The cost of new nuclear power plants in France SFEN TECHNICAL NOTE – MARCH 2018 SFEN TECHNICAL NOTE – MARCH 2018 The French Nuclear Energy Society (SFEN) is the French knowledge hub for nuclear energy. Created in 1973, the SFEN provides a place where French and International specialists, and all those with an interest in nuclear energy and its applications, can obtain and share information. The SFEN brings together 4000 professio- nals in industry, education and research. The SFEN’s contribution to France’s Multi-Year Energy Plan (Programmation pluriannuelle de l’énergie) The cost of new nuclear power plants in France Executive Summary & Recommendations SFEN TECHNICAL NOTE – MARCH 2018 Guaranteeing the nuclear option for 2050 With its June 2017 Climate Change Plan (Plan Climat), France has set a greenhouse gas emissions neutrality target for 2050. France currently relies on nuclear and renewable energy for generating low-carbon elec- tricity, with one of the most competitive supplies in Europe. France is committed to diversifying its energy mix at a pace that will depend on several factors which are not yet fully clear: the characteristics of demand, the technical and economic performance of the different technologies (renewable energy, storage, smart grids), as well as the energy strategies of its European neighbours, as part of an increas- ingly interconnected electricity system. In the short-term, continued operation of existing nuclear reactors (‘Grand carénage’ refurbishment programme) will provide France with low-carbon electricity, produced locally and at a competitive price. In the long-term, between 2030 and 2050, France is expected to progressively replace part of its existing nuclear fleet by new means of production. In the long-term, between 2030 and 2050, France is expected to progressively replace THE COST OF NEW NUCLEAR POWER PLANTS IN FRANCE part of its existing nuclear fleet by new means of production. While technical and eco- nomic progress is expected, significant uncertainties remain concerning the feasibility, reliability and cost, as well as the specific limits of a system that is heavily, possibly ex- clusively, reliant on intermittent renewable energy coupled with storage, biogas, and/or fossil fuels with carbon capture and storage. Given the uncertainties and the urgent need to significantly and rapidly reduce global 1 CO2 emissions, the International Energy Agency states that nuclear energy is indispens- able, and complementary to the development of renewable energy, for a CO2-free ener- gy mix. This should in all likelihood be the case for France, which is a world reference for use of and industrial expertise in this technology. In order to avoid significant climate (maintaining or opening new fossil fuel plants, result- ing in increased CO2 emissions) and economic (increased electricity production costs) risks, France must consider the option of replacing part of its nuclear fleet by EPR-type third generation reactors. - 6 - In recent years, the first third generation reactor projects have encountered issues during con- struction. However, it is important not to allow initial cost overruns to overshadow two key con- siderations. Firstly, these issues have been over- come and the first EPR will be connected to the grid in the next few months. Most importantly, these projects have revived the French and Eu- ropean supply chains, which are now ready to build new units. The nuclear sector, the third in- dustrial sector in France with 2,500 companies and 220,000 highly qualified professionals, has the right tools to succeed. SFEN TECHNICAL NOTE – MARCH 2018 1 – IEA ETP 2017 Report, 2DS and B2DS Scenarios. - 7 - Technical Note Objective This technical note looks at the conditions that will allow France to keep the nuclear option open for 2050. More specifically, it helps to explain the: • costs of construction of new nuclear power plants. • drivers required, in terms of construction and financing, to ensure the long-term competitiveness of the sector. This note is based on lessons learned from other industries, as well as from the EPR projects launched in France and abroad (Finland and China). Its focus is the third generation EPR-type reactor, which is commercially available and is being optimised for commissioning by 2030. NB: While research is also looking into new concepts, such as Small Modular Reactors (SMR) and fourth generation reactors, their industrial readiness does not match this timescale. This note has been produced by the SFEN’s Energy Economics and Strategy Expert Group. THE COST OF NEW NUCLEAR POWER PLANTS IN FRANCE - 8 - Preliminary remarks The drivers identified for reducing the cost of the next EPR reactors are neither unique to nuclear technology, nor to France, but apply to all complex large infrastructure proj- ects. They involve the industrial organisational structure as much as governance, which is embodied in contracts and financing costs (risk allocation). In terms of strategy, these large projects require significant involvement of the State. For an EPR to be commissioned at an optimised