Chris Yelland CEng, investigative editor, EE Publishers
A new study by EE Publishers looks at the initial capital cost as well
as the levelised cost of electricity (LCOE) generated by the proposed 9,6 GW
new-nuclear build in South Africa.
This study estimates an initial overnight
capital cost (including owner’s development costs, but excluding interest
during construction) of the 9,6 GW new-nuclear build at US $50bn (R776bn
at a rate of exchange of $1 = R14).
The levelised cost of electricity (at base
date May 2016) is calculated to be R1,30 per kWh under the stated assumptions,
rising to R1,52 per kWh if Koeberg’s fuel, operating and maintenance costs per
kWh are used in the calculation.
This compares to the LCOE for new-coal generation in
South Africaof R1,05 per kWh and R1,19 per
kWh for Medupi and Kusile respectively, and the LCOE for new wind and new solar
PV in South Africaof R0,69 per kWh and R0,87 per
kWh respectively (all figures adjusted to May 2016).
As with any large infrastructure
development project, it is important to understand clearly upfront the total
capital cost in order to determine whether it is affordable, how it should be
financed, and how the capital cost may impact the financing of other projects
that may be contemplated by the shareholder.
Similarly it is important to know the full
ongoing costs over the economic lifetime of the project, including interest and
capital repayments to the lenders, return on investment required by the owners,
and all other fixed and variable operating and maintenance costs.
It is similar in principle to building a
new house. How much will it cost? Where will I get the money from? How much
will I need to put down myself? How much will I need to borrow from the bank?
At what interest rate and repayment terms? Will my income be sufficient to
cover not only the monthly capital repayments and interest, but also ongoing
maintenance and running costs, such as water, electricity, rates and taxes,
etc.? How will the down-payment and monthly repayments affect my other plans?
Am I taking on too much debt?
cost of electricity
In the field of power generation, a
planning tool known as the levelised cost of electricity (LCOE) over the
lifetime of the plant is used to understand and compare the cost of electricity
from a power plant, whether it is coal-fired, nuclear, hydro, gas, wind or
The LCOE of a generation plant is the average
cost per kWh unit of electricity delivered over its lifetime, which will
recover the full costs, including the initial investment, cost of capital
(including dividends and interest), fuel, and all other fixed and variable
operating and maintenance costs.
The LCOE is useful when comparing and
making investment decisions for power generation projects. While the concept is
relatively simple, the calculation of LCOE is somewhat technical, involving
such parameters and concepts as the vendor capital costs, owner’s development
costs, overnight capital costs, weighted average cost of capital, interest
during construction, plant nameplate and net capacity, capacity factor, plant
construction time, plant lifetime, fuel costs, other fixed and variable
operating costs, and more.
In stating the LCOE calculated, it is
essential to also clearly state the economic and technical assumptions used,
without which the LCOE presented has little meaning, and without which it cannot
be compared with the LCOE of other projects or technologies.
An updated initial capital cost estimation
and LCOE calculation for the proposed 9,6 GW new-nuclear build in South Africa
is particularly relevant at this time in view of the fierce debate raging
between Department of Energy, National Treasury, Eskom, economists and
independent analysts on the optimum future energy mix in South Africa.
Decisions in respect of nuclear, coal, gas
and renewables are imminent, and yet the assumptions and LCOE for nuclear power
(and the other generation technologies) presented in the national Integrated
Resource Plan for Electricity IRP2010-2030 and the 2013 Draft IRP
Update Report are significantly out of date.
of the study
The purpose of the study by EE Publishers
is to update the base LCOE presented in the 2013 Draft Update Report for a 9,6
GW new-nuclear build in South Africa.
For comparative purposes, the EE Publishers
study calculates the base LCOE as at May 2016 using the same methodology and
general assumptions at the 2013 Draft IRP Update Report, but updating the
initial overnight capital cost, and taking into account three years of inflation
and significant variation in the rate-of-exchange.
base LCOE is then recalculated under various alternative assumptions, and the
results tabulated to enable readers to easily determine the LCOE of the
proposed new-nuclear build resulting from a range of alternative and perhaps
more realistic assumptions (see below). The tables also indicate the
sensitivity of the LCOE calculated to the various key assumptions.
