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2007 12 14 - Electricity Journal - Nuclear Fuel Markets - E Kee

2007 12 14 - Electricity Journal - Nuclear Fuel Markets - E Kee

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Published by Edward Kee
Author's (Contact Edward Kee at edward.kee@nera.com) version of article on nuclear fuel markets, orginally published in December 2007 in The Electricity Journal
Author's (Contact Edward Kee at edward.kee@nera.com) version of article on nuclear fuel markets, orginally published in December 2007 in The Electricity Journal

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Published by: Edward Kee on Jul 15, 2008
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Nuclear Fuel: A New MarketDynamic
After almost 20 years of low nuclear fuel prices, buyers have come to expect that these low and stable nuclear fuel prices will continue. This conventional wisdom may not reflect the significant changes and higher prices that growing demand,and the end of secondary sources of uranium and enrichment,will bring.
Edward D. Kee 
I. Introduction
 The world output of nuclearelectricity has been steadilygrowing and has created agrowing demand for nuclearfuel. The first complete filing of aCombined Construction andOperating License Application(“COLA”) for the South TexasProject expansion waspresented to the US NuclearRegulatory Commission (“NRC”)on 25 Sept. 2007.Constellation filed theenvironmental section of aCOLA for their planned newCalvert Cliffs unit a few monthsearlier and at the end of October, TVA filed a COLA for 2new units to be built at theBellefonte site. These COLAfilings are the first of many, asUS nuclear project developerscompete for the first-come,first-served benefits of theEnergy Policy Act of 2005 andstart a new wave of nuclearpower plant development in theUS. Outside the US, countrieshave either continued to buildnuclear plants or are nowembarking on plans, some veryambitious, for new nuclearpower plants.As the next generation of new nuclear plants procureinitial fuel core loads and entercommercial operation over thenext 10 to 20 years, thedemand for nuclear fuel willgrow significantly. There is wideconsensus that there issufficient nuclear fuel for this
Edward D. Kee
is a Vice President at CRA International, Inc. He is aspecialist in the electricity industry,with a focus on nuclear power,industry restructuring, and electricity markets. Mr. Kee was a consultant at  McKinsey & Company; Charles River Associates; Putnam, Hayes & Bartlett and PA Consulting Groupbefore returning to CRA in 2006. Mr. Kee is based in Washington, DC. Mr. Kee can be contacted at ekee@crai.com.
NOTICE: this is the author's version of a work that was accepted for publication in
The Electricity Journal 
. Changes resulting from the publishing process, such as peer review, editing,corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted forpublication. A definitive version was published in
The Electricity Journal 
[VOL 20, ISSUE 10, (December, 2007), pages 54-64; http://dx.doi.org/10.1016/j.tej.2007.10.009]
Nuclear Fuel: A New Market Dynamic, by Edward Kee, The Electricity Journal, December 2007 
 world-wide expansion of nuclear power, based on theamount of known and likelyuranium reserves. However,the pace at which thesereserves are converted intoproducing mines depends onmarkets and the response of uranium miners to marketincentives.Depressed prices in theuranium market have meantthat world production of uranium has declined, withprimary uranium supplybelow demand since 1990. This shortfall in uraniumsupply has been met bysecondary sources consistingof stockpiles of uranium frompast periods whenproduction exceededdemand, including theblending down of existingmilitary stockpiles of highly-enriched uranium (“HEU”).Likewise, a significantportion of enrichmentdemand has been met bythese HEU blend downarrangements. The marketsfor both uranium andenrichment, reflecting thisdependence on secondarysources, have not reachedsupply and demandequilibrium.Meeting the long-termdemand for uranium andenrichment services willdepend on finding anddeveloping new uraniummines and on building newenrichment facilities, both of  which will take time andrequire significant capitalinvestment. This investment will only occur if prices foruranium and enrichment areat or above long-runmarginal cost. Importantly,the development of newfacilities will take more thana decade to reach fullproduction, so that thenuclear fuel market willremain in a transition periodeven as the first wave of newUS nuclear plants areprocuring initial core fuelloads and enteringcommercial operation.During the adjustmentperiod between the currentsituation and long-runequilibrium between supplyand demand for uranium andenrichment, there is apossibility that nuclear fuelcosts will be higher and morevolatile and even thepotential for temporaryshortages. This adjustmentperiod has already started, ashighlighted by the increase inuranium spot prices below$20/lb in mid-2004 to a newall-time high price of $138/lbin July 2007.Uncertainty about nuclearfuel costs also comes at atime when decisions arebeing made to build newnuclear power plants.Nuclear plant developers,facing large and urgentissues associated withlicensing, construction costs,and related matters, mayview nuclear fuel costs asless important and lessurgent. However, while thecost of nuclear fuelrepresents a small part of nuclear electricity productioncosts, nuclear fuel costincreases can have a pivotaleffect on nuclear projecteconomics, especially whenestimates of nuclear optionlifecycle costs do not differmuch from the lifecycle costsof alternatives such asconventional coal or IGCCplants.
