Chris gadomski-bloomberg

SMRS:
THE ECONOMICS
AND CHALLENGES
2ND ANNUAL SMALL MODULAR REACTOR
CONFERENCE, COLUMBIA, SC

CHRIS GADOMSKI, LEAD ANALYST, NUCLEAR

24 APRIL 2012

/ / / / / / // / /// / / / / / / / / / / / / / / / / / / /
/ SMRS: THE ECONOMICS AND CHALLENGES, 24 APRIL 2012 1

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/ / / / SMRS: THE ECONOMICS AND CHALLENGES, 24 APRIL 2012 2

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CONTENTS

1. The economics: Q2 2012 assessment

2. Major challenges

3. Market opportunities

4. Crititical technical and commercial factors


FOSSIL TECHNOLOGY LCOES ($/MWH)

140
Coal w/CO2
120

100
CCGT w/CO2
80
Coal
60
CCGT
40

20

0
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011 2012

Note: Prices are in nominal dollars Source: Bloomberg New Energy Finance


SOLAR TECHNOLOGY LCOES ($/MWH)

350
300
250
200
150
100
50
0
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011 2012

STEG - Parabolic Trough STEG - Parabolic Trough w/Storage
STEG - Tower & Heliostat STEG - Tower & Heliostat w/Storage
STEG - LFR PV - Thin Film
PV - c-Si PV - c-Si Tracking



WIND TECHNOLOGY LCOES ($/MWH)

250
Wind - Offshore
200

150

Wind - Onshore
100

50

0
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011 2012



LEVELISED COST OF ELECTRICITY, Q1 2012 ($/MWH)

Marine - Wave NOAK 799 -
Marine - Tidal SMR 740 -
STEG - Parabolic Trough +5%
STEG - LFR +5%
STEG - Parabolic Trough + Storage +5%
STEG - Tower & Heliostat +6%
Wind - Offshore +1%
STEG - Tower & Heliostat w/storage +6%
PV - c-Si -13%
PV - Thin Film -12%
Biomass - Gasification -
PV - c-Si Tracking -8%
Biomass - Anaerobic Digestion -
Biomass - Incineration +3%
Municipal Solid Waste -
Geothermal - Binary Plant -
Wind - Onshore +4%
Small Hydro -
Large Hydro -
Geothermal - Flash Plant -
Landfill Gas -
Nuclear -
Coal Fired -
Natural Gas CCGT +7%

0 100 200 300 400 500
LCOE BNEF 2011 EU-ETS EUA Forecast Q1 2012 Central Scenario Q4 2011 Central Scenario

Note: Carbon forecasts from the Bloomberg New Energy Finance European Carbon Model with an
average price to 2020 of $33/mtCO2. Coal and natural gas prices from the US Department of Energy EIA
Annual Energy Outlook 2011 and internal forecasts. Percentage change represents change from Q4 2011. Source: Bloomberg New Energy Finance


CONTENTS


2. Major challenges


4. Crititical technical and commercial factors


2. MAJOR CHALLENGES FACING NUCLEAR

1. Cheap and abundant ‘clean’ natural gas

2. Fukushima backlash

3. Renewable investment

4. Demand erosion


HISTORICAL AND PROJECTED GAS PRICE FORECASTS,
2002-20 ($/MMBTU)

16

14

12

10

8
BNEF forecast
6

4
Historical
2

0
2002

2004

2008

2010

2012

2014

2016

2020
2006

2018
Source: Bloomberg New Energy Finance


NO MATERIAL UPSIDE TO PRICES IN THE SHORT TERM…

Working gas in underground storage (Bcf)
5,000
4,500 Physical storage limit

4,000
3,500
3,000
2,500
2,000
1,500
1,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
2007-10 range 2011 2012 actual
2012 estimate 2013 estimate
Source: Bloomberg New Energy Finance, EIA


ANNUAL AVERAGE WHOLESALE PRICE FORECASTS BY
REGION, 2012-20

Wholesale price ($/MWh) Gas price ($/MMBtu)
80 8
NOAK SMR

70 7

60 6
PJM
50 5 NY
MISO
40 4
CA
30 3 SPP
TX
20 2
Gas
10 1

0 0
2012 2013 2014 2015 2016 2017 2018 2019 2020

Note: Gas price is our base case forecast of Henry Hub. Source: Bloomberg New Energy Finance


