October 20, 2014

Latest Estimate of Power Generation
Costs by Power Source, and Cost-Benefit
Analysis of Alternative Power Sources(Outline)
Systems Analysis Group
Research Institute of Innovative Technology for the Earth(RITE), Kyoto, Japan
Contact:
Kohko Tokushige, Keigo Akimoto,
Junichiro Oda, Fuminori Sano
TEL: 0774-75-2304, E-mail: sysinfo@rite.or.jp

Introduction

2



RITE estimated power generation costs by power source in Japan during FY20092010 before the Great East Japan Earthquake (estimate for the period 2005 to 2007
and future prospects). On the other hand, after the Great East Japan Earthquake andthe Fukushima Daiichi nuclear plant accident, the Japanese government established
the Cost Verification Committee under the Energy and Environment Council inautumn 2011 and estimated power generation costs by power source.

In the light of subsequent changes in various situations, this report provides thelatest estimate of power generation costs. Included in the changes in situations are
the trend of increasing fossil fuel prices, the trend of increasing costs for improving
the safety of nuclear power generation, and introduction of the Feed-in Tariff Scheme
for Renewable Energy and the subsequent change in renewable energy costs. Thesefactors were taken into consideration for this study.

As compared to the estimate by the Cost Verification Committee, a morecomprehensive and logical approach has been taken for this estimate of power
generation costs by power source.
For the full report, see http://www.rite.or.jp/Japanese/labo/sysken/about-globalwarming/download-data/PowerGenerationCost_estimates_20141020.pdf

Using a mix of various power sources with their respective characteristics taken into consideration
makes it possible to decrease power generation costs as a whole and keep a good balance among
various factors, such as CO2 emission reduction and energy security improvement. It should be noted
that, even if the power generation unit costs of some power sources are high, they can still be
important components of power mix.

Estimation of Power Generation Costs
by Power Source for 2013

As compared to a cost of¥8.4/kWh for nuclear power,
the cost of wind power is¥26.0/kWh (3.1 times that ofnuclear power) and thecost of photovoltaic poweris ¥36.8 to 38.8/kWh (4.4 to4.6 times）.

40(38.8)(36.8)

33.8

35

30.6

Unit cost (JPY/kWh)Individual cost items are
estimated with certain
assumptions with different levelsof confidence . Please see thefull report to clarify theassumptions.

30(26.0)

25

21.2

3

Surplus prof it allowed by FIT(2013)
Grant f or local governmentsof the plant site
External costs of energy
security
External costs of risk of
nuclear power accidents
CO2 price（20$/tCO2）

2015
10

Additional grid system costs(13.3)
12.5
(8.4)
8.0

Fuel recycle, back-end costs

(9.5)
7.8

Decommissioning costs
O&M costs

5

Fuel costs

0Nuclear

CoalLNG

Surplus profit allowed by FIT (2013)
Grant for local governments of the plant site

0.4

External costs of energy security
External costs of risk of nuclear power accidents

00.19

0

5.0

PV (utilityscale)
6.200

PV (rooftop)

0.012

CO2 price（20$/tCO2）
Additional grid system costs

00.09

Wind(onshore)
4.8

0.25

1.6

0.6

0.1

0.1

40.8

0.8

Fuel recycle, back-end costs

0.5

Decommissioning costs

0.05

0.01

0.01

0.1

0.2

0.2

O&M costs

2.85

1.18

0.68

3.4

3.4

9

Fuel costs

14.1

10.3

000

2.4

1.4

13.7

29.4

20.6

Additional costs for improving safety of nuclear power

0.42

Investment costs

2.9

Additional costs f or improving
saf ety of nuclear power
Investment costs- Estimated costs for a power plant
newly built in 2013.
- Under the assumption that thecapacity factors for nuclear andthermal power plants are both 80%
and the duration of nuclear plant
operation is 40 years.
Note 1: Figures for some cost items
should not be simply added, towhich attention must be paid.
Note 2: Figures in black in the graphcorrespond to the column totals
inside the black box and those inred (in parentheses ) to the column
totals inside the red box.

