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Nuclear Fuel Future

Nuclear power cost projections should incorporate fuel cost uncertainties.

Fortnightly Magazine - February 2008

the new units. 4 Forecasts for existing units used a detailed forecast until 2011, with the 2011 nuclear fuel cost escalated at 2.5 percent each year thereafter (projections for St. Lucie #2 are shown in Fig. 4). Forecasts for the new Turkey Point units escalated the nuclear fuel costs at 2.5 percent a year.

• The EIA Annual Energy Outlook for 2007 also includes nuclear fuel cost projections, in 2005 dollars. These real projections have been converted into nominal dollars using the EIA AEO reference case inflation rate of 2.03 percent. 5

These projections generally assume that nuclear fuel markets will return to equilibrium (and low and stable prices) by about 2011, after which nuclear fuel costs generally will go up at the rate of inflation.

While the FP&L determination of need filing includes scenarios for uranium, conversion and enrichment costs, only the reference case for nuclear fuel seems to be used in the overall analysis.

The electricity industry consistently has moved toward using fuel-price scenarios for natural gas, fuel oil, and even coal, reflecting the history of volatile prices for fossil fuels. Incorporating nuclear fuel cost uncertainty through the use of nuclear fuel scenarios may be a low priority because new nuclear plants face other large uncertainties ( e.g., initial cost, licensing, scheduling, financing and regulatory treatment). However, the impact of higher nuclear fuel cost on overall project economics over a 60-year operating life can be significant.

For example, if nuclear fuel were priced at current spot prices, fuel cost might be as high as $1 per MMBtu, almost twice the 2007 cost in all the projections discussed above. An increase of 50 cents per MMBtu (about $5 per MWh, or 1/2 cent per kWh) would mean an increase of about more than $50 million per year in fixed nuclear fuel costs for a new large nuclear plant.

Most new U.S. nuclear plants have yet to enter into nuclear fuel contracts, as procurement of initial core loads for these new plants will not happen for several years. Typically, a new nuclear plant sponsor may wait to procure the initial core load until a firm decision on investment has been made and construction has started, at about the same time the NRC combined construction and operating license (COL) is approved. This means the economic analyses of these new power plants mostly will use nuclear fuel cost projections that are not based on contracts.

However, resource planning and investment decision-making is taking place now. The industry should reflect the uncertainty in nuclear fuel costs in the same way fossil-fuel-price projections reflect uncertainties—using multiple scenarios.

By the time the 2007 increases in uranium spot prices appear in reported nuclear fuel costs and are incorporated into the traditional approach to nuclear fuel-cost projections, some decisions about new nuclear plant investments may have been made already.

Scenarios for nuclear fuel cost should include realistic high and low cases for nuclear fuel. The high case should be much higher than traditional projections, with low cases at about the same level as traditional projections.

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