Economics (Sustainability Assessment)

INPRO Economic Basic Principle (BP) - Energy and related products and services from nuclear energy systems shall be affordable and available.

UR1 (Cost of energy)

The definition of UR1 is: The cost of energy supplied by nuclear energy systems, taking all relevant costs and credits into account, C_N, must be competitive with that of alternative energy sources, C_A, that are available for a given application in the same time frame and geographic region/jurisdiction.
This UR relates to the cost competitiveness of different energy sources available in a country, region, or globally. In comparing the costs of electricity (or other energy products) from a NES, C_N, and competing alternatives, C_A, discounted costs (LUEC) are used. In this comparison all relevant costs are to be included.
Depending on the jurisdiction in a country, one energy source may be burdened with costs, e.g. for waste management, while another may not. In a number of Member States, the external costs of nuclear power that are not accounted for are small, since producers are required by law to make provisions for the costs of waste management, including disposal, and decommissioning, whereas the external costs of competing (non-nuclear) energy sources that are not accounted for may be significant, e.g. CO₂ emission from fossil power plants. Ideally, all external costs should be considered and, where possible, internalized, when comparing a NES with competing energy systems, but only costs that are internalized (in the price to the consumer) should be taken into account, and other external costs should be ignored.

CR1.1: Cost competitiveness

ᅠ Indicator IN1.1: Cost of energyᅠ

The value of indicator IN1.1, i.e. costs of energy (CN and CA) of competing energy supply options to be deployed, is determined using a discounted cost (LUEC) model, taking into account all relevant cost determinants for both the NES and the competing energy technology. CN is, in principle, the LUEC for a complete NES, excluding FOAK cost but including external costs and credits if they are fully included in the price setting mechanism, and using contingency allowances and a discount rate that reflects the economic decision making investment environment. In practice, a technology user would compare the cost of electricity from the NPP, which would include an allowance for the back end costs for waste management and decommissioning for the NPP, with that of the alternative energy source. Costs of other components of the NES, including costs for decommissioning and managing wastes from these components, would be reflected in the cost of fuel. CA is the LUEC for the (strongest) competitor A (for power generation investment), excluding FOAK cost but including external costs and credits if they are fully included in the price setting mechanism, and using contingency allowances and the same discount rate as applied for calculating CN . Further, the competing alternative energy source is to be available for the same application in the same time frame and geographic region/jurisdiction. This is an important limitation since an NPP is usually operated at high load factors, primarily for meeting base load demand. So, usually, the competing alternative will be a fossil fuelled plant, e.g., coal, oil or a combined cycle gas turbine plant or, in some jurisdictions, a hydro plant. Further, the cost comparison should be based on costs for the relevant region/market and the time frame for the deployment of the NES. Acceptance limit AL1.1 AL1.1 is defined as: $C_{N}\leqslant k\cdot C_{A}$ This means that the discounted energy cost (LUEC) of a NES to be deployed or developed should be comparable, within a factor of k, to the LUEC of an available system with a competing energy source. As mentioned above, the LUEC of a NES and of a given competing energy source can be calculated using the NEST tool). Again, the case of deployment and development are distinguished. First, the case of deployment will be considered.

UR2 (Ability to Finance)

The definition of UR2 is: The total investment required to design, construct and commission nuclear energy systems, including interest during construction, should be such that the necessary investment funds can be raised.
There are two aspects to investment, somewhat related to each another, namely, the attractiveness of the investment in terms of the financial return to be expected and the size of the investment that is required. Even if the financial indicators used to analyse return are attractive, a given utility may not have the wherewithal to raise the funds needed — neither from its own resources nor from other investors.
The total investment required to deploy a given NES, or component thereof, comprises the costs to adapt a given design to a given site, and then to construct and commission the plant, including the interest during construction. The latter depends on construction time and the time to commission. A universally applicable criterion for what constitutes an acceptable ‘size’ of investment cannot be defined a priori since this will vary with time and region and will depend on many factors, such as alternatives available, etc. But a judgment must be made that the funds required to implement a project can be raised within a given expected investment climate. Factors influencing this ability may include the overall state of the economy of a given region/country, the size of the investment relative to a utility’s annual cash flow (and hence the size of the unit relative to the size of the grid), and the size of the investment compared with that needed for alternative sources of supply.
The attractiveness of an investment may be expected to have some influence on the acceptability of the size of the investment but in the INPRO methodology the two are treated as independent. Since, however, there is some influence of attractiveness on acceptability of size, we treat attractiveness first.
The attractiveness of an investment is usually quantified by determining economic parameters called financial figures of merit. Examples of such figures are IRR, the ROI, NPV of cash flows, and payback period. IRR and NPV are more or less two sides of the same coin, as are ROI and payback time.

