The Economics of the Russian Nuclear Power Industry - Bellona

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20requirements: If a wrong decision has been made, bankruptcy follows. In situations where statefinancing is involved, such restrictions are always more flexible, but the responsibility for theconsequences that this or that economic decision will have is deferred so far ahead into the future that,for all intents and purposes, it simply does not exist in any practical sense. In essence, the veryorganisation of making investment decisions in projects undertaken in the nuclear power industrymakes it so that the responsibility for errors of judgment and the ensuing repercussions lies with no onein particular. For instance, the obvious economic fiasco of the idea of floating nuclear power plants, 49the exponential growth in costs of new reactor construction, and construction delays at new sites do notseem to complicate the lives of those who were responsible for the initiation and implementation ofthese projects in the first place.Where nuclear energy differs prominently from all other sources of energy is the absence ofthe inverse relationship between technological progress and production costs. As technologiesdevelop and are better known and used more efficiently, production costs decrease, and thisfeedback effect holds for all other energy generation sectors – but not the nuclear energy industry,where the costs of producing power from nuclear reactors keep growing instead.There is a considerable number of theories explaining this phenomenon, of which the first andforemost is the idea of perception of the industry as a dangerous and harmful one – something thatresults in ever stricter requirements and standards imposed with regard to its safety. The availability oftechnological improvements to enhance safety of nuclear power plants makes it impossible to avoidtoughening safety regulations correspondingly, and it is very difficult to draw the line between thenecessary safety enhancements and the price which must be paid to achieve them. Indeed, if there aremeasures to limit the risks of accidents that threaten environmental contamination and harm topopulation health and yet they are not installed for reasons of economic considerations, then in caseswhen such risks do erupt into real accidents, the industry is bound to be hard‐pressed to explain to thepublic why these measures were not applied.For instance, experts pointed out in numerous studies that have been done in the wake of the1986 catastrophe at Ukraine’s Chernobyl Nuclear Power Plant that Soviet designers had been puttingtoo strong an emphasis on cutting costs – at the expense of safety at the plant and protection againstaccidents. It is obvious, in hindsight, that any measures that could have prevented that terrible disastershould have been used, no matter what the cost. But for Soviet nuclear specialists at the time, accidentrisks appeared too infinitesimal and safety standards too high. In any case, because nuclear projects arecharacterised with extremely long time horizons, investors should be prepared to face tidal shifts in theprevailing attitudes to the industry – which, at the very least, may lead to changes in standards andregulations and corresponding cost increases. 5049 Please see Appendix to this report, which details the economic deficiencies of the floating nuclear power plant(FNPP) project, a concept of non‐self‐propelled vessels with reactors on board devised to supply power in remoteand poorly accessible regions. A first in a projected series of at least seven such plants is being completed atBaltiisky Zavod in St. Petersburg to be subsequently towed to the Kamchatka Peninsula in the Russian Far East.Rosatom admits that the project will not be economically viable unless at least several FNPPs are built in acommercial series and hopes to start serial production of these transportable nuclear power plants for export toother countries, primarily in Southeast Asia. An extensive report has been written by Alexander Nikitin and LeonidAndreev, with participation by experts at Bellona and other organisations, on the FNPP endeavour and the manyrisks – those of safety and security primarily, and expediency overall – that it entails. To read the report, entitled“Floating Nuclear Power Plants,” Bellona Report 2011, please visit Bellona’s website at www.bellona.org. –Translator.50 A more recent wave of revisions of safety standards swept across the global nuclear industry following the onsetof the still ongoing, as of mid‐April 2011, nuclear disaster at Japan’s Fukushima Daiichi Nuclear Power Plant, wherean 8.9‐magnitude earthquake of March 11 and a devastating tsunami that hit in its wake destroyed the station’s
