Economic Models and SMR
IAEA Technical Meeting
Economic Analysis of High Temperature Gas
Cooled Reactors and Small Modular Reactors
August 25-28, 2015
Vienna, Austria
By
Dr. Nadira Barkatullah
So what do Economist?
Economist
contribution to
economic
development!
Do economist
sell economy
class tickets?
Hmm….sounds
like a very
important
position
Sure to become
economist!!!
2-
Overview
The Economics of Nuclear and SMR
Economic Models and SMR
What Economic Model to Use?
What other Economic Aspects to Consider?
Concluding Comments
The Economics of Nuclear
Key Advantages
of the Nuclear Power
 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
Key Challenges
to the Nuclear Power
 Complex and highly capital
intensive
 Sensitive to interest rates
LR
 Long lead times (planning,
construction, etc)
 Long payback periods
 Construction cost uncertainty
 Deregulated electricity market
or despatch risk
 Regulatory/policy risks
4
5
The Economics of SMR
Key Advantages
Key Challenges
 Less Complex and lower upfront
capital costs vs LR
 Completion risk
 Less sensitive to interest rates
 Other Financial Risks
 Shorter lead times (planning,
construction, etc) and shorter
payback periods vs LR
 Regulatory/policy risks (revised
safety measures)
 Cost uncertainty
 Site flexibility
 New financing structures
required to attract private
investors
 Fit to smaller grids
 Economies of scale SMR vs LR
 Base Load and security of supply
 Suitable for non-electric
applications - desalination
So how to assess the economic competitiveness of SMR
5
The Economics of SMR
Generation
Cost
Overnight
Cost
KEY
Economic
Life Cycle
Cost
Criteria
Levelised
Cost
Total investment
Cost
7
The Economics of SMR
Yes there are
economic models to
assess that but…
Data
requirements
Good understanding of
7
The Economics of SMR
Total electricity generation cost
Total Capital Cost
Total Construction
Cost
Refurbishment
Cost
Decommissioning
Cost
Total Operational
Cost
Operations and
Maintenance Cost
Waste Management
Cost
Carbon Cost
Taxes
8
The Economics of SMR
Total Construction Cost
Major
component for
LR (upto 80%)
Overnight
Cost
Financing
Cost
Total
Construction
Cost
Escalation
Cost
Comparatively less for
SMR due to shorter
construction duration
The Economics of SMR
Overnight Capital Cost
Contingency cost: unforeseen
cost, generally taken as
percentage figure of EPC cost
Owner’s cost:
•
•
•
•
•
•
a
site evaluation
site preparation
general adm.
staff and operator
training
legal, inspections
local taxes, etc.
EPC cost:
•
•
EPC is Approx. 80% main cost component
Overnight costs excludes interest, finance and
escalation costs during construction
Direct cost: equipment,
materials and labour
Indirect costs: plant design,
engineering and support
services
Off-Site Infrastructure, cost
(Grid adjustment, roads) is
additional cost – in some
instances for LR up to 30%
10
The Economics of Nuclear
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
Economic Models and SMR
IAEA Models
G4-ECON
PVCC
INCAS
Input-output Models
Economic Models and SMR
No model is right or wrong!
Garbage in garbage out
Economic Models and SMR
Various factors impact economic competitiveness
Generation
Cost
Revenue
Investment
Risk
Clean Power
Non-electrical
Oher aspects
Economic Models and SMR
IAEA Models Applicable to SMR
MESSAGE
Model of Energy Supply
Strategy Alternatives and
their General
Environmental Impacts
FINPLAN
Financial Analysis of
Electric Sector Expansion
Plans
Sophisticated model to evaluate various generation technologies
IAEA Models Applicable to SMR
MESSAGE - An Energy Chain
Extraction, Import,
…
Resources
• Crude oil
• Coal
• Natural gas
Conversion, processing:
power plants, refinery…
Primary
• Crude oil
• Coal
• Natural gas
• etc.
Transmission,
distribution, …
Secondary
• Kerosene
• Electricity
• Diesel
• Gas
• etc.
Household,
industries, …
Final
• Diesel
• Kerosene
• Electricity
• Gas
• etc.
Useful
• Heat
• Light
• Motive power
• etc.
3/30
IAEA Models applicable to SMR
MESSAGE - A Simple Energy Supply Model (Physical Flow )
RESOURCES
PRIMARY
FINAL
SECONDARY
Coal Ind.
Gas Ind
Elec. Ind.
Hydro Power
Plant
LR
Industrial Electricity
Electricity
Coal Resources
SMR
Industrial Heat
Electricity
Primary Coal
Coal Power
Plant
Coal
Coal
Transport&
Distribution
Coal
Extraction
DEMAND
Electricity
Transport&
Distribution
Gas Power
Plant
Gas Import
Gas
Primary Gas
Gas
Transport &
Distribution
IAEA Models Applicable to SMR
MESSAGE: How does it work?
Optimization of an objective function (e.g. least cost, lowest
environmental impact, maximum self-sufficiency)
defined constraints on new investment, market penetration
rates for new technologies, fuel availability,trade and
environmental emissions
IAEA Models Applicable to SMR
INPUT
MESSAGE – input and output
Existing Energy
System Structure
OUTPUT
600
500
400
biomass
geoth
Base year energy
flows and prices
TWh
hydro
MESSAGE
300
nuclear
gas
diesel
fuel oil
200
coal
100
Energy demand
projections (MEAD)
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Primary and final energy mix
Technology and
resource options &
their techno-economic
performance
Technical and
policy constraints
Build Schedule for power plants
Import dependence
Investment requirements
Emissions and waste
Resource use
IAEA Models Applicable to SMR
MESSAGE – some prominent features
Environmental factors like
emissions and wastes
Climate change mitigation
options
Sustainable development
targets
Security of supply concerns
“Technological Learning”, to
reflect innovation and
improvements in economic
efficiency of technologies.
IAEA Models Applicable to SMR
MESSAGE
The generation
technology chosen
Is it financially
viable?
OUTPUT
INPUT
For each year:

