WEBVTT 00:00:00.000 --> 00:00:02.500 align:middle line:90% [SQUEAKING] 00:00:02.500 --> 00:00:04.500 align:middle line:90% [RUSTLING] 00:00:04.500 --> 00:00:08.000 align:middle line:90% [CLICKING] 00:00:08.000 --> 00:00:12.100 align:middle line:90% 00:00:12.100 --> 00:00:17.520 align:middle line:84% PROFESSOR: So we looked at the history of nuclear technology 00:00:17.520 --> 00:00:22.160 align:middle line:84% and we learned that it was not optimally selected. 00:00:22.160 --> 00:00:28.640 align:middle line:84% It's an artifact of the Cold War that we got where we are. 00:00:28.640 --> 00:00:33.380 align:middle line:84% We looked at climate change as a motivation for nuclear. 00:00:33.380 --> 00:00:35.453 align:middle line:84% And I made this sweeping statement 00:00:35.453 --> 00:00:37.120 align:middle line:84% that without climate change, it probably 00:00:37.120 --> 00:00:41.720 align:middle line:84% isn't a motivation for nuclear, just because of the prices. 00:00:41.720 --> 00:00:44.320 align:middle line:84% But we found that we can't really quantify the damages 00:00:44.320 --> 00:00:46.000 align:middle line:90% from climate change very well. 00:00:46.000 --> 00:00:48.960 align:middle line:84% And so we devised this approach, which 00:00:48.960 --> 00:00:51.960 align:middle line:84% is to say we're going to look at cost plus externalities, 00:00:51.960 --> 00:00:53.480 align:middle line:84% and then have this free parameter 00:00:53.480 --> 00:00:57.360 align:middle line:84% for the social cost of carbon, which we can't define even 00:00:57.360 --> 00:01:00.870 align:middle line:84% roughly, because of the phenomenology associated 00:01:00.870 --> 00:01:03.610 align:middle line:84% with feedbacks and the way the uncertainties spread out. 00:01:03.610 --> 00:01:05.530 align:middle line:84% And we show that after 125 years, 00:01:05.530 --> 00:01:09.710 align:middle line:84% scientists have not been able to constrain that number any better 00:01:09.710 --> 00:01:12.830 align:middle line:90% over the past century. 00:01:12.830 --> 00:01:16.110 align:middle line:84% And indeed, it is itself a time-dependent function 00:01:16.110 --> 00:01:18.910 align:middle line:84% that changes as the climate state changes. 00:01:18.910 --> 00:01:22.850 align:middle line:84% So we don't know what it should be, 00:01:22.850 --> 00:01:25.970 align:middle line:84% but we know that the optimal level isn't 0, 00:01:25.970 --> 00:01:29.030 align:middle line:84% because there at some point the marginal cost of abating CO2 00:01:29.030 --> 00:01:32.490 align:middle line:84% is going to exceed the marginal benefit from that abatement. 00:01:32.490 --> 00:01:35.470 align:middle line:84% And so there is some level of non-zero CO2, 00:01:35.470 --> 00:01:37.350 align:middle line:90% which is optimal in the system. 00:01:37.350 --> 00:01:38.942 align:middle line:84% But this is just like a heuristic 00:01:38.942 --> 00:01:41.150 align:middle line:84% that we keep in our head, when we think about looking 00:01:41.150 --> 00:01:42.530 align:middle line:90% at different things. 00:01:42.530 --> 00:01:45.630 align:middle line:84% We'll use this rough model with the Fried parameter, 00:01:45.630 --> 00:01:47.830 align:middle line:84% the social cost of carbon as a free parameter, 00:01:47.830 --> 00:01:50.330 align:middle line:84% just to study the phenomenology of the system. 00:01:50.330 --> 00:01:52.710 align:middle line:84% We can't possibly get an exact answer, 00:01:52.710 --> 00:01:55.830 align:middle line:84% but we can look at what happens if this SCC is low, 00:01:55.830 --> 00:01:57.110 align:middle line:90% the SCC is high. 00:01:57.110 --> 00:01:58.800 align:middle line:90% How high does it have to be? 00:01:58.800 --> 00:02:02.180 align:middle line:84% How much carbon abatement does a certain SCC drive? 00:02:02.180 --> 00:02:04.380 align:middle line:84% And what technology makes it supported 00:02:04.380 --> 00:02:06.000 align:middle line:90% under a variety of assumptions? 00:02:06.000 --> 00:02:08.979 align:middle line:84% And then you can decide for yourself, what you believe. 00:02:08.979 --> 00:02:12.520 align:middle line:84% As far as SCC that gives you the technology output that you want, 00:02:12.520 --> 00:02:15.300 align:middle line:84% which is what everyone basically does. 00:02:15.300 --> 00:02:20.740 align:middle line:84% But we will try to ground it in thoughtful assessments that 00:02:20.740 --> 00:02:23.420 align:middle line:84% have been done by other entities at some point. 00:02:23.420 --> 00:02:25.793 align:middle line:90% OK. 00:02:25.793 --> 00:02:28.780 align:middle line:84% So to do this computation, we need 00:02:28.780 --> 00:02:31.540 align:middle line:84% to be able to compute the first of these terms, which 00:02:31.540 --> 00:02:33.300 align:middle line:90% is the cost of energy. 00:02:33.300 --> 00:02:36.420 align:middle line:84% And I want to walk you through how 00:02:36.420 --> 00:02:38.500 align:middle line:84% to do that in perhaps a little bit more 00:02:38.500 --> 00:02:40.980 align:middle line:84% detail than you've experienced before. 00:02:40.980 --> 00:02:43.380 align:middle line:84% And to do that, the first thing we need to do 00:02:43.380 --> 00:02:46.300 align:middle line:84% is to review the time value of money. 00:02:46.300 --> 00:02:49.480 align:middle line:84% Now this is the effects of interest rates and so on. 00:02:49.480 --> 00:02:52.080 align:middle line:84% And you all have seen this back in elementary school. 00:02:52.080 --> 00:02:55.100 align:middle line:84% And you all know that an interest rate causes the balance 00:02:55.100 --> 00:02:56.280 align:middle line:90% to go up. 00:02:56.280 --> 00:02:58.840 align:middle line:84% And you may even remember all the equations, 00:02:58.840 --> 00:03:01.470 align:middle line:84% except do you really know what an interest rate, 00:03:01.470 --> 00:03:03.220 align:middle line:84% where it comes from and what does it mean? 00:03:03.220 --> 00:03:08.318 align:middle line:84% So I want to try to communicate some philosophical points so 00:03:08.318 --> 00:03:09.860 align:middle line:84% that you can have these in your head, 00:03:09.860 --> 00:03:12.560 align:middle line:84% so that you can use these numbers 00:03:12.560 --> 00:03:14.840 align:middle line:84% in a better-informed way, because it turns out 00:03:14.840 --> 00:03:19.040 align:middle line:84% that these numbers, because they appear in the exponent, 00:03:19.040 --> 00:03:21.440 align:middle line:84% have an enormous effect on the outcome. 00:03:21.440 --> 00:03:23.842 align:middle line:84% And so you can just select the number 00:03:23.842 --> 00:03:25.300 align:middle line:84% that gives you the answer you want, 00:03:25.300 --> 00:03:26.640 align:middle line:90% which is what everyone does. 00:03:26.640 --> 00:03:29.260 align:middle line:90% And that's bad practice. 00:03:29.260 --> 00:03:32.720 align:middle line:84% And if you had a better sense of where these things come from, 00:03:32.720 --> 00:03:35.940 align:middle line:90% you might do better at this. 00:03:35.940 --> 00:03:38.040 align:middle line:90% So let's just talk about this. 00:03:38.040 --> 00:03:41.160 align:middle line:84% Why does the value of money change 00:03:41.160 --> 00:03:43.520 align:middle line:84% and why does it matter for nuclear? 00:03:43.520 --> 00:03:47.940 align:middle line:84% Well, when you're building projects, they take many years. 00:03:47.940 --> 00:03:50.720 align:middle line:84% And so you have to worry about things like inflation. 00:03:50.720 --> 00:03:53.660 align:middle line:84% You also have to pay for it somehow. 00:03:53.660 --> 00:03:56.990 align:middle line:84% So you usually borrow money and there's a finance charge, 00:03:56.990 --> 00:03:59.290 align:middle line:84% and that goes up as the time goes up. 00:03:59.290 --> 00:04:00.930 align:middle line:84% You have to pay interest on that. 00:04:00.930 --> 00:04:04.630 align:middle line:84% And another thing that we deal with in building power plants 00:04:04.630 --> 00:04:07.042 align:middle line:84% is that we spend lots of money on lots of things 00:04:07.042 --> 00:04:08.250 align:middle line:90% over lots of different times. 00:04:08.250 --> 00:04:09.667 align:middle line:84% And at the end of the day, we have 00:04:09.667 --> 00:04:12.810 align:middle line:84% to have one number, which tells us what it cost. 00:04:12.810 --> 00:04:15.408 align:middle line:84% And so we have to find some way of aggregating 00:04:15.408 --> 00:04:17.950 align:middle line:84% all of these different streams that happen at different times 00:04:17.950 --> 00:04:20.550 align:middle line:84% into a lump sum at a certain time. 00:04:20.550 --> 00:04:24.150 align:middle line:84% And so you probably in your head can 00:04:24.150 --> 00:04:26.470 align:middle line:84% imagine how you would do this, but we'll just 00:04:26.470 --> 00:04:28.230 align:middle line:90% walk through it real fast. 00:04:28.230 --> 00:04:32.390 align:middle line:84% So the first of those was inflation. 00:04:32.390 --> 00:04:35.390 align:middle line:84% So why is the value of money change? 00:04:35.390 --> 00:04:39.830 align:middle line:84% So it turns out, and I'm not exaggerating here, 00:04:39.830 --> 00:04:43.190 align:middle line:84% there's something like 15 different reasons 00:04:43.190 --> 00:04:44.670 align:middle line:90% inflation happens. 00:04:44.670 --> 00:04:50.430 align:middle line:84% But the basic top ones are shown here. 00:04:50.430 --> 00:04:52.990 align:middle line:84% So the first thing is money production. 00:04:52.990 --> 00:04:56.460 align:middle line:84% And if you don't know how money is made, 00:04:56.460 --> 00:04:58.820 align:middle line:84% I really suggest you go on YouTube 00:04:58.820 --> 00:05:00.880 align:middle line:84% and find a video about how money is made, 00:05:00.880 --> 00:05:06.912 align:middle line:90% because it's a little weird. 00:05:06.912 --> 00:05:08.120 align:middle line:90% I mean, we could get into it. 00:05:08.120 --> 00:05:10.660 align:middle line:84% Basically, it's a process of banks making loans. 00:05:10.660 --> 00:05:13.900 align:middle line:84% They create money out of thin air in that process. 00:05:13.900 --> 00:05:16.377 align:middle line:84% So go find some video on this, if you're not 00:05:16.377 --> 00:05:17.960 align:middle line:84% familiar with the generation of money. 00:05:17.960 --> 00:05:19.660 align:middle line:90% I'm not talking about currency. 00:05:19.660 --> 00:05:24.020 align:middle line:84% I'm not talking about the US mint printing cash. 00:05:24.020 --> 00:05:25.740 align:middle line:90% That's on the balance book. 00:05:25.740 --> 00:05:28.660 align:middle line:84% There is so many dollars in circulation in the economy, 00:05:28.660 --> 00:05:34.140 align:middle line:84% and it is synthesized by private banks when you take a loan. 00:05:34.140 --> 00:05:36.260 align:middle line:84% It's a really interesting phenomenon. 00:05:36.260 --> 00:05:39.260 align:middle line:84% So what happens is, through the process 00:05:39.260 --> 00:05:41.540 align:middle line:84% of synthesizing this money via loans, 00:05:41.540 --> 00:05:45.180 align:middle line:84% we generate this numerical representation 00:05:45.180 --> 00:05:48.060 align:middle line:90% of value in the system. 00:05:48.060 --> 00:05:50.620 align:middle line:84% And then there's the real amount of value 00:05:50.620 --> 00:05:53.250 align:middle line:84% in the system, which is your labor, and creativity, 00:05:53.250 --> 00:05:54.470 align:middle line:90% and your hard work. 00:05:54.470 --> 00:05:57.930 align:middle line:84% That's actually generating real economic value. 00:05:57.930 --> 00:06:00.850 align:middle line:84% And if these things get out of sync, 00:06:00.850 --> 00:06:04.650 align:middle line:84% then the value per unit dollar either goes up or down. 00:06:04.650 --> 00:06:07.750 align:middle line:84% And so that is inflation and deflation. 00:06:07.750 --> 00:06:12.850 align:middle line:84% And through monetary policy, we try to keep it the case 00:06:12.850 --> 00:06:15.870 align:middle line:90% that inflation always happens. 00:06:15.870 --> 00:06:18.850 align:middle line:84% So that the value of the dollar is always 00:06:18.850 --> 00:06:20.430 align:middle line:90% going down very slightly. 00:06:20.430 --> 00:06:29.810 align:middle line:84% This is to say the amount of money being generated 00:06:29.810 --> 00:06:33.690 align:middle line:84% is slightly exceeding the real economic productivity. 00:06:33.690 --> 00:06:37.100 align:middle line:84% So that the value per-unit dollar is slowly going down. 00:06:37.100 --> 00:06:38.850 align:middle line:84% And someone could probably quickly tell me 00:06:38.850 --> 00:06:40.030 align:middle line:90% why that is important. 00:06:40.030 --> 00:06:42.908 align:middle line:90% 00:06:42.908 --> 00:06:45.450 align:middle line:84% AUDIENCE: Well, it means you're better off spending money now 00:06:45.450 --> 00:06:46.930 align:middle line:90% because it's worth more. 00:06:46.930 --> 00:06:49.590 align:middle line:84% PROFESSOR: Yep, and if you don't have that interest, 00:06:49.590 --> 00:06:51.798 align:middle line:90% you don't have that motivation-- 00:06:51.798 --> 00:06:53.840 align:middle line:84% AUDIENCE: You can just hoard it and not spend it. 00:06:53.840 --> 00:06:55.500 align:middle line:84% PROFESSOR: You can hoard it, and then the economy shuts down. 00:06:55.500 --> 00:06:58.220 align:middle line:84% So this is all about keeping the economy ticking along. 00:06:58.220 --> 00:07:01.440 align:middle line:84% So we have to have this inflationary process. 00:07:01.440 --> 00:07:04.680 align:middle line:90% So that's one phenomenon. 00:07:04.680 --> 00:07:07.560 align:middle line:84% The second phenomenon that we have 00:07:07.560 --> 00:07:11.160 align:middle line:84% is that there's some opportunity costs. 00:07:11.160 --> 00:07:11.660 align:middle line:90% Right? 00:07:11.660 --> 00:07:14.320 align:middle line:84% So I could do various things with my money. 00:07:14.320 --> 00:07:21.680 align:middle line:84% And if I decide to lend it to you to build your new tokamak 00:07:21.680 --> 00:07:26.400 align:middle line:84% startup, I can't do other things with that. 00:07:26.400 --> 00:07:36.040 align:middle line:84% And so I demand some payment for giving you my freedom in a way. 00:07:36.040 --> 00:07:38.480 align:middle line:90% So that is the opportunity cost. 00:07:38.480 --> 00:07:42.700 align:middle line:84% And another parameter that I didn't put here, 00:07:42.700 --> 00:07:45.440 align:middle line:84% but there's also a risk factor associated 00:07:45.440 --> 00:07:49.710 align:middle line:84% with that, which is to say that if your tokamak startup doesn't 00:07:49.710 --> 00:07:52.370 align:middle line:84% work, I might not get my money back. 00:07:52.370 --> 00:07:56.070 align:middle line:84% And so I have to also have some kind of probabilistic 00:07:56.070 --> 00:07:59.630 align:middle line:84% and expectation value, some extra factor that 00:07:59.630 --> 00:08:04.130 align:middle line:84% says, in expectation I will get all my money back, 00:08:04.130 --> 00:08:06.207 align:middle line:84% plus the opportunity charge that I'm taking in. 00:08:06.207 --> 00:08:07.790 align:middle line:84% AUDIENCE: It's a really dumb question, 00:08:07.790 --> 00:08:11.230 align:middle line:84% but you're mentioning banks, but banks really shy away 00:08:11.230 --> 00:08:13.070 align:middle line:84% from funding these kind of facilities 00:08:13.070 --> 00:08:14.990 align:middle line:90% because the risk is very high. 00:08:14.990 --> 00:08:18.470 align:middle line:84% So what happens if I'm a normal investor, and normally 00:08:18.470 --> 00:08:21.130 align:middle line:84% VC because then I'm not really lending money, 00:08:21.130 --> 00:08:24.990 align:middle line:84% I'm just investing and many times I'm just getting equity. 00:08:24.990 --> 00:08:27.207 align:middle line:84% PROFESSOR: Yeah but you are lending it in the sense 00:08:27.207 --> 00:08:28.790 align:middle line:84% you're getting equity as an instrument 00:08:28.790 --> 00:08:32.350 align:middle line:84% that you can then sell, you hope, and get your money back. 00:08:32.350 --> 00:08:34.630 align:middle line:84% If you just had equity in perpetuity, 00:08:34.630 --> 00:08:36.110 align:middle line:90% that would not be interesting. 00:08:36.110 --> 00:08:37.596 align:middle line:90% Yeah. 00:08:37.596 --> 00:08:38.429 align:middle line:90% [INTERPOSING VOICES] 00:08:38.429 --> 00:08:40.221 align:middle line:84% AUDIENCE: I don't really see the connection 00:08:40.221 --> 00:08:43.669 align:middle line:84% with the bank in the sense like you have Commonwealth Fusion 00:08:43.669 --> 00:08:46.052 align:middle line:84% Systems, you don't have any banks in their capital. 00:08:46.052 --> 00:08:47.010 align:middle line:90% PROFESSOR: That's fine. 00:08:47.010 --> 00:08:50.050 align:middle line:84% But anyone lending money to anyone through any instrument 00:08:50.050 --> 00:08:53.850 align:middle line:84% is basically applying the same rule 00:08:53.850 --> 00:08:57.422 align:middle line:84% that if I'm going to invest as a VC in your company, 00:08:57.422 --> 00:08:59.130 align:middle line:84% I have to consider all the other things I 00:08:59.130 --> 00:09:01.490 align:middle line:84% could do with the money, other investments I could make. 00:09:01.490 --> 00:09:02.330 align:middle line:90% AUDIENCE: Opportunity cost. 00:09:02.330 --> 00:09:04.497 align:middle line:84% PROFESSOR: Opportunity cost plus the risk associated 00:09:04.497 --> 00:09:05.708 align:middle line:90% with this particular venture. 00:09:05.708 --> 00:09:06.250 align:middle line:90% AUDIENCE: OK. 00:09:06.250 --> 00:09:11.030 align:middle line:84% PROFESSOR: Right, yeah, so it's all the same kind of phenomenon. 