214. Operating costs as part of the prime cost of nuclear‐produced energyThe majority of costs in nuclear power generation that are incurred after a nuclear power plantis commissioned for commercial operation are semi‐fixed costs, and the marginal costs 51 areinsignificant. At the same time, decreasing power load is both expensive for a nuclear power plant andundesirable for reasons of safety. The engineering peculiarities of producing energy at a nuclear powerplant dictate the only economically viable operating mode – constant operation at maximum capacity. Ifa nuclear power plant, on the other hand, is disconnected from the grid – for maintenance works, forexample – the grid is forced to compensate for this loss of power supply by producing expensive energyusing reserve capacities or by importing energy from other regions.The Federal Tariff Service of Russia determines for Rosenergoatom what will be referred to inthis report as “required gross revenue” (RGV) from sales of product generated as part of activitiessubject to state regulation – or the volume of funding necessary to ensure optimal operation ofRosenergoatom enterprises. The RGV is calculated as the sum of all recognised expenses borne by theconcern, both those that are reported as deductions from the taxable base and the non‐deductibleones.Government Decree No. 459 of June 18, 2008 “On introducing changes to Decree No. 109 of theGovernment of Russian Federation, of February 26, 2004 ‘On the pricing of electric power and thermalenergy in the Russian Federation’” defined operating expenses as expenses tied to the production andsale of product generated as part of regulated activities with the exception of depreciation of fixedassets, debt service expenses, expenses derived from lease of property used for the implementation ofregulated activities, and expenses paid for services rendered by organisations carrying out regulatedactivities.The following is, roughly, what qualifies for the industry’s non‐deductible operating costs, as perthe law and relevant regulatory documents 52 :Material expenses, including all production‐related works (services), purchases of rawmaterials and other materials, and all costs associated with the nuclear fuel cycle;Remuneration of labour;Depreciation of property;R&D;external power supply, resulting in multiple core meltdowns, containment breaches, exposure of spent fuel in thecooling ponds, and massive releases of radiation. Prompted by this nuclear disaster, which Japan now officiallyrated Level 7 on the International Nuclear Event Scale (the 1986 Chernobyl catastrophe being, before Fukushima,the only example of this highest degree of severity), nations with commercial nuclear capability have beenreconsidering their stance on nuclear energy or considering instituting more rigorous safety standards. TheEuropean Union has called for mandatory stress‐testing at some 150 NPPs operating on its territory, whileGermany announced a temporary shutdown of several of its oldest stations pending safety review. For moreinformation, please see Bellona’s extended coverage of the Fukushima Daiichi disaster athttp://www.bellona.org/subjects/nuclear‐metldown‐in‐japan. – Translator.51 Marginal costs are costs incurred by producing one more unit of product and vary depending on how many more– or fewer – units (or units of volume) are produced. An increase in production volumes does not automaticallymean rising marginal costs, however, and those can go down if more product is produced, since labour andinfrastructure costs are part of the calculation and may not change with growing output. – Translator.52 See, for instance, “Instructional guidelines for planning and accounting of income and expenditure of ConcernRosenergoatom,” approved by Rosenergoatom’s general director Oleg Sarayev (Concern Rosenergoatom’sDirective No. 265 of March 25, 2004) or “Temporary Instructional guidelines for calculating tariffs for electriccapacity and electric power produced by Federal State Unitary Enterprise (FGUP) ‘Russian State Concern forGeneration of Electric and Thermal Power at Nuclear Power Plants’ (Concern Rosenergoatom) on the Federal All‐Russian Wholesale Electric Power and Capacity Market, ”the Federal Energy Commission’s Directive No. 80‐e/4, ofNovember 21, 2002.
Page 2 and 3: …Nuclear power generation is the
Page 4 and 5: Translator’s notes:Rules of etiqu
Page 6 and 7: 6ForewordThe economy of the Russian
Page 8 and 9: 8of everything that the nuclear pow
Page 10 and 11: 10Real costs of nuclear power plant
Page 12 and 13: 12Energy Potential Development,”
Page 14 and 15: 14noticeably higher than the regula
Page 16 and 17: 16came to 2.2 billion kilowatt‐ho
Page 18 and 19: 183. Problems of nuclear power indu
Page 22 and 23: 22Property and liability insurance;
Page 24 and 25: 24Depreciation 10,911,630 9,312,654
Page 26 and 27: 26low prices, because a decrease in
Page 28 and 29: 28Fig. 2. Spot prices for U 3 O 8 c
Page 30 and 31: 30uranium needs and the demand it h
Page 32 and 33: 32remains unclear what can be done
Page 34 and 35: 34For instance, British energy comp
Page 36 and 37: 36But Rosenergoatom’s real expens
Page 38 and 39: 38contribution benefit plans, inclu
Page 40 and 41: 40Table 11. Costs of decommissionin
Page 42 and 43: 42And thirdly, traditional approach
Page 44 and 45: 44The discount rate will be the var
Page 46 and 47: 46Cost ofcapitalTable 15. Price of
Page 48 and 49: 48operation as a baseload generatin
Page 50 and 51: 505 percent0 percent367.0 614.3 3.7
Page 52 and 53: 52The idea to develop the sector of
Page 54 and 55: 54Even if we assume that the direct
Page 56 and 57: 56Furthermore, the total cost of bu
Page 58 and 59: 5811. Instructional guidelines for
Page 60: 60Greenpeace, 01.04.2004,http://www

The Economics of the Russian Nuclear Power Industry - Bellona

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