Wednesday, 3 June 2015

Economic competitiveness of solar PV vs nuclear power

The conventional way to compare the cost of electricity generated by different sources is to calculate the levelized cost of electricity (LCOE) which is used to calculate the life cycle cost of producing electricity.

The LCOE depends on a number of variables such as capital costs, discount rate, fueling costs. The contribution of these variables to the total levelized cost vary from one source of electricity to another. For nuclear electricity, capital costs and the discount rate are the most important variables while for electricity produced by oil or natural gas, fuel costs are the dominant factor.  

Projected economic competitiveness of solar vs nuclear power
In the next figure, the LCOE of nuclear electricity (red) and solar PV (green) are projected until 2025. The LCOE of nuclear electricity is presented within a band between a low (3000 $/kW) and a high (7000 $/kW) capital costs. There is little reason to expect the costs of nuclear power to decline substantially. Indeed, historically, costs of nuclear power have only increased.

On the other hand, the estimates of how fast solar costs are expected to decline are striking. The global average LCOE of solar PV is around 137 $/MWh. This is really a conservative estimate and current utility values are much lower. LCOE of solar PV is expected to decline between to 6% to 10% per year for the next 10 years.

This is interesting because what analysts often forget is that it takes on average about 7-8 years to build a nuclear power plant while a solar PV utility takes about 1-2 years. In a conservative scenario, solar PV will be well within the cost range of nuclear power, and perhaps more economically competitive if coupled with thermal storage and better demand management. 
In this context, investing in nuclear could have an opportunity cost. For countries in the Middle East, building a nuclear power plant could easily take between 8-10 years. By that time, solar PV will likely be a more economically optimal option.