cost by 2030, a clear industrial pro- gramme must be in place 10 years prior to the project launch. This timescale corre- sponds to the periods covered by France’s next Multi-Year Energy Plan (PPE - Program- mation pluriannuelle de l’énergie): 2019-2023 and 2024-2028. For an EPR to be commissioned at an optimised cost by 2030, a clear industrial programme must be in place 10 years prior to the project launch. The competitiveness of each means of production will be increasingly impacted by the price of CO2, and can no longer be considered in isolation. Interdependencies in the electricity system will have to be taken into account (share of intermittent sources, lim- itations of storage solutions and other sources of flexibility), alongside the electricity SFEN TECHNICAL NOTE – MARCH 2018 market structure. Consequently, nuclear energy, a low-carbon technology, which is dispatchable, flexible2 and available 24/73, can only be compared to other technologies with the same charac- teristics, in terms of service provision to the electricity system and their contribution to the fight against climate change. 2 – The power of a nuclear plant can be adjusted by up to 80% within a few minutes. 3 – The average availability of electricity production from nuclear was 75% between 2010 and 2017. - 9 - Context In 2016, the international market for new nuclear was strong, with the commissioning of 10 nuclear reactors4, representing the largest activity in two decades. The sector is transitioning towards a new generation of reactors: the third generation. These technologies offer enhanced performance in terms of safety and availability, as well as environmental impacts. France, with the EPR, as well as Russia, the United States, and China are developing their own technology, especially for export. THE COST OF NEW NUCLEAR POWER PLANTS IN FRANCE 4 – World Nuclear Performance Report 2017. - 10 - 1. The first third generation reactor projects have encountered challenges inherent to new projects. France has overcome these and now has a revitalised and operational supply chain ready to build new EPR. A review of the First-of-a-Kind (FOAK) third generation reactor projects shows that they have overrun their initial budgets. This situation is common to complex large infrastructure projects, an example being the Channel Tunnel whose final budget was double the initial estimate. Numerous studies make reference to ‘optimism bias’5 in project forecasts prior to launch. They also draw attention to phases of ‘rapid learning’ in subsequent projects6. This technical note highlights the significant differences between third generation reac- tor projects in the following countries: • Countries that are actively building a series of reactors, either because they are extending their nuclear build programme (China), or because they are replacing part of their fleet (Russia). Indeed, it is of note that the first third generation reactor to go SFEN TECHNICAL NOTE – MARCH 2018 online was in Russia, and the first EPR to startup will be Taishan 1, in China. • Countries that had stopped building reactors (France, Finland, United States). These countries have been doubly disadvantaged, both by uncertainties associated with FOAK projects and having to upgrade their supply chain to the standards required for Gen-III reactors. Having overcome these issues, the first units are now in the startup phase, and France once again has a supply chain capable of building new reactors (large components, ex- pertise, professional skills, industrial equipment, research capabilities). There is a risk that the returns on this investment will be lost should France once again stop building reactors at home. 5 – Working Paper on Risks n°52, A risk management approach to a successful infrastructure project. See also, E. M. Merrow, P. E. Phillips, and C. W. Meyers, Understanding Cost Growth and Performance Shortfalls in Pioneer Process Plants, Santa Monica, CA: Rand Corporation, 1981. 6 – PWP Ltd., Pelamis: experience from concept to connection, Phil. Trans. R. Soc. A (2012) 370, 365–380. - 11 - 2. Construction costs are the main contributing factor to overall production costs of a nuclear reactor. These costs can be controlled, provided that France commits to an industrial programme. The cost of a nuclear reactor is in large part dominated by investment costs in the con- struction phase which, depending on the discount rate used, represents between 50% and 75% of the total electricity production cost over the facility’s operating period. A review of the first French programme, and other countries’ programmes, clearly demonstrates that construction costs can be reduced. This requires development of an industrial programme which generates an economic series effect, and integrates lessons learned from previous construction projects, as well as the latest innovations. Taking advantage of the economic series effect The economic series effect refers to the fact that the average investment cost for a se- ries of standard units is less than that for a single unit of the same type, designed and produced separately.