THE ECONOMICS OF NUCLEAR POWER

The economics of nuclear power is a highly contentious area. It is often difficult to establish independently verified estimates of the basic construction costs and the operating cost. In addition, the results are crucially dependent on the accounting and investment appraisal assumptions such as the rate of return on capital that is sought (the discount rate) and the life-time of the plant.
These latter factors are of particular relevance to nuclear power because the main element in the cost for each unit of electricity generated is that associated with building the plant, the capital cost. The shorter the expected life-time and the higher the discount rate, the higher these fixed costs will be. In a monopoly system, the assumed life of the plant can be the expected physical life-time because there will be nothing to stop the owner running the plant until it is worn out. In a competitive system, the plant may have to be retired much earlier if it cannot compete with new plants.
The running costs of nuclear power plants are difficult to establish because most electric utilities regard this data as commercially confidential. However, in the USA, utilities are required to publish fully authenticated running costs. In 1997, the cheapest to run nuclear plants cost about 1c/kWh (0.6p/kWh), while the average was about 2.4c/kWh (1.5p/kWh). Of this, about 0.4-0.6c/kWh was fuel cost while the rest, 0.5-1.8c/kWh, represented the non-fuel cost of operation and maintenance (wages, spare parts etc.)
Government owned utilities have usually been able to invest money at very low rates of return on capital partly because new power stations were seen as a safe investment and partly because, for a variety of reasons, governments have tended to require a lower rate of return on capital than private industry. Thus, in Britain before privatisation, the national utility, the CEGB, could invest at a 5 per cent real (net of inflation) rate of return and recover the costs over 35 years. After privatisation, it is known that private investors are looking for about 12-15 per cent real return and recover the capital over 15-20 years.