Investment programme
(= capacity additions)
& operating expenses

Economic and fiscal
parameters (inflation,
escalation, exchange
rates, taxes)

Financial parameters
(credits, bonds…)


FINPLAN

Cash flows
Balance Sheet,
Statement of Sources,
Applications of Funds
Financial Ratios:
- Working Capital Ratio
- Leverage ratio
- Debt Repayment Ratio
-…
- Global Ratio
Investment decision
Economic Models and SMR
G4-ECON – Generation IV-Excel calculation of nuclear systems
Developed under the Generation IV International Forum (GIF)
Levelized unit electricity cost (LUEC) in $/MWh
LR
SMR
For multiple types of
nuclear energy systems
Economic Models and SMR
G4-ECON
Levelised Cost of Electricity Generation (LCOE)
LCOE
is not
price!
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.
Economic Models and SMR
G4-ECON
Cost
 Simplifies the
cost data
 Why? It is
developed in
view of
advanced
reactors for
which
detailed
economic
data may be
not available
Levelised Life Cycle Cost
Total lump-sum capital
cost (TLCC)
Fuel, non-fuel O&M, and capital
replacements as average value
 Limitations:
Discount rate
sensitivity
New version soon!
Time
Economic Models and SMR
Present Value Capital Cost (PVCC) Model
Factors affecting comparative costs of SMR vs LR
Cost
250MW x 4
250
MW
250
MW
250
MW
250
MW
LUEC and PV
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.
SMR units built over time
Note: PVVC – developed by Westinghouse
Economic Models and SMR
Integrated model for competitiveness assessment of SMRs (INCAS)*
 Applicable to a comparative investment risk assessment of the deployment scenarios
with SMRs vs LR
 Integrated model that
includes separate
models
Multiple
models
, *Politecnico di Milano, Italy
Economic Models and SMR
INCAS
Integrated model for competitiveness assessment of SMRs (INCAS)*
Generation
Cost
Revenue
Model
Financial
model
Investment Model
Indicators





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).
, *Politecnico di Milano, Italy
Economic Models and SMR
INCAS
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
The strategic security of fuel supply
External Factors Model
Economic Models and SMR
INCAS
Investment Model
External Factors
Multivariate
Evaluation Model
Decision about
Technology investment
Economic Models and SMR
Input Output Model*
Based on the macroeconomic economy wide view
Economy consists of various industries
Input
* Created by Wassily Leontief, work got Nobel Price in 1973 for his work
Economic Models and SMR
Input Output Model*
Output – 300MW
What Model to Use?
What is the objective of the assessment ?
SMR comparison to LR or other
generation technologies
MESSAGE/FINPLAN
• Comprehensive analysis accounting for all
supply chain
• Data availability
Also assists with
feasibility of the project
What Model to Use?
G4 ECONS
PVCC
INCAS
 Simplified model
 Limited data on cost
 Multiple units
 Over time
 Learning rate
 Mulivariate analysis
 External factors
 Qualitative factors
VS
What Model to Use?
Macroeconomic models like input-output models
Macro economic impacts of
how SMR output will impact
economic growth
What Other Economic Aspects to
Consider?
The Grid
System
Remote area
Regulatory Policy
Desalination
Concluding Comments
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 LR
Important to understand model data requirements
Model choice depends on the type of economic analysis and
technology choice
Other 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
Thank You!
37