Western Markets: An Investor's Minefield
All Nuclear Power Plants Are Not Created Equal
April 01, 1998
WHICH NUCLEAR PLANTS WILL SURVIVE competition? To answer that question, senior managers at electric utilities must know a nuclear plant's true economic potential. Without an accurate understanding of operating economics, a utility might lose a good plant or waste resources on poorer plants that should be closed.
Of course, a shutdown may be appropriate at some plants (em perhaps a few situated in the most competitive regions, or others plagued by poor inherent physical characteristics. However, most U.S. nuclear plants show a significant potential for improvement in operating costs. That fact warrants a closer look (em otherwise, some owners could miss opportunities for improvement and close plants needlessly. Others might cut costs too aggressively or in the wrong areas, incurring expensive downtime because of mechanical or regulatory problems.
To identify opportunities to improve nuclear operations, we conducted a detailed analysis of more than 2,000 reactor-years of operating data. We culled this data both from sources in the public domain, such as U.S. Energy Information Administration and the Federal Energy Regulatory Commission's Form 1, and from privately gathered industry data. Our findings help explain why individual plants vary so dramatically in their economic performance. Our work should also offer managers the information they need to define the most efficient staffing levels at any nuclear power plant.
To be sure, one can improve performance in only two simple ways: boost output or cut costs. Nevertheless, this truism hides a wealth of insight. Our study of long-term cost and output trends reveals some interesting facts.
Industry Trends: Looking for Weak Spots
Figure 1 shows the annual average capacity factors for all U.S. plants since 1971. (Years when plants produced no output are excluded and adjustments were made for plants in their start-up years.) As the figure shows, capacity factors peaked just below 80 percent three times. The first peak occurred before the impact of the National Environmental Protection Act. The second appeared just before the accident at Three Mile Island. The third peak is occurring today. Thus, capacity factor improvement at many plants now promises limited economic potential.
Figure 2 shows (as indices) the four cost elements associated with plant operations, corrected for inflation. Two elements, fuel costs and capital additions, have been falling since the early 1980s. During the past 12 years, fuel costs have fallen by 30 percent; annual capital additions dropped by 60 percent. Both categories are now leveling off at essentially the same point as they were just before Three Mile Island. Thus, like the capacity factor, fuel costs and capital additions show little chance for any further industry-wide improvement.
This lack of opportunity shifts the focus to operation and maintenance (O&M) costs (other than fuel). After reaching a peak five years ago, O&M costs have decreased 10 percent. Nevertheless, maintenance costs are still more than twice what they were before the TMI incident. Operations costs appear almost four times higher. Experience gained in other countries suggests that U.S. nuclear plant maintenance costs are possibly 25 percent too high and operations costs are more than twice what they