference in Groningen in June 2018, at the 36th USAEE North American Conference in Washington in September 2018, and at the 42ndAnnual IAEE International Conference in Ljubljana in August 2019. We thank the conference participants for their valuable comments and fruitful discussions. Ben Wealer gratefully acknowledges funding from the graduate pro-gram “The Great Transformation”. We thank Clemens Gerbaulet for initiating the data work and Yussra Tolba for research support; the usual disclaimer applies.

PY - 2019

Y1 - 2019

N2 - 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, large-scale decarbonization and climate change considerations, this topic is gaining momentum and requires funda-mental 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 in-vestment 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 (Gen-eration 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 nega-tive, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even ex-tending reactor lifetimes from currently 40 years to 60 years does not improve the results significantly. We con-clude that the economics of nuclear power plants are not favorable to future investments, even though addi-tional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered.

AB - 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, large-scale decarbonization and climate change considerations, this topic is gaining momentum and requires funda-mental 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 in-vestment 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 (Gen-eration 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 nega-tive, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even ex-tending reactor lifetimes from currently 40 years to 60 years does not improve the results significantly. We con-clude that the economics of nuclear power plants are not favorable to future investments, even though addi-tional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered.

KW - Economics

KW - nuclear power

KW - nuclear financing

KW - investment

KW - levelized cost of electricity

KW - monte carlo simulation

KW - uncertainty

M3 - Working papers

T3 - DIW Discussion Papers

BT - Economics of Nuclear Power Plant Investment

PB - Deutsches Institut für Wirtschaftsforschung (DIW)

CY - Berlin

ER -