Investing into Third Generation Nuclear Power Plants: Review of Recent Trends and Analysis of Future Investments Using Monte Carlo Simulation

Abstract

This paper provides a review of trends in third generation nuclear power plants, and analyzes current and future nuclear power plant investments using Monte Carlo simulations of economic indicators. We first review global trends of nuclear power plant investments, including technical as well as economic trends. The review suggests that cost escalations in the sector observed in previous research continue until today, including the most recent investment projects in the U.S. and in Europe. In order to extend this analysis, we carry out our own investment analysis of a representative third generation nuclear power plant, focusing on the net present value and the levelized cost of electricity. We base our analysis on a stochastic Monte Carlo simulation to nuclear power plant investments. We define and estimate the main drivers of our model: Overnight construction costs, wholesale electricity prices, and weighted average cost of capital, and discuss reasonable ranges and distributions of those parameters. Model runs suggest that investing in nuclear power plants is not profitable, i.e. expected net present values are highly negative, mainly driven by high construction costs, including capital costs, and uncertain and low revenues. Even extending reactor lifetimes does not improve the results significantly. We conclude that our numerical exercise confirms the literature review, i.e. the economics of nuclear power plants are not favorable to future investments, even though additional costs (decommissioning, long-term storage) and the social costs of accidents are not even considered.