Costs and Benefits Now Associated with theSuspension of Nuclear Power Plant Operation
Costs and benefits of substituting nuclear power operation(JPY/kWh)

40
35

33.6

30

31.6

28.6
25.4

25
20.8

20
15.9

1510

16.0

8.1

5

4.3

0

4

Significant additional costs
are now incurred as follows:Substitution by- LNG: About ¥8/kWh- Oil: About ¥16/kWh- Wind power: About ¥16/kWh(¥21/kWh on FIT procurement
price basis）- Photovoltaic power: About¥25 to 29/kWh (About ¥32 to34/kWh on FIT procurement
price basis）

-5-10

Coal

LNG

Oil

Investment costs
Fuel costs
O&M costs
Additional grid system costs
External costs of risk of nuclear power accidents
Surplus profit allowed by FIT (2013)
Net costs including surplus profit allowed by FITWind (onshore)

PV (rooftop)PV (utility scale)

Avoided investment costsAvoided fuel costs
Avoided O&M costs
CO2 price（20$/tCO2）
External costs of energy security
Net costs- This analysis is based on the costestimate on the previous slide.
- However, avoided investment
costs (benefits) do not include theinvestment costs for nuclear
power plant because this is an
estimate of costs and benefits
associated with the suspension ofexisting nuclear power
generation.

Estimate of Power Generation Costs
by Power Source for 2030
25(25.2)
25.2(22.0)
22.0

Unit cost (JPY/kWh)20(16.7)
16.7

15(12.2)
8.310(7.5)
7.1(8.4)
8.0(10.2)
9.8(9.1)
7.4(10.1)
7.8(11.9)(10.7) 10.7(25.3)
25.3(23.8)
23.8

Grant for local governments ofthe plant site
External costs of energy security(18.8)
18.8(17.3)
17.3(13.4)
11.5

External costs of risk of nuclear
power accidents
CO2 price（25-55$/tCO2）(13.1)
13.1(11.6)
11.6

5

Additional grid system costs

9.9

Fuel recycle, back-end costs
Decommissioning costs
O&M costs

5

Fuel costs
0Low

Mid
NuclearHighLowMidCoalHighLow

Mid
LNG

HighLow

Mid

HighWind (onshore)

Low

Mid

HighPV (rooftop)

Low

Mid

High

PV (utility scale)

Additional costs for improving
safety of nuclear power
Investment costs- Estimated costs for a plant newly built in 2030
- Under the assumption that the capacity factors for nuclear and thermal power plants are 60-85% and 80%, respectively, andthe lifespan of a nuclear plant is 40 to 60 years.
- The external cost of CO2 is assumed to be $33/tCO2 for the above medium values.
Note 1: Figures for some cost items may not be simply added, to which attention must be paid.
Note 2: Figures in black in the graph correspond to the column totals inside the black box and those in red (in parentheses) to the column totals
inside the red box.

- In the future, the costs of photovoltaic power generation may probably be reduced,
whereas additional costs of grid system are predicted to increase according to large
installations of wind and photovoltaic power generation.

Investment Decision of Electric Utilities
under a Competitive Environment

6Situation under the comprehensive cost principle

Time span for investment decision-making

Current value of electricity

Situation where competition is intensified throughelectric power system reform
It is uncertain in the future whether
electricity produced at power plants will beable to be sold in the future. Consequently,
electric utilities are likely to recover theirinvestment within a short time. (Thediscount rate for investment decisionmaking increases.)

It is almost certain that electricity maintains
the same value even 30 to 60 years fromnow. (For most other assets, it is uncertain
whether they maintain their value; however,energy is different.)

Under the following assumptions:“Social discount rate case”: Discount rate of 5%“Short-term turnover case: Discount rate of 10%“Uncertain nuclear policy case”: Discount rate of 15%

This is reasonable decision-making
on the part of electric utilities, but is
eventually unreasonable for society.