00:09:11.030 --> 00:09:11.530 align:middle line:90% Yeah. 00:09:11.530 --> 00:09:14.050 align:middle line:90% 00:09:14.050 --> 00:09:14.550 align:middle line:90% All right. 00:09:14.550 --> 00:09:17.410 align:middle line:84% And then the third effect is just the pure preference 00:09:17.410 --> 00:09:19.970 align:middle line:90% for early consumption. 00:09:19.970 --> 00:09:24.010 align:middle line:84% This is a psychological property of humans, 00:09:24.010 --> 00:09:31.830 align:middle line:84% which is to say that if I offer you $1 today or $1 tomorrow, 00:09:31.830 --> 00:09:36.770 align:middle line:84% most people will prefer to have the dollar today because who 00:09:36.770 --> 00:09:40.330 align:middle line:90% knows what will happen tomorrow. 00:09:40.330 --> 00:09:44.410 align:middle line:84% So it turns out that this effect, there's 00:09:44.410 --> 00:09:46.680 align:middle line:84% a few assumptions that are baked into this. 00:09:46.680 --> 00:09:48.720 align:middle line:84% One assumption is called free storage, 00:09:48.720 --> 00:09:55.440 align:middle line:84% which is to say that if I offer you a case of soda, 00:09:55.440 --> 00:09:58.460 align:middle line:84% you might not take it because it's not free for you to store. 00:09:58.460 --> 00:10:00.460 align:middle line:84% You have to carry this case of soda out of here, 00:10:00.460 --> 00:10:02.960 align:middle line:84% put it somewhere until you're done with classes for the day. 00:10:02.960 --> 00:10:05.820 align:middle line:84% OK, so we ignore that we have the assumption of free storage. 00:10:05.820 --> 00:10:08.240 align:middle line:84% You can just magically take it, like in video game, 00:10:08.240 --> 00:10:10.200 align:middle line:84% you can take an endless number of things you 00:10:10.200 --> 00:10:13.080 align:middle line:90% find on these dead characters. 00:10:13.080 --> 00:10:18.360 align:middle line:84% And the other phenomenon associated with this 00:10:18.360 --> 00:10:22.480 align:middle line:84% is it turns out this is a time-dependent preference. 00:10:22.480 --> 00:10:27.000 align:middle line:84% So economic psychology studies find 00:10:27.000 --> 00:10:30.640 align:middle line:84% that people have a reasonable, measurable preference 00:10:30.640 --> 00:10:32.480 align:middle line:84% for early consumption when they're talking 00:10:32.480 --> 00:10:34.440 align:middle line:90% about today versus tomorrow. 00:10:34.440 --> 00:10:37.840 align:middle line:84% But when they're talking about 2028 versus 2030, 00:10:37.840 --> 00:10:42.240 align:middle line:84% they're like, that number somehow goes down very rapidly. 00:10:42.240 --> 00:10:45.773 align:middle line:90% And so this actually matters. 00:10:45.773 --> 00:10:47.190 align:middle line:84% We'll talk about this in a moment. 00:10:47.190 --> 00:10:50.630 align:middle line:84% That matters with respect to climate change issues. 00:10:50.630 --> 00:10:53.510 align:middle line:84% So I promised earlier I would talk 00:10:53.510 --> 00:10:58.230 align:middle line:84% about the Ramsey rate, which is the social discounting factor. 00:10:58.230 --> 00:11:00.310 align:middle line:84% So we're taking a little diversion now away 00:11:00.310 --> 00:11:03.930 align:middle line:84% from traditional finance, going back to climate change. 00:11:03.930 --> 00:11:08.790 align:middle line:84% And in climate change, we also discount future damages. 00:11:08.790 --> 00:11:12.670 align:middle line:84% When we generate an estimate of the social cost of carbon, 00:11:12.670 --> 00:11:17.690 align:middle line:84% we say, well, if that damage happens 100 years in the future, 00:11:17.690 --> 00:11:21.830 align:middle line:84% it's not the same as if that damage happens right now, 00:11:21.830 --> 00:11:24.910 align:middle line:90% and all kinds of reasons why. 00:11:24.910 --> 00:11:27.910 align:middle line:84% And so the Ramsey social discount rate 00:11:27.910 --> 00:11:33.510 align:middle line:84% is a way to try to approximate what the discounting factor is. 00:11:33.510 --> 00:11:36.210 align:middle line:90% And so it has these three terms. 00:11:36.210 --> 00:11:38.630 align:middle line:84% One is the one I just mentioned, the pure preference 00:11:38.630 --> 00:11:40.430 align:middle line:90% for early consumption. 00:11:40.430 --> 00:11:42.630 align:middle line:84% And a lot of people argue that this number 00:11:42.630 --> 00:11:45.260 align:middle line:90% should be approximately zero. 00:11:45.260 --> 00:11:50.860 align:middle line:84% And they argue that because they're saying that, look, 00:11:50.860 --> 00:11:54.940 align:middle line:84% all future generations should matter as much as our generation 00:11:54.940 --> 00:11:57.100 align:middle line:90% and we shouldn't be greedy. 00:11:57.100 --> 00:12:01.220 align:middle line:84% So we'll set this number to zero. 00:12:01.220 --> 00:12:04.300 align:middle line:84% Perhaps the better explanation for why 00:12:04.300 --> 00:12:06.620 align:middle line:84% this should be close to zero is simply 00:12:06.620 --> 00:12:10.020 align:middle line:84% that in psychological studies, when 00:12:10.020 --> 00:12:12.900 align:middle line:84% you're looking at long time horizons, 00:12:12.900 --> 00:12:16.020 align:middle line:84% this number is approximately zero. 00:12:16.020 --> 00:12:20.080 align:middle line:84% So this is small, what rho is, it's small. 00:12:20.080 --> 00:12:23.300 align:middle line:90% 00:12:23.300 --> 00:12:26.700 align:middle line:84% The second parameter is a two-part parameter. 00:12:26.700 --> 00:12:28.840 align:middle line:90% It's eta times the growth rate. 00:12:28.840 --> 00:12:31.780 align:middle line:84% Eta is a unitless parameter, which 00:12:31.780 --> 00:12:35.280 align:middle line:84% is the elasticity of marginal utility with consumption. 00:12:35.280 --> 00:12:37.100 align:middle line:90% What does that mean? 00:12:37.100 --> 00:12:39.540 align:middle line:84% It means this is a measure of the percent 00:12:39.540 --> 00:12:44.692 align:middle line:84% change in the usefulness of, let's say, $1 00:12:44.692 --> 00:12:46.650 align:middle line:84% or a usefulness of what they're actually saying 00:12:46.650 --> 00:12:50.570 align:middle line:84% is a usefulness of unit of consumption-- 00:12:50.570 --> 00:12:55.010 align:middle line:84% burning some coal or natural gas to make some energy-- 00:12:55.010 --> 00:12:56.875 align:middle line:84% as the amount you consume goes up, 00:12:56.875 --> 00:12:59.250 align:middle line:84% percent change of usefulness as a function of the percent 00:12:59.250 --> 00:13:04.610 align:middle line:84% change in the amount that you use up. 00:13:04.610 --> 00:13:07.770 align:middle line:84% So a 1% increase in consumption leads 00:13:07.770 --> 00:13:12.650 align:middle line:90% to an eta change in utility. 00:13:12.650 --> 00:13:14.890 align:middle line:90% That's the idea. 00:13:14.890 --> 00:13:20.930 align:middle line:84% So logically, eta will be negative 00:13:20.930 --> 00:13:25.370 align:middle line:84% and it will have the effect of that essentially 00:13:25.370 --> 00:13:32.450 align:middle line:84% as your consumption goes up, the utility of that consumption 00:13:32.450 --> 00:13:33.570 align:middle line:90% goes down. 00:13:33.570 --> 00:13:35.130 align:middle line:84% To put it in another terms, we've 00:13:35.130 --> 00:13:39.410 align:middle line:84% all become more Elon Musk like, so the value of an extra dollar 00:13:39.410 --> 00:13:43.800 align:middle line:84% means less and less and less to us as we become wealthier. 00:13:43.800 --> 00:13:46.500 align:middle line:84% However, just in terms of science, 00:13:46.500 --> 00:13:49.900 align:middle line:84% interest rates are very loosey goosey on signs. 00:13:49.900 --> 00:13:51.550 align:middle line:90% You just have to think about it. 00:13:51.550 --> 00:13:53.300 align:middle line:84% So generally, this is written as positive. 00:13:53.300 --> 00:13:54.400 align:middle line:90% This is positive. 00:13:54.400 --> 00:13:56.020 align:middle line:84% And this is technically negative. 00:13:56.020 --> 00:13:58.800 align:middle line:84% But then the way they define eta is they put an extra negative 00:13:58.800 --> 00:14:00.100 align:middle line:90% in there to make this positive. 00:14:00.100 --> 00:14:01.480 align:middle line:90% So it all adds up. 00:14:01.480 --> 00:14:06.360 align:middle line:84% So you just have to think about each term in an interest rate 00:14:06.360 --> 00:14:09.160 align:middle line:84% and think, OK, should this be positive or negative, 00:14:09.160 --> 00:14:12.240 align:middle line:90% and figure out what's going on. 00:14:12.240 --> 00:14:16.280 align:middle line:84% And then g, because g is typically defined as positive, 00:14:16.280 --> 00:14:19.340 align:middle line:84% is the growth rate in per-capita consumption. 00:14:19.340 --> 00:14:22.743 align:middle line:84% So this is just how much we are getting richer over time. 00:14:22.743 --> 00:14:24.160 align:middle line:84% AUDIENCE: If there is a preference 00:14:24.160 --> 00:14:26.120 align:middle line:84% for early consumption, wouldn't money 00:14:26.120 --> 00:14:29.760 align:middle line:84% be worth more now than later when right now I 00:14:29.760 --> 00:14:30.740 align:middle line:90% want to consume. 00:14:30.740 --> 00:14:33.780 align:middle line:84% And so I have a higher demand for whatever I have. 00:14:33.780 --> 00:14:37.080 align:middle line:84% So shouldn't rho be something that's somewhat negative? 00:14:37.080 --> 00:14:41.020 align:middle line:84% PROFESSOR: No, because the equation would 00:14:41.020 --> 00:14:50.860 align:middle line:84% be that the value at some time t is equal to the initial value 00:14:50.860 --> 00:14:51.980 align:middle line:90% times-- 00:14:51.980 --> 00:14:53.980 align:middle line:84% so well, it depends on whether you write a minus 00:14:53.980 --> 00:14:58.860 align:middle line:90% sign right here, but rho t. 00:14:58.860 --> 00:15:03.160 align:middle line:84% Yeah, so it would be negative, it should be negative. 00:15:03.160 --> 00:15:06.320 align:middle line:84% But normally you put a minus sign, then it's positive. 00:15:06.320 --> 00:15:07.545 align:middle line:90% So it's the same thing. 00:15:07.545 --> 00:15:08.920 align:middle line:84% You just have to watch your sign. 00:15:08.920 --> 00:15:10.000 align:middle line:84% AUDIENCE: But it should fall over time? 00:15:10.000 --> 00:15:10.420 align:middle line:90% PROFESSOR: Yeah. 00:15:10.420 --> 00:15:11.253 align:middle line:90% AUDIENCE: The value. 00:15:11.253 --> 00:15:12.260 align:middle line:90% PROFESSOR: Yeah. 00:15:12.260 --> 00:15:13.820 align:middle line:84% You just think about it and make sure 00:15:13.820 --> 00:15:15.070 align:middle line:90% that all your signs are right. 00:15:15.070 --> 00:15:19.260 align:middle line:84% Because there's poor convention in how 00:15:19.260 --> 00:15:22.780 align:middle line:90% these things are written out. 00:15:22.780 --> 00:15:24.140 align:middle line:90% OK. 00:15:24.140 --> 00:15:24.640 align:middle line:90% Yeah. 00:15:24.640 --> 00:15:26.985 align:middle line:84% I guess if you call it discounting, 00:15:26.985 --> 00:15:28.860 align:middle line:84% then you put the minus sign in that equation, 00:15:28.860 --> 00:15:30.700 align:middle line:84% and then all these terms are positive. 00:15:30.700 --> 00:15:34.580 align:middle line:84% That's typically the way it works out. 00:15:34.580 --> 00:15:35.120 align:middle line:90% OK. 00:15:35.120 --> 00:15:38.090 align:middle line:90% So g is the growth rate. 00:15:38.090 --> 00:15:44.810 align:middle line:84% And it's basically a statement of the consumption path 00:15:44.810 --> 00:15:48.730 align:middle line:90% that you forecast for society. 00:15:48.730 --> 00:15:52.250 align:middle line:84% And so it gets multiplied by eta to change consumption 00:15:52.250 --> 00:15:53.850 align:middle line:90% into units of utility. 00:15:53.850 --> 00:15:57.770 align:middle line:84% That's the purpose of having eta times g. 00:15:57.770 --> 00:16:00.770 align:middle line:84% The difficulty, there's some difficulty 00:16:00.770 --> 00:16:02.190 align:middle line:90% in selecting g though. 00:16:02.190 --> 00:16:04.065 align:middle line:84% So if you assume g is greater than zero, 00:16:04.065 --> 00:16:05.690 align:middle line:84% you're assuming that people are getting 00:16:05.690 --> 00:16:10.210 align:middle line:84% richer, which is generally, the assumption of economists. 00:16:10.210 --> 00:16:14.330 align:middle line:84% And if g is less than 0, then people 00:16:14.330 --> 00:16:17.410 align:middle line:84% are getting poorer in real terms. 00:16:17.410 --> 00:16:18.942 align:middle line:90% One of the problems, yeah? 00:16:18.942 --> 00:16:20.650 align:middle line:84% AUDIENCE: When we're talking about people 00:16:20.650 --> 00:16:22.390 align:middle line:84% getting richer and people getting poorer, 00:16:22.390 --> 00:16:25.730 align:middle line:84% is that for the dollar amount or for some equivalent goods 00:16:25.730 --> 00:16:26.770 align:middle line:90% amount? 00:16:26.770 --> 00:16:29.010 align:middle line:84% PROFESSOR: We'll say it's in purchasing power parity. 00:16:29.010 --> 00:16:29.552 align:middle line:90% AUDIENCE: OK. 00:16:29.552 --> 00:16:36.040 align:middle line:84% PROFESSOR: So it's dollars that are inflation-adjusted. 00:16:36.040 --> 00:16:40.400 align:middle line:84% So one of the problems with trying to pick g 00:16:40.400 --> 00:16:46.060 align:middle line:84% is that you have growing inequity in the system. 00:16:46.060 --> 00:16:49.900 align:middle line:90% So here is a plot of two terms. 00:16:49.900 --> 00:16:56.480 align:middle line:84% This blue line is the real, meaning inflation-adjusted, real 00:16:56.480 --> 00:16:59.840 align:middle line:84% median, median meaning we've chosen 00:16:59.840 --> 00:17:05.280 align:middle line:84% a measure of central tendency that ignores outliers. 00:17:05.280 --> 00:17:10.079 align:middle line:84% Real median household income in the United States, 00:17:10.079 --> 00:17:12.359 align:middle line:90% OK, it is going up. 00:17:12.359 --> 00:17:16.319 align:middle line:84% But there have been some periods of stagnation. 00:17:16.319 --> 00:17:24.040 align:middle line:84% The dashed green line is the essentially average income 00:17:24.040 --> 00:17:24.940 align:middle line:90% per household. 00:17:24.940 --> 00:17:28.319 align:middle line:90% It's GDP divided by households. 00:17:28.319 --> 00:17:31.640 align:middle line:84% And you can see that that goes up much more steadily. 00:17:31.640 --> 00:17:34.590 align:middle line:84% So what describes this divergence between the median 00:17:34.590 --> 00:17:37.090 align:middle line:90% and the means in this? 00:17:37.090 --> 00:17:39.710 align:middle line:84% It is increasing wealth inequality 00:17:39.710 --> 00:17:41.790 align:middle line:84% in the United States, which is to say 00:17:41.790 --> 00:17:45.470 align:middle line:84% that most of the gains, which are being represented here 00:17:45.470 --> 00:17:49.270 align:middle line:84% in the green line are actually going to the very wealthy. 00:17:49.270 --> 00:17:53.010 align:middle line:90% So as a result, how do we set g? 00:17:53.010 --> 00:17:55.310 align:middle line:84% Do we choose g to be a low number because we 00:17:55.310 --> 00:17:58.310 align:middle line:84% want the median measure of people's well-being, 00:17:58.310 --> 00:18:00.370 align:middle line:84% or do we take the average, and so on? 00:18:00.370 --> 00:18:04.310 align:middle line:84% So there's some challenge in setting g. 00:18:04.310 --> 00:18:08.470 align:middle line:84% And there are various ways people have attempted to come up 00:18:08.470 --> 00:18:11.850 align:middle line:90% with an adjusted value of g. 00:18:11.850 --> 00:18:18.815 align:middle line:84% There's something called the Atkinson parameter. 00:18:18.815 --> 00:18:20.190 align:middle line:84% I don't exactly remember the name 00:18:20.190 --> 00:18:24.590 align:middle line:84% of the thing, which is a way of measuring wealth inequality 00:18:24.590 --> 00:18:26.950 align:middle line:84% and trying to come up with a fair g 00:18:26.950 --> 00:18:30.990 align:middle line:84% to put in your social discounting factor. 00:18:30.990 --> 00:18:34.540 align:middle line:84% Incidentally, if you're wondering, the color coding, red 00:18:34.540 --> 00:18:37.020 align:middle line:84% is when we have a Republican administration in the United 00:18:37.020 --> 00:18:40.300 align:middle line:84% States, and blue is when we have a Democratic administration 00:18:40.300 --> 00:18:41.380 align:middle line:90% in the United States. 00:18:41.380 --> 00:18:42.980 align:middle line:84% Whether there's actually a correlation 00:18:42.980 --> 00:18:46.340 align:middle line:84% between these apparent divergences 00:18:46.340 --> 00:18:49.820 align:middle line:84% between administration, there's not really statistical power 00:18:49.820 --> 00:18:51.580 align:middle line:90% here, let's say. 00:18:51.580 --> 00:18:56.100 align:middle line:84% It could be these darker bars are also recessions. 00:18:56.100 --> 00:18:59.580 align:middle line:84% Another way to look at it is these divergences 00:18:59.580 --> 00:19:02.480 align:middle line:84% tend to appear right before the recessions hit. 00:19:02.480 --> 00:19:05.260 align:middle line:90% 00:19:05.260 --> 00:19:07.940 align:middle line:90% This is macroeconomics. 00:19:07.940 --> 00:19:09.900 align:middle line:90% We can worry about this later. 