1. Reactor Economics 2008 Jim Harding National Academy of Sciences/National Research Council Panel January 22, 2008 Washington, DC

2. How Do Current Estimates Compare? What Factors Are Most Important? Capital cost is most important EIA - $2083/kW MIT - $2000-2500/kW (2003) Keystone - $3600-4000/kW (June 2007) S&P - $4000/kW (May 2007) Moodys - $5000-6000/kW (October 2007) FP&L - $5200-7800/kW (Fall 2007) Operating costs less important but not insignificant Assumptions and methodology often opaque Life cycle cost estimates range from 5-17 cents/kWh Why is this so?

3. The Easy Reasons – for all resources Lack of a consistent economic methodology Capital cost usually stated in mixed current dollars at COD, rather than discounted real dollars Subsidies often included in cost estimates, though they affect price not cost Very important for long lead time, capital intensive units Example: Keystone high case for nuclear was $2950/kW overnight, $4650/kW mixed current dollars at COD, and $4000/kW in discounted 2007 dollars. All the same number!

4. Nuclear Power is Tougher Lack of recent North American nuclear construction experience Historical reliance on studies and vendor software Studies often reference each other Software assumes Asian construction practices, and excludes owners costs – contingency, escalation, interest during construction, land, transmission, and oversight. Long lead time for recalculating Little incentive to be accurate or up-to-date; no real money being spent MIT chose actual Asian values, but assumed no real escalation Long lead time; licensing, siting, rate recovery and financing uncertainties. Very problematic in states with deregulated retail markets. Escalation during construction not considered; first of a kind premiums and learning curves instead Supply-chain imbalances not considered (skilled labor, sub-suppliers) Transmission costs and lead time usually not considered

5. Recent Asian Experience PlantMWeCODYen@COD2002$s/kW2007$s/kW Onagawa 3825Jan 20023.1 Billion24093332 Genkai 31180Feb 19944 Billion26433656 Genkai 41180Jul 19973.2 Billion19602711 KK 31000Jan 19933.2 Billion26153617 KK 41000Jan 19942.2 Billion26093608 KK 61356Jan 19964.2 Billion22903167 KK 71356Jan 19973.7 Billion19572707 Y 5 (SK)1000Jan 200417002352 Y 6 (SK)1000Jan 200516562290 Average23543257 Cost data from MIT 2003 Future of Nuclear Power study. Average does not include South Korean units, owing to labor rates. Real escalation from 2002-2007 at 4 percent/year.

6. Major Keystone Assumptions Take Asian experience at face value (important) Escalate at EPRI estimate for heavy construction, 2002-2007 in low case and through COD in high case (very important) 5-6 year construction period and no major finance or regulatory issues; conventional IOU financing (all very important) Use current spot prices for uranium, and predicted enrichment prices for long term fuel prices (not very important) O&M and capacity factor at current fleet average; include decommissioning, capital additions, and A&G; 30-40 year life (somewhat important) Life cycle cash flows discounted at weighted after tax cost of capital (somewhat important; first year cost – rate shock - can be twice as high as levelized life cycle cost) No major new transmission required (important, but site specific)

7. Real Escalation is the Biggest Problem Provided to Keystone panel by EPRI

8. Steeper Curve Than in the Mid 80s

9. CommodityEsc 86-03Esc 03-07Ratio vs. History Nickel3.8%/yr60.3%/yr15.9x Copper3.3%/yr69.2%/yr21x Cement2.7%/yr11.6%/yr4.3x Iron/Steel1.2%/yr19.6%/yr16.3x Heavy construction 2.2%/yr10.5%/yr4.8x Source: American Electric Power Four Percent Real May Be Too Low

10. Escalation Likely Worse for Nuclear Industry moribund in Western Europe, US, and Russia since TMI and Chernobyl Twenty years ago (US): 400 suppliers, 900 N- Stamp holders; today 80 and 200 Only one forge for large parts – Japan Steel Works; maybe Creusot Forge (France) Skilled labor and contractor limits World uranium production well below current consumption

11. Recent Estimates Keystone - $3600-4000/kW; 8-11 cents/kWh Discounted real 2007 dollars; would be $5600/kW (16- 17 cents/kWh) at AEP escalation rate from 2002-COD Standard & Poors - $4000/kW; 9-10 cents/kWh Basis not stated; levelized fixed charge rate Life cycle costs reflect Keystone O&M and fuel costs Moodys - $5000-6000/kW Basis not stated; operating and fuel costs not estimated Florida Power & Light - $5200-7800/kW Basis not stated; major transmission included

12. Keystone Updated Lifecycle Costs Cost CategoryLow CaseHigh Case Capital Costs 6.07.9-10.5 Fuel 1.62.0 Fixed O&M 1.31.8 Variable O&M 0.5 Total (Levelized Cents/kWh) 9.412.2-14.8 Costs are in real discounted 2007 cents/kWh. Highest high case based on Moodys capital cost. Low high and low case exclude South Korea.