Discussion on the assumptions
used in the calculation of LCOE and their validity
Overnight capital cost per kW of
on an estimated overnight capital cost of $50-billion (including owners
development costs but excluding interest during construction) for a 9,6 GW
nuclear fleet with a net output of 6 x 1082 MW using Rosatom VVER 1200
reactors, an overnight cost of $5776 per kW net output is calculated.
this figure is used in the EE Publishers study to calculate the base LCOE. As
this would vary depending on the proposals from the different vendor countries,
the LCOE in the EE Publishers study has also been presented using alternative
assumptions of overnight capital cost per kW of net output, ranging from $4000
Weighted average cost of capital
WACC takes into account return on capital required by the shareholder
(government) as well as the cost of borrowing. The WACC used in the 2013 Draft
IRP Update report is 8% real, and this has also been used in the EE Publishers study
to calculate the base LCOE.
Nuclear proponents may argue for a lower WACC, but
8% is the consistent figure used across all technologies in the IRP, and if one
were to reduce this for a nuclear build, then there would be little reason not
to reduce it for all other technologies too. However, for completeness the LCOE
in the EE Publishers study has also been presented using alternative
assumptions of WACC, ranging from 4% to 10%.
Plant capacity factor
average plant capacity factor is a measure of the availability of a power plant
for generation at full rated output, taking into account planned and unplanned
outages, and output reductions. A capacity factor of 92% is used in the 2013
Draft IRP Update, and this has also been used in the EE Publishers study to
calculate the base LCOE.
EE Publishers considers this capacity factor to be
unrealistic based on international experience and local experience at Koeberg,
with a more realistic capacity factor considered to be 88%. Thus the LCOE in
the EE Publishers study has also been presented using alternative assumptions
of average plant capacity, ranging from 85% to 92%.
Reactor construction time
reactor construction time of 6 years is used in the 2013 Draft IRP Update
Report, and this has also been used in the EE Publishers study to calculate the
base LCOE. Many would argue that this is unrealistically low based on
international experience in Europe and the USA, and the new-coal build at
Medupi and Kusile, and should be more like 10 years.
However, the learning
experience through the construction of a fleet of six reactors may tend to
reduce this. The LCOE in the EE Publishers study has therefore also been
presented using alternative assumptions of reactor construction time, ranging
from 5 to 10 years.
Plant economic lifetime
plant economic lifetime of 60 years is used in the 2013 Draft IRP Update, and
this has also been used in the EE Publishers study to calculate the base LCOE.
EE Publishers considers this lifetime to be unrealistic without taking into
account major plant life-extension costs at mid-life, which has not been done
in the 2013 Draft IRP Update Report.
A more realistic plant economic life
without major life-extension costs is considered by EE Publishers to be 30 or
40 years. Thus the LCOE in the EE Publishers study has also been presented
using alternative assumptions of plant economic lifetime, ranging from 30 to 60
Fuel and other fixed and
variable operating and maintenance costs
figure of R0,215 per kWh is used in the 2013 Draft IRP Update Report for fuel
and other fixed and variable operating and maintenance costs, and this has also
been used in the EE Publishers study to calculate the base LCOE.
However, in a recent letter published in
Business Day, Eskom’s Group Executive Generation, Mr. Matshela Koko,
disclosed that the “production costs” of Eskom’s Koeberg nuclear power plant
was actually R433/MWh (i.e. R0,433/kWh).
The assumption is that he is referring
to the fuel and other fixed and variable operating and maintenance costs,
whereas the IRP assumes a figure of R0,215/kWh. If this higher and likely more
realistic figure is used, the base LCOE calculated increases from R1,30 per kWh
to R1,52 per kWh i.e. 117% of the base LCOE.
the assumptions of the Integrated Resource Plan for Electricity IRP2010-2030
and the 2013 Draft IRP Update Report, and the other assumptions detailed above,
and without taking tax effects, decommissioning, long-term waste disposal, and
plant life extension costs into account, an up-to-date base LCOE for the
proposed new-nuclear build in South Africa would be R1,30 per kWh.
base LCOE of R1,30 per kWh would rise to R1,52 per kWh if the actual fuel
costs, and the fixed and variable operating and maintenance costs of Eskom’s
Koeberg nuclear power plant, were used instead of those assumed in the IRP.
article enables readers to easily determine the LCOE of the proposed new-nuclear
build programme resulting from alternative assumptions in real WACC, overnight
cost per kW net output, average annual capacity factor, construction time and
plant economic life, to those used to calculate the base LCOE of R1,30/kWh.