The impact of financing schemes and income taxes on electricity generation costs

17 T he NEA carries out economic studies on a regular basis to assist member countries in their own assessments in support of decision making for the power sector. As part of the studies carried out under the NEA Nuclear Development Committee, several computer tools have been used to calculate the costs of electricity generation, their various elements and their sensitivity to different parameters. The model presented in this article was developed in order to assess the impact of financing schemes and income taxes on generation costs. Electricity generation cost estimates reported in many national and international studies provide a wealth of data to support economic assessments, and eventually to guide choices on generation sources and technologies. However, although the electricity generating cost is the criterion generally selected to present results, it is calculated by various means in different studies because the chosen approach must be relevant to the context of the specific project (private vs. stated-owned investor, regional differences...). The traditional constant-money levelised generation cost methodology is widely used by utilities, government agencies and international organisations to provide economic assessments of alternative generation options. It gives transparent and robust results, especially suitable for screening studies and international comparisons. However, the method, which is strictly economic, does not take into account all the factors influencing the choice of investors in liberalised electricity markets. In particular, it does not take into account financing schemes and income taxes which may have a significant impact on the capital cost to be supported by the investor. The approach described below is based on the overall framework of average levelised lifetime cost evaluation, but it takes into account the financing scheme adopted by the investor and the income taxes supported by the plant operator/utility. It is similar to models which are used to analyse the economics of competing electricity generation sources in liberalised electricity markets, such as the merchant plant cash flow model adopted in the MIT study.1 The model, or computer tool, developed to implement the approach was used in sample calculations carried out for nuclear, coal and gas power plants to illustrate concretely the application of the methodology. The purpose of the sample calculations was to estimate the impact of financing and taxes on the relative competitiveness of different generation sources and technologies. The impact of financing schemes and income taxes on electricity generation costs