Lecture 8: Economics Flashcards
(39 cards)
What is arguably the greatest impediment to adoption of nuclear energy?
Cost
What is the general cost trend of renewables and nucelar?
Renewables continually reducing in cost, whereas nuclear is rising.
Why is there a greater importance placed on alternatives to fossil fuels?
Historically cheap however, large fluctuations due to politics and such high demand.
Define the levelized cost of electricity (LCOE):
Net present cost of electricity generation over a generators lifetime.
What is LCOE used for?
Investment planning and decisions
Alternative definition of LCOE:
The price at which the generated electricity should be sold for the system to break even at the end of its lifetime.
How is LCOE calculated?
NPV of costs over lifetime / NPV of electrical energy produced over lifetime
What are the three expenditure contributors to NPV costs over a lifetime?
Investments (in year t)
Operation and maintenance (in year t)
Fuel (in year t)
What is a disadvantage to using LCOE for renewables?
Does not take into account intermittency of electricity production.
Name five main cost contributors:
Capital costs
Borrowing interest on capital cost
Operating cost
External costs
Taxes
What is the most dominant cost contributor for nuclear?
Capital cost (61%)
Why is the value of money worth less in the future?
Inflation
Missed opportunity to invest and grow funds
What economic contributors should be considered specifically for nuclear power?
Decommissioning and waste
Define discounted cash flow (DCF):
A valuation method used to estimate the value of an investment based on its expected cash flows.
Define net present value:
The present value of a series of future cashflows
What is the equation for present value?
Sum of payments (year n) / (1+discount rate)^(year n)
Define yield or internal rate of return (IRR):
The discount rate at which NPV=0
Name three funding models:
Direct government investment
Contract for Difference
Regulated asset base
What is an advantage of direct government investment?
Governments can borrow very cheaply (<2% interest rate)
How does a contract for difference (CDF) work?
Upfront private investment paid and operator guaranteed a fixed sale price.
If below, government pays operator.
If above, operator pays government.
How does a regulated asset base work?
Upfront private investment.
Energy companies manage infrastructure project and ownership of assets and operating costs.
In return receive customer bills.
Transfers risk from developers to consumers.
Which funding model gives the greatest stability of electricity cost to customers?
Contract for difference
How does a government ensure electricity prices are not set too high following RAB investment?
Regulators or watchdog
Why can CFD be potentially risky for investors?
Price of electricity is volatile so potential to undersell stake price and pay difference to government.
