The Economics of the Russian Nuclear Power Industry - Bellona

44The discount rate will be the variable calculation parameter. Two discount rate values have beenused in economic feasibility studies done for new nuclear power plant projects – a rate of 4.5 percent,the minimal rate used to estimate the costs of specially socially significant projects (projects that arefinanced with funds from the federal budget, such as the project of floating nuclear power plants, wherethis rate was applied to estimate the economic efficiency of the project), and a rate of 8 percent, whichwas used in the project of construction of Reactor Units 5 and 6 of Balakovo NPP. 127We shall first calculate the net cash flow required to cover the capital costs – i.e. the annualproceeds with the deduction of operating expenses. The total discounted cash flow during theconstruction period equals the total discounted cash flow during the plant’s operation period. 128Table 13. Capital costs of power generation at different values of the cost of capital.Cost of capital Required cash flow (in Capital costs of power generationmillion US dollars)(in US cents per one kilowatt‐hour)10 percent 727.06 4.78 percent 555.54 3.64.5 percent 318.20 2.10 percent 125.00 0.8The required annual cash flow has to equal the amount of profit after income tax plusaccumulated depreciation.In addition, the operation and maintenance costs have to be covered, which include:A) Compensation of labour – i.e. payroll and various deductions for social benefits.The average headcount at Reactor Units 5 and 6 of Balakovo NPP is 1,109 people.Average pay stands at $700. 129Benefits‐related charges on payroll account for 34 percent.B) Total costs incurred by the fuel cycle, at US 1.1 cents per kilowatt‐hour.C) Deductions to the decommissioning reserve fund, at $7 million (1.3 percent of grossproceeds, the share of Rosenergoatom’s revenue in 2009 that accounted for this item).D) Deductions for maintenance repairs and major overhauls, at 2 percent of projectedconstruction costs.E) Insurance premiums, at $15 million.F) Depreciation (straight‐line basis), projected cost distributed over 40 years. 130G) Income tax, at 20 percent of accounting income.127 The cost of capital cited in studies done on the costs of nuclear‐generated energy by Western experts rangesbetween 5 percent and 15 percent depending on the author’s overall attitude to the nuclear industry and,possibly, on special terms of financing such as state guarantees. The only study where the cost of capital wasassumed at 5 percent – carried out by Finland’s Lappeenranta University of Technology (http://www.lut.fi/en) –also assumes in its calculations other values that are extremely favourable to the nuclear energy industry. Thedifference in the costs of capital between Russia and countries where these studies were undertaken – the UnitedStates, Great Britain, and Finland – also should be taken into account.128 Generation of heat accounts for some 5 percent of a nuclear power plant’s product and will be ignored here forthe purpose of simplifying the calculations.129 The nuclear energy sector needs its influx of highly qualified personnel and, furthermore, is a hazardousindustry with a poor reputation. The enormous shortage of workforce is bound to result eventually in a staggeringhike in labour costs – possibly, to the level now holding in the oil and gas industry.130 To simplify this analysis, we will ignore the difference between the projected cost of construction estimated inthe design and the cost of key assets that arise as the result of the construction and are depreciated accordingly.