Introduction

Along with safety and regulation, cost is a key factor for decision-making in energy policy. The Indonesian government has concentrated on projections of increasing energy demand  and arguments about overall cost advantages of nuclear-generated electricity compared with gas-fired power stations. However, the publicly-available data on the proposed costs of the Muria nuclear power plant is extraordinarily thin, to the point where it is almost impossible to make any informed judgment. 

Nine main elements are involved in determining a total cost for the construction, operation, and decommissioning of a nuclear reactor: 

• Construction cost and capital cost of plant equipment

• Construction time

• Load factor

• Operational Life

• Operation and maintenance costs

• Fuel costs

• Decommissioning costs

• Interest rate on the loan to fund the plant and its construction (which determines the annual cost of buying plant components and building the plant)

• Discount rate (to assess costs over time)

Of these, construction/capital costs, together with the associated construction time and the cost of capital to purchase plant equipment and build the plant, accounts for more than two-thirds of the final cost in most cases. 

Indonesian government agencies have offered a variety of figures for the total cost of constructing the four proposed nuclear power plants on the Muria site. However, few of these figures are consistent, and fewer still transparent as to which cost elements are included and excluded, or the underlying assumptions. The result is an incomplete and inadequate public explanation of the likely costs, and fails to provide the Indonesian public with the means to assess the level of financial risk involved in the Muria nuclear power plant proposal.

Such scattered and incomplete information as has become publicly available over more than a decade is summarised in Table 1. Data on operational and maintenance costs, fuel costs, and load factor are not available to the public, nor are details of a decommissioning.

In summary, Indonesian authorities have told the public that it hopes to build four 1,000 MW reactors, the first of which will take five years to build for a cost of US$1.5 – 1.8 billion, with decommissioning costs equivalent to 10% of capital costs, for an operational life time of 60 years, and with a discount rate (nominal) of 10%. 

INSERT NEAR HERE:
Table 1: Cost assumptions, Best estimates – Indonesia 1,000 MW NPP proposal and recent NPP experience/forecasts  – summary table

Where estimates are possible, Indonesian government expectations are extremely optimistic. Nuclear power plant construction costs are notoriously difficult to compare, due to differences of reactor design, site characteristics, regulatory differences, exchange rates, financing arrangements, costs of labour, and industrial structures of different countries. However, the much-repeated Indonesian National Atomic Energy Agency estimate of US$1,500-1,800/kW is about half the expected (and still rising)  final cost of the much-delayed European Pressurized Water Reactor [EPR] under construction at Olkiluoto-3 in Finland , and an even smaller fraction of recent published estimates of plant costs in the United States.
In addition, recent years have seen large increases in global prices for the key commodities—cement, steel, and copper chief among them–that are used in large amounts in power plant construction, and particularly intensively for nuclear plants. The fact that there are a limited number of suppliers for key nuclear plant components tends to further increase costs, and the fact that the Muria plant would be the first plant on the site and in the country suggests that costs will be higher still, as Indonesia learns about how to build and operate these units, relative to costs in other countries.

The Indonesian government and the IAEA possess studies carried out over many years that contain detailed descriptions of costs and proposed financing. At some point, some elements of these detailed cost projections will be made available to the Indonesian president and the legislature. However the fact that the National Atomic Energy Agency has not released these detailed studies can only raise concerns about the quality of the data within them. The end result is that Indonesian citizens and parliamentarians are being asked to support very large investments on the basis of grossly inadequate, incomplete, and inaccurate data.

Economics

Annex: Small and Medium Reactor User Requirements Document: Indonesia, Guidance for preparing user requirements documents for small and medium reactors and their application, [PDF, 7.01Mb], International Atomic Energy Agency, IAEA-TECDOC-1167, August 2000.