CR2.1: Attractiveness of investment

ᅠ Indicator IN2.1: Financial figures of merit ᅠ

Acceptance limit AL2.1: Figures of merit for investing in a NES are comparable with or better than those for competing energy technologies. Investors can look at a variety of financial indicators when evaluating investments. The financial indicators used in a given region will reflect the investment climate and requirements of a given country or region, including the source(s) of investment funds. In some countries or regions implementation of a NES will require private sector investment, e.g. in deregulated electricity markets, while in other countries or regions installment of a NES may require government investment or guarantees, e.g. in countries embarking on a nuclear power programme. Private sector investors will be attracted by a competitive IRR, provided the IRR is commensurate with their judgment of associated risks. However, the NPV of cash flows may be more suitable for government investors than private sector investors because this financial figure may facilitate taking into account other benefits such as security of energy supply and technology development. The ROI may be attractive as an indicator that is complementary to the IRR. In the end, the acceptance limit is that the values of the financial indicators chosen, for a given NES, be attractive compared with investments in competing energy technologies. To be attractive, the values for the NES must be at least comparable to values for competitive energy sources and preferably better. For indicator IN2.1, three items of financial figures of merit, namely, IRR, ROI and the NPV of cash flows are recommended as evaluation parameters (EP2.1.1 to EP2.1.3), with corresponding acceptance limits, as discussed below. IRR, ROI and NPV can be calculated using the NEST tool. ᅠ Evaluation parameter EP2.1.1: IRR ᅠ Evaluation parameter EP2.1.1 is defined as the internal rate of return (IRR) at the calculated real selling price of electricity produced by a complete NES (IRRN). A more precise definition is: The IRR produced by selling the net electricity produced by a NES at the defined real reference price per unit of electricity sold (PUES), excluding (external) costs not defined in price setting mechanisms and including costs for expected life cycle operation, decommissioning and waste management. The IRR depends on factors such as the PUES, the load factor of the plant, and the costs (LUEC) of production including amortization cost, O&M costs, fuel costs, waste management costs, etc. The IRR is obtained by calculating the NPV of the difference between incomes and expenditures. In this calculation trial discount rates are used, and adjusted in an iterative fashion to determine the value of the discount rate at which the NPV equals 0, which is the value of IRR. For consistency, the IRR needs to be calculated using a similar modelling process as chosen for calculating LUEC. So, if inflation is not included in calculating LUEC, it would not be included in calculating IRR. In this case, the IRR would be less than what would arise from a model that included inflation. The IRR would normally be calculated for the total cash flow of a single NPP. As for LUEC, the economics of fuel cycle facilities is covered within the fuel costs of the NPP. So, if it is foreseen that the price of uranium is expected to increase over the life of the NPP, such a price increase should be reflected in the fuel cost used in the analysis. Only costs and credits that are defined in the price setting mechanism should be considered. Externalities should be excluded if they are not supported by an acknowledged price calculation process. Acceptance limit AL2.1.1: $IRR_{N}>IRR_{A}$ The internal rate of return IRRN of an investment into a NES should be comparable, i.e. higher or at least equal than IRRA an investment in competing (alternative) energy technologies. In case of an investment into a planned deployment of a NPP the competing technology could be either another type of NPP or most probably a non-nuclear generating technology available and suitable for base load in the country assessed. In case of an investment into a planned development of a NFC facility/component of a NES, the competing technology would be a licensed and operating facility of an existing NES. As was discussed above, when comparing the LUEC of competing energy supply options, if energy planning has determined that there is a defined role for nuclear power within an optimized mix of generating options the comparison of IRRN to IRRA, is not, of itself a determining consideration. But if IRRN is less than IRRA, the comparison will show this explicitly and the assessor might set out the benefits and explanations of why the difference is acceptable to the investor in the circumstances. ᅠ Evaluation parameter EP2.1.2: ROI ᅠ Evaluation parameter EP2.1.2 is defined as: The life cycle plant average ROI of a complete NES (ROIN). It can be even more precisely defined: The ROI calculated for the average life cycle total plant invested capital and life cycle average operating net income produced from the sale of electricity. The return on investment, ROI, of an investment into a NES — also like IRR — depends on the price of electricity, the load factor and production costs. The ROI is calculated from the average net annual income, i.e. the total income from the sale of the output (electricity or heat) produced by the plant over its lifetime less O&M and fuel costs and other costs such as waste management and decommissioning costs over its lifetime, expressed as a fraction of the capital invested in the NES. Due to the simplicity of ROI, even for a complex NES with several plants of different type, a single ROI for a NES consisting of several plants to be deployed could be calculated using the average net income and investment per plant. On the other hand, for a technology user evaluating the use of nuclear power as an option, the INPRO methodology recommends that the ROI be calculated for a single NPP. So, in this case, the ROI is the ratio of the net annual income to the capital investment averaged over the lifetime of the plant. In addition, only the investment in the generating plant is included and the investment in the necessary fuel cycle facilities is not explicitly included; however, that investment would be reflected in the fuel costs used to calculate net income, and thus is ultimately accounted for. ROI is not a levelized parameter. Thus, it is not sensitive to discount rate as is the case for LUEC. So, in the case where a high discount rate is used in calculating LUEC, the income from the production of electricity over the lifetime of the plant contributes to the ROI. In this way, the evaluation of ROI complements the evaluation of LUECto present a more comprehensive economic picture. Life cycle plant investment means that all the investments, including back fitting and major refurbishments, are taken into account, if it is foreseen that such investments are needed during the operating