00:19:09.900 --> 00:19:15.340 align:middle line:84% So real economists tend to put some numbers up 00:19:15.340 --> 00:19:21.940 align:middle line:84% around 1% for rho, 2 for eta, and 2 00:19:21.940 --> 00:19:27.100 align:middle line:84% for g, which is a little ambitious because if you go back 00:19:27.100 --> 00:19:35.490 align:middle line:84% to this plot, this is 1.5% growth rate 00:19:35.490 --> 00:19:39.170 align:middle line:90% and this is 0.75% growth rate. 00:19:39.170 --> 00:19:45.810 align:middle line:84% So putting 2 for g strikes me as little ambitious. 00:19:45.810 --> 00:19:52.490 align:middle line:84% And putting 1% for rho also strikes me as ambitious. 00:19:52.490 --> 00:19:55.210 align:middle line:84% So when I do this, personally, I think this number 00:19:55.210 --> 00:19:57.930 align:middle line:90% should be small, close to 0. 00:19:57.930 --> 00:20:00.810 align:middle line:84% But the general recommendation of the field 00:20:00.810 --> 00:20:03.330 align:middle line:90% is something around 5%. 00:20:03.330 --> 00:20:08.870 align:middle line:84% That's generally what people do, 2 times 2 plus 1. 00:20:08.870 --> 00:20:09.370 align:middle line:90% Yeah? 00:20:09.370 --> 00:20:11.250 align:middle line:84% AUDIENCE: That's 5% annual, correct? 00:20:11.250 --> 00:20:12.530 align:middle line:90% PROFESSOR: 5% annual. 00:20:12.530 --> 00:20:13.770 align:middle line:90% Yeah. 00:20:13.770 --> 00:20:14.690 align:middle line:90% That's right. 00:20:14.690 --> 00:20:16.250 align:middle line:90% It's a force of interest. 00:20:16.250 --> 00:20:17.670 align:middle line:84% We'll talk about that in a moment. 00:20:17.670 --> 00:20:22.550 align:middle line:90% 00:20:22.550 --> 00:20:25.410 align:middle line:84% And diversion on climate change and social discounting, so let's 00:20:25.410 --> 00:20:28.130 align:middle line:90% go back to finance. 00:20:28.130 --> 00:20:31.510 align:middle line:84% All right, so I just want to make sure people have-- you'll 00:20:31.510 --> 00:20:34.290 align:middle line:84% run across these terms-- nominal dollars, current dollars, 00:20:34.290 --> 00:20:36.570 align:middle line:84% actual dollars, real dollars, constant dollars, 00:20:36.570 --> 00:20:39.350 align:middle line:90% year so-and-so dollars. 00:20:39.350 --> 00:20:42.570 align:middle line:84% I'll put these slides on the website so you can look at them. 00:20:42.570 --> 00:20:45.470 align:middle line:84% You should just know what these are. 00:20:45.470 --> 00:20:47.590 align:middle line:84% Nominal dollars means that the currency 00:20:47.590 --> 00:20:51.710 align:middle line:84% has the value in the year that the money was spent. 00:20:51.710 --> 00:20:53.850 align:middle line:84% And so when you look in a report, 00:20:53.850 --> 00:21:00.950 align:middle line:84% and they said we spent $2 billion on this nuclear plant, 00:21:00.950 --> 00:21:04.430 align:middle line:84% that's probably going to be in nominal dollars 00:21:04.430 --> 00:21:07.950 align:middle line:84% for the year of the report, unless they particularly say 00:21:07.950 --> 00:21:12.510 align:middle line:90% it's in year 2023 or something. 00:21:12.510 --> 00:21:15.750 align:middle line:84% Real dollars are inflation-adjusted dollars. 00:21:15.750 --> 00:21:17.910 align:middle line:84% They also call this constant dollars. 00:21:17.910 --> 00:21:19.550 align:middle line:84% So all the plots I'm going to show you 00:21:19.550 --> 00:21:24.150 align:middle line:84% in this class, almost all the plots will be constant dollars. 00:21:24.150 --> 00:21:25.730 align:middle line:84% Everything is inflation-adjusted. 00:21:25.730 --> 00:21:28.260 align:middle line:84% So they you can compare dollar at one year 00:21:28.260 --> 00:21:30.880 align:middle line:84% to a dollar at another year, and it's a meaningful comparison. 00:21:30.880 --> 00:21:37.060 align:middle line:84% So how do you do this inflation ingesting? 00:21:37.060 --> 00:21:40.300 align:middle line:90% It's actually not exactly-- 00:21:40.300 --> 00:21:40.800 align:middle line:90% OK. 00:21:40.800 --> 00:21:42.540 align:middle line:90% One more set of terminology. 00:21:42.540 --> 00:21:46.220 align:middle line:84% So we have the nominal interest rate and the real rate 00:21:46.220 --> 00:21:48.920 align:middle line:90% for interest rates on loans. 00:21:48.920 --> 00:21:51.780 align:middle line:90% 00:21:51.780 --> 00:21:55.100 align:middle line:84% When you go to a bank and you get a loan, 00:21:55.100 --> 00:21:58.580 align:middle line:84% the entire loan is written in nominal terms. 00:21:58.580 --> 00:22:02.460 align:middle line:84% They ignore the effect of inflation. 00:22:02.460 --> 00:22:06.020 align:middle line:84% They write you a contract that says 00:22:06.020 --> 00:22:08.860 align:middle line:84% we're going to charge you a certain interest rate, 00:22:08.860 --> 00:22:14.120 align:middle line:84% and you're going to pay us back with dollars in the future. 00:22:14.120 --> 00:22:16.620 align:middle line:84% And they don't say, but you have to increase the dollars 00:22:16.620 --> 00:22:21.620 align:middle line:84% that you pay us back, because the value of the dollar 00:22:21.620 --> 00:22:22.240 align:middle line:90% might go down. 00:22:22.240 --> 00:22:25.700 align:middle line:84% They say you borrow this much money, you pay the interest 00:22:25.700 --> 00:22:28.250 align:middle line:84% and on that end, you pay those back. 00:22:28.250 --> 00:22:33.490 align:middle line:84% And what they do is they suck up the damages from the Inflation 00:22:33.490 --> 00:22:36.590 align:middle line:84% that they would bear into the interest rate. 00:22:36.590 --> 00:22:37.790 align:middle line:90% So they roll it in. 00:22:37.790 --> 00:22:42.210 align:middle line:84% So the interest rate will always be the inflation rate plus, 00:22:42.210 --> 00:22:43.610 align:middle line:84% or should always be the inflation 00:22:43.610 --> 00:22:47.250 align:middle line:84% rate plus some opportunity cost and risk-adjusted rate 00:22:47.250 --> 00:22:49.170 align:middle line:90% on top of that. 00:22:49.170 --> 00:22:51.690 align:middle line:84% And that's where the interest rates come from. 00:22:51.690 --> 00:22:55.290 align:middle line:84% However, sometimes when you're working in real dollars, 00:22:55.290 --> 00:22:57.890 align:middle line:84% where everything is inflation-adjusted, 00:22:57.890 --> 00:23:03.160 align:middle line:84% it's useful to write interest rates in the real rate, which 00:23:03.160 --> 00:23:05.410 align:middle line:84% is you take the nominal rate and you just subtract out 00:23:05.410 --> 00:23:07.210 align:middle line:90% the inflation rate. 00:23:07.210 --> 00:23:10.470 align:middle line:84% So we'll do that, I think, a little bit later in this class. 00:23:10.470 --> 00:23:13.290 align:middle line:84% And so this reflects only the opportunity cost and risk 00:23:13.290 --> 00:23:14.910 align:middle line:90% of loans, the real rate. 00:23:14.910 --> 00:23:16.690 align:middle line:84% So make sure you get those right. 00:23:16.690 --> 00:23:17.450 align:middle line:90% Yep? 00:23:17.450 --> 00:23:21.450 align:middle line:84% AUDIENCE: Why is the inflation rate in absolute value terms? 00:23:21.450 --> 00:23:23.250 align:middle line:84% And we haven't had this for a long time. 00:23:23.250 --> 00:23:27.440 align:middle line:84% But if you presume it's the early 1930s or something when we 00:23:27.440 --> 00:23:32.120 align:middle line:84% have a negative inflation rate, wouldn't that be better 00:23:32.120 --> 00:23:37.820 align:middle line:84% for banks essentially, in that they're taking in more? 00:23:37.820 --> 00:23:40.400 align:middle line:90% I don't get why that's still-- 00:23:40.400 --> 00:23:43.920 align:middle line:84% PROFESSOR: So if they wrote a contract and then 00:23:43.920 --> 00:23:48.320 align:middle line:84% we had, so that's called deflation. 00:23:48.320 --> 00:23:51.000 align:middle line:84% If they wrote a contract alone, and then there 00:23:51.000 --> 00:23:54.375 align:middle line:84% was some deflation, yeah, they would benefit from that. 00:23:54.375 --> 00:23:55.000 align:middle line:90% AUDIENCE: Yeah. 00:23:55.000 --> 00:23:57.960 align:middle line:84% PROFESSOR: But on the whole, everything 00:23:57.960 --> 00:24:00.600 align:middle line:84% is a market, including capital markets. 00:24:00.600 --> 00:24:02.680 align:middle line:84% So let's say we were really in a period 00:24:02.680 --> 00:24:06.640 align:middle line:84% of sustained low-grade deflation. 00:24:06.640 --> 00:24:10.040 align:middle line:84% That would also get factored in to the lending rate. 00:24:10.040 --> 00:24:14.920 align:middle line:84% Because if your loans were more expensive than his loans, then 00:24:14.920 --> 00:24:16.920 align:middle line:90% people wouldn't take your loans. 00:24:16.920 --> 00:24:23.000 align:middle line:84% So that effect is always going to wash out in the end. 00:24:23.000 --> 00:24:25.350 align:middle line:90% Yeah. 00:24:25.350 --> 00:24:28.470 align:middle line:84% It just gets rolled into the number at some point. 00:24:28.470 --> 00:24:31.670 align:middle line:90% But there's no good or bad. 00:24:31.670 --> 00:24:37.950 align:middle line:84% So how do we do this historically? 00:24:37.950 --> 00:24:40.070 align:middle line:84% This is important because you might, 00:24:40.070 --> 00:24:41.910 align:middle line:84% we will look at this class, we will 00:24:41.910 --> 00:24:45.890 align:middle line:84% look at historical nuclear reactor projects. 00:24:45.890 --> 00:24:50.750 align:middle line:84% And we will try to understand what they cost. 00:24:50.750 --> 00:24:53.550 align:middle line:84% And we'll need to adjust the time basis of the money. 00:24:53.550 --> 00:24:54.730 align:middle line:90% So how do we do that? 00:24:54.730 --> 00:24:58.070 align:middle line:84% So if you're looking backwards, we use these indices-- producer 00:24:58.070 --> 00:24:59.950 align:middle line:84% price index, consumer price index, 00:24:59.950 --> 00:25:02.310 align:middle line:84% and something called the GDP inflator. 00:25:02.310 --> 00:25:06.350 align:middle line:84% And so let me just explain what these are very briefly. 00:25:06.350 --> 00:25:09.910 align:middle line:84% CPI is what is normally reported in the news. 00:25:09.910 --> 00:25:12.150 align:middle line:84% This is a basket of goods, of everyday goods 00:25:12.150 --> 00:25:14.950 align:middle line:90% that typical consumers purchase. 00:25:14.950 --> 00:25:17.830 align:middle line:84% It's milk and eggs, and housing, and gasoline for your car, 00:25:17.830 --> 00:25:19.670 align:middle line:90% and things like this. 00:25:19.670 --> 00:25:23.700 align:middle line:84% And this is an attempt to measure how much inflation 00:25:23.700 --> 00:25:27.020 align:middle line:84% is going on, because inflation is not like something we 00:25:27.020 --> 00:25:29.580 align:middle line:90% can directly measure. 00:25:29.580 --> 00:25:32.140 align:middle line:84% It's this diffuse effect on all these prices. 00:25:32.140 --> 00:25:34.540 align:middle line:84% So we have this basket of goods to try 00:25:34.540 --> 00:25:37.300 align:middle line:84% to figure out what the inflation is for you as a person. 00:25:37.300 --> 00:25:40.540 align:middle line:84% But it turns out that is not the inflation for someone 00:25:40.540 --> 00:25:42.380 align:middle line:90% who's building a power plant. 00:25:42.380 --> 00:25:44.940 align:middle line:84% Because they don't care about the price of eggs. 00:25:44.940 --> 00:25:47.340 align:middle line:84% They care about the price of concrete. 00:25:47.340 --> 00:25:52.100 align:middle line:84% And other market forces are shaping the price of concrete. 00:25:52.100 --> 00:25:55.460 align:middle line:84% So there's actually different inflation levels 00:25:55.460 --> 00:25:57.380 align:middle line:90% for each activity. 00:25:57.380 --> 00:26:00.900 align:middle line:84% And so the producer price index is an attempt 00:26:00.900 --> 00:26:05.500 align:middle line:84% to measure the inflation to make goods, if you will. 00:26:05.500 --> 00:26:08.680 align:middle line:84% It's the cost of labor, and machinery, and basic inputs, 00:26:08.680 --> 00:26:09.680 align:middle line:90% steel, things like that. 00:26:09.680 --> 00:26:12.860 align:middle line:90% It's another basket of goods. 00:26:12.860 --> 00:26:16.060 align:middle line:84% And, in fact, there's tables of producer price 00:26:16.060 --> 00:26:20.600 align:middle line:84% indices for all kinds of specific economic activities. 00:26:20.600 --> 00:26:21.780 align:middle line:90% And you can go look them up. 00:26:21.780 --> 00:26:25.360 align:middle line:84% Unfortunately, there is no index for building power plants, 00:26:25.360 --> 00:26:29.920 align:middle line:84% not one that is maintained by the Bureau of Labor statistics 00:26:29.920 --> 00:26:33.360 align:middle line:90% or anything for our benefit. 00:26:33.360 --> 00:26:38.280 align:middle line:84% Sometimes you don't have a good index, 00:26:38.280 --> 00:26:41.340 align:middle line:84% either because none of these really fit, 00:26:41.340 --> 00:26:43.640 align:middle line:84% which is actually really the case for nuclear. 00:26:43.640 --> 00:26:46.120 align:middle line:84% Or you're working in another country. 00:26:46.120 --> 00:26:49.200 align:middle line:84% And when you're doing that, they may not 00:26:49.200 --> 00:26:51.360 align:middle line:84% have statistical agencies that track 00:26:51.360 --> 00:26:54.560 align:middle line:90% all of these index baskets. 00:26:54.560 --> 00:26:58.600 align:middle line:84% So one thing you can use is called the GDP inflator. 00:26:58.600 --> 00:27:00.560 align:middle line:84% It's slightly different than GDP index, 00:27:00.560 --> 00:27:03.560 align:middle line:84% is just to say what is the growth rate of GDP 00:27:03.560 --> 00:27:05.100 align:middle line:90% index to some year. 00:27:05.100 --> 00:27:06.860 align:middle line:84% So they set a certain year to 100. 00:27:06.860 --> 00:27:09.240 align:middle line:84% And so don't get confused with the GDP index. 00:27:09.240 --> 00:27:13.160 align:middle line:84% But the GDP inflator is a measure 00:27:13.160 --> 00:27:18.560 align:middle line:84% of the growth rate of the GDP as a way 00:27:18.560 --> 00:27:24.190 align:middle line:84% to try to understand what's going on with inflation. 00:27:24.190 --> 00:27:27.058 align:middle line:84% So the basic lesson is if you're going backwards looking in time, 00:27:27.058 --> 00:27:27.850 align:middle line:90% you have real data. 00:27:27.850 --> 00:27:29.830 align:middle line:84% You can use real data to do your guesses. 00:27:29.830 --> 00:27:31.510 align:middle line:84% If you're going forward in time, you 00:27:31.510 --> 00:27:34.052 align:middle line:84% don't have real data, because you're dealing with the future. 00:27:34.052 --> 00:27:37.510 align:middle line:84% So just you just forecast it using some historically average 00:27:37.510 --> 00:27:38.510 align:middle line:90% number. 00:27:38.510 --> 00:27:41.550 align:middle line:84% So generally, we say about 2% to 3% per year 00:27:41.550 --> 00:27:42.730 align:middle line:90% under ideal conditions. 00:27:42.730 --> 00:27:44.870 align:middle line:84% But it's actually a little bit higher now. 00:27:44.870 --> 00:27:46.250 align:middle line:84% And it's been higher for a while. 00:27:46.250 --> 00:27:50.550 align:middle line:84% And especially for producer stuff. 00:27:50.550 --> 00:27:53.110 align:middle line:84% Cost of steel, cost of concrete has really 00:27:53.110 --> 00:27:57.450 align:middle line:84% been going up in recent years, cost of wood especially. 00:27:57.450 --> 00:28:00.363 align:middle line:90% 00:28:00.363 --> 00:28:03.630 align:middle line:84% So you look around and come up with a number 00:28:03.630 --> 00:28:04.970 align:middle line:90% and you just forecast. 00:28:04.970 --> 00:28:08.110 align:middle line:90% 00:28:08.110 --> 00:28:09.030 align:middle line:90% All right. 00:28:09.030 --> 00:28:12.190 align:middle line:84% What about the interest rate on the loan? 00:28:12.190 --> 00:28:16.430 align:middle line:84% Well you could look up historical capital bond return 00:28:16.430 --> 00:28:18.140 align:middle line:84% rates and things like that to try 00:28:18.140 --> 00:28:20.420 align:middle line:90% to measure the capital markets. 00:28:20.420 --> 00:28:25.580 align:middle line:84% Generally, if you don't know the quick back-of-the-envelope 00:28:25.580 --> 00:28:28.040 align:middle line:84% calculation is you take the 30-year Treasury bond rate, 00:28:28.040 --> 00:28:30.380 align:middle line:84% which is the so-called risk-free rate. 00:28:30.380 --> 00:28:35.100 align:middle line:84% This is the rate at which essentially it's not-- 00:28:35.100 --> 00:28:36.600 align:middle line:84% the 30-year is not exactly the same. 00:28:36.600 --> 00:28:38.100 align:middle line:84% But it's basically the rate at which 00:28:38.100 --> 00:28:41.820 align:middle line:84% banks borrow money from the federal government, 00:28:41.820 --> 00:28:45.080 align:middle line:90% and then add 5% risk factor. 00:28:45.080 --> 00:28:47.200 align:middle line:84% So this is kind of a quick back of the envelope. 00:28:47.200 --> 00:28:51.220 align:middle line:84% Historically, people called it about 10%. 00:28:51.220 --> 00:28:55.980 align:middle line:84% In this class, I'm going to argue that finance has actually 00:28:55.980 --> 00:28:59.660 align:middle line:84% gotten such that we can do it for about 8% right now. 00:28:59.660 --> 00:29:03.580 align:middle line:84% Typically, over the past 20 years, 00:29:03.580 --> 00:29:08.940 align:middle line:84% average cost of money to a utility company is about 7.7%. 00:29:08.940 --> 00:29:10.898 align:middle line:84% But money's gotten a little bit more expensive. 00:29:10.898 --> 00:29:13.190 align:middle line:84% Borrowing money has gotten a little bit more expensive. 