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Cost and Profitability Analysis of Modular SMRs in Different Deployment

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Conference Paper · January 2009

DOI: 10.1115/ICONE17-75741

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 Proceedings of the 17th International Conference on Nuclear Engineering
COST AND PROFITABILITY ANALYSIS OF MODULAR SMRs IN DIFFERENT
DEPLOYMENT SCENARIOS
Sara Boarin
Ing.
Politecnico di Milano, Department of Energy
CeSNEF-Nuclear Engineering division
Bovisa Campus: via La Masa 34, 20156 Milano, ITALY
ph:+39.02.2399.6397 (fax: .6309)
email:sara.boarin@polimi.it
ABSTRACT
The loss of economies of scale affects Small and Medium
sized Reactors’ (SMRs) overnight construction costs, as
compared to Large Reactors (LRs) and is particularly
burdensome to the financial performance of a capital intensive
project as a Nuclear Power Plant (NPP).
Nevertheless, multiple SMRs projects have factors that
mitigate the loss of economies of scale. Furthermore, by
exploiting investment scalability, SMRs are able to limit the
capital investment and to self-finance the construction of later
units with operating cash flow from early deployed units.
In our forecasted scenarios, SMRs lower profitability for
the shareholders may be counterbalanced by savings in Equity
capital investment, as compared to LR.
This reduces sunk costs and investment risk of SMRs
project under uncertain market conditions, in a “merchant
plant” scenario where business profitability is as valuable as
business risk.
Keywords: small reactors, deployment scenarios, profitability.
1. INTRODUCTION
In recent years many countries either in the developed or
developing world have been experiencing the so-called
“nuclear renaissance”. On one side the nuclear industry evolves
toward large scale plant designs (> 800MWe), in order to
exploit economies of scale in construction costs; on another
side, with unit construction costs dramatic increase, as shown
ICONE17
July 12-16, 2009, Brussels, Belgium
ICONE17-75741
Marco E. Ricotti
Prof., PhD, Ing.
Politecnico di Milano, Department of Energy
CeSNEF-Nuclear Engineering division
Bovisa Campus: via La Masa 34, 20156 Milano, ITALY
ph:+39.02.2399.6325 (fax: .6309)
email:marco.ricotti@polimi.it
by recent NPP sale contracts signed in the US1, investors
readdress their interest on SMRs [8]. Small-Medium Reactors
require a limited front-end investment effort and offer the
option to increase the power generation capacity by adding
successive NPP modules on the same site.
As of 2006, SMRs accounted about 17% of world nuclear
power electricity production and many innovative designs,
currently under development, are reactors within the small-to-
medium size range [6,7].
In this context, our work aims to contribute to the debate
on the economics of nuclear power generation, investigating
the comparative financial performance of SMRs and Large
Reactors, at a single site level.
The scope of this work is to investigate the mere
quantifiable, financial advantages and disadvantages of SMRs
versus LRs and is not intended to address the qualitative
differential factors (e.g. the political and public opinion) that
may have a relevant impact as well on the strategic decision of
the plant size option.
For the purpose of our quantitative, financial analysis, two
alternative investments in nuclear power generation are
considered: one LR (1,340MWe) versus 4 SMR units on the
same site, with the same total power generation capacity (4 x
335MWe).
1
In May 2008 Shaw Group’s nuclear division and Westinghouse Electric
Company have been awarded an EPC contract for two AP1000 nuclear reactor
units, planned for the existing Virgil C Summer NPP site in South Carolina,
whose cost has been estimated at approximately 9.8 billion USD, or 4,387
USD/kWe. FPL (Florida Power & Light Company) has awarded Westinghouse
electric company the construction of two AP1000 units, whose total overnight
cost would range from 3,108 USD/kWe to 4,540 USD/kWe.
1 Copyright © 2009 by ASME
 Construction of LR and first SMR start at the same time,
but successive SMRs are built with a staggered construction
schedule; as a consequence, despite shorter construction period
of each single SMR unit, the entire SMR fleet is deployed on a
longer timeframe than LR’s construction period and total power
generation capacity of SMRs is gradually available.
This makes of LR and SMRs two physically different
projects, with lower generation capacity installed rates being
suitable to lower electricity demand growth rate in developed
countries or to lower grid empowerment rate in developing
countries.
Again, multiple, staggered SMRs offer the option to stop
or delay the investment process in market scenario downturns,
whilst LR monolithic capacity might turn in an investment
oversizing. SMRs’ investment flexibility has an embedded
positive economic value, that is caught by real option theory
[3].
In the following of this work, financial benefits and
penalties of SMRs staggered deployment will be illustrated
through a Discounted Cash Flow analysis methodology.