II. The Nuclear FuelCycle
Unlike most electricitygeneration fuels, nuclear fuelis a complicated product.
 Uranium ore is the feedstockin a complex multi-stageprocess, known as the 'frontend' of the nuclear fuel cycle,to manufacture highly-engineered nuclear fuelassemblies that are designedto be loaded into a specificpower reactor core. Thisinvolves mining, processingand milling, conversion,enrichment, and fuelassembly fabrication.
Uncertainty about nuclear fuel costs comesat a time when decisionsare being made to build new nuclear power  plants.
 The first step in producingnuclear fuel is mininguranium ore. Mineduranium ore is then sent to aprocessing plant or mill,usually located near themine, where refined uraniumoxide (U308), known as yellowcake, is extracted fromthe ore.Yellowcake is shipped to aconversion plant where it isconverted to uraniumhexafluoride (UF6) inpreparation for enrichment.
 Natural uranium consistsof three isotopes, uranium238 (“U-238”), uranium 235(“U-235”) and trace amountsof uranium 234. Naturaluranium is only about 0.71%U-235. Because most
Nuclear Fuel: A New Market Dynamic, by Edward Kee, The Electricity Journal, December 200
nuclear power reactors aredesigned to use nuclear fuelthat contains 3% to 5% U-235, natural uranium mustbe enriched in order toincrease the U-235concentration.Because U-235 and U-238have similar chemicalproperties, uraniumenrichment processes exploitthe extremely small massdifference between these twoisotopes (i.e., U-238 atomsare a little heavier than U-235 atoms).Fuel fabrication facilitiesconvert enriched UF6 intouranium dioxide (UO2)powder that is sintered intosmall pellets and loaded intofuel tubes made of Zircaloy orother fuel cladding material. The fuel tubes are joinedtogether in a frameworkcalled a fuel assembly that isdesigned for a specificlocation in a specific reactorcore. Nuclear fuel may alsoinclude burnable poisons
 and various levels of fuelenrichment to optimize corepower density, maximize fuelburnup, and extend therefueling cycle.Fuel assemblies are loadedinto a power reactor, either atinitial fuel load where theentire core is loaded, or at asubsequent refueling outage, where about a third of thefuel assemblies are replaced.A reactor with an outputof 1,000 MWe has a core withmore than a hundred nuclearfuel assemblies, dependingon type and design, andcontains about 75 metrictons (“tonnes”) of uranium.During power operation,nuclear fuel rods produceheat from fission that is usedto produce steam. Thissteam drives steam turbinesand generates electricalpower. As the reactor plantgenerates power, the U-235content is decreased andfission products are formed.
Used nuclear fuelassemblies are removedduring each refueling outageand replaced with fresh fuelassemblies. The entire set of fuel assemblies is removed when the reactor isdecommissioned at the endof operating life.
III. Demand for NuclearFuel
 The world nuclear powerindustry has performed wellover the past decade or more. The world output of nuclearelectricity has been steadilygrowing as a result of poweruprates, life extensions, andhigher capacity factors atexisting nuclear powerplants. European countrieshave reversed earlier plans tophase out nuclear plants orare considering doing so. This increased performancehas led to steady growth inthe demand for nuclear fuel. The development of newnuclear power plants hasstarted in the US. Othercountries with existingnuclear power plants,including Japan, China,France, South Korea, India,South Africa, Finland, andRussia, have eithercontinued the development of new nuclear plants or areembarking on ambitious newplans. Countries withoutany nuclear power historyare now seriously consideringnuclear plants. Countriesthat have relied upon fossilfuels for electricity generationare now considering nuclearpower, even in regions whereoil and gas are plentiful.Several countries in thePersian Gulf region,including Yemen and Jordan,have expressed interest indeveloping nuclear power asa source of electricitygeneration and waterdesalination. Research anddevelopment into new reactortechnologies that willproduce hydrogen isproceeding.
Countries without any nuclear power historyare now seriouslyconsideringnuclear  plants.
 The primary driver of future nuclear fuel demandis the global expansion of nuclear power plants.Currently, there are morethan 20 nuclear power plantsunder construction aroundthe world, at least 60 more inthe planning stages, andeven more underconsideration. Over theperiod from the end of 2005to 2015, total net nuclearplant capacity in operation isexpected to increase by 36 to72 GWe, with an additional40 to 90 GWe expected to beadded between 2015 and2025.
This nucleargenerating capacity growth will result in an increase inthe demand for uranium overthe period from the end of 2005 to 2015 by 7.8 to 16.5thousand tonnes per year
Nuclear Fuel: A New Market Dynamic, by Edward Kee, The Electricity Journal, December 200

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