lifetime of the plant, and they may be accounted for by an annual charge and become in effect an annual operating cost. If this is done, then the ROI would be based on annual net income and the initial capital investment. Under these circumstances, INPRO would recommend that IDC be included in calculating the ROI when considering a single NPP. If, however, investments in foreseen costs are considered explicitly, as a capital investment, INPRO would recommend not including IDC. Life cycle average operating income covers the situation that there could be some fluctuations in the operating income during lifetime, e.g. due to a low load factor during a back fitting period, or during the first operating years. Acceptance limit AL2.1.2: $ROI_{N}>ROI_{A}$ This means that ROI for a planned NES (ROIN) should be comparable with the return of investment in a competing energy technology (ROIA). In case of an investment into a planned construction of an NPP, the competing technology would be a non-nuclear generating technology available and suitable for base load in the country being assessed. In case of an investment into a planned development of another nuclear fuel cycle (NFC) facility of a NES, the competing technology would be a licensed and operating NFC facility of an existing NES. As was discussed above, if energy planning has determined that there is a defined role for nuclear power within an optimized mix of generating options the comparison of ROIN to ROIA, is not, of itself a determining consideration. But if ROIN is less than ROIA, the comparison will show this explicitly and the assessor might set out the benefits and explanation of why the difference is acceptable in the circumstances. In any case, actual performance needs to be tracked and be taken into account in ongoing energy optimization planning studies. ᅠ Evaluation parameter EP2.1.3: NPV ᅠ NPV analysis is a useful tool for looking at project cash flows and the recovery of investments. In principle, one can use actual investments and incomes, expressed in the actual values. Such an analysis would not account for the time values of money and so in INPRO methodology discounted values are used, namely the NPVs of the cash flows. So, for a given project investment, the cash flow starts out as a negative value at the start of a project, and the cash flows and their integrated values, the NPV of the total cash flow, continues to be negative as cash flows out during construction. Once construction ends and cash starts to flow in from the sale of energy (electricity), annual cash flows turn positive, as does the slope of the NPV. With a positive slope from net revenues the NPV increases over time, rising towards zero, and then turning positive. The NPV will then continue to increase until the end of plant life, at which point it would be expected to decrease as money is spent on plant shutdown and decommissioning. Overall, the NPV should remain positive once decommissioning is complete if the project is to return a net benefit to the investor; the greater the NPV the greater the net benefit. In INPRO methodology, NPV can be used as an evaluation parameter for measuring the net financial benefit of a project investment. In principle, such a parameter can be used for looking at a complex mix of projects involving a variety of project investments and revenues. In practice, however, it is recommended to limit the time horizon for estimating NPV to a few decades — no more than 4 and preferably 3 or less. Evaluation parameter EP2.1.3 is defined as the NPV at the calculated real selling price of electricity produced by a complete NES (NPVN). A more precise definition is: the NPV produced by selling the net electricity produced by a NES at the defined real referencePUES, excluding (external) costs not defined in price setting mechanisms and including costs for expected life cycle operation, decommissioning and waste management. The NPV depends on factors such as the total plant investment, the PUES, the load factor of the plant, and the costs of production including, O&M costs, fuel costs, waste management costs, etc. NPV is obtained by calculating the NPV of the difference between incomes and expenditures, discounted to a reference point in time. The NPV would normally be calculated (using the NEST tool) for the total cash flow of a single NPP. In this case, the NPV would be calculated using a similar modelling process as chosen for calculating LUECfor the NPP (Recall that LUECis the price that results in an NPV of 0.). So the reference time for discounting purposes would be the start of plant electricity generation, and if inflation were not included in calculating LUEC, it would not be included in calculating NPV. In this case, the NPV would be less than what would arise from a model that included inflation. Since the NPV is based on the actual selling price of electricity, which would be expected to be higher than the LUEC, the NPV would be expected to be a positive number. Since it represents the total net value of the investment, discounted to time 0, its absolute value will depend on the size of the investment. For this reason INPRO recommends that the NPV be normalized to the initial (discounted) capital investment made up to the start of plant operation or to the power output of the plant. As for LUEC, the economics of fuel cycle facilities is covered within the fuel costs of the NPP. So, for example, if it is foreseen that the price of uranium is expected to increase over the life of the NPP, such a price increase should be reflected in the fuel costs used in the analysis. Acceptance limit AL2.1.1: $NPV_{N}>NPV_{A}$ The (normalized) NPVN of an investment in a NES should be comparable, ideally greater, than the NPVA for an investment in competing energy technologies. In the case of an investment in a planned NPP, the competing technology would be a non-nuclear generating technology available and suitable for base load in the country being assessed. In the case of an investment into a planned development of an NFC facility/component of a NES, the competing technology would be a licensed and operating facility of an existing NES. As has been discussed several times, if energy planning has determined that there is a defined role for nuclear power within an optimized mix of generating options, the comparison of NPVN to NPVA is not of itself a determining consideration. But if the NPVN is less than NPVA, the comparison will show this explicitly and the assessor might set out the benefits and explanations of why the difference is acceptable to the investor in the circumstances. In any case, the actual performance needs to be tracked and be taken into account in ongoing energy optimization planning studies. For final assessment of acceptance limit AL2.1: Acceptance limit AL2.1: Data for investing in a NES are comparable with or better than those for competing energy technologies. The acceptance limit AL2.1 of CR2.1 is met if the financial figures of merit selected by the assessor meet their corresponding limit.

