Nuclear and Coal: Rebirth on the Horizon?
and an ancillary services market. The energy market is modeled using the Inter-Regional Electric Market Model. 6 This model combines economic dispatch with broad-based inter-market energy transactions to arrive at energy market prices as a function of time, and energy market contributions to fixed charges for each individual generating unit. The ICAP market is modeled with Raber Consulting's spreadsheet model, which is basically an income statement that accepts IREMM results along with accounting, financing, and tax parameters to develop IRR values as a function of time for individual projects. This model is also used to compare new merchant plants of the three technologies. Ancillary services market revenues are expected to be relatively small for the types of generators of interest here, and will depend on market development, generator location, and generator operating and electrical characteristics. A simplified approach was adopted in this study, assuming that the ancillary services market provided a 5-percent bonus to the combined contributions to fixed charges from the energy and ICAP market segments.
Two long-term natural gas price trajectories were considered. The reference projection is based on the reference scenario in EIA's Annual Energy Outlook 2001. 3 Near term prices were updated to EIA's March 2001 Short-Term Outlook. Escalation rates for fossil fuels other than gas were also considered. 3 The high gas price trajectory has gas prices 20 percent above the reference prices starting in 2003. The prices for other fuels are unchanged from the reference in the high gas price scenario. Gas prices are region-dependent. As seen in the results, the financial performance of coal and nuclear plants depends strongly on the spread between their fuel costs and gas costs.
This study assumes that several large companies who already own and operate multiple nuclear plants would be the developers of new plants. These include Dominion Resources, Excelon, Southern Energy, Constellation, Entergy, and Duke. Several of these companies have expressed interest in doing so. New nuclear plants will almost certainly be developed at existing nuclear plant sites.
Economies of volume in manufacturing new nuclear plant components and erecting new units will almost certainly be necessary if competitive cost levels are to be achieved. This study assumed that commitments for eight new plants would be made among the companies listed above, with costs shared in some manner. Four of these plants are assumed to enter service in 2006, which is probably earlier than practicable. The other four are assumed to enter service in 2011. These units are assumed to be conventional pressurized water reactors, for example the standard design AP600, with the characteristics shown in Figure 1, page 44. In this study, fixed O&M costs are assumed to include capital additions. Nuclear fuel costs are assumed to be independent of plant location, and constant in time at about $0.70 per million BTU. This figure is viewed as covering the disposal costs for high-level radioactive wastes whose production is proportional to plant operation; for example, spent nuclear fuel.
The new coal plants to come into service in 2006 are assumed to be pulverized coal units having the characteristics shown