General

This chapter aims to illustrate the characteristic features of the economics of nuclear power and we do this through comparisons with coal, gas and onshore wind generation. The numerical results are produced by combining Eq. 5.3 with data that are (mostly) extracted from the European and North American data provided by PCGE for nuclear, coal, coal plus carbon capture (coal+CC), gas and onshore wind. Other schemes are omitted from the present discussion.

Discount rates

Equation 5.3 allows any discount rate to be used so long as it is constant with time. In PCGE, calculations are performed for two annual discount rates, namely 5% and 10%. These figures, it is suggested, may be viewed as broadly representing the cost of capital under two different market conditions. For the first, it is considered that the state is the prime mover in the investment. In the second, this role is taken by the private sector. It is argued that different rates apply because private investors will invariably demand a higher return on capital than the state. And, while some have argued that rates should be higher, these two values do appear to span the normally used range. Thus, recent analyses of electricity generation costs have used values of 7.5%6 and 10% ‘as advised by DECC’6 (UK Department for Energy and Climate Change). In the case of nuclear power, where capital costs dominate, the discount rate is one of the most important variables. Here, to avoid proliferation of the calculations, we assume a single constant discount rate of 7.5%. This is chosen to represent a position

half-way between the 5% for state and 10% for private finance examined by PCGE. Section 5.2.6 examines the sensitivity of the calculations to this parameter.