Nuclear Money: How expensive is today compared to tomorrow?

How much more is a dollar today worth compared to a dollar tomorrow? what about a year from now? or 10? This is a huge question in the energy industry, and particular groups have very different answers to it.

I wish people would stop sending messages like this, we could really use all that money…

Now technically there is a Right answer to this question and it’s generally based on what inflation plus interest rates over the time period are. But since no one can predict inflation or interest rates really, we are generally shooting in the dark. So why am I making this point? It’s because how quickly money loses value based on how far into the future it is being considered is one of the sneaky ways that people put forward the ridiculous idea that nuclear is too expensive to help us regulate our climate woes.

I’m sure some people have heard of Levelized Cost of Energy (LCOE), and those of you groaning loudly at your screens right now can take a back seat because I know what you are feeling, but this is an educational blog and I want everyone to be on the same page. At it’s most basic, LCOE is a method of impartially comparing the costs of building various types of energy generating facilities and supposedly being able to compare them fairly against each other.

not a bad metaphor, especially since LCOE can be a fairly even comparison with some changes, like if the elephant pushed the tree into a nearby river.

Unfortunately, like other generalizations that attempt to show even metrics between disparate choices, Everyone looking at the numbers needs to know how those numbers are arrived at. Otherwise it is very easy to massage them to support whatever story you are trying to sell.

Thank you US Dept. of Energy for this hand dandy cheat sheet.

They call this a simplified LCOE calculation, but I think I can turn it into simple English. What this reads as is: The sum of all the money you spend on a project each year divided by how much less each dollar is worth that year compared to when you started, divided by, how much energy you made from a project each year divided again by how much less each unit of energy is worth that year compared to when you started.

There are plenty of problems inherent with LCOE. It doesn’t take intermittency into account very well. It is difficult to account for value added products. It cannot handle externalities like carbon taxes or subsidies very well. It doesn’t account for Risk or liability… There are several other places that have examined these problems more thoroughly than I can, so instead I want to just focus on one thing. Namely, how easy it is to fudge the numbers.

So how many different ways can you think of that this formula can be abused to fit any narrative someone might choose? There are four that I can think that would be easy to hide, and two that would be less easy.

The most Likely would be playing with the discount rate. And if you are trying to be anti-nuclear it is probably the easiest way to push that viewpoint while pretending to be fair. How? Because a high discount rate drastically favours projects with quick start up times and short lifespans. A 10% discount rate means that it only takes 7.5 years for every dollar earned to be worth half of what it was at the start of the project. Compare that to a 4% discount rate where it takes 17.5 years.

There are also the possibilities of futzing with construction times, changing predicted plant lifespans or comparing two plants with wildly different lifespans, and discounting Capacity factors. If you want to start getting into ethically murky territory you can also not take inflation into account with costs to your plant and apply it to the project you don’t like, and/or underestimate operations costs.

As an example for myself, I ran the numbers on a theoretical 1 GW CANDU plant that cost $6000/kW to build, with a midlife refurbishment at 50 years that cost 60% of initial build costs and takes 3 years, and a yearly capacity factor of 95%. By simply playing with the discount rate (2%-10%), build time (5-10 years), and life span (40-90 years) I was able to swing the LCOE from $0.05/kWh to $0.163/kWh. And that doesn’t even take into account things like subsidies, feed in tariffs, or tax write-offs that might affect those prices.

One neat little thing that crops up is that if your projects construction costs are low but your operating costs are high, it actually benefits you to undersell the length of operation. High operating costs for long periods of time will eventually overshadow initial capital costs and drive up your LCOE the longer the predicted lifespan is. It isn’t apparent in these numbers but it starts to become visible with my assumptions at as high at $4000/kW initial costs.

5 year 2.00%4.00%6.00%8.00%10.00%
LCOE400.05070.06300.07810.09570.1159
LCOE600.06200.06800.07960.09560.1152
LCOE900.06020.06660.07860.09510.1149
7 year2.00%4.00%6.00%8.00%10.00%
LCOE400.05450.06860.08620.10750.1324
LCOE600.06570.07330.08720.10680.1311
LCOE900.06310.07130.08590.10590.1307
10 year2.00%4.00%6.00%8.00%10.00%
LCOE400.06120.07840.10070.12860.1630
LCOE600.07190.08220.10040.12640.1601
LCOE900.06770.07910.09820.12500.1593

(WordPress does not have a very good chart display mechanism)

These variations in LCOE can be easily hidden behind innocuous suppositions. The only way to make sure that you aren’t being fed disingenuous information is to know how things are being delivered to you. ask for the assumptions, and why they chose the numbers they did. The actual numbers don’t really matter as much as understanding why they were chosen, because from that understanding you can draw parallels yourself.

There are several other systems for promoting equivalent comparisons between different energy sources now. The current one rising to prominence is the Levelized Avoided Cost of Energy that instead of calculating the cost of energy between dispatchable and intermittent sources instead determines if and how much money is saved by using intermittent sources to replace dispatchable sources when the intermittent sources are working. It doesn’t have many proponents outside of the hardcore spreadsheet fans in industry as it is significantly more difficult to calculate.

But I think LCOE is good for one thing. While it might not be great for comparisons between sources due to being too easily manipulated, it’s Great for charting out possibility spaces precisely because it is so easily manipulated. Use it to figure out which parts of nuclear costing should be improved upon to reach target cost levels. Show people how each part of the whole effects the final outcome and poke them about which part they feel needs to change to make the costs of nuclear be more acceptable to them. Because we are spending tomorrows money today with every day we let our environment be left to the whims of polluters when we have the capability to prevent it in our hands.

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