The decision to limit mercury provides cover for utilities reluctant to spend on controlling NOx and SO2, while boosting other companies

## Triggering Nuclear Development

percent in the 1,000 simulations represented in Figure 8. With a variance of 4.2 percent, f = 60%.4 So,

I* = ( f /d ) R* = (60% / 0.0772) $430M = $3,340M and

K* = ($3,340M / 2,800MW) . (1,000 MW/kWe) = $1,200/kWe.

Alternatively, the capital recovery factor could be adjusted to reflect the uncertainty in NPV, i.e., (d/f) = 0.1287, inferring a real discount rate of 12 percent, or a risk premium of 5 percent. (A 12 percent cost of capital yields a 12.87 percent capital recovery factor for a 40-year life.) This represents a decrease of about 25 percent from construction cost in Table 1. Therefore, if investors implicitly discount nuclear power because of these uncertainties, new nuclear power deployment requires lower construction cost.

## Mitigating the Risks of Nuclear Investment

Three risks were considered: price risk, output (capacity factor) risk, and cost risk. This section examines the sensitivity of the trigger K* to mitigating each of these risks and what nuclear power plant owner-operators might be willing to pay for real and financial assets to mitigate each of these risks.

To examine the sensitivity of K*, each risk can be suppressed in the Monte Carlo simulation. For example, if the owner-operator could contract with a buyer to guarantee the price of all output at $40/MWh (real) for 40 years, the standard deviation of the price could be reduced to zero and the trigger price (K*) would rise. Each of the three risks can be held to zero; two of the three can be held to zero; or all three can be held to zero.

As a benchmark, with the assumptions and simulations described in this paper, holding most revenue-related risk to zero, the nuclear power plant supplier could sell new nuclear power plants on a fixed-construction cost basis for a breakeven price of $1,980/kWe including IDC (see Table 2, p. 51). Controlling output and cost risk, price risk alone reduces K* by $200/kWe. Controlling output and price risk, cost risk alone reduces K* by $320/kWe. Controlling both price and cost risk, output risk alone reduces K* by $380/kWe.

Further, controlling output risk, price plus cost risk together reduce K* by $500/kWe. (Because of the slight correlation between price risk and cost risk in the simulations, there is an economy of risk reduction, compared to controlling price and cost risk separately for the equivalent of $520/kWe.) The influence of each pair of risks on K* can be calculated (see Table 2). Finally, to trigger sales with no risk mitigation (output, price, or cost risk), K* is about $780/kWe lower than the benchmark, i.e., $1,200/kWe (as found above).

These values for mitigating risk give an opportunity to consider bargaining among nuclear power industry participants to share risk and returns from new nuclear power plants. For example, the owner-operator might be willing to reduce the price of firm power below the expected spot market price to encourage very long-term contracts. According to the assumptions here, the owner-operator might be willing to pay up to the equivalent of $200/kWe to eliminate price risk.