End-of-life funding challenges

Like baby-boomers, the number of ageing nuclear reactors that are soon to start entering retirement is expected to increase significantly in the near future. For both, the challenge is having enough funds for the years after work is over. For nuclear plants, that means decommissioning and managing waste.

Funding for the three aspects of managing ageing reactors – decommissioning, and dealing with radwaste and spent fuel – has joined the urgent technical and political challenges faced by the industry, notes the OECD’s Nuclear Energy Agency (NEA).

NEA is studying the challenges and potential ways forward. Even if the drawdown of funds is not immediately needed, there has to be enough of a retirement pot in the nuclear sector to cover costs.

Money talks in Stockholm

Over the next two decades, the majority of reactors will approach the end of their originally planned operational lifetimes. The opportunity for life extension varies from country to country, notes NEA of its member countries.

The challenge of funding decommissioning, and dealing with radwaste and spent fuel, were explored at a two-day conference in September 2016, organised by NEA. It drew more than 100 participants from 18 countries.

Financing of Decommissioning covered a number of aspects, including the funding mechanisms, approaches to cost estimation and strategies for risk management employed in a number of NEA member countries.

Most nations have systems that are well-developed, but individually tailored to their legal and commercial settings. The conference concluded that there is no explicit best method or system.

The conference concluded that more attention should be paid to funding mechanisms. There should be ongoing
checks to ensure the approaches used and assumptions (discounting rates, value for money [rather than net present value (NPV), which cannot effectively be known if the value of decommissioning cannot be quantified], timing of closure, financial burden from legislation, etc) remain suitable to the needs. It is vital that invested funds are sufficient, and are timed to meet the projected expenses.

When discussing cost estimation, the conference highlighted progress made in providing guidance internationally. However, more work is needed on three fronts: first, to get much more data for analyses – overcoming a reticence, if not reluctance, to share such information; second, to compare and contrast estimated costs against actual costs; and, third, to establish a benchmarking system that would help guide and validate methods for cost estimation.

This work has been taken forward by NEA’s Decommissioning Cost Estimation Group (DCEG), following its annual meeting in mid-2017 (see Box Panel 1). The conference also noted that the agency’s International Structure for Decommissioning Costing (ISDC) of Nuclear Installations publication would help generate comparable data.

For strategies on risk management, there were a range of insights provided around the value of great project management, but also provision for oversight. There were discussions on technical knowledge of infrastructure and site aspects; risk sharing in contracts; lifecycle monitoring; budgeting to include various management costs and funding; and having budget and funding sensitivity analyses of scenarios with key changes, such as early plant retirement. 

NEA decided to examine the financial arrangements to match the back-end liabilities, and the task is being performed by WPNE (see Box Panel 2).

Geoffrey Rothwell, principal economist at NEA’s nuclear development division, and Secretariat of the WPNE, said in his presentation to the Stockholm conference that the scope of decommissioning varies among regions. The USA considers it to be decontamination, while the European Commission (EC), through the ISDC, views it as everything including also demolition, waste management and site restoration.

Rothwell, in his conclusions on cost drivers, says:

• states should encourage early planning by paying for pre-decommissioning costs out of decommissioning funds;
• the cost of managing spent nuclear fuel should be handled separately, to make like- for-like comparison of decommissioning costs easier;
• the primary factor influencing the overall costs of decontamination and demolition is opting for immediate rather than deferred decommissioning. This limits the validity of quantitative comparisons of cost estimates.

On funding, Rothwell’s summary points were:

• countries should standardise funding requirements;
• funding should be front-loaded to ensure sufficient money is in the pool as part of risk management;
• funding needs should be reviewed and updated, with regular updating of decommissioning cost estimates.

His conclusions followed discussion on cost estimates and actual expenses in the USA, drawing data from Pacific Northwest National Laboratory on plant closures (Haddam Neck, Trojan, Main Yankee and Rancho Seco) and estimates for others (La Salle, Comanche Peak, Duane Arnold, Kewaunee). 

Spain’s ENRESA discussed estimated versus actual decommissioning costs at the Jose Cabrera plant in Spain. Preliminary results from the project show estimates were reasonably close on dismantling activities. However, labour and management costs were higher than expected, partly because estimates had been performed at different stages of the project. ENRESA said that the costs are ‘very sensitive’ to programme delays.

A case study of decommissioning costs in South Korea, from KHNP, looked ahead to the expected surge in plant closures in 2030s onwards. KHNP said cost estimates should be performed by the owner.

Generally, annualised funding needs can be lessened if the back-end activities on a scheme are rescheduled to start much later. But such reduction requires that rates of return on set-aside funds are higher than project-cost escalation. Given the inherent uncertainties on both variables, front-loading of the savings pot is recommended as the conservative and prudent approach.

When a decommissioning project begins it is like any project: if the works involved are delayed the result is a stretched programme. That means higher costs and a question over whether the pot has sufficient funds.

Awareness of the uncertainties in planning back-end projects is vital, and that includes the economic and financial methods of conservatively estimating the funds required. Technical and economic-financial assessments must be correct to minimise risks for the future when the tasks are to be performed.