Traditional economic analysis and studies [11,13-15] are
based on the levelized unit generating costs technique, where
minimum break-even electricity price (LUEC) is calculated in
order to compensate capital, operating, fuel and interests costs.
On the contrary, we assume that the electricity price is an
exogenous factor, which is an appropriate assumption for a
base-load power generation technology, and we calculate
investment profitability in terms of Internal Rate of Return
(IRR) and Net Present Value (NPV) of projects’ cash flows. We
assume the project expected profitability as the most relevant
information for investment decision in the perspective of
private investors, acting in competitive and liberalised markets.
As Hayns and Shepherd [4] and as in Oxera [10], we shift the
focus of the analysis toward investment IRR, as a prior
investors’ requirement.
Our results are based on the POLIMI’s proprietary “Open
Model for the evaluation of SMRs’ competitiveness”, a
simulation tool for the financial comparative analysis of
multiple SMRs versus LR, considered as alternative investment
projects with the same total power generation capacity at site
level.
The Open Model inherits the main achievements of
economic research on small-medium modular reactors as far as
capital and generation costs are concerned [1,2,9]; some of the
advantages of SMRs, as discussed in Hayns and Shepherd [4]
are modeled and quantified, and concur to a partial recovery of
the loss of economy of scale in construction costs.
2. MAIN ASSUMPTION OF THE MODEL
Capital costs. The loss of economies of scale is a heavy
penalty on the economic performance of SMRs, given the very
capital intensive nature of NPP investments.
Nevertheless, some factors that are either specific to
SMRs, or whose effect is more evident at small-medium scale,
partially offset the loss of economies of scale on overnight
construction costs.
The construction of successive SMRs units allows to build
a “learning effect”: the specific expertise of labor improves the
efficiency of material employment and develops the industrial
efficiency of suppliers in the factory fabrication of plants’
equipment.
Furthermore, multiple units on a single site benefit of a
progressive reduction of capital investment cost for each new
SMR module: land and some fixed infrastructure, personnel,
tax, insurance and license costs may be as high as for a large
NPP. Their impact is taken into account in the first SMR unit as
a “loss of economies of scale”: in the case of a 335MWe SMR
compared to a 1,340MWe LR, the loss of economies of scale
translates in cost increase of about 70% for the first, stand
alone SMR unit.
Nevertheless, these fixed costs are shared by successive
SMR units; some owners’ costs and site related design
optimization, as well as Emergency Planning Zone (EPZ) costs
have as lower an incidence as higher is the number of units on
the site. This benefit is accounted in a cost reduction factor
applied on the successive SMR units, that reduces the loss of
economies of scale.
Further cost savings come from modularization, that
consists of shifting the operations as much as possible from the
NPP site to the factory, where standardization and learning can
be applied to manufacturing process, with benefits in terms of
cost, quality and time of delivery [12].
These benefits are counterbalanced by transportation costs
and a complex supply synchronization of related plant modules.
Finally, we consider construction cost savings from design
specific factors. Simplicity and passive safety features have
enhanced application in smaller sized, modular and integral
NPP and translate in a cost reduction of direct component,
support facilities, plant layout, etc. [4].
The Open Model combines all of the above mentioned
saving factors to determine a capital cost factor that reduces
multiple SMRs’ loss of economy of scale from +69% to +20%,
on average on all the SMR modules (table 1).
We assume 2,500€/kWe as the unit overnight construction
cost for a large, advanced, light water reactor plant, nth-of-a-
kind and in a singe-unit configuration. Each SMR’s overnight
construction cost is calculated by applying its related combined
cost saving factor to this amount (table 1).
We consider 3 year construction schedule for each SMR
unit and 5 years for LR and assume 8% fixed assets
depreciation factor.
SMR 1 SMR 2 SMR 3 SMR 4 LR
Total, Combined Capital
Cost Factors
140% 120% 113% 108% 100%
Unit Overnight Capital Costs
3,493 3,004 2,824 2,708 2,500
(€/kWe)
Total Overnight Capital
1,170 1,006 946 907 3,350
Costs (M€)
Table 1. Unit and total overnight construction costs for LR and
each SMR module
2 Copyright © 2009 by ASME
 Operating costs. A cross-section data analysis has been
conducted by POLIMI in collaboration with Westinghouse, on
a data-base of operation and maintenance, non-fuel costs of
USA NPP in years 1981-2005.
We estimated that NPP falling in the category of SMRs
may incur in 20% higher Operation and Maintenance (O&M)
costs per MWh as compared to large plants. The Open Model
takes the assumptions in table 2:
LR SMRs
O&M (€/MWh) 6.4 7.7
Fuel cycle (€/MWh) 5,9 5.9