US SUPPLY AND DEMAND, 2010-20 (BCFD)
Sources of supply
100 100 Other
Supply Supply
100 Eagle Ford
Other
80
80 Supply
Marcellus
80 Eagle Ford
100
60 Other
Supply Woodford
Marcellus
60 Eagle Ford
60
80 Fayetteville
Woodford
40
Marcellus
Barnett
Fayetteville
40 40
60
20 Woodford
Haynesville
Barnett
20 Net imports Fayetteville
CBM
20 40
0 Haynesville
BarnettMexico
Gulf of
CBM
Net imports
0
20 Haynesville (gas)
Conventional
0 -20 Gulf of Mexico
Net imports CBM
Conventional (associated)
Conventional (gas)
-20
0
-40
-20 Gulf of Mexico
Power
Sources of demand
Conventional (associated)
-40
-20
-60 Conventional (gas)
Industrial
Power
-40 Conventional commercial
Residential & (associated)
Industrial
-60
-40
-80 Power
Other
Residential & commercial
-60 -80
-60
Demand Industrial
LNG exports
-100 Other
Demand Residential & commercial
Net imports
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 LNG exports
-80 -100
-80 Other
2011 2012 2013 2014 Net imports
Demand 2016
2015 2017 2018
Demand 2019 2020
Balance
LNG exports
-100 -100
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Net exports
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Bloomberg New Energy Finance, EIA, AL OGB, AOGC (AR), COGCC (CO), LA DNR, NM OCD, OCC (OK),
PA DEP, TRRC (TX), UT DNR, VA DMME, WOGCC (WY), WV DEP


JAPAN NUCLEAR CAPACITY: 2010 AND PROJECTED GROWTH
VS. NO NEW BUILDS, ASSUMING 40-YEAR OPERATING LIFE (GW)

80

68
70 64

60
49
50
2001-2010
40 36 1991-2000
1981-1990
30 1971-1980
22
1966-1970
20

10

0
1970 1980 1990 2000 2010 2020 2030

Source: Bloomberg New Energy Finance, METI


GERMAN NUCLEAR CAPACITY, 2010-23 (GW)

Biblis A, Biblis B, Brunsbuttel,
Isar 1, Krummel,
Necharwestheim 1, Philippsburg
25 and Unterweser in 2011
Grohnde, Gundremmingen C
Grafenrheinfeld and Brokdorf by end of 2021
20 by end of 2015
Gundremmingen-B
by end of 2017
Philippsburg-2 Isar 2, Emsland
15 by end of 2019 and
Neckarwestheim 2
by end of 2022
10

5

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Bloomberg New Energy FInance


FRENCH PEAK DEMAND-SUPPLY OUTLOOK TO 2025
WITH NO LIFE EXTENSIONS (GW)

Nuclear life extension
100
Peak imports

Baseload imports

80 Oil + OCGTs

CCGT

Coal
60
Cogen + Other RE

Wind

40 Hydro

Nuclear

Peak exports
20 Winter reference peak

Baseload exports

Baseload demand
0
2011 2014 2017 2020 2023

Source: RTE, Bloomberg New Energy Finance


REPLACING NUCLEAR GENERATION
ELECTRICITY DEMAND AND GENERATION (TWH/YR)

Planned / Projected
Export - Imports
+ Pumped storage
consumption +192 -27

+59 -17 -158
64
64
+34

Domestic 584 584
consumption 520 542 Implementation
478 needed

2011 Electricity Expected Additional EE 2025 Electricity 2011 Electricity Nuclear capacity Increased New renewable Available 2025 Electricity
demand demand growth measures demand generation shutdown nuclear load energy surplus generation
factor generation generation

DEMAND GENERATION



GLOBAL NEW (Corp R&D, Gov R&D, SDC and adjustment for re-inv equity) ENERGY BY
Internal Note: Includes all add-ons INVESTMENT IN CLEAN

SECTOR ($BN)

$260bn
$247bn 9.6
11.7 19.2

23.2 19.8

$187bn $189bn 21.8

13.2 16.5
74.9
$153bn 16.6 18.6 Other
12.4
32.3 21.7 90.1 Energy smart technologies
15.6 Bioenergy
$113bn
10.4 36.1
Wind
12.8
67.6 73.8 Solar
$75bn
8.1 37.4 136.6
$54bn 11.1 50.9
4.8 15.5 100.2
12.0
32.2
9.6 23.5 57.4 58.1
13.4 37.8
13.8 16.3 20.2

2004 2005 2006 2007 2008 2009 2010 2011

Note: Includes corporate and government R&D, and small distributed capacity. Adjusted
for re-invested equity. Does not include proceeds from acquisition transactions Source: Bloomberg New Energy Finance


FORECAST LARGE PV PROJECT CAPITAL COST, 2010–20 ($/W)

