Nuclear Revenue Certainty

Transcription

1 Nuclear Revenue Certainty Middle East Nuclear Power Briefing 2015 Abu Dhabi Oct 2015 Edward Kee 0

2 The NECG slides that follow are not a complete record of the presentation and discussion. The views expressed in these slides and the discussion of these slides may not be comprehensive and may not be the same as the views of NECG s clients or the views of my colleagues NECG 1

3 Nuclear requires revenue certainty High capital intensity + long asset life Project risks Cost to build and schedule risk during construction O&M + fuel costs over 60 years Operational performance Market risks Decommissioning, spent fuel, third party liability 2

4 Nuclear project cash flow Large and uncertain capital cost 10+ year development and construction period Cost Illustrative Revenue Prolonged outage possible, with high cost and no revenue Uncertain revenue Significant fixed costs (fuel + O&M) Liabilities for decommissioning and spent fuel disposition

5 Traditional electricity industry approach Build nuclear power as Government utility project Regulated investor-owned utility project Cooperative utility project Cost/market risk managed by structure Government end-user rates + government subsidies Regulated approved costs in end-user rates Cooperative members obligated to pay all costs 4

6 Government utility Ultimate credit source Government Electricity Ministry government subsidies $ Nuclear Project System Dispatch TRANSMISSION CONSUMERS MWh $ DISTRIBUTION RETAIL SERVICES 5

7 Regulated investor-owned utility Ultimate credit source Utility Regulator Investors Nuclear Project IRP & ratemaking process System Dispatch TRANSMISSION CONSUMERS MWh $ DISTRIBUTION RETAIL SERVICES 6

8 Cooperative model Ultimate credit source Member agreements + long-term projected demand TVO U.S. G&T Coops Cooperative members All MWh All costs Nuclear Project CONSUMERS 7

9 Electricity industry reforms New approach to electricity industry structure Vertical de-integration Generation separated from regulated monopoly Electricity market & competition Link to traditional credit sources weak or broken Project/owners may bear most project/market risk Project company is ultimate credit source 8

10 Electricity markets Ultimate credit source Market oversight Utility regulator Investors Nuclear Project TRANSMISSION Electricity Market DISTRIBUTION CONSUMERS $ MWh RETAIL SERVICES 9

11 Economic drivers Traditional electricity industry approach regulated/government utilities plan and build a portfolio of generation units to: minimize long-term total cost of electricity New market-based electricity industry approach - electricity markets manage system dispatch to minimize short-term marginal cost of electricity 10

12 Market Approach Short-term market risk Prices vary hourly/daily/monthly No spot market revenue for many key nuclear attributes Long-term market risk Fuel costs (e.g., shale gas) Technology (e.g., CCGT; renewables) Policy/subsidy actions (e.g., renewable mandate) 11

13 Spot price (system marginal price, SMP) SMP (high) Spot Price (SMP) SMP (low) Bids Demand (high) Demand (low) Demand Illustrative trading period (eg, an hour) 12

14 SMP with low gas prices SMP (high) High natural gas prices Spot Price (SMP) SMP (high) SMP (low) Bids Low natural gas prices Demand (high) Demand (low) Demand Illustrative trading period (eg, an hour) 13

15 SMP with renewables SMP (high) Spot Price (SMP) SMP (high) SMP (low) SMP (low) Bids Demand (high) Renewables negative bids due to subsides Demand (low) Demand Illustrative trading period (eg, an hour) 14

16 SMP - extreme renewables SMP (high) Spot Price (SMP) SMP (high) SMP (low) Demand (high) Bids SMP (low) Renewables negative bids due to subsides Demand Demand (low) Illustrative trading period (eg, an hour) 15

17 SMP extreme renewables & low demand SMP (high) Spot Price (SMP) SMP (high) SMP (low) Demand (high) Demand (low) Bids SMP (low) Renewables negative bids due to subsides Demand Illustrative trading period (eg, an hour) 16

18 Nuclear flexibility to enhance returns SRMC = zero Operate when prices > zero If market prices < zero, better to not operate Short-term flexible operation French load following modes Steam bypass Bruce 300 MW/unit is flexible Columbia schedules load following for hydro Long-term - mothball strategy 17

19 Uncertain electricity market revenue Future electricity market revenue hard to predict Market simulations with range of assumptions (entry/exit, fuel prices, demand, market rules, etc.) Micro issues and macro issues Scenarios to reflect major uncertainties Bilateral power markets harder to predict Nuclear time-lines make this even more difficult Revenue starts at COD ( 10 years after project start) Project operates for 60 years (or more) 18

20 Revenue certainty in IPP model Ultimate credit source Government or regulated utility Long-term PPA IPP 19

21 Revenue certainty in merchant model Ultimate credit sources Power sales into market Merchant nuclear project Power contracts (e.g., CfDs) Non-market subsidies Other? 20

22 Hinkley Point C Hinkley Point C deal Based on EMR Revenue certainty from 35-year power contract (CfD) EMR passed into law in late 2013 Adds generation planning to UK electricity market UK government control over timing, type, and amount of new generation capacity 21

23 US merchant nuclear US merchant nuclear financial pressure Kewaunee & Vermont Yankee retired early; other units threatened by financial losses State action: NY regulator - reliability contract for Ginna Illinois proposed Low Carbon Portfolio Standard Iowa state renewed power contract for Duane Arnold Ohio regulator considering re-regulation contracts Proposed federal clean power plan 22

24 Revenue certainty key to new nuclear Traditional approaches to electricity industry cover nuclear project/market risk Long-term PPA may be feasible Merchant nuclear approach difficult Multiple approaches for revenue adequacy/certainty Power contracts add revenue certainty Project design/operation flexibility for market risk Careful analysis of project economics needed 23

25 Edward Kee Nuclear Economics Consulting Group +1 (202) Copyright 2015 NECG All rights reserved. 24