The Impact of Economics on Nuclear Power Plant LTO Decisions
26 June 2021
The Impact of Economics on Nuclear Power Plant LTO Decisions: a Q&A with Antonio Vaya Soler of the OECD Nuclear Energy AgencyThe World Nuclear University's upcoming Strategic Leadership Academy, to be held virtually on 19-30 July, focuses on two key areas of nuclear plant management – long-term operation (LTO) and plant life management.
Despite the significant economic advantages of long-term operation (LTO) of nuclear power plants, since the start of 2020, six reactors have been shut down prematurely, relative to their design operating lifetime. In the USA, Exelon’s Dresden and Byron plants are in danger of being retired later this year, despite having received licence extensions that would allow them to operate into the 2040s.
Of the many factors influencing LTO, including public perception, political factors, and technical component issues, economic factors comprise around one-third of all shutdown decisions (see Figure). WNU spoke with Antonio Vaya Soler, a nuclear analyst for OECD-NEA, about some of the economic factors affecting LTO of nuclear power plants.
WNU: What are the main economic advantages of LTO programmes?
AVS: As illustrated in the 2020 edition of the OECD-NEA and International Energy Agency (IEA) report on Projected Costs of Generating Electricity, LTO of nuclear power plants remains one of the most competitive low-carbon solutions in many regions. Its levelized cost of electricity is $25-50/MWh and the overall investment is affordable, around $450-950/kWe. This, combined with extensive experience in performing lifetime extensions around the globe, makes LTO a mature and predictable investment option with low financing risks. The simpler technical scope of LTO refurbishment compared to nuclear new build is also an attractive feature.
WNU: What about the economic risks and uncertainties? How does financial risk perception influence decisions on nuclear plant operational lifetime?
AVS: A comprehensive economic analysis of LTO requires the evaluation of not only the costs but also of other risks and uncertainties that can ultimately affect the ability of a nuclear operator to recover its investment. While construction risks remain low for LTO, wholesale electricity prices can have a significant impact on the decision-making process. Early closures of nuclear units for purely market reasons are observed in some parts of world. This is especially the case in regions where existing market mechanisms do not adequately remunerate the low-carbon and dispatchability attributes of nuclear power.
WNU: What are the main external cost drivers influencing plant lifetime management in a changing electricity market?
AVS: Nuclear facilities are evolving assets that are constantly affected by external factors, such as new policies, regulations and supply chain capabilities, which can influence decisions on their lifetime management. For example, the continuous safety improvements in nuclear regulations around the world can lead to unexpected safety upgrades being required for LTO, which in turn will increase costs. This was, and still remains, the case with post-Fukushima upgrades. Furthermore, obsolescence issues may raise the costs of some nuclear grade components.
WNU: What role does a country’s energy policy play in economic assessments of LTO?
AVS: Another factor that can increase the LTO costs is the policy environment. It is important to highlight that the LTO investment involves high fixed costs and numerous technical interactions between suppliers and safety authorities. These aspects require planning and long-term visibility if they are to be performed in optimal economic conditions. Governments can provide such conditions with stable industrial policies in the nuclear sector. These policies also provide the right signals to attract new talent and suppliers, building overall nuclear capabilities. Policy on energy markets and taxes can also influence the economic assessment of LTO.
WNU: Do you see value in educating the public and other stakeholder groups about the extensive and demanding nature of an LTO programme?
AVS: Of course, especially when it comes to the role of LTO to reconcile the energy trilemma of low carbon emissions, affordability and security of supply. There is no ‘one-size-fits-all’ solution to the energy trilemma, so it will certainly require a combination of various solutions that include nuclear power, and LTO in particular. In line with IEA scenarios, LTO could represent a sizeable share of the carbon emissions avoided every year thanks to nuclear power by 2050, with this technology option also helping to contain overall system costs and ensure capacity adequacy.
When referring to nuclear power, the general public often puts new build and long-term operation in the same basket. A closer look at lifetime extensions reveals, however, that they have unique economic characteristics that make this type of brownfield investment a considerably different asset compared to recent new build.
LTO investments are made typically after 30-40 years of operation in an asset that is largely amortized. The extension period varies between 10-30 years depending on the type of technology and national regulations. The resulting cost profile is therefore dominated by operational costs so is more able to withstand market shifts. As most of the components are already in place, LTO refurbishments have typically short execution lead times - from several month to few years - with some work being executed while the plant is running. During extended outages, operators might implement additional enhancements and plant modifications that increase the overall value of LTO.
WNU: How is the OECD-NEA working to establish a technical basis for economic decisions on LTO?
AVS: The OECD-NEA has been working on LTO for many years and has released numerous publications on this topic. It also has several working groups to exchange views, information and experience on technical aspects and to review national and international programmes (e.g. the Working Group on Integrity and Ageing of Components and Structures). Decisions regarding lifetime extensions, nevertheless, are complex and require the simultaneous evaluation of multiple factors.
The NEA report on Legal Frameworks for Long-Term Operation of Nuclear Power Reactors, published in 2019, provides a comprehensive review of the legal and regulatory implications of extending the operating lifetimes of nuclear reactors. By the end of July 2021, the NEA plans to publish a new study addressing the key policy, regulatory, technical, human and economic aspects necessary to guide the decision-making process of LTO to support ambitious decarbonization strategies.