I. CROSSLAND, CrosslandConsulting, UK

Abstract: This chapter compares the Levelised Cost of Electricity (LCOE) for nuclear power with those of conventional and removable energy sources. This reveals that the economics of nuclear power are dominated by the high capital cost of nuclear power stations, which is itself strongly influenced by the cost of capital and, therefore, the applicable discount rate. Once built, the profitability of a nuclear power plant is ultimately determined by the price of electricity. Fossil fuel price is a key determinant of this but policy-related matters such as the rules for electricity trading and penalties on carbon dioxide emissions are also important.

Key words: energy costs, levelised cost of electricity, LCOE, nuclear power costs.

4.3 Introduction

While nuclear power remains controversial, in a world with no easy energy choices it offers the possibility of secure supplies of electricity with no carbon dioxide emissions. This is attractive to governments who understand that electricity is an essential of modern life, and while it cannot be stored, a shortfall in its supply is something devoutly to be avoided. Setting aside the issues of nuclear proliferation and safety, the next most important question is that of cost and, in particular, how the cost of nuclear power compares with the alternatives. This, it transpires, is surprisingly complicated, primarily because the various generating technologies are so different.

We begin, therefore, by explaining the concept of the Levelised Cost of Electricity (LCOE), which allows the cost of electricity generation to be fairly compared across different systems. This is followed by illustrative calculations of the LCOE that aim, not to derive definitive LCOE values, but to highlight the key economic differences between nuclear power and other forms of electricity production. We also explore the inbuilt biases in the LCOE method. Following that we consider the important issues of financing and risk management before drawing some conclusions. Amongst other things, we aim to explain why, when seeking to implement a nuclear power programme, prospective sponsors of nuclear power are so anxious to obtain sureties from the government about the nature of future electricity pricing mechanisms, regulation and much else.