00:29:13.190 --> 00:29:14.560 align:middle line:90% So let's say 8% right now. 00:29:14.560 --> 00:29:22.410 align:middle line:90% 00:29:22.410 --> 00:29:23.810 align:middle line:90% Bottom line, you don't need to-- 00:29:23.810 --> 00:29:26.133 align:middle line:84% I'll put these again on the slide. 00:29:26.133 --> 00:29:27.550 align:middle line:84% It's a little bit tricky sometimes 00:29:27.550 --> 00:29:30.330 align:middle line:84% if you're combining rates and combining periodic rates, 00:29:30.330 --> 00:29:31.810 align:middle line:90% you can't just add them. 00:29:31.810 --> 00:29:35.017 align:middle line:84% So as things are compounded, let's say monthly, 00:29:35.017 --> 00:29:36.350 align:middle line:90% we can't just add them together. 00:29:36.350 --> 00:29:37.650 align:middle line:90% You have to use this equation. 00:29:37.650 --> 00:29:39.108 align:middle line:84% If you're using a force of interest 00:29:39.108 --> 00:29:42.250 align:middle line:84% or just continuous compounding, you can just add them together. 00:29:42.250 --> 00:29:48.882 align:middle line:84% So just you may not remember this. 00:29:48.882 --> 00:29:51.330 align:middle line:90% OK. 00:29:51.330 --> 00:29:51.910 align:middle line:90% All right. 00:29:51.910 --> 00:29:54.430 align:middle line:90% So I already talked about loans. 00:29:54.430 --> 00:29:57.350 align:middle line:84% I mentioned that they are in nominal dollars, 00:29:57.350 --> 00:30:01.330 align:middle line:84% that the inflation rate is baked in. 00:30:01.330 --> 00:30:03.650 align:middle line:84% And just don't forget to watch your signs, 00:30:03.650 --> 00:30:06.530 align:middle line:84% to make sure that everything is going in the right direction. 00:30:06.530 --> 00:30:09.030 align:middle line:84% So earlier, we had a question about deflation. 00:30:09.030 --> 00:30:13.690 align:middle line:84% And I just want to address that a little bit more. 00:30:13.690 --> 00:30:18.038 align:middle line:84% So here is the United States' inflation rate going back-- 00:30:18.038 --> 00:30:18.580 align:middle line:90% I don't know. 00:30:18.580 --> 00:30:19.820 align:middle line:90% This is 1950. 00:30:19.820 --> 00:30:24.560 align:middle line:84% So this is probably 1930, is probably 00:30:24.560 --> 00:30:29.520 align:middle line:84% the Great Depression, huge inflation then deflation. 00:30:29.520 --> 00:30:33.020 align:middle line:84% We've had periods where 15%, 20% inflation. 00:30:33.020 --> 00:30:38.080 align:middle line:84% That means the next year your money is worth 15% or 20% less 00:30:38.080 --> 00:30:41.880 align:middle line:84% than it is today, a really bad situation. 00:30:41.880 --> 00:30:45.080 align:middle line:84% And we've gotten better at doing economic policy 00:30:45.080 --> 00:30:48.000 align:middle line:84% or monetary policy in this country 00:30:48.000 --> 00:30:50.160 align:middle line:84% and gotten ourselves to basically this period 00:30:50.160 --> 00:30:56.000 align:middle line:84% of stability where it was in this 2% to 5% region here. 00:30:56.000 --> 00:30:58.400 align:middle line:84% We saw a lot of inflation right after COVID. 00:30:58.400 --> 00:31:00.940 align:middle line:84% And we're trying to bring that back down. 00:31:00.940 --> 00:31:03.000 align:middle line:90% Hopefully, we can do that. 00:31:03.000 --> 00:31:07.840 align:middle line:84% But just to give you a sense of the situation in the US, 00:31:07.840 --> 00:31:11.320 align:middle line:90% here's the situation in Iran. 00:31:11.320 --> 00:31:12.440 align:middle line:90% Look at these numbers. 00:31:12.440 --> 00:31:16.560 align:middle line:90% The low is 4.9. 00:31:16.560 --> 00:31:20.420 align:middle line:84% It goes all the way up to 49%, highly variable 00:31:20.420 --> 00:31:23.620 align:middle line:90% even in recent years. 00:31:23.620 --> 00:31:24.960 align:middle line:90% What's going on here? 00:31:24.960 --> 00:31:28.020 align:middle line:90% 00:31:28.020 --> 00:31:34.140 align:middle line:84% Part of it is they're not as good at monetary policy. 00:31:34.140 --> 00:31:35.660 align:middle line:84% But a lot of this stuff is driven 00:31:35.660 --> 00:31:40.500 align:middle line:84% by over-dependence on oil prices as a source 00:31:40.500 --> 00:31:41.840 align:middle line:90% of income for the country. 00:31:41.840 --> 00:31:45.500 align:middle line:84% So there's big shifts in the availability of money, 00:31:45.500 --> 00:31:47.500 align:middle line:84% as well as things like sanctions, 00:31:47.500 --> 00:31:49.540 align:middle line:84% and other kinds of economic pressures 00:31:49.540 --> 00:31:53.500 align:middle line:84% that limit the ability of Iran to engage in trade. 00:31:53.500 --> 00:31:56.020 align:middle line:84% And so they have these wild swings. 00:31:56.020 --> 00:31:58.580 align:middle line:90% So here's the problem. 00:31:58.580 --> 00:32:01.660 align:middle line:84% You want to build a nuclear power plant in Iran, 00:32:01.660 --> 00:32:05.300 align:middle line:84% and you're going to borrow $1 billion. 00:32:05.300 --> 00:32:07.860 align:middle line:84% And then like the next year, that money 00:32:07.860 --> 00:32:11.540 align:middle line:84% is worth basically half of what it was. 00:32:11.540 --> 00:32:13.210 align:middle line:90% What are you going to go? 00:32:13.210 --> 00:32:14.710 align:middle line:84% What is the loan going to look like? 00:32:14.710 --> 00:32:16.793 align:middle line:84% What's the interest rate on that loan going to be? 00:32:16.793 --> 00:32:19.610 align:middle line:90% Is it going to be 45%? 00:32:19.610 --> 00:32:23.410 align:middle line:84% You can't possibly pay back a 45% loan, right? 00:32:23.410 --> 00:32:28.250 align:middle line:90% So how do they get around this? 00:32:28.250 --> 00:32:32.070 align:middle line:84% One of the things they do is for major civil projects, 00:32:32.070 --> 00:32:35.090 align:middle line:84% they try to have these countries who 00:32:35.090 --> 00:32:39.850 align:middle line:84% have unstable economies try to basically trade in dollars. 00:32:39.850 --> 00:32:44.250 align:middle line:84% They try to buy power plants in dollars as much as possible. 00:32:44.250 --> 00:32:46.770 align:middle line:84% It's the case that not everything can be done that way, 00:32:46.770 --> 00:32:49.010 align:middle line:84% because ultimately there are local workers, 00:32:49.010 --> 00:32:53.010 align:middle line:84% and local concrete companies, and so on that have to operate. 00:32:53.010 --> 00:32:54.970 align:middle line:90% So there is some exposure. 00:32:54.970 --> 00:32:59.450 align:middle line:84% But to the greatest extent possible, what they try to do 00:32:59.450 --> 00:33:02.870 align:middle line:84% is they try to stabilize pricing by taking loans in dollars, 00:33:02.870 --> 00:33:04.930 align:middle line:84% paying them back in dollars, buying things 00:33:04.930 --> 00:33:06.670 align:middle line:90% from other countries in dollars. 00:33:06.670 --> 00:33:09.330 align:middle line:84% And this is why the dollar is the universal currency, 00:33:09.330 --> 00:33:12.960 align:middle line:84% and this is why people worry about things 00:33:12.960 --> 00:33:16.120 align:middle line:84% that would destabilize the dollar, like having way too 00:33:16.120 --> 00:33:22.040 align:middle line:84% much debt that we can no longer service and make 00:33:22.040 --> 00:33:24.760 align:middle line:84% our payments on, which would cause us to default 00:33:24.760 --> 00:33:27.520 align:middle line:84% on US Treasury bonds, which would then 00:33:27.520 --> 00:33:31.120 align:middle line:84% cause the trustworthiness of the dollar to go down. 00:33:31.120 --> 00:33:33.400 align:middle line:84% So this is just giving you a picture, 00:33:33.400 --> 00:33:37.040 align:middle line:84% a global macroeconomic picture, about why stable currencies are 00:33:37.040 --> 00:33:39.720 align:middle line:84% important and also important to getting 00:33:39.720 --> 00:33:44.680 align:middle line:84% things done, like building nuclear power plants. 00:33:44.680 --> 00:33:51.360 align:middle line:84% OK, so this is high school or elementary school. 00:33:51.360 --> 00:33:54.280 align:middle line:84% You all remember that equation for calculating 00:33:54.280 --> 00:33:58.040 align:middle line:84% the effect of compounded interest, where 00:33:58.040 --> 00:34:01.680 align:middle line:84% n is the number of periods and the interest rate 00:34:01.680 --> 00:34:04.680 align:middle line:90% is specified as per period. 00:34:04.680 --> 00:34:08.040 align:middle line:84% And then we learned about continuous compounding. 00:34:08.040 --> 00:34:13.350 align:middle line:84% And if you can't remember this just, remember "Pert." 00:34:13.350 --> 00:34:15.409 align:middle line:84% principal times approximate rate. 00:34:15.409 --> 00:34:17.750 align:middle line:84% Technically, it's the integral of the rate over time 00:34:17.750 --> 00:34:19.130 align:middle line:90% and you integrate over it. 00:34:19.130 --> 00:34:23.190 align:middle line:84% But if we're doing forecasting it will be just a fixed rate. 00:34:23.190 --> 00:34:25.949 align:middle line:90% And this has a special term. 00:34:25.949 --> 00:34:29.570 align:middle line:84% This r is distinct from this R. This is the interest rate. 00:34:29.570 --> 00:34:33.469 align:middle line:84% This is the so-called force of interest, 00:34:33.469 --> 00:34:36.030 align:middle line:84% though everyone just calls it the interest rate. 00:34:36.030 --> 00:34:39.170 align:middle line:90% So that's the [INAUDIBLE]. 00:34:39.170 --> 00:34:44.989 align:middle line:90% 00:34:44.989 --> 00:34:47.449 align:middle line:84% So again, I'll put these up on the slide. 00:34:47.449 --> 00:34:48.949 align:middle line:84% This is just to remind you that when 00:34:48.949 --> 00:34:52.110 align:middle line:84% you're doing some calculations, you 00:34:52.110 --> 00:34:55.630 align:middle line:84% have to be sometimes a little careful on how you find 00:34:55.630 --> 00:34:56.570 align:middle line:90% equivalent rates. 00:34:56.570 --> 00:35:00.753 align:middle line:84% So if someone gives you a loan, let's say, 00:35:00.753 --> 00:35:02.170 align:middle line:84% certain amount compounded monthly, 00:35:02.170 --> 00:35:04.170 align:middle line:84% and you want to know the effective annual rate, 00:35:04.170 --> 00:35:07.500 align:middle line:90% you have to solve the equation. 00:35:07.500 --> 00:35:09.740 align:middle line:84% You say, OK, it's a 5% monthly rate 00:35:09.740 --> 00:35:12.700 align:middle line:84% of 12 months is equal to what rate for one 00:35:12.700 --> 00:35:15.660 align:middle line:84% year, and solve this equation to get the answer. 00:35:15.660 --> 00:35:19.240 align:middle line:90% You can't just divide numbers. 00:35:19.240 --> 00:35:22.820 align:middle line:90% 00:35:22.820 --> 00:35:26.260 align:middle line:84% That vibrating screen drives me nuts. 00:35:26.260 --> 00:35:26.760 align:middle line:90% All right. 00:35:26.760 --> 00:35:30.500 align:middle line:90% I think that's good enough. 00:35:30.500 --> 00:35:33.320 align:middle line:84% OK, so the other thing we have to do, 00:35:33.320 --> 00:35:36.220 align:middle line:84% so that is just a rapid reminder about the interest rates 00:35:36.220 --> 00:35:38.868 align:middle line:84% and where they come from and what 00:35:38.868 --> 00:35:40.160 align:middle line:90% is really going on behind them. 00:35:40.160 --> 00:35:41.827 align:middle line:84% The other thing that we're going to need 00:35:41.827 --> 00:35:43.340 align:middle line:84% to have at the tip of our fingers 00:35:43.340 --> 00:35:46.740 align:middle line:84% are solutions to these infinite series. 00:35:46.740 --> 00:35:52.500 align:middle line:90% So how can I do this? 00:35:52.500 --> 00:35:54.780 align:middle line:90% I didn't bring a laser. 00:35:54.780 --> 00:35:59.700 align:middle line:84% The top line is for a single period 00:35:59.700 --> 00:36:03.260 align:middle line:84% to convert from a future value to a current value, 00:36:03.260 --> 00:36:05.140 align:middle line:90% or vice versa. 00:36:05.140 --> 00:36:08.010 align:middle line:84% But then sometimes we'll have these situations 00:36:08.010 --> 00:36:10.430 align:middle line:84% where we'll have a lot of payments being made, 00:36:10.430 --> 00:36:13.970 align:middle line:84% and we want to know what the value is at the end. 00:36:13.970 --> 00:36:17.410 align:middle line:84% Or we spend a certain amount of money, 00:36:17.410 --> 00:36:19.410 align:middle line:84% and then we need to know how much money we 00:36:19.410 --> 00:36:23.450 align:middle line:84% have to get back on a certain periodic basis 00:36:23.450 --> 00:36:25.530 align:middle line:90% to pay off that loan. 00:36:25.530 --> 00:36:28.350 align:middle line:84% And so there's a continuous compounding equation. 00:36:28.350 --> 00:36:31.330 align:middle line:84% And there's a periodic compounding equation 00:36:31.330 --> 00:36:32.730 align:middle line:90% for all of these things. 00:36:32.730 --> 00:36:36.650 align:middle line:84% And then there's some fancy ones here. 00:36:36.650 --> 00:36:40.130 align:middle line:84% These come in useful, surprisingly, 00:36:40.130 --> 00:36:43.865 align:middle line:84% if you work on predicting the value. 00:36:43.865 --> 00:36:45.490 align:middle line:84% If you're doing any kind of calculation 00:36:45.490 --> 00:36:48.810 align:middle line:84% about the value of some kind of power plant or so on, 00:36:48.810 --> 00:36:50.490 align:middle line:84% you'll probably wind up wanting to have 00:36:50.490 --> 00:36:51.870 align:middle line:90% these equations somewhere. 00:36:51.870 --> 00:36:56.670 align:middle line:84% So just stash these away in your files in case you need them. 00:36:56.670 --> 00:36:59.530 align:middle line:84% We'll use them a little bit later today. 00:36:59.530 --> 00:37:00.110 align:middle line:90% OK. 00:37:00.110 --> 00:37:03.570 align:middle line:90% 00:37:03.570 --> 00:37:08.990 align:middle line:84% So any questions on interest rates? 00:37:08.990 --> 00:37:10.810 align:middle line:84% Blah, blah, blah, all that early stuff? 00:37:10.810 --> 00:37:11.870 align:middle line:90% OK, good. 00:37:11.870 --> 00:37:17.870 align:middle line:84% So now, we want to calculate using this quick review. 00:37:17.870 --> 00:37:21.150 align:middle line:84% We want to calculate the cost of electricity 00:37:21.150 --> 00:37:24.630 align:middle line:84% from different kinds of power plants, nuclear plants 00:37:24.630 --> 00:37:28.550 align:middle line:84% and non-nuclear plants, to see how they stack up. 00:37:28.550 --> 00:37:31.990 align:middle line:84% And it turns out that it can be surprisingly 00:37:31.990 --> 00:37:34.990 align:middle line:84% difficult to get this number right, 00:37:34.990 --> 00:37:38.630 align:middle line:84% especially if you are forecasting. 00:37:38.630 --> 00:37:40.510 align:middle line:84% It's easy to get it right if you're 00:37:40.510 --> 00:37:44.150 align:middle line:84% looking at historical data, well, kind of easy 00:37:44.150 --> 00:37:45.710 align:middle line:90% to get it right. 00:37:45.710 --> 00:37:51.030 align:middle line:84% But if you're looking forward, it's easy to make mistakes. 00:37:51.030 --> 00:37:56.030 align:middle line:84% So let me just show you this plot. 00:37:56.030 --> 00:37:59.670 align:middle line:84% This is from the Nuclear Energy Institute. 00:37:59.670 --> 00:38:01.490 align:middle line:90% Who can tell me who NEI is? 00:38:01.490 --> 00:38:05.140 align:middle line:90% 00:38:05.140 --> 00:38:06.020 align:middle line:90% OK? 00:38:06.020 --> 00:38:08.780 align:middle line:84% AUDIENCE: Pro-nuclear, quasi like [INAUDIBLE] group, 00:38:08.780 --> 00:38:12.103 align:middle line:84% in parallel of Greenpeace, that's like super pro nuclear. 00:38:12.103 --> 00:38:14.020 align:middle line:84% PROFESSOR: Yeah, they're an industry advocacy. 00:38:14.020 --> 00:38:17.220 align:middle line:84% They're a nonprofit industry advocacy that goes to Congress 00:38:17.220 --> 00:38:21.740 align:middle line:84% and says please make bills that are favorable towards nuclear. 00:38:21.740 --> 00:38:25.500 align:middle line:84% Every industry has such a lobbying organization. 00:38:25.500 --> 00:38:28.220 align:middle line:84% So when you see data from NEI, you immediately go, 00:38:28.220 --> 00:38:31.960 align:middle line:84% OK, this is the lobbying, pro-nuclear lobbying. 00:38:31.960 --> 00:38:36.100 align:middle line:84% So we have a grain of salt. And here 00:38:36.100 --> 00:38:39.060 align:middle line:84% they have the US electricity production cost, 00:38:39.060 --> 00:38:45.440 align:middle line:84% and they have oil and gas, and they have coal here in yellow. 00:38:45.440 --> 00:38:47.980 align:middle line:84% And then they have nuclear here in red. 00:38:47.980 --> 00:38:52.220 align:middle line:84% And it's the cheapest form of electricity. 00:38:52.220 --> 00:38:54.240 align:middle line:90% Is this plot correct? 00:38:54.240 --> 00:38:57.100 align:middle line:90% 00:38:57.100 --> 00:38:58.340 align:middle line:90% Yeah? 00:38:58.340 --> 00:39:00.820 align:middle line:84% AUDIENCE: It's measuring production cost. 00:39:00.820 --> 00:39:03.390 align:middle line:84% PROFESSOR: Ah, what is the production cost? 00:39:03.390 --> 00:39:04.830 align:middle line:84% AUDIENCE: So in the case of coal, 00:39:04.830 --> 00:39:09.103 align:middle line:84% gas, no, gas and oil, it's the fuel that's used. 00:39:09.103 --> 00:39:09.770 align:middle line:90% PROFESSOR: Yeah. 00:39:09.770 --> 00:39:12.178 align:middle line:84% AUDIENCE: And the fuel, the price can be volatile. 00:39:12.178 --> 00:39:13.970 align:middle line:84% PROFESSOR: Well yeah, and that's especially 00:39:13.970 --> 00:39:15.830 align:middle line:84% why the gas price goes up and down a lot. 00:39:15.830 --> 00:39:16.970 align:middle line:90% Yeah. 00:39:16.970 --> 00:39:17.470 align:middle line:90% Yeah. 00:39:17.470 --> 00:39:19.650 align:middle line:84% So this is the marginal cost of making 00:39:19.650 --> 00:39:22.490 align:middle line:84% the next unit of electricity and ignores all the cost 00:39:22.490 --> 00:39:24.090 align:middle line:90% of building the power plant. 