CR2.2: Affordability of investment

Indicator IN2.2 is defined as: The highest single plant total investment up to commissioning the reactor within a complete NES.
Acceptance limit AL2.2: The total investment required should be compatible with the ability to raise capital in a given market climate.

ᅠ Indicator IN2.2: Total investment ᅠ

The total investment consists of the overnight capital, the interest during construction (the size of which depends on construction and commissioning times), contingency allowances, owners cost and (if not considered in the O&M cost) the capital needed for (foreseen) back fitting and decommissioning. It can be calculated using the NEST tool. This indicator has been formulated in a general sense to cover investments in the different facilities of a NES, such as one or more NPPs, fuel cycle facilities and waste management facilities. For simplicity, it is recommended that an initial assessment focus on the investment needed for an NPP, since this is the energy machine and has to be made if a given country is to benefit from the energy produced by nuclear power. Of course, in a given country, there may be interest in investing in front end fuel cycle facilities, such as mines or fuel manufacturing facilities, but in general the investment in an NPP is more challenging. And, if this investment is made and nuclear power becomes/continues as part of a balanced portfolio of generating plants, the revenue from the NPPs can be used to finance the associated waste management activities and facilities. And investments in front end facilities can be evaluated taking into account the status of nuclear power in the country and worldwide. Consequently, in the discussion below only the issue of investing in the NPP is considered. FOAK costs, together with R&D costs, would in general not be explicitly included in this indicator because such costs are different from simple electricity oriented fundraising mechanisms and are more related to R&D investment policies used by governments and/or private investors. FOAK and R&D costs born by the developer would be expected to be reflected in prices quoted by a vendor/developer, and so such costs would be implicitly included. But should a company (utility) consider the purchase of a FOAK reactor, requiring significant FOAK investment by the purchaser, the company would have to take this investment into account in one way or another. It might simply accept the cost and include it in its analyses. But, generally, such a company would be expected to negotiate for some additional benefit. For example, it could negotiate with the supplier to secure price reductions for future orders, or even to share in the profit from future sales of the reactor to other utilities. In such cases, FOAK investment might be analysed using different variables/parameters. Nonetheless, the total investment required for the project would need to be raised and so in this circumstance the additional FOAK investment would need to be included. Acceptance limit AL2.2: $Investment_{N}<Investment_{LIMIT}$ InvestmentLIMIT is the maximum level of capital that could be raised by a potential investor in the market climate. To meet this limit the investment needed for installing an NPP investmentN must be equal or lower than the maximum capital that can be raised by a potential investor. The limit is strongly dependent on the investment environment in which an NPP is to be deployed, above all on the nature of the organization making the investment — a private sector commercial enterprise operating in a deregulated market, a private sector enterprise operating in a regulated market, or a State owned company. In case a private company (utility) is planning to install an NPP, the maximum investment it can raise for this purpose (making a sound business case) will depend on the total size of the national electricity market, the utility’s share of the total market, and its profit margin. A simplified example how to determine the maximum reasonable investment of a private investor is available in the NEST tool. The source of funds — whether the utility obtains funds from external investors (see Refs [9, 10]), or are drawn from the utility’s own capital reserves (equity) or some combination of the two sources will influence this limit. For example, if only reserves are used the size of the reserves will establish an upper limit, taking into account that the utility would probably not want to draw down all its reserves. If external investors are involved they would want to be assured that the utility’s cash flows will be sufficient to pay back the investment while also covering all other costs to which that the utility is exposed, including total operating and maintenance costs, payback of earlier investments etc. As noted in Section 3.3 the IAEA offers support to Member States on how to determine the economic viability of investing in an expansion of an energy system or in a single power plant. The Excel based tool to be offered is called FINPLAN [4], which helps to analyse the impact of a planned investment on the financial health of a utility planning to invest. In case a government is planning to install a NES, the investment limit could be defined by the budget available for the national nuclear power programme. A variety of additional factors could influence the available budget, including the following: A State oriented approach might establish a limit for any given project at some fraction of the total investment budget to be used in the energy sector. The limit could be influenced by issues related to the currencies that are required for debt servicing. In effect, the acceptance limit for deployment of the first few NPPs in a country is that the total investment required should be compatible with the ability to raise the necessary capital in the country at the time of committing to construction of the NPP. And for the deployment of additional units of the same basic type of NPP, the acceptance limit is that the total investment required is compatible with the ability to raise the necessary capital in the country at the time of committing to construction of the additional units, taking into account actual performance and costs for nuclear power in the country. In case of an investment into a planned (or ongoing) development of a NES (or component thereof), the investment limit could be defined by the available budget of the organization involved.

UR3 (risk of investment)

User requirement UR3 states: The risk of investment in nuclear energy systems should be acceptable to investors.
As for any large scale project, there are many risks that can impinge on an NPP project. These include, among others:

• Technology risk: Is the design mature, so that there is confidence that the plant performance will not be adversely affected by unforeseen technical problems and so will operate at the planned lifetime capacity?
• Schedule risk: Will the NPP be constructed and brought into service on the schedule used in financial analyses?
• Licensing/regulatory risk: Will there be regulatory issues that impinge on the construction schedule and operating capacity of the plant?

CR3.1: Maturity of design

Indicator IN3.1: Technical and regulatory status.
Acceptance limit AL3.1: Technical development and status of licensing of a design to be installed or developed are sufficiently mature.

