Energy Affordability and Net Present Value - Part 2

France and China's Nuclear Industries

Contents

1. Introduction

2. NPV and Scalability

3. France, Nuclear NPV, and Scaling Down To Scale Up

4. China and Nuclear Power: Scaling Up To Scale Up

5. Concluding Remarks

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Bitesize Edition

• Two countries that have undergone, or are currently undergoing, large developments within the nuclear industry, are France and China.

• Unfortunately, long build times and rising costs have seen many examples of nuclear projects possessing a negative net present value, such as units 3 and 4 of Vogtle in Georgia, USA. Hence, I decided to explore France’s nuclear buildout of the past, and if when they built out, their projects possessed a positive or negative NPV. I’ll then look towards China, which is experimenting with a range of nuclear power plant designs, including a thorium-fuelled molten salt reactor in the Gobi Desert. This reactor produces 2MW of thermal power and no electricity, but it will teach the Chinese a lot about innovating nuclear power. It interests me that if China is constructing nuclear plants that have a positive NPV, how is there such a void between Western-developed nuclear power plants?

• We need baseload power, while also cleaning up our planet, and not resorting to other baseload sources such as coal. In a sentence, we need nuclear. How can the NPV indicate the difficulties some nations are facing in their construction of nuclear power plants, and what can they learn from projects that have a positive NPV?

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Introduction

Last week, when exploring an example of a wind turbine, we saw a positive net present value. As a reminder, net present value (NPV) is the value of all future cash flows over the life of an investment, discounted to the present.

In isolation, if we see a positive NPV, that would imply a project worth pursuing. There are, however, many more tests and metrics that our electricity generation methods should have to pass. One such important test is our personal environment. As I discussed when exploring the capacity factor of such methods, low efficiencies in the UK for solar make it less suited to the UK environment. Investment can be used more productively if we consider the individual environment in which construction is occurring.

The key takeaway from last week was to utilize NPV, and other affordability metrics, as sensitivity analysis methods. This means considering these generation methods in a worst-case scenario. Assume high debt financing costs, and shorter lifetimes for the generation methods so the costs are spread over a shorter time. We can also assume electricity is sold for cheaper, and less electricity is produced. If a method still shows a positive NPV after all this doom and gloom, it’s very likely a promising generation method within the specific environment being considered.

With that in mind, today I’m going to explore the nuclear industries in two different countries. First, we have France, which built out most of its nuclear capabilities in the 1970s. Second, I’ll look at China which is experimenting today with a range of nuclear power plant designs.

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NPV and Scalability

We know. because I discuss it so often, that we need baseload power. The best example I have currently to explain this is AI data centres. They require continuous power, and so intermittent renewables are out of the window. We’re moving on from fossil fuels like coal, and so nuclear is the main option. Funny that Amazon bought a data centre powered by a nuclear power station that sits right next to it. It’s almost like this aspect of AI development is beginning to be realised, and the enormous amounts of energy that will be required.

Most analyses of nuclear power plants show that they possess a negative NPV. Even in the most optimistic of scenarios, where a nuclear plant is constructed in 5 years, there is only a small probability that NPV will be positive.

That means we’re spending more throughout the entire lifetime of a nuclear power plant than we’re earning from it. It’s an issue because if we want to pursue profitable energy projects, nuclear’s high initial costs would limit the nuclear buildout. We’re seeing many nations doing this, limiting their nuclear buildouts. Capital costs and delayed constructions are increasing debt costs associated with these projects, further increasing costs. This isn’t the entire reason for the high costs of nuclear, but it would be an area to start looking into when considering how to limit these costs.

This leads me to question nations that possess high percentages of nuclear power in their total energy portfolio. Take France, for example. Did they tolerate negative net present values in their pursuit of a clean portfolio for years, or were costs less back then? Or China, which is currently building out a large number of nuclear power plants, including generation four nuclear power plants. Do these projects possess a positive NPV?