Washington (Platts)--6Aug2008

Despite projected high capital costs, new nuclear units in the US could
produce electricity at a cost that is competitive with coal- and natural
gas-fired generation, but federal loan guarantees and "supportive state
policies" are "essential," the Nuclear Energy Institute said Wednesday in a
report.

NEI, the nuclear industry's Washington-based trade group, said its
financial model of new generating projects shows "new nuclear power plants can
be competitive," even with total project costs exceeding $6,000/kW, including
engineering, procurement and construction and owners' costs and financing.

"Although nuclear project costs are undeniably large, total project
cost does not measure a project's economic viability. The relevant metric is
the cost of the electricity produced by the nuclear project relative to
alternative sources of electricity and relative to the market price of
electricity at the time the nuclear plant comes into service," the report
said.

NEI said "credible estimates of overnight capital costs" for new
nuclear units range from $2,400/kWw to as much as $4,540/kW. "Analysis by
generating companies, the academic community, and financial experts shows that
even at capital costs in the $4,000/kW to $6,000/kW range, the electricity
generated from nuclear power can be competitive with other new sources of
baseload power, including coal and natural gas," it said.

"NEI's modeling shows that a merchant nuclear plant with an 80-to-20
debt-to-equity structure, supported by a federal loan guarantee, will produce
electricity in the range of $64 [/MWh] to $76/MWh. The range reflects EPC
costs from $3,500/kW to $4,500/kW. A high-cost ($4,500/kw EPC cost) nuclear
plant producing electricity at $76/MWh is competitive with a gas-fired
combined-cycle plant burning $6-8/MMBtu gas or an [super-critical pulverized
coal] plant," NEI said.

"Assuming a 50-50 debt-to-equity ratio typical of a regulated electric
company, and assuming the company is permitted to recover the cost of capital
during construction (CWIP), NEI's financial model shows the levelized cost of
electricity from the plant would range from $74/MWh to $88/MWh -- competitive
with a gas-fired combined cycle plant burning gas priced at $8-10/MMBtu or an
IGCC [integrated gasification combined cycle] plant without carbon capture and
sequestration," it said.

"These results are absent any restriction on carbon dioxide emissions.
With regional or national programs that put a significant price on carbon
emissions, nuclear power becomes even more competitive," NEI said.

The report surveys current cost estimates for planned new nuclear units
in the US and finds the wide variation in the projections is the result of
such factors as uncertainty about escalation of commodity prices and wages;
the fact that design work is not complete, making preciese cost estimates
impossible and the fact that some early estimates did not include all the
costs involved in the construction.

NEI said its modeling "shows that, in the absence of a significant
price for carbon, loan guarantees and supportive state policies (such as CWIP)
are essential for merchant and regulated nuclear plants, respectively. Without
this federal and state government support, it is difficult to see how new
nuclear plants can be financed and constructed competitively. With this
support as a transition to a carbon-constrained world, the next nuclear plants
should be competitive and economically viable."

--Steven Dolley, steven_dolley@platts.com