ᅠ Indicator IN3.1: Technical and regulatory status ᅠ

Regulatory and technical uncertainties represent a project cost and schedule risk and a risk that the plant will not operate with the load factor assumed in the financial analysis. Regulatory uncertainties are linked to technical maturity, and so in the INPRO methodology the two are considered together. Broadly speaking, two different situations can be identified deciding whether to invest in technology development and deciding whether to invest in technology deployment. When investing in technology deployment, there is a requirement that the technology’s maturity and safety have been adequately demonstrated in the development programme and licensing process as part of the technology adoption process. In the case of technology development, a judgment is required that once development is complete the technology can be licensed in the country of origin. Thus, early in the development process, and before significant investment has been made, there is a requirement that the development team start a dialogue with the regulator to identify issues of concern and to establish a process and plan for addressing these issues during development so that sufficient information would be available to license an FOAK plant. Acceptance limit AL3.1: Technical development and status of licensing. As shown below, AL3.1 of CR3.1 is split into four different parts depending on the situation, i.e. it is adapted to the situation in a country planning to install its first NPP, add a new NPP to an existing NES, and install a FOAK (AL3.1.1, AL3.1.2, and AL3.1.3, respectively), and for the case that a technology developer is planning to develop a NES (AL3.1.4). Acceptance limit AL3.1.1: For deployment of the first few NPPs in a country: Plants of the same basic design have been constructed and operated. Acceptance limit AL3.1.2: For deployment of additional units of the same basic type of NPP: Plants of the same basic design have been licensed, constructed and operated in the country and there are no outstanding technical or licensing issues which impact negatively on plant performance. Acceptance limit AL3.1.3: For deployment of a FOAK plant in a country with experience operating NPPs: Design is licensable in the country of origin. The acceptance limits AL3.1.1 (first NPP), AL3.1.2 (follow-up units) and AL3.1.3 (FOAK) are discussed together below. In the case of technology deployment, regulatory risk is minimized if the plant under consideration is similar to a plant that has already been licensed and operated, preferably in the country in which the plant is to be deployed. For a country deciding whether to deploy its first NPP, this is not possible. Then, the regulatory risk is minimized if plants of the same design have been licensed and operated in the country of origin. Thus, a country adopting its first nuclear power plant would generally want a plant that is similar to plants already operating in the country of origin, i.e. proven technology. In the case of an innovative design (an advanced design which incorporates radical conceptual changes in comparison with existing practice), construction and operation of a prototype or a FOAK plant will provide confidence that technical uncertainties affecting safety have been addressed and lay the foundation for the licensing of additional plants, in the country of origin and also for deployment outside the country of origin. Thus, for a country adopting its first NPP, the minimum requirement is that similar plants have been licensed and operated. These arguments also apply to a country that has experience with operating NPPs but is considering a new type of plant. Once a utility has had experience with a given type of plant and is considering the deployment of additional units of the same basic type, an assessor should still determine whether or not there are outstanding technical or regulatory issues that might impact negatively on project performance (retrofits, schedule delays, etc.) and/or plant operational performance. If there are such issues they should be taken into account in the project schedule and plant load factors used in the financial analyses. In some rare situations, a country may wish to consider investing in a FOAK plant that has been developed in another country, for example because of its superior economic performance. In this case, the minimum requirement is that the country deploying the plant have domestic experience with licensing and operating other NPPs, and that the supplier of the FOAK plant provide evidence from the regulatory authority of the country of origin that the FOAK plant could be licensed for operation in the country of origin. In all cases, but particularly when considering an FOAK plant, it is important to clarify the expectations of the regulatory authority in the adopting country and to come to an informed judgment that these can be met before making a final commitment. Evidence that a plant has been/can be licensed in the country of origin is a necessary condition, but does not remove completely the risk associated with the regulatory process. Thus, the purchaser may seek evidence that the supplier understands the regulatory requirements to be met in the country of deployment and that the supplier has a plan to manage this regulatory process and its attendant risks. In general, regulatory problems lead to project delays and hence cost overruns. So, regulatory risks to the customer can be offset in contractual arrangements, for example by imposing penalties for late project completion. In the following, the fourth acceptance limit AL3.1.4 (Technology development) is discussed. Acceptance limit AL3.1.4: For technology development: Plan to address regulatory issues and the costs included in development proposal. Throughout the development process the development team needs to keep in mind that prospective customers will want evidence that the regulatory authority in the developer’s country would be prepared to license an FOAK plant. Usually, the FOAK plant would be constructed in the developer’s country and the development team should assume that this will happen. Thus, the team needs to have a plan for ensuring that regulatory issues are identified and addressed, as discussed above. In fact, resolving regulatory issues often play a major role in defining the overall development plan. Thus, an economic assessor looking at investment in development needs assurances from the development proponent that such issues have been identified, a plan has been developed to address them, and that the cost of the necessary development work has been estimated and has been included in the estimate of total development costs. Hence, once development has proceeded to the point of committing to FOAK plant, all major technical issues should be resolved and there should be no unresolved technical issues that would prevent a construction license being issued.

CR3.2: Expericence with construction schedule

Indicator IN3.2: Project constructions and commissioning times used in economic analyses. Acceptance limit AL3.2: Times for construction and commissioning used in economic analysis are sufficient accurate, i.e. realistic and not optimistic.

