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Private industry currently controls and operates all front-end and electricity production elements of the open fuel cycle, including mining, milling, conversion, enrichment, fabrication, and nuclear reactor construction and operation. Government is charged with waste management, and is supposed to take title to the spent LWR fuel and dispose of it in a permanent repository. A model of interaction in the context of a closed fuel cycle is proposed that preserves this basic division of labor: industry continues to hold purview over the LWR portion of the cycle and operates FRs, while a government entity manages reprocessing and waste disposal. This is a notional institutional arrangement which is neither predicted nor advocated; rather, it serves as one example for a way to set up the problem. Analysts could insert any number of potential arrangements between nuclear fuel cycle actors, and could potentially use the framework to compare their impacts.

Figure 7-1 graphically shows how responsibility would be allocated for this notional structure. Utilities operating LWRs would continue to pay a waste fee to the government in exchange for the government managing spent LWR fuel. The government would use this

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revenue to operate a repository and recycling facilities, and would offer fast reactor fuel free of charge (and would not charge a waste fee) to any utility operating a fast reactor.

Figure 7-1: Division of labor between industry and government for a closed fuel cycle

Many different versions of the institutional arrangement governing the closed nuclear fuel cycle are possible. For example, a separate governmental corporation could build and operate fast reactors, or government could find ways to incentivize industry to build and operate reprocessing facilities. Changing the institutional structure entails changing where and how much money is exchanged between entities, but the overall system costs will remain the same. The division of labor illustrated in Figure 7-1 was chosen to minimize changes from the current once- through system, and is used to demonstrate one example of how government-industry interaction could work and to evaluate the implications for fees and fuel cycle outcomes. Note that this structure assumes that fast reactors will always be more expensive than LWRs; if FRs become cheaper, the “free fuel” and “no waste fee” policies for FRs would require reevaluation.

When making decisions to invest in new sources of electricity generation, utilities choose based on the technology that will provide the best returns. This often amounts to choosing the cheapest project (with availability and reliability considerations factored into a risk-adjusted cost). Assuming that fast reactors are always more expensive to construct and operate than LWRs, industry will require incentives in order to ever choose to build an FR over a LWR. One

143 way for government to spur a shift in investment is to charge a higher waste fee on LWRs, such that FRs with no waste fee and with free fuel become cheaper.

Figure 7-2 shows the net present cost of building and operating FRs and LWRs for 60 years. The net present cost of an LWR project is $6,515/kWe in 2007 dollars (calculation from (Du & Parsons, 2009), adjusted from a 40-year to a 60-year plant lifetime). Because we do not know what the FR overnight cost premium will be, the NPV of FR cost is presented for a range of cost premiums from 0% to 55%; note that the same premium is applied to decommissioning costs, and FR operating and maintenance costs always have a 20% premium over LWR O&M. The graph clearly demonstrates that at a low cost premium, an FR project is actually cheaper than an LWR project, because LWR operators pay for both fuel and for a 1 mill/kWh waste fee whereas FR operators do not. At 10%, FRs and LWRs have the same cost, and above that, FRs are more expensive.

Figure 7-2: NPV of FR and LWR lifetime costs under proposed government/industry interaction structure 5000 5500 6000 6500 7000 7500 8000 8500 9000 0% 10% 20% 30% 40% 50% NPV  (millions)  of  reactor  cost FR Premium over LWR overnight cost

NPV Comparison

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Figure 7-2 demonstrates that for any FR cost premium above 10%, the incentives of free fuel and a zero waste fee will not be sufficient to incentivize industry to build FRs. LWRs are cheaper and will be the consistent choice in that range. Government decision makers have many policy options to combine with the suggested regime and further spur FR investment: one includes a steeper waste fee for LWR SNF.

Figure 7-3 shows how much the waste fee would have to increase from its present value at 1 mill/kWh in order to drive industry to build FRs. Below an FR cost premium of 10%, no increase would be required: FRs would be the cheapest option. Above a 10% cost premium, the waste fee climbs precipitously such that if FRs are 55% more expensive to build than LWRs, the fee would need to increase by 5 ¢/kWh. This is an extremely high burden to place on nuclear electricity, given that current levelized nuclear electricity costs are in the range of 8.4 ¢/kWh, and that nuclear electricity has to compete with coal costing closer to 6 ¢/kWh,(Du & Parsons, 2009).

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