$3.02

$2.63
$2.32
$2.11
$1.98
$1.87
$1.77
$1.68
$1.6 $1.52 $1.45

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Module Inverter Balance of plant Engineering, procurement & construction other
Note: Based on historical experience curves for crystalline silicon modules and other
components, and the prices in the mature German market. 2010 dollars. Assumes Bloomberg
New Energy Finance short-term build forecasts to 2013, 20% new build growth after that. Source: Bloomberg New Energy Finance


RESIDENTIAL ELECTRICITY PRICE 2012, INSOLATION,
RESIDENTIAL PV LCOE 2015
0.40 More sun
Denmark
$/kWh
0.35
Germany

0.30 Italy
Spain
0.25 Hawaii

United Kingdom
0.20 Japan France Australia
Brazil
Turkey
0.15 South Korea California
New Jersey North India
Israel
Canada Argentina
0.10 Texas
North China Mexico
Russia South South India
0.05 China
Indonesia
Saudi Arabia
0.00
800 1000 1200 1400 1600 1800 2000
Potential
25GW residential EMEA ASOC AMER kWh/kW/year
PV market
Note: LCOE based on 6% weighted average cost of capital, 0.7%/year module degradation, 1% Source: Eurostat, grid operators, Bloomberg New Energy
capex as O&M annually. $2.34/W capex assumed for 2015 Finance


BALTIMORE GAS AND ELECTRIC
PROJECTED PEAK DEMAND REQUIREMENTS, 2009-23 (MW)

0%

(Demand-side
management)

But what about
electric cars?

Source: BGE via Maryland DSM study


CONTENTS


2. Major commercial challenges


4. Critical technical and commercial factors


3. MARKET OPPORTUNITIES

1. Fossil fuel generation replacement, eg. US & UK

2. Power and desalination, MENA

3. Oil sands, Alberta

4. Process heat for biofuels


UK GENERATION CAPACITY, 2012-30 (GW)

160 Biomass & waste

140 CCGT
CCGT w/CCS
120
Coal
100
Coal w/CCS
80 Hydro

60 Marine
Nuclear
40
Oil & OCGT
20
Solar
0 Wind offshore
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Wind onshore



UK PLANNED RETIREMENTS
CAPACITY (GW)

9.0

8.0

7.0
CCGT
6.0

5.0 Coal
4.0
Nuclear
3.0

2.0 Oil

1.0

0.0
2012 2013 2014 2015 2016



MENA TECHNOLOGY AND POLICY DRIVERS

1. Rapidly growing energy demand – at least 5% CAGR 2010-20

2. Economics – lost opportunity cost for a barrel of oil

3. Water – 79% of installed global desal capacity in 2020

4. Contracts signed for large reactors


ELECTRICAL POWER GENERATED FROM OIL (GWH)

120,000

55%
100,000
That totals 246TWh…
80,000

60,000

40,000 72% 98%
19%
20,000 55%

0
Saudi Kuwait Iraq Egypt Libya

Source: World Bank Data


DESALINATION OPPORTUNITIES IN MENA
(M3/CAPITAL/YEAR)

TOTAL RENEWABLE WATER RESOURCES PER CAPITA
18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000 DESALINATION OPPORTUNITIES?

0

Yemen
Syria

Lebanon

Jordan

Kuwait
Palestine
World

SE Asia

ESCWA

Bahrain
Iraq

UAE
Oman

Qatar
America

Egypt

Arabia
Sudan

Saudi
North

ESCWA: Economic And Social Commission For Western Asia Source: ESCWA


ENERGY INPUT COST OF DESALINATION PER M3

Energy cost per m3 of desalinated water
$8.00

$7.00

$6.00
MSFsa
$5.00 MSFco

$4.00 MEDsa

$3.00 MEDco

$2.00 RO

$1.00

$0.00
$0 $30 $70 $110 $150
Opportunity cost of a barrel of oil
Note: Assumes energy accounts for 75% of water supply costs. Plants with different
capacities may use different amounts of energy. Prices are averages, representative of
average costs. Source: Data compiled by ESCWA


DESALINATED WATER PRICES USING DIFFERENT POWER
SOURCES ($/M3)
4.72

3.90

2.51
2.24
1.92
1.63
1.43
1.19 1.10 1.29
1.15 1.06 0.96
0.87 0.88 0.87 0.79 0.75 0.70
0.75

Oil Coal Nuclear Natural Gas

MSF MSF-RO MED MED-RO RO

Source: IAEA, Bloomberg New Energy Finance


ALBERTA OIL SANDS PROJECTED PRODUCTION

Source: CERI's 2011 Canadian Oil Sands Supply Costs and
Development Projects (2011-2045) study number 128.