ᅠ Indicator IN3.2: Project construction and commissioning times ᅠ

When considering indicator IN3.2, the following should be noted: Project delays lead to cost overruns, particularly in project management and engineering support costs and in IDC. The greatest impact of project delays, particularly on IDC, arises during construction and commissioning. Thus, the time taken to construct new facilities and to bring them into operation (and so to start generating revenue) should be as short as practicable and specific targets can and should be set as development objectives. In assessing the time taken to design, construct and commission an NPP, it needs to be recognized that front end design work, environmental assessment, and licensing applications, while potentially lengthy, represent a relatively small investment compared with the investment required to procure, construct, install, staff and commission new facilities. Commissioning comes at the end of the process when the majority of investment funds have been expended and when the rate at which interest during construction accumulates is largest so it is important to minimize the duration of commissioning. Acceptance limit AL3.2: Construction and commissioning times. As shown below, the acceptance limit AL3.2 of CR3.2 can be divided into four different categories depending on the situation, i.e. it is adapted to the situation in a country planning to install its first NPP, additional units and a FOAK (AL3.2.1, AL3.2.2 and AL3.2.3, respectively) and for the case that a technology developer is planning to develop a NES (AL3.2.4). Acceptance limit AL3.2.1: For deployment of the first few NPPs in a country. Construction schedule times used in financial analyses have been met in previous construction projects for plants of the same basic design. Acceptance limit AL3.2.2: For deployment of additional units of the same basic type of NPP. Construction schedule times used in the financial analysis are based on actual construction schedules achieved in previous projects in the country. The financial risk associated with potential project delays is minimized if the financial analyses are based on a schedule that is similar to that which has been achieved in past construction projects for plants of the same basic design. Thus, when investing in a first NPP, the project times used should reflect actual performance by the supplier with constructing a plant of the same basic design and should include contingency. Next, the acceptance limit AL3.2.3 (FOAK) is presented. Acceptance limit AL3.2.3: For deployment of a FOAK plant in a country with experience operating NPPs. A convincing argument exists that the construction schedule is realistic and consistent with experience with previous NPP construction projects carried out by the supplier and includes adequate contingency. For an FOAK plant, it will not be possible to use past experience with a plant of the same design. In this case the supplier needs to present an argument that the schedule used is realistic. This argument must include a discussion of previous experience, by the supplier, with constructing NPPs of a comparable complexity. Reductions in the duration of the project schedule, when compared with past experience, should be justified. Schedule risks should be identified and their financial consequences should be estimated when performing a sensitivity analysis (see criterion CR3.3). Finally, the Acceptance limit AL3.2.4 (development) is discussed below. Acceptance limit AL3.2.4: For technology development. Schedules are analysed to demonstrate that scheduled times are realistic, taking into account experience with previous NPP construction projects. For technology development, a goal should be to reduce construction times to the lowest practical values using advanced construction techniques. Different plant designs may have different project execution times. Recent construction times for reactor projects have been as short as 52 months (first concrete to criticality) and commissioning periods from first criticality to full power have been as short as two to three months for repeat projects. Thus, a construction period of 48 months is judged to be an achievable target, for repeat reactor projects, within the near future. In due course, with innovation, use of in-shop modular construction, and for repeat plants, construction periods as short as 36 months might be achievable.

CR3.3: Uncertainty of economic input parameters

Indicator IN3.3: A sensitivity analysis of important input parameters for calculating costs and related financial figures of merit has been performed.

• Acceptance limit AL3.3: Sensitivity to changes in selected parameters is acceptable to the investor.

The criterion requires a sensitivity analysis covering the potential range of important (economic) input parameters in postulated sets of circumstances. The indicator IN3.3 can be related to the INPRO economic Basic Principle that states that a NES to be sustainable in the long term needs to be affordable and available. Thus, the sensitivity analysis should demonstrate that acceptance limits of CR1.1 (LUEC) and CR2.1 (financial figures of merit) will still be met under different (economic) market conditions and so ensure that nuclear energy will be available and affordable under these different market conditions.

ᅠ Indicator IN3.3: Sensitivity analysis ᅠ

Indicator IN3.3: A sensitivity analysis of important input parameters for calculating costs and financial figures of merit has been performed. For relative costs based on LUEC, the sensitivity of the ratio CN/CA should be studied for changes in the discount rate, overnight capital costs, construction time, and plant lifetime assumed in the calculation, and fuel costs, changes in the cost of fuel the nuclear plant and for the alternative competing technology. Here it may be noted that the high capital cost of nuclear makes its LUEC sensitive to the discount rate, while the LUECfor fossil fuel plants tends to be relatively more sensitive to fuel costs. The sensitivity of the relevant financial figures of merit IRR, ROI and NPV — should be determined for changes in overnight capital costs, capacity factor, construction schedule, plant lifetime, availability of plant, fuel costs, and NPV, and additionally for changes in the discount rate. For the critical input parameters, a range of possible values has to be specified. The range of variation of the parameters affecting the values of the economic indicators should not be unrealistically large to avoid being overly cautious, but should also not be unduly restrained. In the case of a design under development, it is evident that the higher the maturity of a design the lower the uncertainty of its economic input parameters. Thus, it is expected that the range of possible input values will be larger for an innovative design compared with an evolutionary design. If, in addition to the range of possible values, the corresponding probability is also available, one carry out a probabilistic analysis producing a distribution of LUEC, IRR, etc. Such an analysis would provide additional insights to the user. The aim of such a sensitivity study is to understand how changes in modelling assumptions impact the economic analyses, to obtain a good understanding of the relative importance of various factors and associated risks. The INPRO methodology is an assessment method and does not include analysis per se. Nonetheless, the INPRO assessor needs the result of such analyses. The result of the sensitivity analysis is a case in point. In this case the assessment team might perform the analysis itself using the NEST tool, or it could seek to obtain the information from the designer/developer of the NPP, or from other experts, e.g. the IAEA. The results of such a sensitivity analysis should be presented so that the sensitivities of LUECand the relevant financial data to changes in the values of the parameters of interest are clear. For most if not all projects, various risk contingencies are included in the project cost and schedule estimates. Such a sensitive study can be used to test the adequacy of such contingencies and/or to see the impact on economic parameters. For example, how does a delay in the project schedule of the NPP impact the cost of CN relative to CA? Acceptance limit AL3.3: Sensitivity to changes Acceptance limit AL3.3: Sensitivity to changes in selected parameters is acceptable to the investor AL3.3 is met if the results of such a sensitivity analysis are available to the assessor and if the sensitivity to changes in selected parameters is acceptable to the investor. Acceptable sensitivity means that the overall result of the economic assessment is not reversed, e.g. that a small increase in construction time does not make nuclear power non-competitive against an alternative energy source.

