Setting a New Course for Electricity in Ontario

WNA China Symposium Hong KongOctober, 2011The Ongoing Evolution of Nuclear Power Economics

The World in 2011An accident somewhere is an accident everywhere

2The World in 20113

Success somewhere is success everywhere

Im convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance. (Steve Jobs)Thats been one of my mantras focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But its worth it in the end because once you get there, you can move mountains. (Steve Jobs)Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. (Steve Jobs)The Worlds Nuclear Capacity4operatingseriousemerging

WNA 2011Measuring SuccessFor global success, new build nuclear must demonstrate that it is competitive in an economic sense.Nuclear is capital intensive with long project schedulesNuclear has low operating costs due to low cost of fuelIn many markets, the belief is that nuclear is not economic, is too expensive and needs subsidiesIn reality nuclear has been and continues to be economic relative to the alternatives in most jurisdictionsEconomics will improve as climate change concerns continue to increase (adding a cost for carbon)Economics are being challenged by low gas prices and high nuclear plant costs (primarily in the west)

5Economics of New Build Nuclear

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Categories of generation costsInvestment (capital) costs and interest charged on theseFuel costs Operations & Maintenance (O&M) costs - fixed and variableFor 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 (and is accounted for in the fuel cost)735-40%Fuel70-80%15-20%15-25%5-10%20-35%40-50%15-20%50-60%O&MInvestmentCoalGas CCGTNuclearCost ComponentCurrent Operating ReactorsEconomic performanceLow production (marginal) costs Fuel and O&M typically below 2 US cents per kWhBest plants achieving 1.3 to 1.6 US cents per kWh in Europe and US 8U.S. Electricity Production Costs 1995-2008Production Costs = Operations and Maintenance Costs + Fuel CostsSource: US Nuclear Energy Institute (NEI) Economics of new nuclear plants Nuclear has high investment costs, takes long time to come into operation, then has low and stable operating costsGas plants have low investment costs, are built quickly and have high and variable operating costsCoal plants have moderate investment costs, are built relatively quickly and have moderate variable operating costsWhich is the most economic depends heavily on:(1) fossil fuel price and price for carbon, if any(2) interest/discount rate used (3) nuclear investment cost

9(1) Fuel Price10

Fuel as a Percentage of Electric Power Production Costs 2007ConversionFabricationWaste FundEnrichmentUraniumSource: Global Energy Decisions; Energy Resources International, Inc.Updated: 5/08CoalGasNuclear11The New Gas AgeAccess to shale gas in North America has been a game changerTechnically recoverable reserves in the USA increased by 240% from 2010 to 2011Price to remain below $5 /MMBTU for the next decadeLong term price to be 20% lower than last years forecastOECD Study assumes a price of $7.78 for USA Is shale gas coming to other parts of the world?12Source: EIA AEO 2011Nuclear is a business, not a religion ...... there must be a shortage of natural gas and stable high prices to make the economics right. This condition cannot be met due to the influx of shale gas into the market. Shale is good for the country, bad for new nuclear development.John Rowe, Chairman and CEO of Exelon (August 15, 2011)

Addressing Green House GasesClimate change remains the environmental issues of most concern globallyPlacing a cost on carbon would discourage use and promote alternativesGreenhouse gas abatement can be helped by (1) carbon taxes, (2) carbon emission trading schemes or (3) incentives to non-carbon emitting technologies All would benefit new nuclear buildCarbon prices impact the LCOECoal ~ $1 / tonne = $1 / MWh Gas ~ $1 / tonne = $0.50 / MWh

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Sources: IEA "World Energy Outlook 2008" - " Reference Scenario "(2) Discount RateDiscount rate depends on interest rates, view of the future, project riskPublic sector low (3-5%) and private sector higher (5-15%)Low discount rates reflect lower perception of risk - favours projects with high investment costs, longer schedules and low marginal costs i.e. hydro and nuclear plantsHigh discount rates reflect higher perception of risk - favours projects with low investment costs, shorter schedules and high marginal costs ie gas plantsHowever, the perception is that gas plants are low risk and nuclear plants are higher risk14

(3) Nuclear Investment Cost 15

Costs are continuing to diverge between East and WestUS EIA assuming a cost of $5,339/kW for its AEO 2011 (an increase of 37% from 2010)China (at last years symposium) announced its first 4 AP1000 reactors will cost $2,000 /kW with the next units expected to be $1,600 /kW

16Location FactorsSite specific characteristicsLocal supply chainContractual structureRegulatory regimeGovernment policies17ConfidenceSustaining the Nuclear RenaissanceRecent studies show that nuclear generation can be an economic option in most jurisdictionsNuclear costs in the west have increased over the past decadeIncreased costs coupled with lower gas prices is challenging nuclear competitiveness in North AmericaAsian activity is revitalizing the industryRecent new builds costs in China and Korea are benefiting from standardization Nuclear capital cost and risk reduction can be achieved by maximizing use of recent experience in AsiaUse of global supply chain to lower both cost and risk.As the fastest growing nuclear country in the world China has great responsibility to the global industryto successfully implement its program safely and economicallyand to share its lessons learned with the world18Our Nuclear FutureAn accident somewhere is an accident everywhereSuccess somewhere is success everywhere

19We dont get a chance to do that many things, and every one should be really excellent. Because this is our life.Life is brief, and then you die, you know?And weve all chosen to do this with our lives. So it better be damn good. It better be worth it. (Steve Jobs)

Thank YouMilton Caplan

MZConsulting Inc. - Presidentmilt.caplan@mzconsultinginc.comwww.mzconsultinginc.com+1.647.271.4442Chart10.230.770.070.930.730.271Nuclear Fuel Cost ComponentsNuclear Fuel Cost Components

O&MFuelO&M23%O&M73%

Sheet1CoalGasNuclearNuclear Fuel Cost ComponentsO&M23%7%73%Fuel77%93%27%

Chart10.350.350.170.090.04

UraniumEnrichmentWaste FundFabricationConversion

Sheet1Uranium35%Enrichment35%Waste Fund17%Fabrication9%Conversion4%