When electricity markets have high shares of wind and solar – the goal of many regions around the world – is it more efficient to build a nuclear power plant instead of investing further in more renewable capacity? The answer is yes, according to a study by Machiel Mulder, Xinyu Li and Arjen Veenstra at the University of Groningen. In essence, it’s because nuclear benefits from the high (scarcity) prices when there’s little wind or sunshine. Here the authors summarise their findings, based on an analysis of the Dutch electricity market. Their scenarios consider a wide range of variables, including utilisation, capture price, subsidies, plant lifetimes, emissions reductions, and more. The Dutch government declared in December 2021 that it intends to build two new nuclear power plants.
When an electricity market has a high amount of wind turbines and solar PV, as is the ambition in many countries, it is more efficient to build a nuclear power plant instead of investing further in more renewable capacity. This results from the fact that a high share of renewables strongly reduces the electricity prices which can be earned by investors in wind and solar, while that is much less the case for investors in nuclear power. The latter can benefit from the high (scarcity) prices when there is hardly wind or sunshine. Although investors in a nuclear power plant require a subsidy to make the investment profitable, the subsidy they require is significantly lower (per unit of production) than what is required by investors in renewable technologies, in particular solar PV.
This follows from an analysis of the economic value of an investment in nuclear power in the Dutch electricity market in comparison to the value of additional investments in solar PV, onshore and offshore wind. By exploring the economic value of an investment in a nuclear power plant under various scenarios regarding the future electricity market, this study aims to contribute to the societal debate on the potential role of nuclear energy in low-carbon electricity systems.
Although the understanding of the economic value is one of the crucial elements in the societal debate, this analysis is of course not sufficient. For the final societal decision whether or not to allow for such an investment, also discussion is needed of (equally) relevant aspects, such as safety, security and environmental issues, and the societal acceptance.
Renewable production will not be sufficient to meet future growth in demand
In order to reduce the absolute levels of carbon emissions, the nature of energy systems has to change dramatically. This is the reason governments are promoting the development and use of renewable energy sources like solar PV, wind turbines, hydropower and biomass.
Despite these policies, the growth in renewable energy will likely not be sufficient to reduce carbon emissions to the extent required to meet climate targets, in particular because the demand for electricity will increase strongly because of electrification and production of hydrogen.
Therefore, the attention is increasingly also going to another non-carbon energy source, which is nuclear power. The Dutch government, for instance, recently declared that it will enable the construction of two new nuclear power plants in the Netherlands. Nuclear power is, however, highly debated, because of its perceived safety, security and environmental risks. Moreover, it is debatable to what extent nuclear power fits within electricity markets which are characterised by high shares of solar PV and wind energy, which have an intermittent character. In order to assess the economic feasibility of nuclear power we compare an investment in a nuclear power plant of 1 GW with similar investments (in terms of production) in (more) solar PV, onshore and offshore wind turbines.
Model analysis of Dutch electricity market
We analyse to what extent a nuclear power plant can economically operate in a market with high shares of renewables. The economic value of a nuclear power plant basically depends on four factors:
a) the plant characteristics, including its construction costs and construction duration, lifetime, operational and maintenance costs, fuel costs, ramping constraints, costs of handling and storing waste, and decommissioning costs,
b) the degree of utilisation (which is called the capacity factor),
c) the capture price (which is the average electricity price the plant actually receives), and
d) the contribution to reducing carbon emissions.
While the first factor can be seen as exogenous, the others are very much related to the characteristics and functioning of the electricity market.
We have simulated the (hourly) Dutch electricity market for a number of scenarios regarding the amount of already installed renewables (related to government objectives) and the increase in electricity demand (related to assumed increases in electrification and hydrogen production). As the installed capacities in the renewable technologies are related to government objectives (and resulting support mechanisms), they can be treated exogenously. The installed capacity of gas-fired capacity, however, results from commercial investments, and, therefore, it has been treated endogenously in the model in order to mimic the long-term dynamics of electricity markets. Moreover, we ignore the costs of any required network extension, realising that these costs may be quite different for various generation technologies.
Nuclear power plants realise higher electricity prices
It appears that without any governmental support, none of the considered technologies are found to be profit making: subsidies are required to attract commercial investors.
The size of the support differs, however, per technology. In terms of construction and operational costs per MW, solar PV and wind energy are less expensive than a nuclear power plant. However, as the production of renewables depends on fluctuating weather conditions, the production per MW by these power plants is much lower than the production per MW by a nuclear power plant, which can operate (almost) all the time. The difference in the so-called capacity factor is in particular striking for a nuclear (90%) and solar PV in the Netherlands (about 10%).
Moreover, the lifetime of a nuclear power plant is more than two times longer than the ones of wind turbines and solar PV. Besides the much higher production per MW installed capacity, a nuclear power plant is able to capture higher electricity prices as they can benefit from high (scarcity) prices, while renewables hardly can (see Figure 1). This holds in particular in a scenario with already high amounts of renewable generation. Here, it is important to realise that (modern) nuclear power plants are able to operate in a much more flexible way than what is often assumed. As a consequence, a nuclear plant requires less subsidy per unit of electricity production.
Nuclear power has lowest carbon abatement costs
As both nuclear and renewables contribute to reduction of carbon emissions, we have also calculated the amount of emission reduction by the various types of investments. It appears that an investment in a nuclear power plant results in about a similar emission reduction as investments in more wind or solar.
In terms of required subsidy per unit of emission reduction, however, an investment in a nuclear power plant is more efficient than investments in more solar PV or wind. This holds in particular in scenarios where there is already a high amount of renewables (see Figure 2). This is mainly due to the lower captures prices for renewables when there is already a high amount of renewables installed in the electricity market.
Results are robust when changing the assumptions
These results do not change significantly when other reasonable assumptions are used. The construction and decommissioning costs of a nuclear power plant need to be at least as twice as high than assumed, in order to obtain a similar required subsidy as what is needed for solar PV. Less dramatic increases in the assumed construction costs, however, do not change the above conclusions. Stated differently, the construction costs of solar PV should reduce by more than 50 percent in order to arrive at a similar required subsidy level as a nuclear power plant.
Changing the assumption regarding the lifetime of the nuclear power plants does not really affect the outcomes. The results appear also to be robust for various values of the discount rate. Moreover, the results do not change significantly when we assume a higher amount of flexibility within the electricity market, which may happen in the future because of investments in storage, and further international integration of markets. Finally, a nuclear power plant benefits more from higher gas and carbon prices than solar PV and wind turbines, as it is able to run during hours when gas-fired power plants are needed and set the electricity price because of lack of wind or sunshine.
Link to CEER Policy Paper 12: Arjen Veenstra, Xinyu Li and Machiel Mulder, Economic Value of Nuclear Power in Future Energy Systems: required subsidy in various scenarios regarding future renewable generation and electricity demand, CEER Policy Paper 12, April 2022
Xinyu Li is a Researcher at the University of Groningen
Arjen Veenstra is a Research Assistant at the University of Groningen