7. ECONOMIC REQUIREMENTS

7.1. Criteria and evaluation methodology

The targets set for the technology and plant performance requirements discussed above have direct influence on the plant economy. The economic target can be simply stated as: the levelled cost of electricity from nuclear plants should be lower than from coal plant with cleanup system based on prevailing national regulation. Factors that have strong influence on the economy, notably: capital costs, construction time, capacity factor, and O&M costs should be well managed in order to achieve the economic target.

The MR plant is to be designed to have a significant economic advantage over other (coal) central station alternatives on both a near-term (10 year) and life cycle basis.

While for the deployment at remote areas or at the less developed regions the economic criteria for the Small and Very Small Reactor alternatives are expected to be:

– the largest social gain,

– the least government subsidy, and

– smaller than the cost to upgrade the infrastructure and transportation means in order to remove the “remoteness” qualification.

Economic evaluation of any proposal for introducing the MR plant in a conventional financing scheme (by equity, loan on sovereign guarantees) shall be performed on the basis of the two following factors:

– total present worth of the proposed project calculated by the discounted cash flow method at discount rate of 10 %/a (nominal), and

– generation cost per net kWh which will be estimated (using levelled method) with the capital recovery cost, the fuel cost, and the operation & maintenance cost.

Replacement of main components (foreseen during the lifetime of the plant), radwaste and spent fuel storage costs, as well as the decommissioning cost are included in the calculation.

In addition to the above method, for BOO and other non-conventional financing schemes an evaluation based on “profit and risk sharing” can be considered.

Prospect and potential of nuclear power plants in Indonesia, [PDF, 738 Kb], I.R.Subki, Adiwardojo, M.S.Kasim, A. Iskandar, Mulyanto, (BATAN), IAEA.

[Ed: Summary report of the NewJEC Feasibility Study completed December 1993.]

– sectin III.3 a. Nuclear cost estimate

 

Financing

Annex: Small and Medium Reactor User Requirements Document: Indonesia, Guidance for preparing user requirements documents for small and medium reactors and their application, [PDF, 7.01Mb], International Atomic Energy Agency, IAEA-TECDOC-1167, August 2000.

7.3. Financing

7.3.1. Conventional financing approaches

In case of conventional financing (with export credits and commercial loans on sovereign guarantees) it is intended that foreign and local currency costs of the work shall be financed by the vendor. The amount shall cover price, financial and incidental charges and loan interest incurred up to the taking over of the plant. Repayment shall extend over at least 15 years, except 5 years for nuclear fuel.

7.3.2. Alternative financing approaches

A potential SMR vendor shall seek the possibility to offer the following three financing schemes: conventional, build-own-operate, and/or conventional with barter.

A turnkey contract with project financing of equity and conventional loan (i.e. export redits and commercial borrowing) on sovereign guarantee basis has been considered  the best ay, as clearly stated in the feasibility study report. The present Government financing policy, owever, has been encouraging private sector enterprises and cooperatives to finance the development to meet increasing demand for electric power.

Specific problems of nuclear IPP which need some form of government encouragement re foreseen, such as public acceptance, third party liabilities, back-end fuel cycles, dcommissioning, and long term waste management. The need to share risks at the side of foreign investors can require government participation in the form of partial equity.

Another financial arrangement that alleviates the problems of external borrowings, but still keeps the NPP within the government ownership is complemented by some barter scheme. Some amount of bartered commodity is delivered to the NPP main contractor country as having equivalent value to partial payment of periodic disbursements during construction.

Such barter arrangement will then decrease monetary loans, and therefore, avoid or reduce the interest during construction.

Prospect and potential of nuclear power plants in Indonesia, [PDF, 738 Kb], I.R.Subki, Adiwardojo, M.S.Kasim, A. Iskandar, Mulyanto, (BATAN), IAEA.

[Ed: Summary report of the NewJEC Feasibility Study completed December 1993.]

– sectin III.3 d. Financial study

 Project coordinator: Richard Tanter
Additional research: Arabella Imhoff
Updated: 14 October, 2008