00:39:24.090 --> 00:39:25.690 align:middle line:90% That's what this is. 00:39:25.690 --> 00:39:32.070 align:middle line:84% And so there are many, many things that you have to pay for. 00:39:32.070 --> 00:39:34.050 align:middle line:84% And the fuel is only one of them. 00:39:34.050 --> 00:39:37.190 align:middle line:84% And they have these different categories, 00:39:37.190 --> 00:39:40.890 align:middle line:84% which I will mention [INAUDIBLE]-- capital, 00:39:40.890 --> 00:39:44.770 align:middle line:84% a variable O&M, fixed O&M, and so on. 00:39:44.770 --> 00:39:48.690 align:middle line:84% So all of these things in principle have to be rolled in. 00:39:48.690 --> 00:39:53.330 align:middle line:84% But basically what we do is for the purposes of modeling, 00:39:53.330 --> 00:39:55.650 align:middle line:84% we can take all of these and we can lump them up 00:39:55.650 --> 00:39:59.960 align:middle line:84% into a few categories depending on how they behave. 00:39:59.960 --> 00:40:03.880 align:middle line:90% And so here's our lumped model. 00:40:03.880 --> 00:40:08.640 align:middle line:84% We have capital cost, fixed O&M, and variable. 00:40:08.640 --> 00:40:11.440 align:middle line:84% Usually these are specified per unit 00:40:11.440 --> 00:40:15.560 align:middle line:90% of energy-generating capacity. 00:40:15.560 --> 00:40:18.240 align:middle line:84% So a kilowatt of capacity, whether or not you 00:40:18.240 --> 00:40:21.760 align:middle line:84% actually generate a kilowatt of electricity or not, 00:40:21.760 --> 00:40:23.520 align:middle line:90% you're buying capacity. 00:40:23.520 --> 00:40:27.740 align:middle line:84% And then this is also fixed O&M, is what is fixed O&M? 00:40:27.740 --> 00:40:32.180 align:middle line:84% This is paying your employees to come to work, 00:40:32.180 --> 00:40:34.280 align:middle line:90% paying health-care costs. 00:40:34.280 --> 00:40:36.920 align:middle line:84% These are ongoing costs involved with running 00:40:36.920 --> 00:40:42.560 align:middle line:84% the plant that you can't just not pay, insurance for example. 00:40:42.560 --> 00:40:49.080 align:middle line:84% And this will typically also be priced per kilowatt of capacity. 00:40:49.080 --> 00:40:52.040 align:middle line:84% And then we have variable costs, which 00:40:52.040 --> 00:40:55.800 align:middle line:90% are per-unit energy produced. 00:40:55.800 --> 00:41:02.630 align:middle line:84% So this would be per kilowatt, per kilowatt, per kilowatt hour. 00:41:02.630 --> 00:41:08.918 align:middle line:84% And typically these are fuel cost and some maintenance costs. 00:41:08.918 --> 00:41:10.210 align:middle line:90% Some maintenance costs go here. 00:41:10.210 --> 00:41:12.230 align:middle line:90% Some maintenance costs go here. 00:41:12.230 --> 00:41:16.790 align:middle line:84% And the key thing is that they give us 00:41:16.790 --> 00:41:20.150 align:middle line:84% this line equation, the total cost of producing 00:41:20.150 --> 00:41:23.750 align:middle line:84% q units of electricity is the variable times the amount 00:41:23.750 --> 00:41:26.930 align:middle line:84% of electricity we make, plus these fixed costs-- 00:41:26.930 --> 00:41:32.670 align:middle line:84% capital, fixed capital charge, and fixed O&M costs. 00:41:32.670 --> 00:41:35.390 align:middle line:84% And so what we have is actually a family 00:41:35.390 --> 00:41:38.010 align:middle line:84% of lines for all the technologies. 00:41:38.010 --> 00:41:40.950 align:middle line:84% And we will draw that family of lines 00:41:40.950 --> 00:41:45.470 align:middle line:84% and explore how they interact maybe by the end of class 00:41:45.470 --> 00:41:48.750 align:middle line:90% today, maybe next class. 00:41:48.750 --> 00:41:51.310 align:middle line:84% But the first thing we need to do 00:41:51.310 --> 00:41:55.630 align:middle line:84% is get this number right, the capital cost. 00:41:55.630 --> 00:41:59.220 align:middle line:90% All right, so let's do this. 00:41:59.220 --> 00:42:00.860 align:middle line:90% Let's see. 00:42:00.860 --> 00:42:01.360 align:middle line:90% All right. 00:42:01.360 --> 00:42:03.740 align:middle line:90% So you want to find some data-- 00:42:03.740 --> 00:42:04.660 align:middle line:90% OK. 00:42:04.660 --> 00:42:06.600 align:middle line:84% We'll do the calculation in a moment. 00:42:06.600 --> 00:42:10.940 align:middle line:84% But mostly you want to look up these data. 00:42:10.940 --> 00:42:14.140 align:middle line:90% So where do you look it up? 00:42:14.140 --> 00:42:18.180 align:middle line:84% So in the United States, the best place to look up this data 00:42:18.180 --> 00:42:21.100 align:middle line:84% is the Energy Information Administration. 00:42:21.100 --> 00:42:26.100 align:middle line:90% EIA is a statistical agency. 00:42:26.100 --> 00:42:29.180 align:middle line:84% We have a lot of statistical agencies like the Census, 00:42:29.180 --> 00:42:32.080 align:middle line:84% and the Bureau of Labor Statistics, and so on. 00:42:32.080 --> 00:42:34.400 align:middle line:84% So they employ hundreds of statisticians. 00:42:34.400 --> 00:42:38.620 align:middle line:84% About 300 people work at EIA, although Doge laid off about 100 00:42:38.620 --> 00:42:40.700 align:middle line:90% of them. 00:42:40.700 --> 00:42:46.100 align:middle line:84% And their job is to figure out the true cost of building power 00:42:46.100 --> 00:42:47.940 align:middle line:90% plants in the United States. 00:42:47.940 --> 00:42:51.740 align:middle line:84% And in fact, they are authorized under law, 00:42:51.740 --> 00:42:56.240 align:middle line:84% under the Federal Energy Administration act of 1974, 00:42:56.240 --> 00:43:01.760 align:middle line:84% to send surveys to utilities, and those utility companies 00:43:01.760 --> 00:43:05.440 align:middle line:84% are required under law to complete these surveys, called 00:43:05.440 --> 00:43:10.000 align:middle line:84% form 860 and form 903, reporting on how much money they spend 00:43:10.000 --> 00:43:12.080 align:middle line:84% on maintaining their power plants 00:43:12.080 --> 00:43:14.040 align:middle line:90% and building new power plants. 00:43:14.040 --> 00:43:17.660 align:middle line:84% And then the EIA also looks at other sources of information, 00:43:17.660 --> 00:43:22.360 align:middle line:84% like annual reports of different utility companies. 00:43:22.360 --> 00:43:24.440 align:middle line:84% And it aggregates all this data to get 00:43:24.440 --> 00:43:28.120 align:middle line:84% you good statistics on actually what's going on, 00:43:28.120 --> 00:43:30.280 align:middle line:90% and use that to make policy. 00:43:30.280 --> 00:43:35.080 align:middle line:90% And so EIA is phenomenal. 00:43:35.080 --> 00:43:39.993 align:middle line:84% It really is the best source of data. 00:43:39.993 --> 00:43:42.660 align:middle line:84% Generally, there are a couple of other sources that you can use. 00:43:42.660 --> 00:43:44.520 align:middle line:84% Lazard is a private company that has 00:43:44.520 --> 00:43:48.943 align:middle line:84% made a business of trying to generate these statistics. 00:43:48.943 --> 00:43:50.860 align:middle line:84% And then if you're working in other countries, 00:43:50.860 --> 00:43:53.500 align:middle line:84% there may be other government accounting and audit offices. 00:43:53.500 --> 00:44:02.830 align:middle line:84% For example, in France, it's the Court of [NON-ENGLISH]. 00:44:02.830 --> 00:44:05.230 align:middle line:84% I don't actually know what it stands for. 00:44:05.230 --> 00:44:06.910 align:middle line:90% Does anyone know? 00:44:06.910 --> 00:44:09.330 align:middle line:90% There's basically a court. 00:44:09.330 --> 00:44:11.118 align:middle line:84% AUDIENCE: It's a court of auditors. 00:44:11.118 --> 00:44:12.910 align:middle line:84% PROFESSOR: Maybe it's the court of auditor. 00:44:12.910 --> 00:44:14.270 align:middle line:90% I thought it was CRMTES. 00:44:14.270 --> 00:44:16.590 align:middle line:84% Yes, but there's a court that basically 00:44:16.590 --> 00:44:20.773 align:middle line:84% issues these statements and they have a very unusual methodology. 00:44:20.773 --> 00:44:22.190 align:middle line:84% So if you use their data, you have 00:44:22.190 --> 00:44:24.910 align:middle line:90% to understand their methodology. 00:44:24.910 --> 00:44:28.110 align:middle line:84% There are others, like India has public auditing 00:44:28.110 --> 00:44:31.190 align:middle line:84% offices that publishes stuff online for power plants 00:44:31.190 --> 00:44:32.070 align:middle line:90% and so on. 00:44:32.070 --> 00:44:32.930 align:middle line:90% So those are useful. 00:44:32.930 --> 00:44:35.670 align:middle line:84% And then if you can't use those, you 00:44:35.670 --> 00:44:38.790 align:middle line:84% can look at annual reports and utility reports, SEC filings, 00:44:38.790 --> 00:44:40.210 align:middle line:90% to try to approximate things. 00:44:40.210 --> 00:44:44.910 align:middle line:84% So if you're working on setting uranium enrichment, 00:44:44.910 --> 00:44:47.510 align:middle line:84% EIA does not collect data on the cost of building enrichment 00:44:47.510 --> 00:44:48.010 align:middle line:90% plants. 00:44:48.010 --> 00:44:52.860 align:middle line:84% And so you have to back it out from corporate financial reports 00:44:52.860 --> 00:44:54.860 align:middle line:90% and things like that. 00:44:54.860 --> 00:44:58.743 align:middle line:84% So let me just show you what EIA actually publishes. 00:44:58.743 --> 00:45:00.160 align:middle line:84% I don't know if you can read this. 00:45:00.160 --> 00:45:02.260 align:middle line:90% I hope you can. 00:45:02.260 --> 00:45:02.820 align:middle line:90% Yes? 00:45:02.820 --> 00:45:03.780 align:middle line:90% OK. 00:45:03.780 --> 00:45:05.920 align:middle line:84% So let's just quickly walk through it. 00:45:05.920 --> 00:45:09.540 align:middle line:90% 00:45:09.540 --> 00:45:12.260 align:middle line:84% This is just saying, they're assuming that this technology 00:45:12.260 --> 00:45:16.160 align:middle line:84% will be built on a certain year, that is to say, 00:45:16.160 --> 00:45:18.780 align:middle line:84% because the cost changes slowly over time, reduce 00:45:18.780 --> 00:45:22.180 align:middle line:84% their index of when this thing is actually getting built. 00:45:22.180 --> 00:45:27.260 align:middle line:84% This is the size, obviously the cost is dependent on the size. 00:45:27.260 --> 00:45:29.820 align:middle line:84% If I build a tiny little power plant that 00:45:29.820 --> 00:45:34.700 align:middle line:84% makes 1 kilowatt, 1 kilowatt of electricity, 00:45:34.700 --> 00:45:37.220 align:middle line:84% like my little backup generator, it's 00:45:37.220 --> 00:45:39.680 align:middle line:84% going to have different capital dynamics 00:45:39.680 --> 00:45:42.080 align:middle line:84% than if I build one that produces a megawatt, right? 00:45:42.080 --> 00:45:44.600 align:middle line:90% So you have a reference size. 00:45:44.600 --> 00:45:46.240 align:middle line:90% Is that pretty typical though? 00:45:46.240 --> 00:45:50.440 align:middle line:84% And for the most part, these things are set. 00:45:50.440 --> 00:45:53.850 align:middle line:84% This is the sweet spot where the vendors have figured out 00:45:53.850 --> 00:45:56.250 align:middle line:84% this is where the economics works out well. 00:45:56.250 --> 00:45:58.852 align:middle line:84% So these are generally you don't generally 00:45:58.852 --> 00:46:00.310 align:middle line:84% have to worry about these too much, 00:46:00.310 --> 00:46:02.090 align:middle line:84% but you might have to a little bit. 00:46:02.090 --> 00:46:06.690 align:middle line:84% So for example here in nuclear they're saying 2,000 megawatts. 00:46:06.690 --> 00:46:09.430 align:middle line:84% So they're assuming you're building two full-size 1 00:46:09.430 --> 00:46:11.610 align:middle line:90% gigawatt plants together. 00:46:11.610 --> 00:46:14.030 align:middle line:90% That's what that means. 00:46:14.030 --> 00:46:17.617 align:middle line:84% If you're building just one, the price is not the same. 00:46:17.617 --> 00:46:19.450 align:middle line:84% But typically, almost every one in the world 00:46:19.450 --> 00:46:22.370 align:middle line:90% now builds two at a time. 00:46:22.370 --> 00:46:24.210 align:middle line:84% Small modular reactor is another place 00:46:24.210 --> 00:46:27.150 align:middle line:84% where you're going to see some dependence on the number. 00:46:27.150 --> 00:46:30.370 align:middle line:84% They're assuming a 600-megawatt small modular reactor 00:46:30.370 --> 00:46:34.270 align:middle line:84% installation, which is usually a whole bunch of smaller modules, 00:46:34.270 --> 00:46:38.930 align:middle line:84% like maybe 12 modules to get you up to 600 megawatts. 00:46:38.930 --> 00:46:45.530 align:middle line:84% Then they have the lead time, how long it takes to build. 00:46:45.530 --> 00:46:51.940 align:middle line:84% These data are also collected by the EIA, and for the most part, 00:46:51.940 --> 00:46:52.972 align:middle line:90% they're correct. 00:46:52.972 --> 00:46:54.680 align:middle line:84% But we'll talk about where they might not 00:46:54.680 --> 00:46:55.980 align:middle line:90% be correct in a moment. 00:46:55.980 --> 00:46:59.340 align:middle line:84% Then they have the baseline capital cost, 00:46:59.340 --> 00:47:04.560 align:middle line:84% and this is new this year, the technological optimism factor, 00:47:04.560 --> 00:47:06.340 align:middle line:84% and then the total overnight cost. 00:47:06.340 --> 00:47:09.160 align:middle line:84% So what is going on with this thing here? 00:47:09.160 --> 00:47:12.180 align:middle line:84% So basically, they're saying where we have good data, 00:47:12.180 --> 00:47:15.680 align:middle line:84% we don't need to have any kind of forecast error. 00:47:15.680 --> 00:47:18.880 align:middle line:84% Because we've built lots and lots and lots of natural gas 00:47:18.880 --> 00:47:19.620 align:middle line:90% plants. 00:47:19.620 --> 00:47:22.060 align:middle line:84% And we know exactly what they put, what they will cost. 00:47:22.060 --> 00:47:24.640 align:middle line:84% And so when we look at our data, we know what they cost. 00:47:24.640 --> 00:47:27.280 align:middle line:84% And so the technological optimism factor 00:47:27.280 --> 00:47:30.240 align:middle line:84% for these combined cycles, which are all natural gas 00:47:30.240 --> 00:47:35.840 align:middle line:84% is 1, except if it has carbon capture and storage, because we 00:47:35.840 --> 00:47:37.320 align:middle line:90% don't build a lot of those. 00:47:37.320 --> 00:47:41.760 align:middle line:84% And so there's a little 2% increase 00:47:41.760 --> 00:47:44.880 align:middle line:84% because we really don't know what the cost is 00:47:44.880 --> 00:47:47.200 align:middle line:90% for carbon capture and storage. 00:47:47.200 --> 00:47:49.550 align:middle line:84% Offshore wind is another technology we haven't really 00:47:49.550 --> 00:47:55.310 align:middle line:84% built. And so they've assigned it a 25% cost optimism 00:47:55.310 --> 00:47:59.370 align:middle line:90% factor, and so on and so forth. 00:47:59.370 --> 00:48:01.950 align:middle line:84% So where that has a unit of 1, you 00:48:01.950 --> 00:48:05.870 align:middle line:84% can basically say these numbers are statistically guaranteed. 00:48:05.870 --> 00:48:06.442 align:middle line:90% Yeah? 00:48:06.442 --> 00:48:08.150 align:middle line:84% AUDIENCE: So like this for offshore wind, 00:48:08.150 --> 00:48:13.085 align:middle line:84% they're expecting costs could be 25% higher or what is that? 00:48:13.085 --> 00:48:14.710 align:middle line:84% PROFESSOR: Yeah, so what they're saying 00:48:14.710 --> 00:48:18.630 align:middle line:84% is like the wind people are estimating this, 00:48:18.630 --> 00:48:21.870 align:middle line:84% and they're saying, well, we think they're low, 00:48:21.870 --> 00:48:25.690 align:middle line:84% and we're going to just arbitrarily plus it up by 25%. 00:48:25.690 --> 00:48:27.570 align:middle line:90% That's what they're doing. 00:48:27.570 --> 00:48:28.138 align:middle line:90% Yeah. 00:48:28.138 --> 00:48:28.930 align:middle line:90% AUDIENCE: One more. 00:48:28.930 --> 00:48:30.070 align:middle line:90% PROFESSOR: Yep? 00:48:30.070 --> 00:48:32.230 align:middle line:84% AUDIENCE: So for the base overnight cost, 00:48:32.230 --> 00:48:36.990 align:middle line:84% footnote E says it includes project contingency costs. 00:48:36.990 --> 00:48:39.610 align:middle line:90% What are those? 00:48:39.610 --> 00:48:44.630 align:middle line:84% PROFESSOR: We're going to build this power plant in six years. 00:48:44.630 --> 00:48:47.590 align:middle line:84% And then they're like, oh, but then 00:48:47.590 --> 00:48:50.410 align:middle line:84% it turns out that our environmental impact 00:48:50.410 --> 00:48:52.270 align:middle line:90% statement didn't get approved. 00:48:52.270 --> 00:48:53.550 align:middle line:90% And now there's a delay. 00:48:53.550 --> 00:48:58.290 align:middle line:84% And so they try to take the average contingency into account 00:48:58.290 --> 00:49:01.010 align:middle line:90% based on historical projects. 00:49:01.010 --> 00:49:02.170 align:middle line:90% Yep? 00:49:02.170 --> 00:49:04.530 align:middle line:84% AUDIENCE: So are all the numbers on the table accounting 00:49:04.530 --> 00:49:07.490 align:middle line:84% for that technological optimism factor already, 00:49:07.490 --> 00:49:09.610 align:middle line:90% or is it for that [INAUDIBLE]? 