Critics have charged that, in carrying out an economic analysis, the commercial nuclear power...

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Critics have charged that, in carrying out an economic analysis, the commercial nuclear power industry does not consider the cost of decommissioning, or “mothballing,” a nuclear power plant and that the analysis is therefore optimistic. As an example, consider the Tennessee Valley Authority’s Bellefont twin nuclear generating facility under construction at Scottsboro, in northern Alabama. The initial cost is $1.5 billion and the estimated life is 40 years. The annual operating and maintenance costs are assumed to be 4.6% of the initial cost during the first year and are expected to increase at an annual rate of 0.05% thereafter. Annual revenues are estimated to be three times the annual operating and maintenance costs throughout the life of the plant.The criticism that the economic analysis is over-optimistic because it omits “mothballing” costs is not justified, since the addition of a cost of 50% of the initial cost to “mothball” the plant decreases the 8.95% rate of return only to approximately 8.77%.If the estimated life of the plants is more realistically taken to be 25 years instead of 40 years, then the criticism is justified. By reducing the life to 25 years, the rate of return of approximately 9% without a “mothballing” cost drops to approximately 7.7% when a cost to “mothball” the plant equal to 50% of the initial cost is added to the analysis.

Mohammad Wasif · Accepted Answer

Initial cost of the machine is $1,500,000,000 (1.5 billion dollar) and expected to last for 40 years.
Annual maintenance cost in first year is expected to be 4.6 percent of initial cost. Hence, the annual maintenance cost in first year $6,900,000 (1,500,000,000 * 0.046).
From 2nd year onwards the annual cost increases by 0.05 percent.
Annual revenue is 3 times of annual costs. First year annual revenue is $20,700,000 (6,900,000 * 3)
Net annual cash flow is annual revenue minus annual cost.
a) The rate of return with mothballing cost (50% of initial cost) can be computed as:
The rate of return with mothballing cost is computed in the spreadsheet below:
	Initial Cost
	$1,500,000
	 
	Year
	NCF
	Operating Cost
	$69,000
	
	0
	-$1,500,000
	Revenue
	$207,000
	
	1
	$138,000
	Net Cash Flow
	$138,000
	
	2
	$138,069
	Mothballing Cost
	$750,000
	
	3
	$138,138
	 
	
	
	4
	$138,207
	 
	
	
	5
	$138,276
	 
	
	
	6
	$138,345
	 
	
	
	7
	$138,415
	 
	
	
	8
	$138,484
	 
	
	
	9
	$138,553
	 
	
	
	10
	$138,622
	 
	
	
	11
	$138,692
	 
	
	
	12
	$138,761
	 
	
	
	13
	$138,830
	 
	
	
	14
	$138,900
	 
	
	
	15
	$138,969
	 
	
	
	16
	$139,039
	 
	
	
	17
	$139,108
	 
	
	
	18
	$139,178
	 
	
	
	19
	$139,247
	 
	
	
	20
	$139,317
	 
	
	
	21
	$139,387
	 
	
	
	22
	$139,

Critics have charged that, in carrying out an economic analysis, the commercial nuclear power industry does not consider the cost of decommissioning, or “mothballing,” a nuclear power plant and that...

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