Electricity Market and Energy Policies Uncertainties for Investment in Life Time Operation of Nuclear Power Plants

Abstract

In the electricity sector, market participants must make decisions about capacity choice in a situation of radical uncertainty about future market conditions. Electricity sector is characterized by non-storability and periodic and stochastic demand fluctuations. Capacity determination is a decision for the long term, whereas production is adjusted in the short run. Today decisions pertaining to investment in new capacity or life time extension are surrounded by considerable uncertainties about the future economics of the projects. One reason is that in a deregulated market private investors typically have to bear a greater portion of the investment risk compared to a monopoly utility in a regulated market. This favours flexible investment alternatives with short-lead times and low capital requirements. Moreover, energy and climate policy – with feed-in tariffs for RES or green certificate system and the EU CO2 ETS may add to investment uncertainties. From the economic point of view, the costs of LTO are usually lower than the construction of any other source of electricity. But in the aftermath of the Fukushima accident, policies towards nuclear energy in some countries were changed. Because of that economic life decisions are plant specific. In evaluating the future economic prospects of existing plant, the owners/utility focus on the unique circumstances of that plant and its cost and performance, and the future demand for electricity, and value of electricity. Nevertheless, quantification of the LTO costs is not an easy task. It is recognized that LTO costs are highly dependent on specific conditions related to each NPP, such as: design of the plant; NPP operating history including ageing conditions; regulatory requirements; full or partial replacement of components; refurbishment for LTO; accounting methodologies; etc. The risks that may have an impact on the economic case for the long term operation of NPP should be identified with pre mitigation impact and probability assessment.