00:49:09.610 --> 00:49:14.530 align:middle line:84% PROFESSOR: So the one that says total overnight is accounting 00:49:14.530 --> 00:49:16.530 align:middle line:90% for the technological optimism. 00:49:16.530 --> 00:49:20.410 align:middle line:84% They don't have any discussion about whether the lead time 00:49:20.410 --> 00:49:23.190 align:middle line:84% should also be modified for technological optimism. 00:49:23.190 --> 00:49:25.150 align:middle line:84% They just give us this lead time. 00:49:25.150 --> 00:49:26.470 align:middle line:90% This is a brand new number. 00:49:26.470 --> 00:49:28.850 align:middle line:84% And I think they've only applied it to this column 00:49:28.850 --> 00:49:31.250 align:middle line:90% as far as I can tell. 00:49:31.250 --> 00:49:34.970 align:middle line:84% Unfortunately, they used to put out 00:49:34.970 --> 00:49:41.610 align:middle line:84% a lot of description about how these things are generated. 00:49:41.610 --> 00:49:45.560 align:middle line:84% But under the new administration and since they've 00:49:45.560 --> 00:49:49.080 align:middle line:84% lost about a third of their employees, stuff is happening 00:49:49.080 --> 00:49:50.920 align:middle line:84% and reports are not being issued, 00:49:50.920 --> 00:49:54.075 align:middle line:84% and things are very information poor all of a sudden. 00:49:54.075 --> 00:49:56.200 align:middle line:84% So it's hard to figure out exactly what is going on 00:49:56.200 --> 00:49:56.820 align:middle line:90% with this. 00:49:56.820 --> 00:49:59.880 align:middle line:90% 00:49:59.880 --> 00:50:04.400 align:middle line:84% AUDIENCE: Not to express strong skepticism, but aren't 00:50:04.400 --> 00:50:06.740 align:middle line:90% these numbers very arbitrary? 00:50:06.740 --> 00:50:10.760 align:middle line:84% I mean, especially for nuclear, most projects significantly 00:50:10.760 --> 00:50:14.000 align:middle line:84% underestimate both the overnight cost and the lead time. 00:50:14.000 --> 00:50:17.200 align:middle line:84% PROFESSOR: Yeah, so for the rest of the class 00:50:17.200 --> 00:50:19.120 align:middle line:84% we'll be about talking about that. 00:50:19.120 --> 00:50:24.640 align:middle line:84% For non-nuclear, non-nuclear, non-CCS, not offshore wind, 00:50:24.640 --> 00:50:27.440 align:middle line:90% these numbers are really good. 00:50:27.440 --> 00:50:29.920 align:middle line:90% These numbers are totally solid. 00:50:29.920 --> 00:50:32.680 align:middle line:84% But anywhere where the technological optimism factor 00:50:32.680 --> 00:50:37.840 align:middle line:90% is not unity, there's fudge. 00:50:37.840 --> 00:50:41.040 align:middle line:84% And we'll look at how big that is. 00:50:41.040 --> 00:50:44.190 align:middle line:84% AUDIENCE: What actually is the overnight cost? 00:50:44.190 --> 00:50:46.630 align:middle line:90% PROFESSOR: Oh, thank you. 00:50:46.630 --> 00:50:51.150 align:middle line:84% The overnight cost is the cost of building 00:50:51.150 --> 00:50:57.750 align:middle line:84% the hardware, the power plant, ignoring all the finance 00:50:57.750 --> 00:51:01.910 align:middle line:84% charges associated with borrowing the money. 00:51:01.910 --> 00:51:06.110 align:middle line:84% So where it gets its name is to say 00:51:06.110 --> 00:51:10.270 align:middle line:84% that we're going to build this power plant overnight. 00:51:10.270 --> 00:51:12.990 align:middle line:84% And so the interest payment will be almost 0 00:51:12.990 --> 00:51:15.710 align:middle line:84% because we can pay the bank back the next day. 00:51:15.710 --> 00:51:17.570 align:middle line:84% That's what the overnight cost is. 00:51:17.570 --> 00:51:20.750 align:middle line:84% So it's a way of measuring the cost 00:51:20.750 --> 00:51:25.557 align:middle line:84% of the technology, independent of the finance environment. 00:51:25.557 --> 00:51:27.390 align:middle line:84% Because interest rates go up, interest rates 00:51:27.390 --> 00:51:29.170 align:middle line:84% go down, blah, blah, blah, blah, blah. 00:51:29.170 --> 00:51:32.110 align:middle line:84% If we track the true cost, then these numbers 00:51:32.110 --> 00:51:33.170 align:middle line:90% would not be predictable. 00:51:33.170 --> 00:51:35.630 align:middle line:84% So we take all that out and we just 00:51:35.630 --> 00:51:39.470 align:middle line:84% look at basically the cost of building this stuff. 00:51:39.470 --> 00:51:42.060 align:middle line:90% All right? 00:51:42.060 --> 00:51:46.660 align:middle line:84% And then they also published the variable O&M, 00:51:46.660 --> 00:51:50.000 align:middle line:84% which is essentially fuel cost and variable maintenance cost, 00:51:50.000 --> 00:51:52.460 align:middle line:84% and the fixed O&M which is paying for your employee, 00:51:52.460 --> 00:51:54.203 align:middle line:90% paying your insurance. 00:51:54.203 --> 00:51:55.620 align:middle line:84% And then they produced this number 00:51:55.620 --> 00:52:00.940 align:middle line:84% called the heat rate, which is in BTUs per kilowatt hour, units 00:52:00.940 --> 00:52:02.860 align:middle line:90% of energy per unit of energy. 00:52:02.860 --> 00:52:05.420 align:middle line:84% Basically, this is just a measure of efficiency. 00:52:05.420 --> 00:52:08.380 align:middle line:84% But this is useful if you want to figure out 00:52:08.380 --> 00:52:11.240 align:middle line:84% the amount of carbon coming out of something. 00:52:11.240 --> 00:52:13.540 align:middle line:84% So you want to know the carbon intensity? 00:52:13.540 --> 00:52:18.060 align:middle line:84% You look up how much carbon is emitted per BTU of the fuel. 00:52:18.060 --> 00:52:23.660 align:middle line:84% And this number tells you how to convert that BTU into kilowatts. 00:52:23.660 --> 00:52:25.900 align:middle line:84% So it allows you to calculate the carbon 00:52:25.900 --> 00:52:28.060 align:middle line:90% intensity of the power plant. 00:52:28.060 --> 00:52:31.380 align:middle line:84% We're not going to use that right away. 00:52:31.380 --> 00:52:35.120 align:middle line:84% All right, I think I have little bars to highlight those things. 00:52:35.120 --> 00:52:38.240 align:middle line:90% But oh, my gosh. 00:52:38.240 --> 00:52:40.610 align:middle line:90% We don't need to do that. 00:52:40.610 --> 00:52:46.150 align:middle line:84% OK, so what is the overnight cost of nuclear? 00:52:46.150 --> 00:52:47.450 align:middle line:90% That's what we really care. 00:52:47.450 --> 00:52:49.710 align:middle line:84% Light water reactor, they say 7,000. 00:52:49.710 --> 00:52:54.010 align:middle line:84% They say with this little risk factor, they say 7,777. 00:52:54.010 --> 00:52:56.330 align:middle line:90% And why is this not 1? 00:52:56.330 --> 00:52:58.330 align:middle line:84% Because we haven't built a lot of nuclear plants 00:52:58.330 --> 00:52:59.205 align:middle line:90% in the United States. 00:52:59.205 --> 00:53:01.970 align:middle line:84% In the last 40 years, we've had one new 00:53:01.970 --> 00:53:07.730 align:middle line:84% build project with two reactors in the last about 45 years. 00:53:07.730 --> 00:53:09.690 align:middle line:90% We've completed a third reactor. 00:53:09.690 --> 00:53:14.010 align:middle line:84% That third reactor was actually started in the '70s, and took 45 00:53:14.010 --> 00:53:15.130 align:middle line:90% years to complete. 00:53:15.130 --> 00:53:18.610 align:middle line:84% So putting the capital cost of that reactor in there 00:53:18.610 --> 00:53:19.630 align:middle line:90% is just not a good idea. 00:53:19.630 --> 00:53:20.130 align:middle line:90% Yeah? 00:53:20.130 --> 00:53:22.430 align:middle line:84% AUDIENCE: Is there any data for Naval nuclear reactors? 00:53:22.430 --> 00:53:24.790 align:middle line:84% Because we've been building those a lot more consistently. 00:53:24.790 --> 00:53:25.930 align:middle line:84% PROFESSOR: That would be wonderful 00:53:25.930 --> 00:53:27.430 align:middle line:84% if there were real data for that. 00:53:27.430 --> 00:53:30.790 align:middle line:84% If anyone is a Naval ROTC person and can find that-- 00:53:30.790 --> 00:53:31.290 align:middle line:90% yeah? 00:53:31.290 --> 00:53:33.950 align:middle line:84% AUDIENCE: Some data by the Congressional. 00:53:33.950 --> 00:53:36.583 align:middle line:84% AUDIENCE: Yeah, there is some from the admiralty about it. 00:53:36.583 --> 00:53:37.250 align:middle line:90% PROFESSOR: Yeah? 00:53:37.250 --> 00:53:38.350 align:middle line:84% AUDIENCE: And the Congressional-- 00:53:38.350 --> 00:53:40.892 align:middle line:84% AUDIENCE: $1 billion for reactor development cost, $1 billion 00:53:40.892 --> 00:53:45.030 align:middle line:84% for the shipyard, and then they have some estimates. 00:53:45.030 --> 00:53:47.690 align:middle line:84% At some point, the Navy was apparently looking at, 00:53:47.690 --> 00:53:50.070 align:middle line:84% are we going to make our new ships nuclear or not. 00:53:50.070 --> 00:53:52.710 align:middle line:90% They did some very high level. 00:53:52.710 --> 00:53:55.570 align:middle line:84% So there is some data on it from Congress, 00:53:55.570 --> 00:53:57.810 align:middle line:90% but obviously, not too much. 00:53:57.810 --> 00:53:59.738 align:middle line:84% PROFESSOR: Is there any time series data? 00:53:59.738 --> 00:54:01.530 align:middle line:84% AUDIENCE: I don't think it has time series. 00:54:01.530 --> 00:54:02.490 align:middle line:90% I can try to pull it up. 00:54:02.490 --> 00:54:03.157 align:middle line:90% It's pretty old. 00:54:03.157 --> 00:54:05.150 align:middle line:90% I think it's from 2011. 00:54:05.150 --> 00:54:05.990 align:middle line:90% PROFESSOR: Yeah. 00:54:05.990 --> 00:54:08.910 align:middle line:84% The only time series data, so this 00:54:08.910 --> 00:54:12.710 align:middle line:84% is of interest for learning, which we'll 00:54:12.710 --> 00:54:14.310 align:middle line:90% have a separate class about. 00:54:14.310 --> 00:54:18.270 align:middle line:84% Learning is how do we bring this number down. 00:54:18.270 --> 00:54:22.350 align:middle line:84% And the Naval reactors is a place 00:54:22.350 --> 00:54:25.270 align:middle line:84% where we build the same reactor design over and over and over. 00:54:25.270 --> 00:54:28.750 align:middle line:90% And we might see some learning. 00:54:28.750 --> 00:54:31.230 align:middle line:84% And so I'm very interested in time series associated 00:54:31.230 --> 00:54:31.730 align:middle line:90% with this. 00:54:31.730 --> 00:54:37.110 align:middle line:84% There is one Russian/Soviet number 00:54:37.110 --> 00:54:41.220 align:middle line:84% on time series for Naval reactors. 00:54:41.220 --> 00:54:44.000 align:middle line:84% And it's just this guy who publishes with no data. 00:54:44.000 --> 00:54:50.900 align:middle line:84% He just asserts that the cost reduction rate was 5%. 00:54:50.900 --> 00:54:53.260 align:middle line:84% And very traditional, if you go back and read 00:54:53.260 --> 00:54:57.263 align:middle line:84% like Soviet era scientific publications. 00:54:57.263 --> 00:54:58.680 align:middle line:84% They don't put that data in there. 00:54:58.680 --> 00:55:01.020 align:middle line:84% It's all based on the reputation of the scientists that 00:55:01.020 --> 00:55:02.500 align:middle line:90% has put his name on the paper. 00:55:02.500 --> 00:55:05.860 align:middle line:84% And then you just take it as faith. 00:55:05.860 --> 00:55:09.220 align:middle line:84% So there's one data for time series and data 00:55:09.220 --> 00:55:10.760 align:middle line:90% point for Russian data. 00:55:10.760 --> 00:55:14.260 align:middle line:84% But I would love to see some data for the US reactors, 00:55:14.260 --> 00:55:15.440 align:middle line:90% if we could get it. 00:55:15.440 --> 00:55:17.780 align:middle line:90% So that would be super cool. 00:55:17.780 --> 00:55:22.020 align:middle line:84% OK, so let's just look at the range of estimates 00:55:22.020 --> 00:55:25.980 align:middle line:84% that we see for this number from nuclear. 00:55:25.980 --> 00:55:26.480 align:middle line:90% All right. 00:55:26.480 --> 00:55:28.720 align:middle line:90% So this is overnight costs. 00:55:28.720 --> 00:55:34.300 align:middle line:84% Everything is in real 2023 dollars per kilowatt. 00:55:34.300 --> 00:55:39.050 align:middle line:84% So everything is normalized normalize to the reactor size. 00:55:39.050 --> 00:55:41.310 align:middle line:84% And this is the range of estimates. 00:55:41.310 --> 00:55:44.090 align:middle line:90% 00:55:44.090 --> 00:55:46.570 align:middle line:90% All right. 00:55:46.570 --> 00:55:47.670 align:middle line:90% That's a lot of range. 00:55:47.670 --> 00:55:51.370 align:middle line:84% That's a factor of 11 between the top and the bottom. 00:55:51.370 --> 00:55:56.010 align:middle line:84% And just to make matters worse the top estimate 00:55:56.010 --> 00:55:58.430 align:middle line:84% and the bottom estimate are for the same reactor. 00:55:58.430 --> 00:56:02.390 align:middle line:90% 00:56:02.390 --> 00:56:05.210 align:middle line:84% In fact, all of these are estimates 00:56:05.210 --> 00:56:07.050 align:middle line:84% except for this one, which is actually 00:56:07.050 --> 00:56:12.650 align:middle line:84% the true cost of building Vogtle in the United States. 00:56:12.650 --> 00:56:16.670 align:middle line:84% And so there's a few trends that we can observe here. 00:56:16.670 --> 00:56:20.530 align:middle line:84% The first is that the companies selling the reactors-- 00:56:20.530 --> 00:56:25.050 align:middle line:84% Westinghouse, Oklo, TerraPower, they always 00:56:25.050 --> 00:56:27.330 align:middle line:90% have the lowest estimates. 00:56:27.330 --> 00:56:29.010 align:middle line:90% Surprise, surprise. 00:56:29.010 --> 00:56:31.803 align:middle line:90% They need to sell this thing. 00:56:31.803 --> 00:56:33.970 align:middle line:84% They don't have to do the architectural engineering. 00:56:33.970 --> 00:56:35.892 align:middle line:84% That's done destined by an independent firm. 00:56:35.892 --> 00:56:37.100 align:middle line:90% They just design the reactor. 00:56:37.100 --> 00:56:39.760 align:middle line:84% Someone else figures out how to build it, 00:56:39.760 --> 00:56:41.420 align:middle line:84% and they come up with this number, 00:56:41.420 --> 00:56:43.120 align:middle line:90% and it's pulled out of thin air. 00:56:43.120 --> 00:56:46.080 align:middle line:84% It's not surprising that it's totally low. 00:56:46.080 --> 00:56:50.560 align:middle line:84% Then you have these academics, mostly MIT, 00:56:50.560 --> 00:56:53.920 align:middle line:84% publishing these reports, estimating what? 00:56:53.920 --> 00:56:56.300 align:middle line:84% And so there, the academics are optimists. 00:56:56.300 --> 00:56:58.320 align:middle line:90% They're like, we like nuclear. 00:56:58.320 --> 00:57:01.040 align:middle line:84% We think that there are ways to bring down the cost. 00:57:01.040 --> 00:57:05.280 align:middle line:84% And so they publish these numbers, which historically, 00:57:05.280 --> 00:57:09.000 align:middle line:84% my department, our department started at $2,000 in 2002. 00:57:09.000 --> 00:57:12.040 align:middle line:90% That 3570 in 2023 dollars. 00:57:12.040 --> 00:57:14.640 align:middle line:84% We no longer are that optimistic. 00:57:14.640 --> 00:57:17.120 align:middle line:84% We're slowly becoming more pessimistic, 00:57:17.120 --> 00:57:20.880 align:middle line:84% but we're still more optimistic than the government. 00:57:20.880 --> 00:57:24.240 align:middle line:84% And then the government, they hire now, 00:57:24.240 --> 00:57:25.880 align:middle line:84% they hired this independent contractor 00:57:25.880 --> 00:57:29.720 align:middle line:84% called Sargent & Lundy to do the cost estimation for them. 00:57:29.720 --> 00:57:31.360 align:middle line:90% It wasn't always the case. 00:57:31.360 --> 00:57:33.790 align:middle line:84% Sargent & Lundy has published these numbers. 00:57:33.790 --> 00:57:36.870 align:middle line:84% Now does Sargent & Lundy know what they're talking about. 00:57:36.870 --> 00:57:39.070 align:middle line:84% Yeah, they do, because they are one 00:57:39.070 --> 00:57:41.495 align:middle line:84% of the biggest architectural engineering firms 00:57:41.495 --> 00:57:42.370 align:middle line:90% in the United States. 00:57:42.370 --> 00:57:43.270 align:middle line:90% What do they do? 00:57:43.270 --> 00:57:44.910 align:middle line:90% You want to build a power plant? 00:57:44.910 --> 00:57:47.510 align:middle line:84% You go to the Westinghouse, you go to General Electric, 00:57:47.510 --> 00:57:49.310 align:middle line:90% you buy their technology. 00:57:49.310 --> 00:57:52.150 align:middle line:84% Sargent & Lundy figures out where 00:57:52.150 --> 00:57:54.910 align:middle line:84% the pipes go, how to pour the concrete, 00:57:54.910 --> 00:57:57.230 align:middle line:90% how this plugs into the grid. 00:57:57.230 --> 00:57:58.612 align:middle line:90% They build the plant. 00:57:58.612 --> 00:58:00.070 align:middle line:84% They are the people who actually do 00:58:00.070 --> 00:58:01.737 align:middle line:84% what's called architectural engineering. 00:58:01.737 --> 00:58:05.510 align:middle line:84% So they really have some good basis, 00:58:05.510 --> 00:58:10.630 align:middle line:84% but they also sell architectural engineering services. 00:58:10.630 --> 00:58:14.910 align:middle line:84% So they are slightly conflicted in trying 00:58:14.910 --> 00:58:16.330 align:middle line:90% to come up with solid numbers. 00:58:16.330 --> 00:58:17.747 align:middle line:84% They want these numbers to be low, 00:58:17.747 --> 00:58:21.230 align:middle line:84% otherwise no one's going to buy their business. 00:58:21.230 --> 00:58:23.230 align:middle line:84% And that's Vogtle, what it actually 00:58:23.230 --> 00:58:24.730 align:middle line:90% cost to build the plant. 