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Nuclear power still makes financial sense

A brief, back-of-envelope estimate of power costs from a new nuclear plant shows why utilities are still interested in building new nuclear capacity.  No, this isn’t a scientific analysis, just a rough estimate to show you it makes sense.

Suppose it costs $17 billion to build a new, two-unit nuclear power plant.  And let’s suppose the investors hit the sweet spot and cleared a 10 percent return on their investment.  That’d be $1.7 billion per year, or $850 million per year for each plant.

Now, how much would a plant have to charge for its electricity to make that investment back?

A 1000-MW plant could produce a theoretical maximum of:

(1E09 Watts) × (365.24 days/year)  × (24 hours/day) = 8.77E12 Watt-hours/year

So, $850M/yr  ÷ 8.77 W-H/yr = 9.7 cents/KWH

But a real plant can’t produce its theoretical max.  There’s a capacity factor that measures what a plant can reasonably be expected to put out.  For the U.S. nuclear industry last year, the nationwide average capacity factor was about 90 percent.  Figuring this into the price we get:

9.7  ÷ 0.9 = 10.8 cents/KWH

In addition to the capital investment, toss in operating and maintenance costs, decommissioning costs, nuclear fuel costs, etc.   The Nuclear Energy Institute says the industry average for these is roughly 2.5 cents/KWH.  Let’s round that way up and say we’d add a full 3 cents per KWH for the power you get from a nuclear plant.  That’d bring the price of electricity to about 13.8 cents/KWH.  Let’s round up again and say it’ll be 14 cents/KWH.

The Energy Information Administration says, “The average cost of electricity in the residential sector in October 2011 was 12.12 cents per kilowatthour.”

This means the price of new nuclear-powered electric plants will make your power bill go up, but not by all that much.  Not all the power you use would come from the new nuclear plants, so a slight amount of pricier electricity would be factored in.  The increase in your bill might be a dollar or two.

If the price goes up at all, you ask, why is nuclear power a good deal?  The answer is that older coal-fired plants are really cheap (the cheapest car to drive is the one that’s already paid for), but they’re being phased out rapidly for a variety of reasons, mostly old age but also because of aggressive new rule-making by the EPA.  New coal construction is not much cheaper than nuclear, and then you have to add in environmental costs and the far higher fuel expenses.  New gas generation is pretty cheap too, but America is growing much too dependent on gas-fired generation.  We need other sources in the power mix in case something goes wrong the gas fields.  As as with coal, gas-fired generation has very high fuel costs, and the plants don’t last nearly as long.

So no matter what we do, prices for electricity are going to rise.  If you install gas plants, prices will go up more in the long run.  The best chance for holding the line on price increases over the long haul is with nuclear power because fuel costs are less than a third of the operating cost, so even if they rise, they don’t affect the final price as much.  This plus the very long life span of the plants means the total capital outlay is reduced, and the combination keeps prices more stable.

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