CR3.4: Political environment

ᅠIndicator IN3.4: Long term political commitment to a nuclear option ᅠ

Acceptance limit AL3.4: Commitment sufficient to enable a return on investment In assessing the risk of investment in nuclear energy systems the ‘political climate’ or environment in a country should be considered to determine whether there is political support for nuclear power, and whether such support is likely to be sustained. Information on the political climate is needed for an assessment based on the INPRO methodology area of infrastructure. The issue of the political climate is presented in the area of economics primarily to ensure that an assessment in the area of infrastructure has been carried out and that this assessment has established that the political climate is favourable. Thus, if this issue has been addressed AL3.4 is met. If such an assessment has not been done, the assessor in the area of economics should conclude that the investor is faced with an unknown and important risk that needs to be addressed by the proponent of the project. It is not the responsibility of an economic assessor to judge the political climate but rather to ascertain that the issue has been addressed.

UR4 (Flexibility)

User requirement UR4: Innovative nuclear energy systems should be compatible with meeting the requirements of different markets.
This requirement is directed primarily at a technology developer/investor and relates to the ability to recover development investment.
Given the uncertainty about the future, ideally, an innovative NES (which includes evolutionary and innovative designs of nuclear facilities) should be sufficiently flexible to be able to evolve and adapt in a manner that provides competitive energy for as wide a range of plausible futures and markets as possible. So, in deciding whether to develop an innovative NES, or a NES component, the developer would be expected to examine whether and how that component might be adapted to different markets or changing market conditions, recognizing, for example, that a given design of reactor would not be expected to meet the needs of all markets. Adaptation of a NES, for example, to accommodate different size modules, or to accommodate different fuels, would usually require additional investment. So, the more markets where a given component could be sold, with only relatively minor changes, the greater would be the attractiveness of developing the component and the greater would be the expected contribution that the component could make meeting the global energy needs of the 21st century in a sustainable manner, the principal objective of INPRO.
While it is easy to ask for such flexibility, there can be inherent limitations that need to be taken into account. For example, designing and licensing a reactor is a costly exercise and changing the design to modify its output is not easy. To date, economy of scale has resulted in larger and larger size units being designed and developed to the state of being commercially available. Such units are not suitable for small grids, and operating them at less than full power is not economically viable. Thus, various developers are looking at smaller modular units which, if brought to the state of proven technology, will offer a considerable degree of flexibility. But designers of larger units can consider other degrees of flexibility to adapt to a changing world. Once such example is the ability to accommodate different fuels, e.g. higher burnup fuels, MOX fuels, recycling of uranium (RU) from reprocessing LWR fuel in CANDU reactors. Much has already been done in this area. Another example is taking advantage of possible synergies between different types of reactors, which has already been the subject of two INPRO studies. On the other hand, when designing new fuel cycle facilities, there may be more flexibility in adopting module construction techniques to offer the ability to increase production capacity in a staged manner or to adapt the facilities to the production/reprocessing of different fuel types. The ongoing INPRO Synergies Project and similar studies may identify the best potential for further developments to achieve flexibility of future NES.

CR4.1: Flexibility of innovative designs

The designer of an innovative facility (reactor or fuel cycle facility) should make sure that the new design is as flexible as possible for sale under different market conditions. Examples of how to increase the flexibility of a design have been presented above.
Given the uncertainty about the future, as reflected, for example, in the wide range of possible future scenarios considered in the SRES, ideally, an innovative NES should be sufficiently flexible to be able to evolve and adapt in a manner that provides competitive energy for as wide a range of plausible futures and markets as possible. So, in deciding whether to develop an innovative NES, or a component thereof, the developer should examine whether and how that component might be adapted to different markets or changing market conditions, recognizing that a given design of reactor would not be expected to meet the needs of all markets. Adaptation would usually require additional investment. So, the more markets where a given reactor can be sold, with only relatively minor changes, the greater would be the attractiveness of developing this plant and the greater would be the expected contribution that the plant could contribute to meeting the global energy needs of the 21st century.

Decision on investing in the development of an innovative NES

The ability to adapt specific components of an innovative NES, as well as the overall adaptability of the system, for example, to accommodate different size modules, to accommodate different fuels, to meet different energy applications, and to meet the needs of different countries/regions is desirable but is not considered to be essential.