00:58:24.730 --> 00:58:25.830 align:middle line:90% Yeah? 00:58:25.830 --> 00:58:32.540 align:middle line:84% AUDIENCE: So one question on the overnight cost as the metric. 00:58:32.540 --> 00:58:35.300 align:middle line:84% Once constructed, the reactor will 00:58:35.300 --> 00:58:37.800 align:middle line:84% generate relatively cheap energy for a long period of time. 00:58:37.800 --> 00:58:40.903 align:middle line:84% So is there a different metric we can look at? 00:58:40.903 --> 00:58:41.820 align:middle line:90% PROFESSOR: Absolutely. 00:58:41.820 --> 00:58:43.737 align:middle line:84% We're going to walk systematically through all 00:58:43.737 --> 00:58:46.060 align:middle line:90% of these things and get there. 00:58:46.060 --> 00:58:48.913 align:middle line:84% Yeah, this is not the measure of affordability. 00:58:48.913 --> 00:58:50.080 align:middle line:90% Let me just underscore this. 00:58:50.080 --> 00:58:52.020 align:middle line:84% This is not the measure of affordability 00:58:52.020 --> 00:58:55.477 align:middle line:84% of a nuclear plant, though it is a strongly important factor. 00:58:55.477 --> 00:58:57.060 align:middle line:84% But this is not the final measurement. 00:58:57.060 --> 00:58:57.940 align:middle line:90% Yeah? 00:58:57.940 --> 00:59:02.800 align:middle line:84% AUDIENCE: For all of the AP1000 calculations, as it were, 00:59:02.800 --> 00:59:08.460 align:middle line:84% how many of them are for long term, 00:59:08.460 --> 00:59:12.580 align:middle line:84% this is the 30th AP1000 we've built. 00:59:12.580 --> 00:59:14.820 align:middle line:84% Because obviously the Westinghouse is that's n-th 00:59:14.820 --> 00:59:15.320 align:middle line:90% of a kind. 00:59:15.320 --> 00:59:20.140 align:middle line:84% But are the Sargent Lundy ones for n-th of a kind, as well? 00:59:20.140 --> 00:59:23.700 align:middle line:84% Because we would expect the first two 00:59:23.700 --> 00:59:24.880 align:middle line:90% as developmental units. 00:59:24.880 --> 00:59:27.140 align:middle line:84% And with Westinghouse's mismanagement 00:59:27.140 --> 00:59:31.300 align:middle line:84% over the AP1000 project, it's obviously going to be higher. 00:59:31.300 --> 00:59:33.300 align:middle line:84% But now that the technology is figured out, 00:59:33.300 --> 00:59:36.252 align:middle line:84% do we expect that to go down significantly or-- 00:59:36.252 --> 00:59:37.960 align:middle line:84% PROFESSOR: Yeah, so I think most of these 00:59:37.960 --> 00:59:39.500 align:middle line:84% are n-th of the kind predictions. 00:59:39.500 --> 00:59:40.700 align:middle line:90% AUDIENCE: OK. 00:59:40.700 --> 00:59:41.840 align:middle line:90% PROFESSOR: Does it say? 00:59:41.840 --> 00:59:46.200 align:middle line:84% Yeah, most of these are n-th of a kind predictions. 00:59:46.200 --> 00:59:49.570 align:middle line:84% Whether Vogtle is first of a kind or n-th of a kind, 00:59:49.570 --> 00:59:51.320 align:middle line:84% most people would say it's first of a kind 00:59:51.320 --> 00:59:53.860 align:middle line:84% because it's the first two built in the United States. 00:59:53.860 --> 00:59:55.320 align:middle line:84% But it's not the first two built. 00:59:55.320 --> 00:59:56.960 align:middle line:84% AUDIENCE: There were two in China? 00:59:56.960 --> 00:59:58.085 align:middle line:90% PROFESSOR: There were some. 00:59:58.085 --> 00:59:59.482 align:middle line:90% There were-- 00:59:59.482 --> 01:00:01.440 align:middle line:84% AUDIENCE: I know there were two built in China. 01:00:01.440 --> 01:00:03.107 align:middle line:84% PROFESSOR: There are two built in China. 01:00:03.107 --> 01:00:05.040 align:middle line:90% Yeah. 01:00:05.040 --> 01:00:10.000 align:middle line:84% So it depends on how you look at this number. 01:00:10.000 --> 01:00:14.960 align:middle line:84% One of the issues is that every time 01:00:14.960 --> 01:00:19.080 align:middle line:84% you look at these actual numbers ex-post 01:00:19.080 --> 01:00:25.040 align:middle line:84% is all these some explanations for why this number is so big. 01:00:25.040 --> 01:00:27.040 align:middle line:84% And then it's up to you to believe 01:00:27.040 --> 01:00:34.030 align:middle line:84% whether that was a one-off or whether that's actually 01:00:34.030 --> 01:00:37.430 align:middle line:90% what it costs to build. 01:00:37.430 --> 01:00:40.810 align:middle line:90% So this is where we are. 01:00:40.810 --> 01:00:41.510 align:middle line:90% Yep? 01:00:41.510 --> 01:00:42.910 align:middle line:84% AUDIENCE: So this is a Westinghouse prediction 01:00:42.910 --> 01:00:44.118 align:middle line:90% for building any [INAUDIBLE]? 01:00:44.118 --> 01:00:47.470 align:middle line:84% Is there any availability to find Westinghouse's evaluation 01:00:47.470 --> 01:00:51.150 align:middle line:84% for building in other countries like South Korea? 01:00:51.150 --> 01:00:53.330 align:middle line:84% PROFESSOR: I don't think I've seen that. 01:00:53.330 --> 01:00:53.830 align:middle line:90% No. 01:00:53.830 --> 01:00:54.372 align:middle line:90% AUDIENCE: OK. 01:00:54.372 --> 01:00:57.295 align:middle line:84% I mean, I imagine, I just can't imagine 01:00:57.295 --> 01:00:58.670 align:middle line:84% they would estimate it even being 01:00:58.670 --> 01:01:01.590 align:middle line:90% even lower for those countries. 01:01:01.590 --> 01:01:03.950 align:middle line:84% PROFESSOR: Yeah, I mean, this Westinghouse number 01:01:03.950 --> 01:01:08.750 align:middle line:90% goes back to 2002. 01:01:08.750 --> 01:01:10.230 align:middle line:90% It was early on. 01:01:10.230 --> 01:01:13.430 align:middle line:84% They probably thought the US was a principal market. 01:01:13.430 --> 01:01:17.190 align:middle line:84% And it's also the case that the AP1000 built in China 01:01:17.190 --> 01:01:20.630 align:middle line:84% has fewer safety features than the AP1000 built in the United 01:01:20.630 --> 01:01:21.470 align:middle line:90% States. 01:01:21.470 --> 01:01:23.870 align:middle line:84% China was like, we're not going to pay for that. 01:01:23.870 --> 01:01:26.370 align:middle line:84% And so they made the containment thinner, 01:01:26.370 --> 01:01:29.160 align:middle line:84% uses less concrete, various things. 01:01:29.160 --> 01:01:32.660 align:middle line:84% Also, the design slightly changed between there and here 01:01:32.660 --> 01:01:34.860 align:middle line:90% because of 9/11. 01:01:34.860 --> 01:01:37.560 align:middle line:84% So they made the containment in the US plant thicker, 01:01:37.560 --> 01:01:39.660 align:middle line:84% so you could fly an airplane into it 01:01:39.660 --> 01:01:42.380 align:middle line:90% and it wouldn't have a puncture. 01:01:42.380 --> 01:01:45.180 align:middle line:84% Whereas in the original design, the containment 01:01:45.180 --> 01:01:46.640 align:middle line:90% had slightly less concrete. 01:01:46.640 --> 01:01:51.500 align:middle line:84% But that does not explain a factor of n and deviation. 01:01:51.500 --> 01:01:54.840 align:middle line:90% So any other? 01:01:54.840 --> 01:01:55.580 align:middle line:90% Yeah? 01:01:55.580 --> 01:01:56.420 align:middle line:90% Yeah. 01:01:56.420 --> 01:01:58.045 align:middle line:84% AUDIENCE: So I'm wondering how are they 01:01:58.045 --> 01:01:59.780 align:middle line:84% making these predictions, especially 01:01:59.780 --> 01:02:02.660 align:middle line:84% for n-th of a kind, when historically we don't actually 01:02:02.660 --> 01:02:06.140 align:middle line:84% know if positive learning is something that properly happens 01:02:06.140 --> 01:02:06.740 align:middle line:90% for nuclear? 01:02:06.740 --> 01:02:09.680 align:middle line:84% Like we haven't really seen that be a thing yet. 01:02:09.680 --> 01:02:12.835 align:middle line:84% So are these assuming positive learning? 01:02:12.835 --> 01:02:15.460 align:middle line:84% PROFESSOR: They often assume a little bit of positive learning. 01:02:15.460 --> 01:02:17.100 align:middle line:90% Yes. 01:02:17.100 --> 01:02:20.540 align:middle line:84% And sometimes you can get first-of-a-kind numbers out 01:02:20.540 --> 01:02:21.680 align:middle line:90% of these guys. 01:02:21.680 --> 01:02:25.060 align:middle line:90% 01:02:25.060 --> 01:02:27.830 align:middle line:84% I don't know what went into that Westinghouse 01:02:27.830 --> 01:02:30.070 align:middle line:90% where I have to go look it up. 01:02:30.070 --> 01:02:34.570 align:middle line:84% But usually like learning rates are assumed to be 5% maybe 10%. 01:02:34.570 --> 01:02:39.490 align:middle line:84% So they would say a full-out number of 1,760 maybe it'd be 01:02:39.490 --> 01:02:41.170 align:middle line:90% 2,000. 01:02:41.170 --> 01:02:44.410 align:middle line:84% Yeah, that would be their number. 01:02:44.410 --> 01:02:46.250 align:middle line:84% AUDIENCE: Why have MIT's estimates become 01:02:46.250 --> 01:02:48.810 align:middle line:90% more pessimistic over time? 01:02:48.810 --> 01:02:50.690 align:middle line:84% PROFESSOR: Because the first ones were really 01:02:50.690 --> 01:02:54.490 align:middle line:90% just based on nothing. 01:02:54.490 --> 01:03:00.330 align:middle line:84% Yeah, so the first report was basically a propaganda report. 01:03:00.330 --> 01:03:02.770 align:middle line:84% And the second report, which was an attempt 01:03:02.770 --> 01:03:07.530 align:middle line:84% to genuinely understand why nuclear was so expensive, 01:03:07.530 --> 01:03:10.750 align:middle line:84% did identify a number of things that were changing. 01:03:10.750 --> 01:03:17.250 align:middle line:84% In particular, they looked at the productivity of labor, 01:03:17.250 --> 01:03:20.050 align:middle line:84% and they concluded that it had been going down over time. 01:03:20.050 --> 01:03:23.650 align:middle line:84% They concluded that actually, cost of steel, cost of concrete 01:03:23.650 --> 01:03:24.600 align:middle line:90% is going up. 01:03:24.600 --> 01:03:27.120 align:middle line:84% So there are real reasons to understand 01:03:27.120 --> 01:03:29.520 align:middle line:84% that the original predictions made by Westinghouse 01:03:29.520 --> 01:03:32.560 align:middle line:84% and others were probably not correct. 01:03:32.560 --> 01:03:37.300 align:middle line:84% But they still picked reasonably optimistic numbers. 01:03:37.300 --> 01:03:41.600 align:middle line:84% And what they did for their median number 01:03:41.600 --> 01:03:45.800 align:middle line:84% was to actually not devise it themselves. 01:03:45.800 --> 01:03:50.960 align:middle line:84% But they used NREL, National Renewable Energy Laboratory, 01:03:50.960 --> 01:03:53.800 align:middle line:90% which devised a number. 01:03:53.800 --> 01:03:54.832 align:middle line:90% And then I forget. 01:03:54.832 --> 01:03:55.540 align:middle line:90% I looked this up. 01:03:55.540 --> 01:03:59.440 align:middle line:84% At one point, I think NREL got the number from a conversation 01:03:59.440 --> 01:04:02.080 align:middle line:90% with Westinghouse. 01:04:02.080 --> 01:04:09.960 align:middle line:84% It turns out that this number, this number changes every year. 01:04:09.960 --> 01:04:13.000 align:middle line:84% But when I first started teaching this class, 01:04:13.000 --> 01:04:15.280 align:middle line:84% I really wanted to know where it came from. 01:04:15.280 --> 01:04:19.360 align:middle line:84% And this was before Sargent & Lundy did these tables for them. 01:04:19.360 --> 01:04:23.088 align:middle line:84% So I called the EIA office and I finally 01:04:23.088 --> 01:04:25.630 align:middle line:84% got in touch with the person responsible for the nuclear cost 01:04:25.630 --> 01:04:26.910 align:middle line:90% estimation. 01:04:26.910 --> 01:04:29.270 align:middle line:84% And I said, where do you get your number? 01:04:29.270 --> 01:04:31.490 align:middle line:84% She's like, oh, I call Westinghouse every year 01:04:31.490 --> 01:04:32.290 align:middle line:90% and add 10%. 01:04:32.290 --> 01:04:36.990 align:middle line:90% 01:04:36.990 --> 01:04:37.610 align:middle line:90% There you go. 01:04:37.610 --> 01:04:40.170 align:middle line:90% 01:04:40.170 --> 01:04:47.710 align:middle line:84% So let us now look at how to calculate. 01:04:47.710 --> 01:04:50.250 align:middle line:90% Let's see, nope, wrong one. 01:04:50.250 --> 01:04:53.270 align:middle line:90% 01:04:53.270 --> 01:04:56.110 align:middle line:84% Let us look a little bit at what goes into the calculation 01:04:56.110 --> 01:04:57.450 align:middle line:90% of the capital charge. 01:04:57.450 --> 01:05:00.590 align:middle line:84% So what we've looked at is the overnight cost, which 01:05:00.590 --> 01:05:02.637 align:middle line:90% is not the capital charge. 01:05:02.637 --> 01:05:04.470 align:middle line:84% The overnight cost assumes that you're going 01:05:04.470 --> 01:05:07.510 align:middle line:90% to build the plant overnight. 01:05:07.510 --> 01:05:09.590 align:middle line:84% You never build a plant overnight, 01:05:09.590 --> 01:05:12.470 align:middle line:84% so you have some interest to pay on it. 01:05:12.470 --> 01:05:14.570 align:middle line:84% So let's just look at that really fast. 01:05:14.570 --> 01:05:19.270 align:middle line:90% 01:05:19.270 --> 01:05:28.150 align:middle line:84% So typically when you build a plant, 01:05:28.150 --> 01:05:34.280 align:middle line:84% you're going to have some expenditure. 01:05:34.280 --> 01:05:36.530 align:middle line:84% It's typically going to be very small in the beginning 01:05:36.530 --> 01:05:38.475 align:middle line:84% because you're doing some studies. 01:05:38.475 --> 01:05:39.850 align:middle line:84% You're going to have some geotech 01:05:39.850 --> 01:05:42.250 align:middle line:90% engineer come out, drill holes. 01:05:42.250 --> 01:05:45.290 align:middle line:84% You're going to dig a big pit in the ground. 01:05:45.290 --> 01:05:46.950 align:middle line:90% And so your costs are low. 01:05:46.950 --> 01:05:50.655 align:middle line:90% 01:05:50.655 --> 01:05:52.030 align:middle line:84% And then you're going to ramp up. 01:05:52.030 --> 01:05:54.330 align:middle line:84% You're going to start doing all kinds of construction. 01:05:54.330 --> 01:05:56.210 align:middle line:84% And then you're going to ramp down. 01:05:56.210 --> 01:05:58.690 align:middle line:84% And there's going to be some total construction time. 01:05:58.690 --> 01:06:01.690 align:middle line:84% We're call that big T. There are people 01:06:01.690 --> 01:06:03.450 align:middle line:84% who have tried to study the shape of this 01:06:03.450 --> 01:06:06.650 align:middle line:84% and fit functions based on historical cost data. 01:06:06.650 --> 01:06:09.770 align:middle line:84% And often what they fit is some combination 01:06:09.770 --> 01:06:11.990 align:middle line:84% of cosines and hyperbolic cosine. 01:06:11.990 --> 01:06:16.770 align:middle line:84% But basically it's a slightly flattened cosine shape 01:06:16.770 --> 01:06:19.640 align:middle line:90% or roughly a parabola shape. 01:06:19.640 --> 01:06:22.480 align:middle line:84% And it turns out, it doesn't really matter. 01:06:22.480 --> 01:06:26.280 align:middle line:84% You just need some kind of convex down shape. 01:06:26.280 --> 01:06:31.800 align:middle line:84% And so I like to basically say that the intensity of spending 01:06:31.800 --> 01:06:40.840 align:middle line:84% is basically some general quadratic, like that. 01:06:40.840 --> 01:06:42.520 align:middle line:84% That will be some general quadratic 01:06:42.520 --> 01:06:43.920 align:middle line:90% that describes a parabola. 01:06:43.920 --> 01:06:46.640 align:middle line:84% And then we have three boundary conditions 01:06:46.640 --> 01:06:50.760 align:middle line:84% that the intensity at time 0 is 0. 01:06:50.760 --> 01:06:56.360 align:middle line:84% The intensity at time big T is 0, the two roots, 01:06:56.360 --> 01:07:00.400 align:middle line:84% and then this area under the curve, 01:07:00.400 --> 01:07:02.420 align:middle line:90% the integral of the intensity-- 01:07:02.420 --> 01:07:05.120 align:middle line:90% 01:07:05.120 --> 01:07:07.000 align:middle line:90% sorry, I'm being sloppy-- 01:07:07.000 --> 01:07:11.766 align:middle line:84% from 0 to big T should be the overnight cost. 01:07:11.766 --> 01:07:14.120 align:middle line:90% Right? 01:07:14.120 --> 01:07:16.520 align:middle line:84% Our three boundary conditions allows 01:07:16.520 --> 01:07:19.030 align:middle line:84% us to solve for these three parameters, 01:07:19.030 --> 01:07:22.830 align:middle line:84% and we can determine the shape of this curve. 01:07:22.830 --> 01:07:26.190 align:middle line:84% And I will leave that as a problem for the reader, 01:07:26.190 --> 01:07:32.190 align:middle line:84% instead of wasting six minutes doing algebra for you. 01:07:32.190 --> 01:07:43.670 align:middle line:84% And if you do that, you're going to get this nice result, which 01:07:43.670 --> 01:07:52.470 align:middle line:84% is the intensity of time t is 6 times the overnight cost divided 01:07:52.470 --> 01:08:01.350 align:middle line:84% by big T cubed times t times big T minus t. 01:08:01.350 --> 01:08:06.790 align:middle line:84% That turns out to be the equation for a parabola that 01:08:06.790 --> 01:08:09.310 align:middle line:90% fits this shape. 01:08:09.310 --> 01:08:11.370 align:middle line:90% So what is this thing doing? 01:08:11.370 --> 01:08:16.060 align:middle line:90% This is predicting this shape. 01:08:16.060 --> 01:08:19.520 align:middle line:84% And we have now to worry about interest. 01:08:19.520 --> 01:08:23.939 align:middle line:84% So we have some little amount of spending 01:08:23.939 --> 01:08:29.779 align:middle line:84% that occurs at some time, p star. 01:08:29.779 --> 01:08:31.859 align:middle line:84% And we need to consider inflation 01:08:31.859 --> 01:08:34.260 align:middle line:84% and we need to consider interest. 