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What Construction Cost Might Trigger New Nuclear Power Plant Orders?

Although nuclear power plants are being built in South and East Asia, they have not been ordered in the U.S. since the accident at Three Mile Island in 1978. For many reasons, including the Kyoto Protocol, new attention is being given to light water reactors. Currently operating nuclear power plants in the U.S. were built under rate-of-return regulation. Now they are competing in wholesale power markets. This paper models the profitability of building an Advanced Boiling Water Reactor in Texas using a "Real Options" approach. It finds that a cost of about $1,200 per kilowatt-electric for advanced light water nuclear power plants could trigger new orders. On the other hand, investors might be willing to pay higher prices if methods for mitigating price, cost, and output (capacity factor) risk through contracts or real assets can be found.

Geoffrey Rothwell
Publication Date
March, 2004