Criteria of return on investment in nuclear energy

Abstract

Analytical relationships between the investment performance criteria (net present value (NPV), levelized cost of electricity (LCOE), internal rate of return (IRR), discounted payback period (TPB), and discounted costs (Z)) and basic engineering-economic parameters of nuclear reactors (capital costs K, annual operating costs Y, annual revenue R, NPP construction TC and operation TE periods), characterizing the NPP profitability and competitiveness at the microeconomic level, are defined for the first time. The power function of discounted cash flows was used in calculations. It is shown that the joint analysis of the entire set of investment efficiency criteria (not only LCOE as it is often done) can help avoid contradictions in assessing the NPP project profitability and formulate optimal requirements on the reactor engineering and economic parameters. The obtained analytical expressions provide solutions not only of the traditional «direct problem» (assessing efficiency criteria according to the forecasted capital and operating costs and profit stream) but, which is of equal importance, the solution of the «inverse problem»: assessing restrictions on capital and operating costs, i.e. identifying «investment corridors», based on the desired values of efficiency criteria. The investment risk assessment results obtained by Monte-Carlo method are presented in order to account for the inherent uncertainties in the forecasts of long-term cash flow during the NPP construction and operation required for assessing the efficiency of investments. The calculation results of probability distributions of the investment efficiency (profitability) criteria are presented for the specified ranges of uncertainties the forecasted cash flow. It is shown that the risk of project unprofitability can be quite high. In order to reduce investment risks, it is necessary to justify the changes in basic reactor parameters (decrease in K, Y, TC and increase in R and TE) and uncertainty ranges in the initial data. Copyright © 2017, National Research Nuclear University MEPhI (Moscow Engineering Physics Institute). Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license. (http://creativecommons.org/licenses/by-nc-nd/4.0/)