One of the myths that is carefully taught to power plant engineers during their required course in engineering economics is that there is a mathematical method for computing the cost of a power from a power plant. Using that methodical approach, a big part of the equation – which I never committed to memory – is a factor for the “economy of scale”. Using that factor, the example problems always show that bigger plants end up producing power for a smaller unit cost.
(See, for example – Power Plant Engineering By Lawrence F. Drbal, Patricia G. Boston, Kayla L. Westra published in 1996 by Black & Veatch)
If you read the chapters on engineering economics carefully, however, you find out that there are a number of caveats and assumptions that underly the equations and coefficients. If those do not hold true, one must go back and reevaluate the formula. Unfortunately, my experience is that most engineering students are far more comfortable in performing computations than they are in reading about the conditions, assumptions and limitations of the formulas.
In the nuclear industry, the appetite for “bigger is better” has become part of the culture. It is understandable; there are a number of costs associated with power plant design, licensing and operation that are relatively fixed. If you build a plant with a larger output, their importance per unit of power is lowered.
However, what nuclear engineers do not understand very well is that there is such a thing as “diseconomy” of scale where bigger plants lead to increased costs per unit of salable power. Many of the engineers I have talked with over the years do not even recognize my subtle change of topic by slipping in that adjective of “salable”. It is a pretty important concept to understand.
You see, if you build a plant that is simply too large for its intended market or customer base, you end up with capacity that you have to pay for, but that capacity is unable to be used to produce power that can be sold. If you have idle capacity, there are a number of alternatives that are not particularly attractive – operate at a reduced output and accept the reduced income, seek to increase the size of your market so that your excess capacity is put to use, or lower the cost of your product so that you can capture a larger portion of the existing market.
Another diseconomy of scale comes to play when you begin needing a lot of custom components and support infrastructure. If your pressure vessels are too large to fit onto a standard truck, you need a special truck. If your coolant pumps weigh too much to move with a standard crane, you need a larger crane that will serve fewer customers, so the daily rental cost will increase. If your valves are so large that no one else uses similar sized valves, you will need to set up a special factory to produce the valves in low rate production, driving up the cost per valve to a number far higher than a similar, but smaller, mass produced valve that is used by a number of different customers.
When it comes to design and licensing costs, larger plants often seem to win until one realizes just how much more complex a larger plant can be for considerations such as back up power requirements, water use, or emergency cooling capacity. For licensing, higher complexity leads to higher NRC professional staff hour fees.
The current regulations do make it quite attractive to build and operate larger plants from the standpoint of the annual license fee. Right now that is a per reactor fee that has no provisions for pro rating based on power output or required staff attention. Engineers often accept the current rules as the input to their equations – us English majors with questioning attitudes might think about ways to convince the NRC to take a hard look at the way that they compute the fees.
It sure seems logical to implement a fee schedule where small, simple plants would cost less each year to regulate than enormous plants with large staffs and complex interactions between supporting systems. With other companies like Toshiba and Hyperion Power Systems also looking at smaller plants, we believe that there is some additional incentive for a new fee structure.
Another diseconomy of scale that has been an important part of Adams Atomic Engines, Inc. financial computations is the fact that the very large nuclear plants that became the standard in the early 1960s are only suitable for a single energy market – large, central station power plants.
There are only a few companies in the world that can finance the cost of the large plants by themselves; most projects require a complicated partnership and government involvement. This situation does not seem to faze most of the American nuclear engineers that I have met; they do not understand just how diverse the real world energy market really is.
There are a whole lot of customers that need power; many of them are willing to pay far more per unit energy than the typical consumer because in the overall economics of their business, those higher power costs are better than the alternative of doing without power. Companies that sell internal combustion engines and combustion gas turbines recognize this market and serve it as well as they can, but their systems are limited by the constant need to provide new fuel and to constantly get rid of huge volumes of deadly waste products. In some parts of the world, power is simply not available because it is too hard to move the fuel to the right place.
Nuclear fuel is amazingly concentrated – a few hundred kilograms can power a moderately sized city for decades. There is also no routine need to get rid of waste products – they are compact enough to retain on site – perhaps even inside the original reactor vessel – for the life of the plant.
Small nuclear plants are possible, they can serve a need that cannot be met by other sources, and the cost per unit energy can be extremely competitive with the alternatives. Small plants can be protected as well as small banks, or small weapons manufacturing plants or any other high value unit. If the plants are small enough to fit inside a large garage, and that garage was well shielded or even buried underground, it would be exceedingly difficult for anyone to contemplate crashing an airplane or a truck bomb into the facility.
I guess all of the above is simply a bit of explanation of why we have a different opinion about scale economies than the rest of the nuclear industry. I thought it would be useful to share these thoughts now, especially since both Hyperion Power Systems and the Toshiba small nuclear plants have received a lot of blogosphere discussions. I have glanced through a number of those comment threads and have seen that a lot of people have dismissive comments about the value of small nuclear plants. Many of those comments do not fully consider all of the aspects mentioned above.
Feel free to disagree, comment, or applaud. Your choice. We have made a careful decision that we think is the right one. One more thing – do not mistake lack of available systems for lack of real progress towards such a system. Actions that may alter the course of a 150 year old industry are not easy or quick.
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