D&D (€/MWh) 1.1 1.2
Table 2. Unit Operating costs breakdown for LR and SMRs
We assume that actual value of Decontamination and
Decommissioning (D&D) sinking fund represents 20% of
overnight construction costs (OCC). We consider, as a
conservative assumption, the same operating lifetime for both
LR and SMR plants (40 years), ignoring that the enhanced and
integral design features allowed by “small-medium sized”
concepts may allow for a higher plant lifetime as compared to
LR.
Financing. Our simulation model considers three possible
sources of financing of Total Capital Investment Costs (TCIC):
Equity, Debt, “Self-financing”.
We call “Self-financing” the cash flow generated by early
deployed units, that is left after debt obligations repayment and
is used to finance capital expenditures of later SMR units.
We consider an Equity/(Equity+Debt) ratio of 50% in the
financing mix, for both LR and SMRs.
The Discounted Cash Flow model is expressed in nominal
terms, thus the cost of capital includes the expected inflation
rate (2% on an annual basis)2.
The cost of debt is proportional to the risk of financial
default of the project.
We assume a 5% long term nominal risk free rate and add
a spread based on the specific “financial rating” of the LR or
SMRs project. We consider that the merit of credit is mainly
related to the capital structure of LR and SMRs projects (e.g.
Debt/(Debt+Equity) ratio).
Total cost of debt includes a 2% extra-risk premium for
nuclear industry3.
2 In this scenario the LR goes on-line after 5 year
A change in the inflation rate has an impact on the projects’ NPV due to
the non-linearity of the relations between the variables. Nevertheless, the NPV
change does not have any relevant impact on the comparative financial
performance of LR and SMRs.
3
“...there are experienced industry experts who suggest that a premium
does exist, attributable variously to regulatory concerns, unknown costs, lack of
experience, licensing uncertainties, long construction times, concerns about
public opinion or public acceptance, and legal conditions in some countries, all
of which may be legitimate, but none of which is unique to nuclear power. One
industry source suggests that the history of construction delays for nuclear
power plants may in some countries add 3–5% in financing costs for nuclear
power over other generation technologies…” [5].
All this considered, we calculate 9.4% cost of debt for LR
and 8.7% for SMRs.
We do not set a fixed debt amortization period, but follow
a typical “Leverage-by-Out” scheme: if and when any residue
positive cash flow from operations is left, after interest
expenses payment, then it is entirely used to repay debt
principal obligations. In this way, debt duration is a result of
the model, rather than an input, and is related to the project
cash flow generation capability.
Cost of Equity represents a required remuneration rate for
shareholders and is used as a discount rate for free cash flows
of the projects. It is set at 12% for both LR and SMRs in order
to have comparable results in terms of Net Present Value
between the two projects.
We assume a tax rate of 35% and consider a financial
earnings rate of 3%, in nominal terms and on a yearly basis,
assuming that the stock of cash may be invested in a short term
risk-free asset.
Revenues. For the purpose of this analysis, we forecast a
“flat” electricity price of 70€/MWh, that increases by 2%
annual inflation rate over the project lifetime.
Electric power output is calculated on the basis of an
average plant availability factor of 90% for both LR and SMRs.
3. SELECTED SCENARIOS
This section introduces the investment cases that have been
selected to highlight different economic performances of SMRs
versus LR project.
9 In the “Base Case” scenario, SMRs’ construction is
diluted as to generate significant self-financing
contribution to TCIC. The first two SMRs’ construction is
concentrated, in order to use these units as “cash cows”
for the financing of SMR units 3 and 4.
9 Two additional scenarios are presented, where the
construction of the SMR fleet is completed in 10 years
(“Concentrated” construction scenario) or 18 years
(“Diluted” construction scenario). Compared to the Base
Case, a more concentrated construction timing highlights
the trade-off between the project profitability
maximization and the capital investment effort
containment. A very diluted construction strategy allows
to minimize investors’ capital disbursement.
4. BASE CASE SCENARIO
construction time, while SMRs’ power generation capacity
becomes gradually available, until the full 1,340MWe are
installed after 13 years (Fig. 1).
YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13
LR
SMR #1
SMR #2
SMR #3
SMR #4
Figure 1. Base Case deployment strategy for LR and SMRs
3 Copyright © 2009 by ASME
 Sources of Financing for SMRs Construction
The staggered construction of SMR units accounts for the Self-financing EQUITY DEBT
250
following benefits:
9 SMRs’ TCIC is covered at 19% by “self-financing”: cash 200
flow from early deployed units is used to finance later
units’ investment cost (Fig. 2). 150

