XYLENE POWER LTD.

FNR FINANCING

By Charles Rhodes, P.Eng., Ph.D.

INTRODUCTION:
Elsewhere on this website Fast Neutron Reactors (FNRs) have been identified as the primary source of energy for meeting mankind's future energy needs. This web page focuses on FNR financing.
 

FOSSIL FUEL DISPLACEMENT:
In order to fully displace fossil fuels we must have electricity rates that adequately reward the owners of dependable nuclear power plants. Dependable non-fossil electricity (capacity) must be adequately valued, Otherwise no one will build more of it. The true value of dependable electricity is the cost of intermittent renewable electricity plus the sum of all the costs that must be paid to make the renewable electricity dependable. Since that involves a lot of energy storage and transmission the true value of dependable nuclear power is large.
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NUCLEAR POWER PLANT CONSTRUCTION:
Today one can build a nuclear plant but on completion it must be sold to a pension fund, life insurance company or comparable long term investor. Well managed pension funds are earning 11% to 14% per annum on invested capital. Hence the capital value of a nuclear plant = (anticipated annual net profit from sale of electricity) / 0.14.
From an investor's perspective the value of installed district heating pipes is small, because almost all the district heating revenue must be dedicated to financing and maintaining the buried pipe.

Let us assume that a government guarantees that the owner of a nuclear power plant will receive $0.25 / kWh plus inflation far into the future.

Let us assume that the project proponent believes that the combined costs of nuclear plant operation, maintenance and depreciation will be $0.05 / kWh.

Let us assume that the electricity output is 300 MWe at a 80% capacity factor. Then the net annual revenue is:
300,000 kW X 0.8 X 8766 h / year X ($0.25 - $0.05) / kWh = $420,768,000

Then from the investor's perspective the value of the nuclear power plant is: $420,768,000 / 0.14 = $3,005,485,714.

However, the project proponent has to finance the construction of that plant and must make a profit doing so. That proponent is unlikely to proceed unless he is convinced that his direct costs exclusive of interest will be under $1.5 billion. He will go to the bank, pledge $4 billion in commercial real estate as loan collateral and borrow $2 billion. He also has to pay construction interest on the $ 2 billion which might be as much as $200 million per year. If the project can be built for $1.5 billion and flipped to a long term investor in 2.5 years he makes a $1 billion profit. If the project takes 5 years and costs $2 billion he is bankrupt. The bank will sell his real estate and the long term investor will not purchase an incomplete nonfunctional system.

The key to this financing is adequate valuation of dependable generation kWe. Ontario currently pays existing nuclear generators about $70 / kWe / month. That is base load generation that operates at about a 90% capacity factor. Hence in effect the generator is getting:
$70 /[ kWe X (0.9 X 730 h] = $0.1065 / kWh

As indicated above in order to build a new nuclear plant an investor needs certainty that the ultimate plant owner will be paid at least $0.25 / kWhe for all the dependable electricity that the nuclear power plant can produce. Hence the retail price of dependable electricity has to be of the order of $.30 / kWhe.

There presently is complete reluctance of populist politicians to face this price reality for sustainable and dependable electricity. The only way to mitigate the blended cost of electricity is to offer a mix of dependable and interruptible electricity. If half the kWhe consumed are interruptible electricity at $0.02 / kWhe then the blended electricity price can be reduced by almost by a factor of two.
 

This web page last updated February 11, 2021