Nuclear power – what is the economic case? Phil Cox, CEO, International Power plc Australian CEO Forum, 23 May 2011, Lo

1. Nuclear power – what is the economic case? • Phil Cox,CEO, International Power plc • Australian CEO Forum, 23 May 2011, London

2. About nuclear power TWh • 442 reactors with a total of 373 Gwe in 31 countries in 2009 – 61 reactors under construction • First nuclear power station Calder Hall, England, 1956 Source: Generation data from the BP Statistical Review 2010Notes: IAEA, International Atomic Energy Agency; INPO, Institute of Nuclear Power Operations; WANO, World Association of Nuclear Operators

3. Nuclear power issues for stakeholders Security of supply Climate Change Employment/skills Incentives Planning Regulatory certainty Government Nuclear sector Safe and reliable generation Waste Increasing costs Proliferation Increasing costs Industry migration Employment Industry Public

4. Nuclear around the world before Fukushima Source: Westinghouse, 2010

5. Alternative futures for nuclear GWe Source: The Global Nuclear Fuel Market - Supply and Demand 2009-2030, WNA 2009

6. Uranium resources kTU • Total Resources 5500kTU • Annual demand 66kTU Source: The Global Nuclear Fuel Market - Supply and Demand 2009-2030, WNA 2009

7. Risks for new nuclear build • Planning • Construction • Power price • Operation • Decommissioning • and • Regulatory • Political • Events around the world / Public perception • Supply chain • ‘Disruptive’ technologies (e.g. shale gas) may emerge Flamanville 3 nuclear power station, France

8. NUGEN project Note: NUGEN is a Joint Venture involving GDFSUEZ, Iberdrola, and Scottish and Southern Energy

9. Current nuclear economics £/MWh Source: UK Electricity generation costs update, Mott MacDonald, June 2010Notes: Analysis assumes 10% Discount Rate

10. Nuclear economics in 2005 from around the world Total cost (£/MWh) 50 Study Gas generation rangeCost of carbon £0-30/tCO2 (RAE) OECD, Paris 40 Tarjanne, Finland 30 RAE, UK DGEMP, France 20 PIU, UK MIT, USA 10 Chicago, USA 0 4 6 8 10 12 14 16 Assumed rates of return (%) Source: UK electricity supply and the role of nuclear power, speech by Bill Coley, CEO British Energy, Lehman Brothers event, New York, 8 September 2005

11. Escalating cost of nuclear economics 2007(1) Criterion 2010(2) • Capital costs • Total cost 1600MW station • Operating and Maintenance • Fuel costs • Construction time • Economic Life • Average Load Factor • Levelised costs • £1250/kW • £2800M(3) • £90M/yr • £4.4/MWh • 6 years • 40 years • 80-85% • £38/MWh • £3740/kW • £6000M • £102M/yr • £5.3/MWh • 5 years • 60 years • 90% • £95/MWh Notes: (1) Based on The Future of Nuclear Power, DTI, 2007; (2) Based on UK Electricity generation costs update, Mott MacDonald, June 2010; (3) includes predevelopment costs, interest paid during construction, and cost of waste storage on site

12. Economics by technology • Notes • 10% discount rate • Average ~£35/tCO2 2020 Long Run Marginal Cost / £/MWh Source: IPR estimates, May 2011

13. Comparing very different projects Gas generation(1) Criterion Nuclear generation(2) • Pre-development • Construction • Scale • Capital costs • Total capital investment • Total operating costs • Economic Life • Average Load Factor • Lifetime generation • Carbon emissions • 2.0 • 2.5 years • 830 MW • £767/kW • £600M • £35M/yr • 25 years • 85% • 160TWh • 333 gm/kWh • 4 years • 7years • 1600 MW • £4400/kW • £7000M • 127M/yr • 60 years • 85% • 715TWh • Zero Notes: (1) NOAK; (2) FOAK; Based on IPR cost assessment, May 2011

14. Local event, global impact Safetyreview plants Reviewsafety standards Temporary closures Moratoria Country France Germany UK Sweden Russia Switzerland Spain USA Canada Japan USA Canada Japan China South Korea India

15. New institutions to address nuclear concerns TWh International Nuclear Event Scale 7 – Major accident 6 – Serious accident 5 – Accident with wider consequences 4 – Accident with local consequences 3 – Serious incident 2 – Incident 1 – Anomaly 0 – Deviation (no safety significance) WANO established 1989 Fukushima, Japan2011, Level 7 Chernobyl, Ukraine, 1986, Level 7 INPO established 1979 Three Mile Island, US, 1979, Level 5 IAEA established 1957 Windscale, UK, 1957, Level 5 Kyshtym, Russia, 1957, Level 6 Source: Generation data from the BP Statistical Review 2010Notes: IAEA, International Atomic Energy Agency; INPO, Institute of Nuclear Power Operations; WANO, World Association of Nuclear Operators

16. Shale gas a potentially ‘disruptive’ technology • Recoverable resources • Currently at 5,800tcf (32 countries) • Compared with 16,000 tcf natural gas • Estimated production costs(1) – mean US full costs • 5.5 – 8.2 US$/mmbtu • Some implications • USA from net consumer to net exporter • Releases LNG resources for other countries • Environment an important issue • Potential high Greenhouse Gas Emissions • Potential water contamination Potential low cost route to decarbonisation of electricity mix Notes (1) – highly dependent on the basin

17. Government incentives for nuclear • Providing incentives • Loan guarantees • Tax incentives • Subsidies • Regulated prices • Establishing arrangements • Simplify planning • Waste and decommissioning arrangements • Bound liabilities • Limiting alternatives to nuclear • Provision of a ‘firm’ carbon price • Emission Performance Standards “Unless governments are willing to socialise construction and power price risk then new nuclear is far too risky a proposition for private investors” Peter Atherton Pan-Europe Utilities, Citi New Nuclear – The Economics and Politics, 13 May 2010

18. Some important uncertainties • On the fundamentals • Construction • Power price • On the question of company liability • BP and Macondo • TEPCO and Fukushima Dai-chi • On political will • Election timetables differ from investment cycles • Supranational industry • On the expansion of civil nuclear sector • Sector capability • Risk (safety, waste, proliferation) versus reward (climate change and security of supply benefits)

19. Summary • On nuclear power • A significant and mature industry • Nuclear renaissance driven by low carbon and security of supply attributes • Safety, waste and proliferation issues remain major concerns • On nuclear costs • Estimated costs currently three times those presented five years ago • Governments recognise incentives needed and barriers reduced • On Fukushima • Likely to delay rather than stop most new nuclear build programmes • On potential ‘disruptive’ technologies • Growing recognition that gas has more to offer in decarbonisation path

21. Fukushima Dai-chi • Primary impacts • No new nuclear build in major countries e.g. Germany • Future of ‘German’ Horizon UK Joint Venture (RWE and E.ON) in question • Costs likely to increase due to: • Economies of scale benefits reduced • Less learning due to lower overall number of plants • Enhanced safety measures • Secondary impacts • Loss in confidence in the nuclear option • Greater emphasis on alternatives such as gas and renewables • Important milestones • Progress with the Chinese nuclear programme • First new nuclear power station in the UK