Extending an economic assessment to facilities of a NES other than the NPP

The INPRO methodology in the area of economics assesses the competiveness of nuclear power generating electricity in a country in comparison to other available energy sources. Thus, the assessment is focused on an NPP. Other facilities of a NES are dealt with by considering the costs, to the operator of the NPP, for the products/services produced in the other nuclear facilities. This is a reasonable approach when making a decision to use nuclear energy to meet a national (or even regional) need and when one is dealing with an evolutionary design of an NPP. The NPP is the unit that produces the final energy product (heat or steam or electricity) needed by the customer and this product is to compete with alternative energy sources.
If the reactor is of proven design, the other components of the NES needed to operate the NES can be assumed to exist (except for disposal facilities for used fuel/and high level waste) and the cost of their products should be known.
To assess the economics of developing an innovative design of a NES that requires not only investment in the NPP but also investment in new processes for fuel supply and fuel processing, the investment in developing these new processes must also be considered. One approach is to look at the investment needed to develop each innovative process and at the cost of constructing and operating the facilities, once the process is developed, and so arrive at the price of the product. This can then be translated into fuel cost for the NPP, and hence a contribution to the levelized discounted cost of the energy produced by the NPP. This would then be compared with the LUEC for the available alternative energy source.

Checking the economic viability of adding domestic fuel cycle facilities

In the INPRO methodology, the term ‘nuclear energy system’ includes the complete spectrum of nuclear facilities (components) that comprise the nuclear fuel cycle, including front end facilities (mining, milling, refining, conversion, enrichment, fuel fabrication), as well as back end facilities (spent fuel storage, reprocessing, repository), and the reactor itself.
To perform an economic assessment on whether to install a fuel cycle facility of a NES domestically, the following information needs to be considered:

1. The production unit (e.g. U ore, UF₆, UO₂, fuel cladding, fuel element, etc.), i.e. the output of the facility.
2. The amount of production planned, e.g. the amount required for a national NES in terms of tonnes of Unat, etc.
3. The cost of each production unit generated domestically, and the price of the production unit available in a global market.
4. The anticipated cost evolution of the production unit, if it is applicable.

To calculate the levelized cost (minimum price) of the production unit that covers all levelized costs of installing and operating a domestic nuclear facility, the following data are needed as input for the calculation: overnight capital cost to construct the facility; O&M cost covering staffing, cost for input materials (such as UF₆), waste management cost, and provision for decommissioning; time distribution of each payment (capital, and O&M) needed to install and run the facility; and the discount rate.
To justify the deployment of a nuclear fuel cycle facility in a country (other than the nuclear reactor) on economic grounds, the cost of each product (e.g. uranium ore, UF₆, fuel element, etc.) of a domestic facility to be installed should be competitive with the same product available outside the country.

Non-electrical application of nuclear power

The IAEA has continued to promote nuclear desalination and has been providing its Member States with the publication of guidebooks, technical documents and computer programs on nuclear desalination as well as the provision of technical assistance through the framework of technical cooperation programs”.
One of the main goals of these activities is to determine the economics of desalination, i.e. the costs of water produced in different types of desalination plants using either heat (steam) or electricity from an NPP in comparison to non-nuclear energy sources such as fossil fuels (coal, oil, gas),and renewables (photovoltaic, and electricity from a grid).
To calculate the water costs produced in different types of desalination plants, such as multistage flashing (MSF), multi-effect distillation (MED), reverse osmosis (RO), and hybrid options (RO-MSF, RO-MED), a code was developed called DEEP (Desalination Economic Evaluation Program, which is available cost free to IAEA Member States. The code needs technical and economic data of the energy source and the desalination plant. In case an NPP is used as an energy source for a coupled desalination plant, the main economic input data for an NPP are: specific costs of construction, operation and maintenance; fuel, and decommissioning of the NPP; and the discount rate. The main technical data of the NPP plant needed in DEEP are: Thermal and net electrical output; availability (planned and non-planned outages); and lifetime and construction time. DEEP uses a levelized cost model in a comparable manner as proposed for the INPRO methodology and incorporated in the NEST code.
The main difference between DEEP and NEST regarding the calculation of the LUECof an NPP is the level of detail on how to determine the fuel cost of nuclear fuel cycles. In DEEP, these data are inputted, whereas in NEST for several different fuel cycles (open, partially closed and fully closed) these data are calculated for all stages of a fuel cycle (mining to waste disposal) based on detailed input information.
In addition to nuclear desalination, the IAEA has recently developed and released a code called HEEP (Hydrogen Economic Evaluation Program) that covers the production of hydrogen using an NPP and non-nuclear energy sources in a similar manner as in DEEP; this program is also available cost free to IAEA Member States.
Thus, the economic models DEEP and HEEP can be used to extend the INPRO methodology in the area of economics for non-electrical applications of nuclear power by using the output of NEST for a specific NPP with a defined fuel cycle as input for DEEP or HEEP.

	[ + ] Assessment Methodology
Areas of INPRO Sustainability Assessment Overview • Economics • Safety (Nuclear Reactors) • Safety (NFCF) • Waste management • Environmental Impact on Stressors • Environmental Impact from Depletion of Resources • Infrastructure Requirements Basic Principle • User requirements • Criteria