01:08:34.260 --> 01:08:39.020 align:middle line:84% So how much spending do we do there? 01:08:39.020 --> 01:08:42.740 align:middle line:90% It's I of t dt. 01:08:42.740 --> 01:08:44.660 align:middle line:90% How expensive is that? 01:08:44.660 --> 01:08:48.960 align:middle line:84% Well, we started here when we were doing our calculation. 01:08:48.960 --> 01:08:51.779 align:middle line:84% But now this happens in the future. 01:08:51.779 --> 01:08:53.779 align:middle line:84% So there's going to be some inflation that's 01:08:53.779 --> 01:08:55.700 align:middle line:84% driving the price of the goods and services 01:08:55.700 --> 01:08:57.620 align:middle line:90% up that we're trying to buy. 01:08:57.620 --> 01:09:03.540 align:middle line:84% So we take I of t dt times the inflation rate 01:09:03.540 --> 01:09:06.420 align:middle line:84% times the amount of time that has elapsed. 01:09:06.420 --> 01:09:09.660 align:middle line:84% And that is how much we have to spend. 01:09:09.660 --> 01:09:16.130 align:middle line:84% But then to buy it, we have to take a loan from the bank 01:09:16.130 --> 01:09:18.689 align:middle line:84% because they're not making any money, 01:09:18.689 --> 01:09:21.649 align:middle line:84% or borrow money through bond market 01:09:21.649 --> 01:09:25.370 align:middle line:84% or through some kind of mechanism of financing this. 01:09:25.370 --> 01:09:27.370 align:middle line:84% And we're going to have to pay interest 01:09:27.370 --> 01:09:30.330 align:middle line:84% on that loan for this period until we 01:09:30.330 --> 01:09:32.290 align:middle line:90% can begin making electricity. 01:09:32.290 --> 01:09:35.850 align:middle line:90% And this is big T minus t. 01:09:35.850 --> 01:09:40.010 align:middle line:84% So we have another here, which is I call it 01:09:40.010 --> 01:09:45.370 align:middle line:84% w which is w for the weighted average cost of capital. 01:09:45.370 --> 01:09:50.569 align:middle line:84% And it's like, OK, some interest rate for bonds, some interest 01:09:50.569 --> 01:09:52.609 align:middle line:84% rate for equity, some interest rate for all 01:09:52.609 --> 01:09:56.410 align:middle line:84% the different mechanisms which I finance this plant 01:09:56.410 --> 01:09:59.890 align:middle line:84% weighted over the fraction of each mechanism, 01:09:59.890 --> 01:10:05.690 align:middle line:84% it gives you w times big T minus t. 01:10:05.690 --> 01:10:14.760 align:middle line:84% So that's our essentially cost in real dollars 01:10:14.760 --> 01:10:18.080 align:middle line:84% by the time we get to the end of the construction project 01:10:18.080 --> 01:10:21.560 align:middle line:90% for building that single unit. 01:10:21.560 --> 01:10:25.520 align:middle line:84% And then we're just going to integrate that from 0 to t. 01:10:25.520 --> 01:10:31.200 align:middle line:84% So we have 6 times the overnight cost over T 01:10:31.200 --> 01:10:38.560 align:middle line:84% cubed times t times big T minus t times 01:10:38.560 --> 01:10:42.980 align:middle line:90% e to rt e to the w T minus t. 01:10:42.980 --> 01:10:45.600 align:middle line:90% 01:10:45.600 --> 01:10:46.260 align:middle line:90% All right. 01:10:46.260 --> 01:10:51.640 align:middle line:84% And that is equal to what is called our investment cost. 01:10:51.640 --> 01:10:55.000 align:middle line:90% This is how much we've got to-- 01:10:55.000 --> 01:10:57.600 align:middle line:84% totally, this is the amount of the loan 01:10:57.600 --> 01:11:00.920 align:middle line:84% by the time we get to the end of the construction period 01:11:00.920 --> 01:11:06.960 align:middle line:84% that we have to pay off after we build the plant. 01:11:06.960 --> 01:11:10.480 align:middle line:84% So why am I like walking you through this? 01:11:10.480 --> 01:11:14.060 align:middle line:84% Because I want to show you how important 01:11:14.060 --> 01:11:18.560 align:middle line:84% it is not to have delays during your construction. 01:11:18.560 --> 01:11:20.940 align:middle line:84% Before I move on to that, does anyone 01:11:20.940 --> 01:11:24.500 align:middle line:90% want to ask about anything here? 01:11:24.500 --> 01:11:25.460 align:middle line:90% Yes? 01:11:25.460 --> 01:11:27.300 align:middle line:84% AUDIENCE: You said I was intensity. 01:11:27.300 --> 01:11:29.160 align:middle line:84% Can you explained what intensity is? 01:11:29.160 --> 01:11:31.540 align:middle line:84% PROFESSOR: Yeah, it's the rate of spending. 01:11:31.540 --> 01:11:36.420 align:middle line:84% So it's the dollars per unit time as a function of time 01:11:36.420 --> 01:11:38.900 align:middle line:90% along your trajectory. 01:11:38.900 --> 01:11:40.700 align:middle line:90% Yep. 01:11:40.700 --> 01:11:41.200 align:middle line:90% Yeah? 01:11:41.200 --> 01:11:42.867 align:middle line:84% AUDIENCE: So it's the second exponential 01:11:42.867 --> 01:11:47.860 align:middle line:84% with the w, so essentially your interest payments. 01:11:47.860 --> 01:11:50.643 align:middle line:84% Is the assumption, now that you pay back your loans by the end 01:11:50.643 --> 01:11:53.060 align:middle line:84% of construction, wouldn't you take out, I don't know, 20-, 01:11:53.060 --> 01:11:54.012 align:middle line:90% 30-year loans anyways. 01:11:54.012 --> 01:11:55.720 align:middle line:84% PROFESSOR: We'll get to that in a moment. 01:11:55.720 --> 01:11:59.700 align:middle line:84% That's the amount that will be, if you could pay it 01:11:59.700 --> 01:12:03.580 align:middle line:84% back the moment you operate, that would be the balance, 01:12:03.580 --> 01:12:04.680 align:middle line:90% the balance due. 01:12:04.680 --> 01:12:09.580 align:middle line:84% Now you're going to actually pay it back 01:12:09.580 --> 01:12:11.210 align:middle line:90% over a longer period of time. 01:12:11.210 --> 01:12:14.330 align:middle line:84% But this is the balance due, if you will, on the day you 01:12:14.330 --> 01:12:15.330 align:middle line:90% begin operating. 01:12:15.330 --> 01:12:18.410 align:middle line:84% It is called the rate-based cost. 01:12:18.410 --> 01:12:22.770 align:middle line:84% It's the cost at which you would set your price of electricity. 01:12:22.770 --> 01:12:25.530 align:middle line:90% 01:12:25.530 --> 01:12:28.970 align:middle line:84% It's the cost that you would use to determine 01:12:28.970 --> 01:12:31.690 align:middle line:84% the price of electricity, that we could pay off the plant 01:12:31.690 --> 01:12:32.910 align:middle line:90% by the end of its lifetime. 01:12:32.910 --> 01:12:37.170 align:middle line:90% 01:12:37.170 --> 01:12:38.190 align:middle line:90% Any other questions? 01:12:38.190 --> 01:12:40.810 align:middle line:90% 01:12:40.810 --> 01:12:42.330 align:middle line:90% OK. 01:12:42.330 --> 01:12:46.165 align:middle line:90% So there's the same equation. 01:12:46.165 --> 01:12:47.790 align:middle line:84% I don't think I need the board anymore, 01:12:47.790 --> 01:12:49.663 align:middle line:90% so let me put this down. 01:12:49.663 --> 01:12:50.330 align:middle line:90% AUDIENCE: Sorry. 01:12:50.330 --> 01:12:51.625 align:middle line:90% I do have one question. 01:12:51.625 --> 01:12:52.250 align:middle line:90% PROFESSOR: Yep? 01:12:52.250 --> 01:12:55.990 align:middle line:84% AUDIENCE: How do we know that construction costs or intensity 01:12:55.990 --> 01:12:58.957 align:middle line:84% costs will peak somewhere in the middle of the construction? 01:12:58.957 --> 01:12:59.790 align:middle line:90% How do we know that? 01:12:59.790 --> 01:13:01.850 align:middle line:84% PROFESSOR: Just historical experience, yeah, 01:13:01.850 --> 01:13:05.170 align:middle line:90% so it typically looks like that. 01:13:05.170 --> 01:13:11.340 align:middle line:84% Yeah, so if you have actual data for how much was spent, 01:13:11.340 --> 01:13:13.920 align:middle line:84% and you're doing a retrospective on a plant, 01:13:13.920 --> 01:13:17.080 align:middle line:84% then you would actually just generate a big spreadsheet 01:13:17.080 --> 01:13:18.880 align:middle line:84% and say, in this period, we spent this. 01:13:18.880 --> 01:13:20.720 align:middle line:84% And you would do it period by period, 01:13:20.720 --> 01:13:22.680 align:middle line:84% and it'd be whatever shape it is. 01:13:22.680 --> 01:13:26.220 align:middle line:84% But we're trying to forecast for different technologies. 01:13:26.220 --> 01:13:29.480 align:middle line:84% And generally, it has this shape and it 01:13:29.480 --> 01:13:33.620 align:middle line:84% doesn't matter all that much if the shape is exactly 01:13:33.620 --> 01:13:38.680 align:middle line:84% a parabola or part of a sine wave or something else. 01:13:38.680 --> 01:13:39.320 align:middle line:90% Yep? 01:13:39.320 --> 01:13:41.903 align:middle line:84% AUDIENCE: So with the e to the wt, is that just assuming we're 01:13:41.903 --> 01:13:44.493 align:middle line:84% taking out loans as we go continually? 01:13:44.493 --> 01:13:45.160 align:middle line:90% PROFESSOR: Yeah. 01:13:45.160 --> 01:13:47.840 align:middle line:84% And really it does work that way. 01:13:47.840 --> 01:13:49.560 align:middle line:84% You have bond offerings and you maybe 01:13:49.560 --> 01:13:51.960 align:middle line:90% do an offering every year or so. 01:13:51.960 --> 01:13:54.900 align:middle line:84% You don't want to borrow all the money upfront and pay it anyway. 01:13:54.900 --> 01:13:56.720 align:middle line:90% That would be stupid. 01:13:56.720 --> 01:13:59.080 align:middle line:84% And even if you did borrow the money upfront, what 01:13:59.080 --> 01:14:02.200 align:middle line:84% you would probably do is then invest it and get interest rate 01:14:02.200 --> 01:14:02.700 align:middle line:90% returns. 01:14:02.700 --> 01:14:05.440 align:middle line:90% So it's basically a wash. 01:14:05.440 --> 01:14:06.320 align:middle line:90% AUDIENCE: Yeah. 01:14:06.320 --> 01:14:07.120 align:middle line:90% PROFESSOR: Yep? 01:14:07.120 --> 01:14:10.630 align:middle line:84% AUDIENCE: How might this change if you're an SMR company in more 01:14:10.630 --> 01:14:13.430 align:middle line:84% recent years and you're more funded by VCs rather than loans, 01:14:13.430 --> 01:14:14.430 align:middle line:90% like a lot of your frac? 01:14:14.430 --> 01:14:15.130 align:middle line:90% PROFESSOR: It's the same. 01:14:15.130 --> 01:14:16.810 align:middle line:84% That was the same question earlier. 01:14:16.810 --> 01:14:19.750 align:middle line:84% Basically, yeah, so there's something 01:14:19.750 --> 01:14:21.990 align:middle line:90% called the debt-to-equity ratio. 01:14:21.990 --> 01:14:25.750 align:middle line:84% And so a lot of that will be equity-based financing. 01:14:25.750 --> 01:14:30.930 align:middle line:84% But the idea is that they are taking ownership shares, 01:14:30.930 --> 01:14:35.630 align:middle line:84% and they expect that there will be some return 01:14:35.630 --> 01:14:38.990 align:middle line:84% profit from the company, which you will then 01:14:38.990 --> 01:14:42.690 align:middle line:84% have to give them because they own part of the company. 01:14:42.690 --> 01:14:46.910 align:middle line:84% So it's all the same mechanism at the end of the day. 01:14:46.910 --> 01:14:48.950 align:middle line:84% What's changing is really the legal structure 01:14:48.950 --> 01:14:50.950 align:middle line:90% of how you get paid. 01:14:50.950 --> 01:14:54.270 align:middle line:84% But fundamentally, there's still some return 01:14:54.270 --> 01:14:56.010 align:middle line:90% that is being promised. 01:14:56.010 --> 01:14:56.510 align:middle line:90% Yeah. 01:14:56.510 --> 01:15:00.870 align:middle line:90% 01:15:00.870 --> 01:15:02.670 align:middle line:90% Anyone? 01:15:02.670 --> 01:15:05.950 align:middle line:90% OK. 01:15:05.950 --> 01:15:20.220 align:middle line:84% All right, so what you see here is that the time, 01:15:20.220 --> 01:15:23.620 align:middle line:84% I've basically solved this equation. 01:15:23.620 --> 01:15:26.120 align:middle line:84% And I didn't put the solved equation up there. 01:15:26.120 --> 01:15:29.700 align:middle line:90% Do I have it somewhere? 01:15:29.700 --> 01:15:32.540 align:middle line:84% Well, if you do the integral, you 01:15:32.540 --> 01:15:36.180 align:middle line:84% can basically get an expression for IC times 01:15:36.180 --> 01:15:41.380 align:middle line:84% a constant, assuming some values for rw, 01:15:41.380 --> 01:15:43.740 align:middle line:90% times ON, the overnight cost. 01:15:43.740 --> 01:15:45.712 align:middle line:90% Does that make sense? 01:15:45.712 --> 01:15:47.420 align:middle line:84% So the investment cost is some multiplier 01:15:47.420 --> 01:15:48.600 align:middle line:90% times the overnight cost. 01:15:48.600 --> 01:15:52.060 align:middle line:84% And I just want to show you what happens as the construction 01:15:52.060 --> 01:15:52.740 align:middle line:90% time goes up. 01:15:52.740 --> 01:15:56.320 align:middle line:84% Interest rates are fixed, cost of money is fixed. 01:15:56.320 --> 01:15:59.140 align:middle line:84% But as the construction time goes up here's 01:15:59.140 --> 01:16:01.860 align:middle line:84% what happens to your investment cost. 01:16:01.860 --> 01:16:07.730 align:middle line:84% It starts out, it's at 1.1, 1.2, 1.3 and then 2, and 3 times more 01:16:07.730 --> 01:16:09.330 align:middle line:90% than your investment costs. 01:16:09.330 --> 01:16:13.850 align:middle line:84% So if you have big delays, this is a problem. 01:16:13.850 --> 01:16:21.170 align:middle line:84% So the EIA was saying six years to build the nuclear plant. 01:16:21.170 --> 01:16:25.250 align:middle line:84% And it would only cost 40% more than the overnight costs. 01:16:25.250 --> 01:16:28.330 align:middle line:84% But in fact, Vogtle took 14 years. 01:16:28.330 --> 01:16:32.010 align:middle line:90% And so it's 2.3 times. 01:16:32.010 --> 01:16:35.550 align:middle line:84% Flamanville and Olkiluoto cost one was 17 and 1/2, 01:16:35.550 --> 01:16:37.450 align:middle line:90% the other was 18. 01:16:37.450 --> 01:16:41.050 align:middle line:84% So they cost about 18-- and they cost about 3 times 01:16:41.050 --> 01:16:42.650 align:middle line:90% the overnight cost. 01:16:42.650 --> 01:16:47.410 align:middle line:84% So building your plant fast is really important. 01:16:47.410 --> 01:16:52.690 align:middle line:84% And this is why people love the idea of factory fabrication. 01:16:52.690 --> 01:16:56.410 align:middle line:84% And so now we've motivated this idea, stick 01:16:56.410 --> 01:16:58.410 align:middle line:84% building nuclear plants, if it's a very slow 01:16:58.410 --> 01:17:01.250 align:middle line:84% and drawn out process, it's going to be very expensive. 01:17:01.250 --> 01:17:02.810 align:middle line:84% If we can get away from that, you 01:17:02.810 --> 01:17:06.830 align:middle line:84% can do factory fabrication, that's much better. 01:17:06.830 --> 01:17:07.330 align:middle line:90% Let's see. 01:17:07.330 --> 01:17:08.130 align:middle line:90% Where are we? 01:17:08.130 --> 01:17:12.630 align:middle line:90% 01:17:12.630 --> 01:17:16.590 align:middle line:90% We have just a couple minutes. 01:17:16.590 --> 01:17:21.910 align:middle line:84% Let me leave it here and just say that I've 01:17:21.910 --> 01:17:23.130 align:middle line:90% done the math for you. 01:17:23.130 --> 01:17:28.510 align:middle line:84% Assuming that this number is correct for the construction 01:17:28.510 --> 01:17:32.350 align:middle line:84% time, and now you can see what the investment cost would 01:17:32.350 --> 01:17:35.350 align:middle line:90% be for different technologies. 01:17:35.350 --> 01:17:38.350 align:middle line:84% And you can see some trends starting to emerge. 01:17:38.350 --> 01:17:44.890 align:middle line:84% You can see that solar thermal is not very interesting. 01:17:44.890 --> 01:17:47.950 align:middle line:84% We don't see a lot of solar thermal plants being built. 01:17:47.950 --> 01:17:52.770 align:middle line:84% You see that nuclear is still expensive, 01:17:52.770 --> 01:17:55.050 align:middle line:84% bit remember, this is only the capital charge. 01:17:55.050 --> 01:17:56.590 align:middle line:84% We have not done the full cost yet 01:17:56.590 --> 01:17:59.350 align:middle line:84% because we haven't done fixed O&M. We haven't done variable. 01:17:59.350 --> 01:18:01.630 align:middle line:84% And some of these might have components 01:18:01.630 --> 01:18:03.660 align:middle line:90% particularly significant. 01:18:03.660 --> 01:18:07.380 align:middle line:90% What else is interesting here? 01:18:07.380 --> 01:18:11.052 align:middle line:84% Carving a hole is actually fairly expensive, 01:18:11.052 --> 01:18:13.260 align:middle line:84% which is why you don't see a lot of coal plants being 01:18:13.260 --> 01:18:14.340 align:middle line:90% built in the US. 01:18:14.340 --> 01:18:17.020 align:middle line:90% Fuel cells are super expensive. 01:18:17.020 --> 01:18:24.740 align:middle line:84% So you can see there is a reason why solar with tracking or solar 01:18:24.740 --> 01:18:29.600 align:middle line:84% with tracking and batteries is being built so crazily. 01:18:29.600 --> 01:18:32.240 align:middle line:90% 01:18:32.240 --> 01:18:34.380 align:middle line:84% It's just a lot cheaper to build. 01:18:34.380 --> 01:18:36.300 align:middle line:84% This is a Vogtle here at the bottom, 01:18:36.300 --> 01:18:40.900 align:middle line:84% in case you want the actual number for Vogtle. 01:18:40.900 --> 01:18:41.560 align:middle line:90% All right. 01:18:41.560 --> 01:18:47.540 align:middle line:84% So when we come back, we will do the rest of these 01:18:47.540 --> 01:18:50.530 align:middle line:90% and figure out the true cost. 01:18:50.530 --> 01:19:01.000 align:middle line:90%