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2014.08.

Yong-eok LEE

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1. Nuclear Energy Issues in Korea

Nuclear energy economic issues in Korea after Fukushima Growing concerns over nuclear safety

Political discussion on nuclear energy policy

Intensified controversy over nuclear power economics

Emphasis on Public Acceptance (PA)

Is nuclear option still more competitive than fossil fuel plants? Most of the issues derived from Fukushima accident is

reflected in the 6th Basic Plan for Long-term Electricity Supply and Demand (2013~2027, Feb. 2013, MOTIE Korea)

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Nuclear Power Plants in case Policy-Driven Generation Postponing for new reflection amount for 2025 to 2027

– considering public acceptance (PA) level after Fukushima 11 nuclear plants of KHNP in the 5th Generation Mix that are

planned to be built by 2024 are reflected in certainty Extension of Approved Duration will be decided later,

– assuming PA, strict safety check has been passed

Korean government decided to let NPPs provide base load power because of the unique situation in Korea: Korea needs to stably supply energy (energy security), cut

greenhouse gas emissions and lower power generation cost.

Size of Nuclear Power: 25% in 2012 27% in 2027

Ω The 6th Generation Mix (2013~2027)

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Before Fukushima Focus on efficiency and economic benefits of NPP

construction and operation Achieve NPP technology self-sufficiency in a short-term

– Choice & Focus Ensure Owners’ management activities in general

After (to-be) Prioritize nuclear safety on the basis of public acceptance

– Safety enhancement technology – Radiation safety management technology – Natural disaster response measures

Strengthening of monitoring, open & competition System Enhancement of safety infrastructure and safety culture

Ω Paradigm Shift in Nuclear Policy

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2. Electricity production costs in Korea

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2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2008 2009 2010 2011 2012 2013

Nuclear 3.90

Coal 5.88

Hydro 17.08

LNG Gas 16.08

Solar 17.19

Wind 16.28

Mean 8.78

cents/kWh

• Source: KPX, EPSIS (Electrical Power Statistics Information System)

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Replicating standard reactors and construction in series OPR1000 APR1400 APR1400+

Making the best use of existing power infrastructure when constructing new NPPs

Constructing specialized supply chain (A/E, NSSS, etc.) and nuclear industry cluster led by the government & public company Stable domestic nuclear business environment such as sales Cutting back on R&D cost when developing new technologies Reducing project management, engineering, manufacturing,

construction and O&M costs thanks to close cooperation among industrial partners

Lower interest thanks to easy financing A predictable licensing process can avoid unexpected costs

Lesson Learn of Korean NPP

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3. Review of INPRO methodology

INPRO User Requirements for Nuclear Economics UR1 (CN: Cost of Nuclear energy): taking all relevant costs and

credits into account, should be competitive with that of alternative energy sources

– CN < k * CA (cost of energy from alternative source)

– factor k is usually > 1 and is based on strategic considerations

IPPO (Independent Power Producer Ownership) concept Goal of the firm is to maximize profits.

Apply the Discounted Cash Flow method: IRR/ROI/NPV

RUO (Regulated Utilities Ownership) concept Goal is to minimize revenue requirements so as to provide low-cost:

Choosing the Alternatives

Apply the Levelized Revenue Requirements (LRR) method

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Levelized Unit Energy Costs (LUEC)

O & M Costs - Fixed/ - Variable

Total Costs=Revenue Requirements

Return on Debt

Book Depreciation

Return on Equity

Income Tax on minimum acceptable equity return

Insurance, Property Tax

Fuel Costs

Decommissioning, Rad-waste Management, Spent fuel disposal costs

O & M -fixed costs

Fixed Charges

KOREA

Fixed Charges

IAEA

Nuclear R&D Fund

O & M - Fixed - Variable

Nuclear Fuel Cycle costs

N/A

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4. Major Issues influencing LUEC in Korea

Major Issues Action Cost Impact

•Safety Enhancement

Reflect 11 design improvements + minor change

U$ 100M/plant

•Quality Concern Risk premium to QA and Licensing Schedule

Add 12Months to Engineering and Procurement Schedule

•Decommissioning and Rad-waste Management

Budget increase in Decommissioning, Low and Intermediate level radioactive waste and Spent Fuel Disposal

Budget increase 7.5% of amount

•Conservative Plant Life Time

Apply 40 years of life time to NPP like coal power plants rather than the design life of 60 years.

Increase in fixed charge

•External costs for severe accident response

Conduct severe accident probability assessment based on scenarios and hypothesis

Impossible to generalize the possibility of severe NPP accidents

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5. Assessment of Major Issues

Basic assumptions for assessment Technical Parameters:

– Reference: Korean APR1400 (Gross: 1455MWe, PWR)

– Two units are built on the same site simultaneously

– Site specific costs are included such as land, infrastructures

– Design life time: 60 years

– Total project duration (base): 120 Months

– Load factor (base load): 90 %

Economic Parameters – Cost basis: December 2013 constant value

– Discount Rate: 6%

– Overnight Costs (base): 2,100 U$/kWe excluding EDC & IDC

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5. Assessment of Major Issues

Cash Flow projection including Back fitting for 60 Years

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200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

-9 -8 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61

Expenses

Expenses

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5. Assessment of Major Issues

Assessment Results

Assessment

Diff. BeforeFukushima

AfterFukushima

Rad-waste/Decommissioning + 7.5% of amount 0.10 1.39 1.49

Fixed Charge Sub-total of Fixed Charge 0.20 2.10 2.30

- Safety Enhancement + 100M USD of capital costs 0.04 0.00 0.04

- Quality Concern + 12 Months of expansion 0.02 2.10 2.12 + IDC

- Conservative Plant Life Time - 20 years of plant life time 0.14 2.10 2.24 + Fixed Charge

LUEC cents/kWh 0.30 4.33 4.63 +7% increase

ISSUES Cost Impact Remarks

cents/kWh

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5. Assessment of Major Issues

cents/kWh

4.0

4.5

5.0

5.5

6.0

6.5

7.0cents

/kW

h

+ Capital costs Base + 0.1 B$ + 0.2 B$ + 0.5 B$ + 1.0 B$ + 2.0 B$ + 3.0 B$ + 4.0 B$at

+1.0 B$

60Y, 120M, Base 4.33 4.37 4.41 4.52 4.71 5.08 5.46 5.83 + 19.9%

60Y, 132M after 4.44 4.48 4.52 4.63 4.82 5.20 5.58 5.96 + 18.0%

40Y, 132M, after 4.59 4.63 4.67 4.79 5.00 5.40 5.80 6.21 + 15.0%

Coal Plant (actual 2013) 5.88 5.88 5.88 5.88 5.88 5.88 5.88 5.88 -

→60Y, 120M, Base →60Y, 132M after →40Y, 132M, after

Sensitivity Analysis

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6. Conclusion

Nuclear option still more competitive than fossil options Include all external costs related to NPP which can be generally

estimated without considering accident scenarios

Coal power plants do not include the external cost

It is believed that nuclear power does contribute to national economy and energy security in Korea Impossible to generalize the probability of severe NPP accident:

– such as accident scenario analysis, atmosphere dispersion modelling, assessment of exposure dose, etc.

However, additional cost is required for PA unlike the past.

In conclusion, we must research on “Nuclear Safety Economics” to gain

competitiveness over fossil fuel plants in terms of both economic benefits and safety.

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