Investment costs for all power plants began to ascend quite steeply around 2005 and by 2008 had more than doubled for conventional coal technology and especially for nuclear power. This sharp increase coincided with the rapid increase in world market prices of energy and materials (e. g. cement and the full spectrum of metals). While these price hikes have clearly been one element pushing investment costs, they alone do not explain their mag­nitude. They are rather the result of a combination of several coinciding factors such as an above-average demand for generating capacity in Asia, an ageing fleet of power plants in North America and Europe requiring replacement or refurbishment for environmental reasons, as well as effi­ciency improvements due to high fuel prices and a global power equipment manufacturing industry characterized by relatively minimal expansion for over a decade — hence little spare manufacturing capacity.

Regarding nuclear power, globally only a few manufacturers were capable of producing heavy forging equipment such as reactor pressure vessels and steam generators. By 2008 lead times of 50 months and more had become commonplace. Backlogs started to accumulate with the licence extensions for existing reactors which often require replacing steam generators and other heavy components. The rising interest in new nuclear build and the accompanying pre-orders further added to the backlog. Full order books allow manufacturers to command higher margins and thus exert upward pressures on prices.

By 2007-08 prices for new nuclear build announced by utilities that are expected to deliver the first kWh to the grid sometime during 2017-20 started to ascend steeply, deviating considerably from the previous $1000 to $2500 per kW range (NEA and IEA, 2005). For example, in October

2007 Florida Power & Light released projected investment costs of $12.1 billion to $17.8 billion for two new Westinghouse AP1000 reactors (1100 MW each) or $5500 to $8100 per kWe at its proposed Turkey Point site. In March

2008 Progress Energy announced that its two new AP1000 units on a green­field site in Florida would cost it about $14 billion or some $6360 per kW(e). In November 2009 Citigroup Investment research put construction costs for new nuclear build in the United Kingdom in the range of $3700 to $5200 per kW(e).

In May 2010, Progress Energy raised the estimated cost of its proposed 1100 MW reactors at the Levy nuclear power plant in Florida from $17.2 billion to $22.5 billion and delayed its start-up to 2021 due to a delay in licensing the reactors (Reuters, 2010).

In contrast, the US Congressional Budget Office (CBO, 2008) quotes $2300 per kW(e) for a generic design in a report published in 2008 which is in line with NRG’s August 2007 estimated cost range for two 1350 MW advanced boiling water reactors (ABWR) to be built in South Texas of $2200 to $2600 per kW(e).

The first two out of a total of six domestically developed 1000 MWe CPR — 1000 pressurized water reactors in China are quoted at a cost of $1850 per kW (WNN, 2010). The first unit is scheduled to begin operating in 2015, followed by the second unit in 2016. Some 87% of the equipment to be used is being provided by Chinese suppliers (WNN, 2010).

Common to all these cost quotes is that they do not convey what is included and what is not. In essence these quotes are not comparable, although in the public mind they are all considered real. Clearly, this diver­gence of investment costs causes confusion and, taken at face value, seri­ously questions the economics of new nuclear build.

The exclusive focus on nuclear investment costs as a single data point ignores the effects of the material price hikes, the manufacturing constraints for power equipment and the shortage of skilled labour on all electricity generating technologies. Given the favourable material intensity per MWh of electricity generated (on a lifetime basis) from nuclear power compared with fossil and renewable alternatives, the energy and material price hikes have affected NPP costs less than the alternatives. Figure 15.9 compares the material-related change in generating costs for new power projects between 2005 and 2008 just before the onset of the financial crisis (ENEF, 2010). While all generating options saw steep increases in material-related costs, nuclear power was least affected.

But the capital cost quotations by utilities suggest a different picture, so which other factors may explain the recent enormous escalation of nuclear investment costs? At least four potential causes have been already identi­fied: (a) varying definitions of investment costs, (b) boundaries of the analy­sis, (c) interest rates and market structures, and (d) price expectations (inflation) for materials, equipment and labour. The next paragraphs attempt to put the above divergent cost quotations into perspective with the help of a brief numerical example.

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