Economics of Nuclear Power as an Energy Source

Zach Long
February 26, 2016

Submitted as coursework for PH241, Stanford University, Winter 2016

Recent State of Nuclear Power Plants in the U.S.

Fig. 1: LCOE ranges for baseload technologies for different discount rates, after the NEA. [2]

The topic of nuclear energy as a whole is one mired in policy debates, strong-willed advocacy groups, and secrecy and misinformation. The economics of nuclear power is no exception to this rule. Like all matters financial, however, the question of the viability of nuclear power as an energy source boils down to one of profitability. In viewing the problem through this lens, there are two main trends that help uncover the state of nuclear power in the United States. The first is that no new nuclear reactors have been entered into service since 1996 (though several plants are currently under construction and other have been planned). The second and somewhat contradictory fact is that since 2000, the United States Nuclear Regulatory Commission has issued license renewals for 71 reactors since 2000, and is currently considering 19 more. [1] Thus, it seems that in the U.S. a lack of new reactors indicates a decline in nuclear energy as a profitable energy source while the large number of granted extensions implies the opposite. By examining the cost structure of nuclear reactors, however, this conundrum can be resolved.

High Upfront Costs

Nuclear power plants, more so than any other kind of energy plants, have high upfront costs - costs that go into planning and building the plant and also making it operational before any energy is ever produced. These costs are due to many factors, including capital costs (the cost of constructing and engineering the plant), the owner's costs (such as the cost of the land, infrastructure, and administration), and other sources such as financing, cost escalation, and interest, which can push the cost of building power plants into the tens of billions of U.S. dollars. However, since different types of energy plants produce different amounts of energy over their lifetime, it is necessary to compare costs on a per unit of energy produced basis. This allows the upfront fixed costs of the plant to be spread over its useful life as well as take into account the amount of energy the plant can produce on a yearly basis. The OECD Nuclear Energy Agency calculated the "overnight capital cost" of construction a nuclear power plant - the cost of the plant not including financing, escalation, and inflation - in 2009 to be $3,850/kWe. [2] Considering the U.S. specifically, the U.S. Energy Information Administration in 2010 estimated this cost to be $5,339/kW. [3] Thus, the cost of constructing nuclear power plants in the U.S. is higher than in other countries (most notably those in Asia, such as China). In addition, upfront costs in the U.S. have been increasing drastically since 2000, especially starting in 2006-2007: estimates of the overnight costs of plants were only in the $1,200/kW to $1,500/kW in 2002. [4] Rising upfront costs can explain the last two decades decrease in nuclear power plant construction, especially when the upfront costs of building other types of power plants are not as high.

Low Operating Costs

Once a nuclear plant has been built, however, it can run relatively cheaply compared to other types of plants and especially to its high up front costs. The main operating cost of nuclear power plants comes to the cost of fuel: uranium. While uranium itself is not incredibly expensive, it has to be enriched and fabricated before it can be used in a nuclear power plant. Even then, nuclear power plants have lower fuel costs than other types of plants: in the US in 2014, fuel costs for nuclear power plants were $.0077/kWh and only 21% of the variable cost of production (which also includes operating & maintenance expenses), compared to $.0294/kWh for fossil steam plants (75% of variable costs) and $.0371/kWh for gas turbine (87%). [5] That nuclear plants' total operating expenses are a third less than that of fossil fuel and gas turbine plants can help offset the expensive upfront costs of building a nuclear power plant and provides incentive for plant owners to keep nuclear plants running for as long as possible. The sheer number of license renewals applied for since 2000 conforms to this analysis. Plants that have already been built (and thus the up-front costs have already been paid) can produce power much more cheaply than other kinds of plants. Thus, the large quantity of license renewals makes sense in this context, especially if most of the plants were built when upfront costs were much lower than they are today.


In combining these two facts - high up front costs and low operating costs - nuclear power plants fare roughly middle of the pack versus other types of plants in terms of overall costs. Different types of energy plants can be compared via a levelized cost of electricity (LCOE) - the net present value of the per-unit cost of electricity over the plant's useful life. In this way the LCOE can be used as a proxy of the breakeven price of energy for the plant. The LCOE of nuclear energy plants coming online in 2020 was $95.2/MWh, right in line with conventional coal ($95.1/MWh), above conventional combined cycle natural gas-fired plants ($75.2/MWh) but below conventional combustion turbine natural gas-fired plants ($141.5/MWh). However, due to the low continued cost and high upfront costs of nuclear plants compared to other types of energy production, the LCOE is highly sensitive to the discount rate implied to calculate the net present value. At lower discount rates, nuclear plants are substantially cheaper than either combined cycle natural gas-fired turbine plants and coal plants. At 7%, nuclear is right in line with coal but still cheaper than natural gas. However, at a 10% discount rate, both coal and natural gas plants become much cheaper than their nuclear counterpart. Fig. 1 illustrates this relationship.

Other factors can also affect the financial viability of nuclear power plants. The above LCOE calculations ignore tax credits for nuclear plants that could decrease the overall cost, especially versus coal-fired plants. Currently, up to 6 GW of new nuclear plants are eligible to receive and $18/MWh production tax credit if in service by 2020. However, this is not to say tax credits unilaterally help nuclear energy. Most Renewable Portfolio Standard regulations place a high emphasis on promoting renewable energy sources rather than promoting low carbon emission methods, such as nuclear. A change in RPS standards could thus further decrease the cost of nuclear power plants. Furthermore, an additional reason as to the lack of new power plants coming online in the U.S. is that due to the high upfront costs building new plants is heavily dependent on federal subsidies, which have been less forthcoming in recent years. For instance, The U.S. Congress has only set aside $18.5 billion in loan guarantees for new nuclear plants, which, when stretched across several new projects, covers only a fraction of the cost of building a nuclear plant, especially compared against the 80% of total project costs allowed under the Energy Policy Act of 2005. [6] In addition, high interest rates in the U.S. from 2000-2008 severely increased financing costs for building new plants. Overall, it appears that while nuclear power can be a viable energy source in the U.S., it depends on government help to overcome the high upfront cost hurdle, help which has not been forthcoming in recent years.

© Zachary Long. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] "Fact Sheet: Reactor License Renewal," United States Nuclear Regulatory Commission, June 2012.

[2] "Projected Costs of Generating Electricity, 2015 Edition, Executive Summary," Nuclear Energy Agency, NEA No. 7057, 2015.

[3] "Updated Capital Cost Estimates for Electricity Generation Plants," U.S. Energy Information Administration, November 2010.

[4] D. Schlissel and B. Biewald, "Nuclear Power Plant Construction Costs," Synapse Energy Economics, Inc., July 2008.

[5] "Electric Power Annual 2014, U.S. Energy Information Administration, February 2016, Table 8.4.

[6] J. M. Deutch, et al., "Update of the MIT 2003 Future of Nuclear Power," Massachusetts Institute of Technology, 2009.