13. Life Cycle and Operating Costs Also Vary Nuclear O&M costs estimates often do not include A&G costs Net capital additions Decommissioning Nuclear fuel cost estimates often do not include Current spot prices for uranium Likely increase in enrichment prices Life cycle cost estimates often use simplified levelized fixed charge rates rather than more complex discounted cash flows

14. Pulverized Coal Gas (CCCT)Eastern IGCC WindNuclear Capital Cost ($/kW) 2438700279517004000 Total cost (cents/kWh) 5.86.8 7.18.9 CO2 Capture Cost ($/kW) 940470450NA Cost for CCS (cents/kWh) 6.22.83.4NA Cents/kWh12.09.610.27.18.9-9.8 Cents/kWh (credits $10-30) 6.2-7.97-7.77.1-8.77.18.9-9.8 S & P Assessment - w/ carbon controls Keystone operating costs are used instead of those estimated by S&)

15. US Projections – Decades Ago Construction startEstimated OvernightActual Overnight% Over 1966-1967$560/kW$1170/kW209% 1968-1969$679/kW$2000/kW294% 1970-1971$760/kW$2650/kW348% 1972-1973$1117/kW$3555/kW318% 1974-1975$1156/kW$4410/kW381% 1976-1977$1493/kW$4008/kW269% Mark Gielecki and James Hewlett, Commercial Nuclear Power in the United States: Problems and Prospects, US Energy Information Administration, August 1994. Data is in 2002 dollars.

16. US Economics – Two Decades Ago Koomey, Jonathan, and Nate Hultman. 2007. A Reactor-Level Analysis of Busbar Costs for US nuclear plants, 1970-2005, forthcoming in Energy Policy

17. Tom Neff (MIT), Uranium and Enrichment: Enough Fuel for the Nuclear Renaissance?, December 2006.

19. Jeff Combs, President, Ux Consulting Company, Price Expectations and Price Formation, presentation to Nuclear Energy Institute International Uranium Fuel Seminar 2006

20. Fuel cycle stepsMITThis analysis Uranium$30/kg$300/kg Enrichment$100/SWU$140-340/SWU Fabrication$275/kg Disposal$400/kg Reprocessing$1000/kg$1500-2000/kg Fuel cycle cost Open0.5 cents/kWh1.6-2 cents/kWh Closed2 cents/kWh3.4-4.3 cents/kWh Differential4x2-3.5x Reprocessing Is Still Expensive Approximately 5.25 kgs of spent fuel must be reprocessed to obtain 1 kg of MOX.

21. Supplemental Slides

22. Efficiency and Renewables Can Be Disruptive Technologies A disruptive technology is often cheaper than the operating cost of the existing system Demand is not limited to growth in service Efficiency resources cost less than operating costs for existing gas (or coal with carbon taxes); they pay for themselves with +3x more carbon savings per dollar Wind was disruptive from 2002-2005 and may be again Photovoltaics may soon become one Only disruptive energy technologies can grow fast enough to solve climate challenges

23. Rapid Worldwide Growth in Renewables

24. Technical Innovation Driven by Standards

25. Northwest Power Planning Council, Achievable Savings, August 2007 Utility Programs Are Also Important

26. Historical Northwest Utility Programs Northwest Power Planning Council, Achievable Savings, August 2007

27. Figure 8 -Estimated ENERGY STAR CFL Market Share for the Northwest and U.S., 2000-2006 Sources: NW CFL sales 2000-2006: PECI and Fluid Market Strategies sales data reports; and NEEA estimate of an additional 1.5 million WAL-MART CFLs sold region-wide in 2006 (See Appendix A [Section 9.1.1] of MPER3 for more detail); U.S. and NW population estimates 2000-2006: U.S. Census 2004; U.S. market shares and non-CFL sales 2000-2005: Itron California Lamp Report (2006); U.S. market share 2006: D&R International (personal communication). Compact Fluorescent Market Penetration

28. The Bottom Line Twenty years from light water reactor technology will be roughly the same as it is today Efficiency resources, wind turbine technology, and photovoltaics are improving rapidly Take one example --- Nanosolar started by the Google founders, backed also by Swiss Re Building two 430 MW/yr thin film PV production facilities this year in Germany and California, using a technology they equate to printing newspapers Currently shipping and reportedly profitable at $0.99/watt (not including installation and balance of system) The cheapest, least risk strategy is rapid development of efficiency resources