Energy Technology Expert

How to Calculate the Cost Impact of Nuclear Power Addition to the Energy Mix – a Philippine estimate

This is the 4th sequel to the 1st blog on “How to Calculate the Levelized Cost of Energy – a simplified approach”.

Using sample data and reasonable assumptions, I’ve calculated the potential reduction in the weighted average levelized cost of electricity in the energy mix of the Philippines should the mothballed 620 MW Bataan Nuclear Power Plant (BNPP) be revived and allowed to operate again after being in preservation mode since the early 1990’s.

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Formulas for Levelized Cost of Energy (US NREL and RP MTO)

The author has presented previously the two formulas (US NREL and RP MTO) for calculating the levelized cost of energy (please see previous blogs).

In this particular exercise, we shall be using the RP MTO formula developed by the author to illustrate the calculation of the cost of energy over the life of each power generation technology. In the Philippines, we need to consider the effect of local and national taxes and depreciation, hence the complete formula:

Net COE = Total Cost / ((1 – g) * (1 – t)), in US $/kWh or US cents/kWh

where:

Total Cost = ( ICC * CRF + (FixO&M + VarO&M + DOE + Fuel) * (1 – t) – t * DEPN ) / AEPnet

ICC = (Capacity, kW) * (Overnight Cost, $/kW)

Overnight Cost = Installed Cost + Interest During Construction

CRF = capital recovery factor, 1/yr = int / (1 – (1 + int)^-Life)

AEPnet = Net Annual Energy Production, kWh/yr (net of plant own use)

= (kW capacity) * (capacity factor) * (hours/year)

FixO&M = (Fixed O&M, $/kW/yr) * (Capacity, kW)

VarO&M = (Variable O&M, $/kWh) * AEPnet

DOE = (PhP 0.10 / kWh) / (Exchange Rate, PhP / US $) * AEPnet

Fuel = (net Heat Rate) * AEPnet * (Price of fuel)

= (3600 / Efficiency, kJ/kWh) * AEPnet * (Price, $/kJ)

DEPN = Depreciation, $ / yr = ICC / Life

g = Franchise Tax + Business Tax = 2.5% + 0.005% = 2.005%

t = Income Tax = 35%

int = Interest Rate, %

Life = Economic Life or Project Life, yrs

ASSUMPTIONS:

In this academic exercise, we shall be using sample data that is generally applicable to the Philippines and similar developing economies, namely:

Franchise Tax = 2.0% of revenue (national tax)

Business Tax = 0.005% of revenue (local tax)

DOE 1-94 Fee = 0.01 PhP/kWh sold (national impost on all generators)

Corporate Income Tax = 35% of taxable income (national tax)

Hours Per Year = 24 * 365 = 8,760 hours/year

Equity = 30% (minimum equity in the Philippines)

Debt = 70% (maximum debt in the Philippines)

Minimum Equity IRR = 15% p.a. (usual minimum hurdle rate for going into business)

Debt Interest = 12% p.a. (usual loan interest)

Weighted Average Cost of Capital (WACC) = 30% x 15% p.a. + 70% x 12% p.a.

= 12.9% p.a.

Discounting Rate = WACC = 12.9% p.a.

Exchange Rate = 48.46 PhP/US$ (April 21, 2009)

Diesel Price = 25.45 PhP/Liter = 83.51 US$/bbl

(19,650 BTU/lb HHV, 18,453 BTU/lb LHV, 0.820 kg/Liter)

Bunker Price = 17.90 PhP/Liter = 58.72 US$/bbl

(18,400 BTU/lb HHV, 17,449 BTU/lb LHV, 0.92 kg/Liter)

Natural Gas Price = 6.00 US$/MMBTU

(20,754 BTU/lb HHV, 18,798 BTU/lb LHV)

Orimulsion Price = 50% of Bunker

(13,330 BTU/lb HHV, 12,384 BTU/lb LHV)

Coal Price = 85 US$/MT

(11,630 BTU/lb HHV, 11,105 BTU/lb LHV)

Biomass Price = 10% of Bunker Price

(3,591 BTU/lb HHV, 3,020 BTU/lb LHV)

Nuclear Fuel Price = (365 fuel + 400 fabrication) = 765 $/kg

(3,900 GJ/kg)

Using the above inputs on cost of fuel, GHV, LHV and density, we arrive at the cost of fuel in terms of $/GJ net (as LHV fuel energy).