Time span for investment decision-making

Service life of power plants (about 30 to 60 years)(Even longer for the back-end of nuclear power generation)
1614

As competition is intensified
under the electric powersystem reform process,social costs deviate fromthe costs recognized byelectric utilities. Policy
measures must be taken tocorrect such deviation.

Unit cost (JPY/kWh)

1210

External costs of short-term
turnover induced by uncertain
nuclear power policies(13.7)
13.3
External costs ofshort-term
turnover inducedby competitive (10.9)
10.5
markets

Grant for local governments of theplant site

In this case, developers recognize
higher costs for nuclear power than
the real social costs.
(11.8)
9.5(11.8)
9.5(11.9)
10.7(12.8)
11.6(12.8)
11.6

External costs of energy security
External costs of risk of nuclear power
accidents(10.1)
7.8

CO2 price（33$/tCO2）

(8.4)
8.0

8

Additional grid system costs

6

Fuel recycle, back-end costs

4

Decommissioning costs
Policies to avoid
these externalcosts are required.

2O&M costs

0

Fuel costs
SocialShort-term Uncertain
SocialShort-term Uncertain
SocialShort-term Uncertain
discount turnovernucleardiscount turnovernucleardiscount turnovernuclearrate casecase
policy case rate casecase
policy case rate casecase
policy case
NuclearCoalLNG

Additional costs for improving safety ofnuclear power
External costs by uncertainty in nuclear
policies
External costs by short term turnover

Real costs of investment

Major Findings from the Analysis (1/2)
7 Fossil fuel prices are increasing and the difference between nuclear andthermal power generation costs has further increased from that estimated by
the Cost Verification Committee in 2011. Despite the trend of increasing
additional costs for improving the safety of nuclear power generation, nuclear
power is certainly a relatively low-cost power source. With global warming
damage costs (carbon prices) taken into consideration, its cost advantage issignificant against coal power generation. These findings must be
acknowledged regardless of personal preferences as the above analysis
being objective, based on likely assumption.
 The procurement costs to date under the Feed-in Tariff Scheme for Renewable
Energy obviously has far exceeded a “modest profit” level. Securing suchsignificant profits gives benefits only to a limited number of renewable energy
power producers while placing an excessive burden on many electricity users.
Since there is also a concern that this practice might reduce the industrial
competitiveness of Japan over a long period of time and also increase theburden on the economically weak groups, it must be immediately reviewed.
 Toward 2030, photovoltaic power generation costs are expected to be reduced.
However, corresponding to the increase in the amount of electricity generated
by photovoltaic power, system stabilization costs are predicted to increase
and additional costs to substitute wind and/or photovoltaic power for nuclear
power may probably be up to about ¥10/kWh, which will cause a significantburden.

Major Findings from the Analysis (2/2)
8 Even if global warming damage costs (carbon prices) of $33/tCO2 in 2030

are taken into consideration, coal power generation costs are significantly
advantageous compared to the costs of other power sources (excludingnuclear power). To address global warming (CO2 emissions reductions) in
the longer term, coal power generation should not be significantly expanded.
However, with its low costs taken into consideration, a certain level ofexpansion of coal power generation must be kept in mind as an option
under circumstances where it is difficult to expand nuclear powergeneration.
 Under a situation where competition is intensified by electric power system

reform or where future energy and nuclear power policies remain as unclear
as they are now, electric utilities eventually take their own way to evaluate
costs, including the cost of the risk in the investment environment, whichcosts may deviate from the real costs in society. Since this may cause adeviation from the social benefits of the electric power generation system,
additional policies are required to close the gap between the desired longterm social benefits and the problems which may potentially be producedby the short-term profit-oriented behavior of electric utilities in an
increasingly intensified competitive environment, while removing
uncertainty in energy and nuclear power policies.