M€
9 Average debt outstanding during construction period is
100
lower for SMRs, with significantly lower Interests During
Construction (IDC): 220M€ as compared to 440M€ for 50
LR.
9 As a result, SMRs’ Total Capital Investment Cost, 0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
including IDC, is only 12% higher than LR (Fig. 3).
Years
9 self-financing contribution to TCIC reduces the equity
and debt investments. Despite 12% higher TCIC for Figure 4. Sources of financing for SMRs construction (M€)
SMRs, Equity+Debt investment is lower for SMRs than Our sensitivity analysis shows that higher Equity-to-Debt
LR: 3.4 billion € and 3.8billion €, respectively (Fig. 2). ratio in the investment mix, lets higher cash flow available to
SMRs staggered investment makes possible to install the same finance later SMRs’ construction, limiting total Equity+Debt
power generation capacity as LR, with significantly lower investment of SMRs below LR’s amount. This result is evident
capital disbursement (Equity+Debt). in Fig. 5,6.
Total Capital Investment Costs Breakdown LR's Equity and Debt Investment
4500
4700
EQUITY DEBT Self-financing
4000 Equity Debt
817 4200
3500 3700
3000 3200
2,115
2500 1,827 2700
M€
M€

2000 2200

1500 1700

1000 1200
1,675 1,606 700
500
200
0
30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85%
LARGE REACTOR SMRs
E/(E+D)
Figure 2. TCIC: breakdown of total sources of financing for LR
Figure 5. Equity and Debt component of TCIC, with different
and SMRs (M€)
financing mix: LR
Employment of Funds
4500 SMR's Equity and Debt Investment
overnight costs IDC 4700
4000 220 Equity Debt
4200
3500 440
3700
3000 3200
2500 2700
M€

M€

2000 4,030 2200

1500
3,350 1700

1000 1200

500 700

0 200
LR SMRs 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85%
E/(E+D)
Figure 3. TCIC: employment of funds for LR and SMRs (M€)
Figure 6. Equity and Debt component of TCIC, with different
financing mix: SMRs
Figure 4 shows the distribution of single-period (quarterly)
equity and debt investments over construction period and
In addition, staggered construction of SMRs translates in a
evidences self-financing contribution, under the assumption of
smoother cumulated unlevered cash flow profile during
50% E/(E+D) ratio in the financing mix: the 4th SMR unit is
investment period, evidencing a lower capital-at-risk than LR’s
self-financed at 88%.
(Fig. 7).