NOTES: HHV = higher heaving value or gross heating value (GHV)

LHV = lower heating value or net heating value (NHV)

CONVERSION FACTORS:

1 kg = 2.2046 lb

1 MT = 1,000 kg

1 US gal = 3.7854 Liters

1 bbl = 42 US gal = 42 x 3.7854 = 158.9868 Liters

1 kWh = 3,600 kJ

1 BTU = 1.05506 kJ

1 GJ = 1,000,000 kJ

1 MMBTU = 1,000,000 BTU

Weighted Average Levelized Cost of Electricity with and without 620MW BNPP

The following table shows the Philippine generation by type of fuel in giga-watt-hours (GWh) and % generation mix.

For instance, in 2008, the total generation is 62,608 GWh, of which 0.54% came from oil-fired thermal plants, 6.98% from oil diesel engines, 0.02% from oil-fired gas turbines, 1.10% from oil-fired combined cycle gas turbines for a total of 8.64% supplied by fossil oil-based power plants.

Renewable hydro, geothermal and wind/solar/biomass energy sources contributed 14.37%, 17.14% and 0.10% respectively of total generation.

Local and imported coal supplied 28.24% while domestic natural gas used in combined cycle gas turbines provided 31.52% of total generation.

Using the data on each power generation technology and prices of fuels in the country, the levelized cost of each technology in $/kWh and PhP/kWh assuming current exchange rate of PhP47.36/$ is shown in the table below. Applying the generation mix as weighing factor, the average levelized cost of electricity in the Philippines in 2008 is around $0.0720/kWh without the BNPP nuclear plant.

Assuming that the 620 MW BNPP has a yearly capacity factor of 65%, then it would have generated around 3,530 GWh of electricity with a levelized cost of $0.0535/kWh or around PhP2.5321/kWh (which is quite close to the PhP2.50/kWh that the National Power Corporation has estimated).

If this 3,530 GWh shall displace proportionately the other existing power plants, then the new energy mix is also shown below, and the resulting average levelized cost would have dropped slightly to $0.0710/kWh equivalent to PhP3.3613/kWh.

Reviving the nuclear plant will only reduce our cost by a mere 1.45% with the BNPP case.

PHILIPPINE GENERATION MIX AND LEVELIZED COST- with and without 620 MW Bataan Nuclear Power Plant (BNPP)

Power Generation by Source	2007	2008	with BNPP
In GWh – TOTAL PHILIPPINES
Oil-Based	5,149	5,408	5,103
Oil-Thermal	324	341	322
Diesel	4,163	4,372	4,125
Gas Turbines	9	10	9
Combined Cycle GT	653	686	647
Hydro	8,563	8,994	8,487
Geothermal	10,215	10,728	10,123
Coal	16,837	17,683	16,686
Nonconventional (Wind / Solar)	59	62	59
Natural Gas	18,789	19,733	18,621
Nuclear Power (620 mw BNPP)			3,530
Total	59,613	62,608	62,608
Power Generation by Source	2007	2008	with BNPP
In Percent of Total GWh
Oil-Based	8.64%	8.64%	8.15%
Oil-Thermal	0.54%	0.54%	0.51%
Diesel	6.98%	6.98%	6.59%
Gas Turbines	0.02%	0.02%	0.01%
Combined Cycle GT	1.10%	1.10%	1.03%
Hydro	14.37%	14.37%	13.56%
Geothermal	17.14%	17.14%	16.17%
Coal	28.24%	28.24%	26.65%
Nonconventional (Wind / Solar)	0.10%	0.10%	0.09%
Natural Gas	31.52%	31.52%	29.74%
Nuclear Power (620 mw BNPP)			5.64%
Total	100.00%	100.00%	100.00%
Power Generation by Source	2007	2008	with BNPP	47.36
In $/kWh			$/kWh	PhP/kWh	$/GJ
Oil-Based	0.1492	0.1492	0.1492	7.0652
Oil-Thermal	0.1397	0.1397	0.1397	6.6144	9.89
Diesel	0.1605	0.1605	0.1605	7.6006	14.92
Gas Turbines	0.1104	0.1104	0.1104	5.2278	9.89
Combined Cycle GT	0.0824	0.0824	0.0824	3.9008	9.89
Hydro	0.0572	0.0572	0.0572	2.7089	0.00
Geothermal	0.0754	0.0754	0.0754	3.5726	2.00
Coal	0.0665	0.0665	0.0665	3.1506	3.29
Nonconventional (Wind / Solar)	0.0638	0.0638	0.0638	3.0212	0.00
Natural Gas	0.0607	0.0607	0.0607	2.8759	6.28
Nuclear Power (620 mw BNPP)	0.0574	0.0574	0.0535	2.5321	0.20
Total	0.0720	0.0720	0.0710	3.3613
	-0.18%	0.00%	-1.45%

