Role of Nuclear Energy in Global Energy Markets

Edward Kee

Vice President

Nuclear Energy Development Summit 2013Eastern Europe, Turkey and Middle East

21 – 22 November 2013, Istanbul

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Disclaimer

The slides that follow are not a completerecord of the presentation and discussion

The views expressed in in these slidesand the discussion of these slides are mine

My views may not be the same as the views of NERA’s clients or my colleagues

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Global new nuclear

0 50 100 150 200

BangladeshBelarusFranceFinlandCanada

IranUAE

VietnamJapan

TurkeySouth Africa

UKKorea

Saudi ArabiaIndiaUSA

RussiaChina

In operation Under construction Planned ProposedSource: Advanced light water reactor projects, by unit; from NERA global nuclear power database

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Drivers of new nuclear development

Politics & public

opinion

Electricity fundamentals

Electricityindustrystructure

Nuclearbusiness

model

4

Politics & public

opinion

Politics and public opinion

Public support not sufficient

Public opposition– May rule out nuclear power (e.g., Austria)– Makes nuclear projects harder

Role of government

5

Electricity fundamentals

Electricity system involves long-term investments and real-time dispatch

Nuclear value linked to availability of other electricity generation options

Electricity fundamentals

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Electricity time-scales -centuries to seconds

Before

Physical &

financial contracts

Pre-dispatch

Dispatch & market clearing

Contract settlements

Spot marketprices

Real time system control

Decades

Months

Years

Weeks

Hours

Seconds

Real time

After

Generation investments

Investment returns

Months

Hours

Years

Reserves &

ancillary services

Decades

Real-time: Dispatch to meet demand; minimize system short-run marginal costs

Long-term: Invest to meet demand; minimize total system long-run costs

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Nuclear value based onprimary energy alternatives

Source: Figure ES.1; OECD Generating Costs 2010, LCOE in US$//MWh; 5% discount rate

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Nuclear value linked toprimary energy alternatives

Source: Figure 4.10a; OECD Generating Costs 2010, LCOE in US$//MWh; 5% discount rate

South Korea:

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Electricity industry structures

Government-owned electricity sector

Investor-owned regulated utility

Electricity markets

Electricity industry structure

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Government utility

TRANSMISSION

$

MWh

RETAIL SERVICES

DISTRIBUTION

Government

Citizens andtaxpayers

CONSUMERS

$

System Dispatch

Nuclear PlantElectricityMinistry

PPA

Nuclear Plant

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Regulated utility

TRANSMISSION

RETAIL SERVICES

CONSUMERS

DISTRIBUTION

Utility regulator

Investors

System Dispatch

Nuclear Plant

Nuclear Plant

PPA

$

MWh

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Electricity markets

TRANSMISSION

$

MWh

RETAIL SERVICESCONSUMERS

DISTRIBUTION

Electricity Market

Investors

Utility regulator

Nuclear Plant

Market oversight

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Uncertain revenue inelectricity markets

Market investments based on future revenues

Hard to predict future electricity market revenue– Market simulations with range of assumptions (new

entry, fuel prices, demand, market rules, etc.)– Scenarios to reflect major uncertainties and identify

key revenue risks and opportunities

Nuclear time-lines makes this even harder – Revenue starts at COD (10 years after project start)– Project operates for 60 years (or more)

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Nuclear business model

Government or regulated utility

IPP with power contracts

Energy user cooperatives

Merchant project selling into market

Vendor ownership / financing

Nuclearbusinessmodel

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Nuclear project cash flow

0 10 20 30 40 50 60 70 80 90 100 110 120

Cost Revenue

10+ year development and construction period

Illustrative

Uncertain revenue

Liabilities for decommissioning and spent fuel disposition

Prolonged outage possible, with high cost and no revenue

Significant fixed costs (fuel + O&M)

Large and uncertain capital cost

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Traditional power projectbusiness models

Government utilityMonopoly utility rates; government guarantees

Regulated utilityMonopoly utility rates; corporate guarantees

Long-term PPA IPP

Ultimate credit sources Owner / Operator

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Cooperative ownermodel

Cooperative (e.g., TVO)Cooperative member LT projected demand

Ultimate credit sources Owner / Operator

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Merchant power projectbusiness model

Merchant nuclear project developer

Expected power sales into electricity market

Hedge contracts (e.g., CfDs) with energy users

Out-of-market subsidies (e.g., carbon benefits)

Other (e.g., government loan guarantees)

Ultimate credit sources Owner / Operator

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Vendor ownership –buyer views

Vendor partner can help buyers with– Nuclear procurement and EPC contract– Oversight & management of nuclear project– Operation, with nuclear operator on vendor team

Prefer vendor “skin in the game”– Manage project cost and schedule– Focus on long-term plant performance

May help with funding

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Vendor - alternative toLSTK contract for FOAK

LSTK = Lump-Sum Turn-Key; an EPC contract form where the vendor bears significant cost and schedule risk

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Long-term nuclear power

strategy

Nuclear fleet build in home

country

Nuclear is low cost energy option

National nuclear

vendor & supply chain

Nuclear learning &

scale benefits

Nuclear industrial capacity

development

Vendor ownership – national nuclear industrial strategy

Export market sales +

ownership

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Summary

Public support important, but not sufficient

Electricity fundamentals set nuclear value

Electricity industry structure defines options

Nuclear business models– Proven – government, regulated, IPP, cooperative– Not yet proven - merchant project

Vendors (especially national vendors) may take role as nuclear project developer / owner

Contact UsEdward Kee

Vice PresidentNERA – Washington, DC, USA+1 202 370 7713edward.kee@nera.comwww.nera.com

© Copyright 2013National Economic Research Associates, Inc.

All rights reserved.

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Structuring projects in evolving electricity industry

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Assessing nuclear power plant project economics

Evaluating nuclear procurement processes

Conducting project investment due diligence

For more information on NERA’s nuclear industry capabilities, see http://www.nera.com/67_5479.htm

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