4 Copyright © 2009 by ASME

 The result is a more balanced capital structure for SMRs 240M€ and 608M€ respectively: these amounts represent
over the project lifetime. shareholders’ investment remuneration in excess of 12% rate.

Cumulated Unlevered Cash Flow IRR and NPV Sensitivity to Financing Mix
12'000 17% 1200
NPV LR NPV SMRs
SMRs LR 16%
10'000 IRR LR IRR SMRs 1000
15%
8'000 14%
800
13%
6'000

NPV (M€)
IRR
12% 600
M€

4'000 11%
400
2'000 10%
9%
0 200
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 8%
-2'000 7% 0
30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85%
-4'000 E/(E+D)
Years
Figure 9. IRR and NPV sensitivity to financing mix
Figure 7. Cumulated unlevered cash flows on first 25 years
(M€)
Sensitivity to Unit Overnight Cost
Financial Debt 18% 1.6%
2500 delta IRR (LR-SMRs) IRR LR IRR SMRs
17%
LR SMRs
16% 1.5%
LR average SMRs average
2000 15%
1.4%
14%
13%
IRR

1500 1.3%
12%
M€

11%
1.2%
1000 10%
9% 1.1%
500 8%
7% 1.0%
LR =2,000 LR =2,200 LR =2,500 LR =2,700 LR =3,000
SMRs=2,406 SMRs=2,646 SMRs=3,007 SMRs=3,248 SMRs=3,609
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 €/kW
Years
Figure 10. Sensitivity to unit overnight cost: IRR and NPV
Figure 8. Debt stock on first 20 years (M€)
All considered, SMRs record 367M€ lower NPV to
LR’s debt duration is 9 ½ years, sensibly longer than the
shareholders, but investors are able to save 357M€ on total
construction period.
equity investment, as compared to LR (Fig. 2).
Conversely, SMRs are debt free in 13 ½ years: debt
A sensitivity analysis shows that SMRs project’s Net
duration coincides with the construction period (Fig. 8). Capital
Present Value improves against LR with increasing Debt-to-
structure ratios, that are commonly assumed as indicators for
Equity ratio, as in Fig. 9. This indicates the capability of SMRs
risk of financial default, show higher financial distress for LR
to bear higher financial leverage, that improves shareholders’
as compared to SMRs (Tab. 3):
investment profitability. As Fig. 6 and Fig. 9 suggest, optimum
LR SMRs
financing mix has to be set according to the investor’s goals
Average D/(D+E) 44% 34% and constraints, optimizing the trade-off between business
Average Debt outstanding 1,118M€ 602M€ profitability (high Debt-to-Equity) and capital investment
Average Net Debt / EBITDA 1.55 1.41
reduction (high Equity-to-Debt).
Table 3. Indicators of risk of financial default, for LR and SMRs
Comparative profitability performance of SMRs also
improves with overnight costs increasing. Figure 10 shows that
As a counterbalance, staggered deployment shifts
the spread between LR and SMRs’ IRR reduces with unit
onwards cash revenues inflow, thus reducing SMRs’ project
overnight costs increasing, the difference between unit
profitability as compared to LR: SMRs record 13.1% Internal
overnight construction costs of SMRs and LR being always
Rate of Return against LR’s 14.5%. This means that, setting
20%, on average. This is explained by the fact that Interests
equity remuneration rate at 12% and discounting back net free
During Construction increase with overnight costs and
cash flows, SMRs will record lower Net Present Value than LR:
represent a penalty on project’s profitability, that is better