Perhaps the next approach is to do a simple economic load dispatch using merit order (use up the cheapest available capacity first and move up the ladder until you meet the demand with the next least expensive technology).

The following table shows the simple steps for performing a Merit Order Dispatch. By replacing the most expensive (diesel 4,372 GWh, $0.1605/kWh) partially with the least expensive nuclear output (BNPP 3,530 GWh, $0.0535/kWh), the resulting weighted average levelized cost drops to $0.0660/kWh or PhP3.1251/kWh, representing an 8.38% drop is average electricity cost for the country.

Economic Load Dispatch (Merit Order)
		PhP/$	47.36
Step 1 – List down all the technologies	GWh	$/kWh	PhP/kWh
Oil-Thermal	341	0.1397	6.6144
Diesel	4,372	0.1605	7.6006
Gas Turbines	10	0.1104	5.2278
Combined Cycle GT	686	0.0824	3.9008
Hydro	8,994	0.0572	2.7089
Geothermal	10,728	0.0754	3.5726
Coal	17,683	0.0665	3.1506
Nonconventional (Wind / Solar)	62	0.0638	3.0212
Natural Gas	19,733	0.0607	2.8759
Nuclear Power (620 mw BNPP)	3,530	0.0535	2.5321
Step 2 – Sort from highest to lowest cost	GWh	$/kWh	PhP/kWh
Diesel	4,372	0.1605	7.6006
Oil-Thermal	341	0.1397	6.6144
Gas Turbines	10	0.1104	5.2278
Combined Cycle GT	686	0.0824	3.9008
Geothermal	10,728	0.0754	3.5726
Coal	17,683	0.0665	3.1506
Nonconventional (Wind / Solar)	62	0.0638	3.0212
Natural Gas	19,733	0.0607	2.8759
Hydro	8,994	0.0572	2.7089
Nuclear Power (620 mw BNPP)	3,530	0.0535	2.5321
Step 3 – Replace most expensive with least expensive	GWh	$/kWh	PhP/kWh
Diesel	842	0.1605	7.6006
Oil-Thermal	341	0.1397	6.6144
Gas Turbines	10	0.1104	5.2278
Combined Cycle GT	686	0.0824	3.9008
Geothermal	10,728	0.0754	3.5726
Coal	17,683	0.0665	3.1506
Nonconventional (Wind / Solar)	62	0.0638	3.0212
Natural Gas	19,733	0.0607	2.8759
Hydro	8,994	0.0572	2.7089
Nuclear Power (620 mw BNPP)	3,530	0.0535	2.5321
Total GWh	62,608
Average Levelized Cost (without vs with BNPP)	0.0720	0.0660	3.1251
% cost reduction		-8.38%

The next level of sophistication would be to do a linear programming (LP) exercise by providing the capacity demand, capacity constraint, fixed cost, variable cost, minimum stable load, must run plants, and other technical and economic constraints.

Of course the highest level of optimization is to run the market model of the electricity spot operator (WESM) so that all the hourly constraints, energy balances and transmission line dynamics would be considered.

Questions:

“Is it worth it?”

“Are the risks associated by the operation of a nuclear power plant enough to overcome the benefits to be derived from its power generation?”

Now, let us get some data on our neighboring countries like Indonesia, Malaysia, Thailand and our nuclear power neighbors such as Japan, Korea, China and Taiwan.

How does our electricity cost compare?

Please leave your comments and suggestions.

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Marcial T. Ocampo

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