3.3.2 Economic Evaluation

Cost of electricity (LUEC calculations)

The LUEC metric (sometimes also referred to as the Levelized Cost of Electricity or LCOE) is a “figure of merit” which captures the cost of electricity which is expected to arise from acceptance of a given proposal. Incorporating all total plant costs, it is measured in terms of monetary units per unit of energy (e.g. dollars per kilowatt-hour). The strength of the measure is that it allows many – though not all - dimensions of competing bids to be summarized in a single number – facilitating easy comparison between bids.

Key data used to compute and analyze a basic LUEC includes:

• bid prices for items such as the nuclear steam supply system (NSSS) and balance of plant (BoP);
• projected operating and maintenance costs, taking in account evaluated differences in capacity factor, projected cost of spare parts, consumables, and plant life etc.;
• projected fuel cycle costs (e.g. cost of fuel, cost of reprocessing etc.); and
• expected ‘back end liability’ costs (i.e. the expected cost of plant decommissioning and disposal of spent nuclear fuel and/or high level waste from reprocessing).
• any differences in owner’s costs due to evaluated differences in the scope of supply, financing terms, economic parameters, contract terms, or risk premiums assigned to the different bids.

LUEC recognizes the time value of money, and uses a discounting approach to express key flows of costs and energy generated over time in present value (PV) terms. The determination of an appropriate discount rate to be employed in arriving at the PV for these flows is a challenging exercise. Although the considerations underlying the choice of rate can be set out and discussed, it is challenging to prescribe a specific numeric value. It is arguable that arriving at such a value is the greatest challenge in calculating the LUEC measure – and that in practice the choice of discount rate is often somewhat subjective. More information on discounting approaches is available here, and information on discount rates is available here .

The LUEC computation should reflect costs and energy generation over the plant’s full lifetime (from the start of construction to end of life, and should also reflect any quantifiable economic benefits identified during the technical evaluation (such as the economic implications of anticipated differences in capacity factors between different bidders’ technologies).

Crucially, economic evaluation should include some procedure for recognizing risks associated with different bids (as well as with the project as a whole). It is important to recognize that – notwithstanding the degree of sophistication in computing the LUEC metrics arising from different bids – there are limitations to the LUEC approach.

Domestic benefits

It is important to address the second key question outlined above by recognizing that domestic benefits in terms of employment, GDP etc. are typically assessed by evaluating the domestic content committments included in each bid. The ISO 10845 series provides an example methodology to do this. Evaluators can assign an adjustment to the evaluated LUEC based on the amount of domestic content anticipated. More information on evaluating domestic benefits is available here.