5 Copyright © 2009 by ASME

controlled and limited by SMR’s lower average debt Breakdown of Total Sources of Financing
outstanding. 4500
EQUITY DEBT Self-financing 138
4000
5. CONCENTRATION OR DILUTION OF THE 3500
CONSTRUCTION SCHEDULE 3000 2,211
We consider to reduce the time delay between successive 2,115
2500
SMRs units deployment in order to have SMRs’ full generation

M€
2000
capacity available in 10 year (Fig. 11).
1500
YEAR 1 2 3 4 5 6 7 8 9 10 1000
1,675 1,936
LR
SMR #1 500
SMR #2 0
SMR #3 LR SMRs
SMR #4
Figure 11. Concentrated deployment strategy for LR and SMRs Figure 13. TCIC: breakdown of total sources of financing for LR
and SMRs (M€)

Sources of Financing for SMRs Construction

Construction schedule may be further diluted than in Base
Self-Financing EQUITY DEBT Case to minimize capital investment and cash outlay. In the
250
following scenario we consider a construction schedule for the
200
4 SMRs over 18 years, as shown in Fig. 14.
YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
150 LR
M€

SMR #1
SMR #2
100 SMR #3
SMR #4

50 Figure 14. Diluted deployment strategy for LR and SMRs

0 Following this strategy investors are able to employ only

0 1 2 3 4 5 6 7
Years
Figure 12. Sources of financing for SMRs construction (M€)
As compared to previous Base Case scenario, SMRs
deployment concentration reduces self-financing contribution
to TCIC: 138M€ are available as self-financing, corresponding
to 3% of TCIC (Fig. 12, 13).
The delay between the construction of successive units
isn’t long enough to let the first SMR units generate significant
positive cash flow to be employed in later units construction
financing.
To replace lower self-financing, capital investment
(Equity+Debt) of SMRs has increased by 713M€ as compared
to Base Case and is now 13% (i.e. 356M€) higher than LR’s
(Fig. 3).
As a counterbalance, SMRs’ profitability has increased
from 13.1% to 13.4%, as compared to previous Base Case; this
translates into additional 78M€ in term of project Net Present
Value: from 240M€ to 318M€ (at 12% discount rate).
The results of this SMRs investment case are somewhat
intermediate between LR and SMRs-Base Case performances.
Deployment concentration of SMRs highlights a trade-off
between:
9 increasing project profitability by concentrating the SMRs
deployment;
9 reducing the equity and debt capital investment through
construction timing dilution and self-financing generation.
8 9 10 11
2,654M€ equity + debt in the project, with 1,623M€ (38% of
TCIC) provided by self-financing (figure 4.7). As a
comparison, Equity+Debt investment in the LR is 3,790M€.
Overnight construction costs of SMRs bear some
additional 103M€, due to a partial loss of learning effect, as a
consequence of the delay between the construction of the
successive SMRs units. The dilution of construction strategy
generates a trade-off between the cost increase due to the
learning effect phase out plus the possible cost escalation, on
one side, and the increase in self-financing contribution to the
TCIC on the other side, that allows to contain shareholders’
investment. Given our assumptions, the second effect is largely
dominant; a cost escalation factor of 4.9%/year (instead of the
assumed 2%) would off-set the benefits of construction time
dilution, bringing the Equity and Debt capital investments to
the same level as LR.
Thus, through investment dilution it is possible to increase
self-financing contribution to the TCIC (Fig. 15) and to contain
the capital investment (Fig. 16).
In the Diluted scenario, SMRs’ capital-at-risk during the
construction period is lower than in Base Case, as evidenced by
a maximum negative cumulated cash-flow (unlevered) of
-1,650M€, against -2,001M€ of SMRs-Base Case; both
amounts are significantly lower than -3,531M€ of LR, thus
indicating a lower investment effort and risk.

