IEA/ NEA Technology Roadmap

1. Nuclear Power – The Importance of CostOCI SeminarJune 22, 2010 Milt CaplanDirector Business Development AMEC NSS

2. Huge Industry Opportunity IEA/ NEA Technology Roadmap • IEA has a BLUE Map scenario to cut CO2 emissions by 50%by 2050 • Roadmap targets nuclear capacity to grow to 1,200 GW or 24% of global electricity supply • No technological breakthroughs • Clear and stable government commitment to nuclear • Support for financing the very large commitment ($4 Trillion) • Increased global industrial capacity • Greatly increased human resources

3. Economics of nuclear New build nuclear must demonstrate that it is competitive in an economic sense. Nuclear is capital intensive with long project schedules Nuclear has low operating costs due to low cost of fuel General belief is that nuclear is not economic, is too expensive and needs subsidies In reality nuclear is economic relative to the alternatives And economics are improving as climate change concerns continue to increase

4. Recent Reports

5. Electricity Electricity is essential to the operation of modern industrial societies Cannot be easily stored – so supply and demand must always be in balance Reliability of generation is vital – customers do not accept the lights going out! Therefore need a stable grid – combination of reliable generation and a reliable delivery system (transmission and distribution) It’s a basic commodity – price is very important to customers.

6. Merit order dispatch in generation Demand for electricity varies through the day Different technologies – hydro, coal, gas, nuclear, oil - are called upon to supply according to their marginal cost – ie fuel plus O&M – operations & maintenance Low marginal cost (hydro and nuclear) will operate as base load Higher cost (gas) will come in to cover peaks. In many cases, renewables will operate as baseload and distort the market

7. World primary energy demand (Mtoe) World energy demand expands by 45% between now and 2030 – an average rate of increase of 1.6% per year – with coal accounting for more than a third of the overall rise Sources: IEA "World Energy Outlook 2008" - “Reference Scenario"

8. Reference Scenario Electricity-Supply Investment Investment of $26 trillion, or over $1 trillion/year Sources: IEA "World Energy Outlook 2008"

9. Categories of generation costs Investment (capital) costs and interest charged on these Fuel costs Operations & Maintenance (O&M) costs - fixed and variable For nuclear, fuel cost includes used fuel management/waste disposal. Decommissioning of nuclear plants is an additional investment cost, but comes many years in the future

10. Existing generating plants Fuel and O&M costs are called “marginal” or “avoidable” or “production” costs Investment costs are “sunk” - whether or not they are depreciated/amortised in the company’s accounts If electricity price is higher than the marginal costs the plant will operate Different generating modes compete on the basis of marginal costs only

11. New generating plants To be economic, these must cover their investment costs, interest charged and the marginal costs – “full costs” Compare these full costs against the likely electricity price to be received over the lifetime of the plant When considering different options for new generating capacity, they are assessed on these full costs But the timing of the costs, as well as their magnitude, is crucial

12. Costs and their time schedule Hydro plants – high investment costs and very low marginal costs – no fuel cost! Gas plants – low investment costs but high marginal costs (gas price) Nuclear close to hydro - but more significant marginal costs (O&M and fuel) Coal fits between nuclear and gas – average investment costs and average marginal costs Renewables such as wind and solar have high investment costs, low marginal costs but resource is intermittent

13. Relative Cost Structure of Generation General shares Nuclear Gas CCGT Coal Investment 50-60% 15-20% 40-50% O&M 20-35% 5-10% 15-25% Fuel 15-20% 70-80% 35-40%

14. Time value of money - discounting $1000 today is not the same as $1000 in 5 years time! Evaluating costs and revenues of new plants must take account of this Bring all back to current values – levelise them – by a discount rate LCOE – levelised cost of electricity

15. Impact on projects Discount rate depends on interest rates, view of the future, project risk Public sector – low (3-5%) and private sector higher (5-15%) Low discount rated reflect lower perception of risk - favours projects with high investment costs, longer schedules and low marginal costs ie hydro and nuclear plants High discount rates reflect higher perception of risk - favours projects with low investment costs, shorter schedules and high marginal costs ie gas plants Hence it is difficult for hydro and nuclear to be viable in liberalised markets

16. Capital Costs Some uncertainty on the likely investment costs of evolutionary reactors – ACR-1000, EPR, AP-1000, ESBWR, etc – lack of recent build experience – has caused initial costs to rise Industry has projected – from new build experience in Asia, Europe and detailed engineering estimates – that investment costs are about $4000 per kWe Nuclear investment costs are expected to fall, with standardized designs and shorter construction times

17. Reducing Risk is Key to Cost Reduction The benefits of low fuel costs are realized with reduced investment costs Latest designs are evolutionary versions of existing reactors that emphasize improved economics through simplification Standardization will ensure further reductions due to fleet economies of scale Improved regulatory risk due to improved processes and design standardization Use of existing nuclear sites that are well characterized and have supportive local communities

18. OECD Study – Large Regional Differences

19. The Changing Costs of Nuclear Update of the MIT Future of Nuclear Power 2009

20. Cost Increases are expected to subside • US Department of Energy EIA assumes in its Annual Energy Outlook (AEO) that efficiencies will be gained in the US and assume a cost reduction to 2030 • The MIT study update shows that recent completed plants in both Korea and Japan have reduced in cost from previous units due to experience and replication ($3,000 /kW range) • Korea has just won its first international order in the UAE with a cost lower than its competitors ($2,300 /kW)

21. Financing Challenges • Projects • Large Capital • Long schedules • Risk profile varies from construction to operations (Completion Risk) • Lenders will require • Credit worthy borrower • Date certain for start of repayment • Sources of funds • Banks • Institutional lender • Equity markets • In some cases, government • Project Financing is not ideal and high cost • On balance sheet creates EPS dilution issues • Successful financing is a function of good project structuring

22. Focus on Project Success Performance with new nuclear in the west to date as been poor Projects are delayed and over budget Contracting models that push all the risk to the vendor have failed their stakeholders Unhealthy pre-occupation with blame and failure Industry must work together with a common objective

23. Huge Opportunity for Growth • Large growth in global energy demand over the next 20 to 40 years • Desire to reduce green house gases • Nuclear power is now recognized as a key ingredient in meeting these requirements • However • Plants must be cost competitive • Must be able to build to cost and budget • Must be able to raise large amount of financing

24. What are each of you going to do? • The Challenge