Nuclear Power’s Role in Generating Electricity
May 2008
Unless otherwise indicated, costs are expressed in 2006 dollars.
A detailed description of the approach used to estimate levelized costs in this study can be found in CBO’s Web supplement, The Methodology Behind the Levelized Cost Analysis.
The cover photo (©JupiterImages Corp.) is of the Sequoyah Nuclear Power plant in Tennessee.
Preface
Concerns about the adequacy of electricity supply and the impact of greenhouse-gas emissions on the environment have prompted policymakers to reevaluate the role that nuclear power might play in the future in meeting the nation’s demand for electricity. The Energy Policy Act of 2005 (EPAct) offers incentives for expanding utilities’ capacity to generate electricity using innovative fossil-fuel technologies and a new generation of nuclear reactors that are designed to decrease costs and enhance safety. In addition, policymakers are considering various proposals that would impose charges on entities that emit carbon dioxide, the most common greenhouse gas. Such policies could further encourage the use of nuclear power, which emits no such gases, by increasing the cost of generating electricity with competing fossil-fuel technologies.
At the request of the Chairman and Ranking Member of the Senate Committee on Energy and Natural Resources, the Congressional Budget Office (CBO) assessed the competitiveness of nuclear power when compared with other sources of new capacity to generate electricity, focusing on the possible effects of constraints on carbon dioxide emissions and the impact of EPAct incentives. In accordance with CBO’s mandate to provide objective, impartial analysis, this study makes no recommendations.
Justin Falk of CBO’s Microeconomic Studies Division wrote the study, under the supervision of Joseph Kile and David Moore. Michael Bennett, Kathy Gramp, and Wendy Kiska commented on drafts, as did Steven Gehl of the Energy Policy Research Institute, Jim Hewlett of the Energy Information Administration, and Paul Joskow of the Massachusetts Institute of Technology. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)
Loretta Lettner edited the study, with the assistance of John Skeen. Maureen Costantino designed the cover and prepared the report for publication. Angela McCollough prepared early drafts of the study. Lenny Skutnik printed the initial copies, Linda Schimmel coordinated the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site.
Contents
Background on Electricity-Generating Technologies
Considerations Underlying Future Investment in Power Plants
How Might Carbon Dioxide Charges Affect the Prospects of Investment in New Nuclear Plants?
How Does the Energy Policy Act of 2005 Affect the Prospects of Investment in New Nuclear Plants?
Uncertainties Posed by Future Market Conditions and the Possibility of Carbon Dioxide Constraints
Framing the Analysis: Base-Case Assumptions and the Effects of Policy
Accounting for the Effects of Policy
Accounting for the Effects of Carbon Dioxide Charges
Accounting for the Effects of Energy Policy Act Incentives
Results and Implications of the Analysis
The Outlook for Investment in the Absence of Carbon Dioxide Charges and EPAct Incentives
The Outlook for Investment Under Carbon Dioxide Charges
The Outlook for Investment Under the Energy Policy Act of 2005
Incentives and Impediments at the State and Local Levels
Future Market and Policy Uncertainties
1-1. Incentives Provided by the Energy Policy Act of 2005
1-2. Levelized Cost of Electricity Under Alternative Market and Policy Conditions
2-1. Projected and Actual Construction Costs for Nuclear Power Plants
2-2. Financial Risk Assumptions in Comparable Studies
2-3. Key Assumptions Underlying CBO’s Reference Scenario
1-2. Actual and Projected Natural Gas Prices, 1994 to 2030
1-3. Levelized Cost of Electricity Under Carbon Dioxide Charges
1-4. Levelized Cost of Electricity With and Without EPAct Incentives
2-1. Historical Volatility in Fuel Prices
2-2. Carbon Dioxide Emissions of Base-Load Technologies for Generating Electricity
3-1. Levelized Cost of Electricity in Comparable Studies
3-2. Levelized Cost of Alternative Technologies to Generate Electricity Under Carbon Dioxide Charges
3-4. Sensitivity of Levelized Costs to Future Construction Costs
3-5. Sensitivity of Levelized Costs to Future Fuel Costs
3-6. Sensitivity of Levelized Costs to Future Financing Risks
3-7. Sensitivity of Levelized Costs to Potential Carbon Dioxide Constraints
1-1. Technologies for Adding to Base-Load Capacity over the Next Decade
3-1. The Cost of Liability for Nuclear Accidents
3-2. The Value of the Nuclear Power 2010 Program and Delay Insurance