6 Copyright © 2009 by ASME

 Sources of Financing for SMRs Construction collapse their EPZ to the plant’s boundaries, with further
significant cost savings.
Self-financing EQUITY DEBT
250 Our simulations highlight that SMRs’ investment
scalability is a key value driver. A diluted construction schedule
200
of NPP fleet allows to exploit cash flow generated by early
deployed units to finance TCIC of later modules. The so-called
150
“self-financing” may be a significant contribution to the
M€

100
financing mix, limiting total equity and debt investments to a
lower amount than required by LR.
50 Investment scalability allows as well to dilute the
investment effort over time, thus halving the average capital-at-
0 risk and Interests During Construction, that represent a relevant
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Years
component of LR’s TCIC. Cash flow profile is smoother for
SMRs and negative cash outlay is lower during the investment
Figure 15. Sources of financing for SMRs construction (M€)
period. These features make of SMRs an affordable investment
option by investors with financial constraints, despite their
Breakdown of Total Sources of Financing
higher Total Capital Investment Cost.
4500
EQUITY DEBT Self-financing The more diluted the construction strategy, the higher is
4000
the penalty on SMRs’ profitability, due to revenues inflow
3500 1,623 shifting onwards: SMRs’ IRR is 1.3% lower than LR’s in our
3000 Base Case.
2,115
2500 Therefore a trade-off evidences between capital investment
M€

2000 1,409 minimization and project profitability maximization: the first

1500
1000
1,675
500
0 to be set according to investors’ priorities and constraints.
LR
Figure 16. Breakdown of total sources of financing (M€)
Project profitability is affected by revenues shift onward:
in the Diluted construction scenario IRR is 12.6%, against
14.5% of LR’s and 13.1% of SMRs-Base Case .
Nevertheless, SMRs’ lower NPV to the shareholders
(-501M€ as compared to LR) is compensated by the saving in
Equity capital investment (-1,137M€ as compared to LR).
Should a high power capacity installed rate be needed at
country level, it might be plausible to replicate the same site-
level, multiple SMRs project on several nuclear sites, in
parallel.
6. CONCLUSIONS
We have defined a complete set of assumptions in the areas
of costs, revenues and financing in order to run investment
scenario simulations on alternative investments projects
involving single LR or multiple SMRs, relying on POLIMI’s
proprietary Open Model.
We consider that specific factors of smaller NPP (e.g.
learning, multiple units on a single site, modularization and
design-specific factors) may reduce the loss of economy of
scale, which is a penalty that affects SMRs’ overnight capital
costs: our estimation set 20% higher overnight capital cost for
SMRs, as compared to LR. This is a conservative assumption,
considering that SMRs may have higher probability than LR to
goal is got through a construction strategy dilution to exploit
self-financing; the latter is got through construction schedule
1,245
concentration, as to anticipate revenues. Thus, construction
dilution vs. concentration and optimal financing leverage have
SMRs
As a result, multiple SMRs and LR represent two
physically different investment projects, with different power
generation installed rate, but SMRs provide the investors with
higher flexibility to plan and afford the nuclear investing: the
same generation capacity as a LR may be installed whit limited
investment effort and lower average debt outstanding over the
construction period.
Lower project profitability is counterbalanced with saving
in Equity investment, as compared to LR.
In addition, multiple, staggered SMRs offer the option to
stop or delay the investment process in market scenario
downturns, thus limiting sunk costs and investment risk.
On account of these features, SMRs may be considered as
a valuable and flexible investment option, alternative to LRs, in
a merchant plant environment, where capital intensive projects
are riskier due to significant sunk costs. Multiple, staggered
SMRs have a lower capital-at-risk during investment period
and thus a lower exposure to adverse market changes. In
particular, the intrinsic modularity of multiple SMRs lets the
option to stop or delay the investment process face to market
downturns, while monolithic LR may expose investors to a
costly capacity oversizing.
ACKNOWLEDGMENTS
This paper has greatly benefited from comments by Prof.
Carlo Lombardi.

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