CANADIAN OIL SANDS NATURAL GAS DEMAND (MCF/D)
DRIVING CO2 EMISSIONS (CO2 EQ. MT/YEAR)
(MMcf/d) (CO2 eq. MT/year)
4,000,000 200,000

180,000
3,500,000

160,000
3,000,000
140,000

2,500,000 Nat Gas Consumption
120,000
CO2 Emission
2,000,000 100,000

Cost of compliance 80,000
1,500,000
in 2022: C$3bn+
60,000
1,000,000
Total compliance
40,000
through 2045:
500,000 C$200bn 20,000

0 0
2007 2012 2017 2022 2027 2032 2037 2042

Source: CERI's 2011 Canadian Oil Sands Supply Costs and
Development Projects (2011-2045) study number 128.


RENEWABLE FUELS STANDARD (RFS-2), 2012
(BN GALLONS)
40
21bn gallons/year by 2022 of
35 new “advanced biofuels” Cellulosic
capacity needed biofuel (d)

30
Other
25 advanced
biofuel (c)
20
Biomass-
15 based
diesel (b)
10
Corn-based
5 ethanol (a)

0
2008 2010 2012 2014 2016 2018 2020 2022



RFS-2 TECHNOLOGIES

TOTAL RENEWABLE FUELS
ADVANCED BIOFUELS
OTHER RENEWABLE FUELS
CELLULOSIC BIOFUEL OTHER ADVANCED BIOMASS-BASED
ETHANOL BIOBUTANOL ETHANOL/BIODIESEL OTHER BIODIESEL

STARCH SUGAR
TRANSESTERIFICATION
FERMENTATION FERMENTATION
ALGAE FEEDSTOCK TECHNOLOGY

BIOBUTANOL ADVANCED BIOCHEMICAL

ENZYMATIC HYDROLYSIS

ACID HYDROLYSIS

GASIFICATION – FT SYNTHESIS
small modular reactor PYROLYSIS
technology group target
GASIFICATION – FERMENTATION

HYDROTREATMENT

Renewable fuel 1-generation Algae feedstock Biochemical Thermochemical
type technologies technologies technologies



BASIC THERMOCHEMICAL BIOENERGY PROCESS

drying tar
CH4

Feedstock input: pyrolysis
biomass/municipal CO2
H2O
waste combustion
CO H2
reduction

Thermo process
Syngas

FT synthesis Fermentation Combustion

Methanol Power
Syndiesel
Ethanol Steam


CONTENTS


2. Major challenges


4. Critical technical and commercial factors


4. CRITICAL TECHNICAL AND COMMERCIAL FACTORS

1. Safety, safety and safety

2. Regulatory uncertainty

3. Time to market, competitive, less risk

4. Government support – what kind and how much?


TOP 10 GLOBAL PV CELL MANUFACTURERS 2006, 2010
(RANK ORDER BY CAPACITY)
+46% per year
2006 2010
Company Country Capacity (MW) Company Country Capacity (MW)

1. Sharp Japan 500 1. JA Solar China 1,900
2. Q-Cells Germany 420 2. Suntech China 1,620
3. Suntech China 270 3. First Solar (TF) US 1,502
4. Motech Taiwan 240 4. Yingli China 1,100
5. Solarworld Germany 200 5. Trina Solar China 1,000
6. China Sunergy China 180 6. Q-Cells Germany 1,000
7. Kyocera Japan 180 7. Canadian Solar China 800
8. Isofoton Spain 130 8. Motech Taiwan 600
9. Schott Germany 121 9. Gintech Taiwan 600
10. Sanyo Electric Japan 115 10. JinkoSolar China 600

Europe US China Other Asia

Note: ‘Capacity’ counted as either crystalline silicon cell or thin film module. Source: Bloomberg New Energy Finance, company
TF is thin film announcements


BNEF ASSESSMENT– CAUTIOUS BUT PROMISING

• Models differ Units installed
widely 400

• Markets 350
Agency Low
developing quickly300
Agency High
• Technology 250
Consultant Low
following slowly 200

• Market
Consultant High
150
Industry Low
assumptions
100
change rapidly Industry Moderate

• Is it a $500bn
50

market…or more? 0
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Sources: Various industry sources interpreted by Bloomberg New Energy Finance


ON THE RECORD – POST FUKUSHIMA

“We’re seeing a knee-jerk reaction saying ‘get rid
of nuclear,’ but that is not going to happen in the long
run. There is no other good solution if you want to
decarbonize the energy sector. As far as small
reactors go, these events in Japan will strengthen
their hand as opposed to weakening it.”
Chris Gadomski
Bloomberg Markets
May 2011


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SMRS: THE ECONOMICS
AND CHALLENGES
CHRIS GADOMSKI, CGADOMSKI2@BLOOMBERG.NET
TWITTER @BNEFNUC
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////////////////////////////

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