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The Congress has already begun to invest in developing advanced processes for producing enriched uranium fuel for domestic and foreign power reactors. As these efforts proceed, the Congress faces major decisions regarding further investment in uranium enrichment--decisions to be made in the context of larger strategic choices for the U.S. role in international nuclear fuel. Choices of technologies are further complicated by a dynamic world market for enrichment services. Once monopolized by the United States, that market has now been made highly competitive by non-U.S. concerns with sizable capacity of their own and more planned for the future.

One consideration in these Congressional decisions is the cost effectiveness of the investment options. At the request of Chairman Pete V. Domenici of the Senate Committee on the Budget and Marilyn Lloyd, Chairman of the House Committee on Science and Technology, Subcommittee on Energy Research and Production, the Congressional Budget Office has analyzed the long-term costs of several technological approaches. In keeping with CBO's mandate to provide objective analysis, the paper offers no recommendations.

The analysis was prepared under the direction of John Thomasian by Gary Mahrenholz and Mollie Quasebarth, of CBO's Natural Resources and Commerce Division under the supervision of David L. Bodde and Everett M. Ehrlich. The authors wish to acknowledge the contributions of Robert Civiak of the Congressional Research Service, John D. Mayer and Jeffrey W. Nitta of CBO, Gene Schmidt and Howard Huie of the Department of Energy, Jim Davis of the Lawrence Livermore National Laboratories, and Alice M. Rivlin, former Director of CBO. Johanna Zacharias edited the manuscript, and Deborah Dove typed the several drafts and prepared the paper for publication.
 

Rudolph G. Penner
Director
October 1983
 
 

SUMMARY

CHAPTER I. INTRODUCTION

• The U.S. Position in the World Market
• The Federal Enrichment Enterprise
• The Implications of Uncertain Market Prospects
• The Issues
• Plan of the Study

CHAPTER II. URANIUM ENRICHMENT TECHNOLOGIES AND THE U.S. PROGRAM

• The Cost of Uranium Enrichment
• Uranium Enrichment Technologies
• The U.S. Enrichment Program

CHAPTER III. WORLD SUPPLY AND DEMAND FOR U.S. ENRICHMENT SERVICES

• Capacity, Competition, and Demand
• The U.S. Position in a Competitive Market
• The U.S. Role in the Future Enrichment Market

CHAPTER IV. URANIUM ENRICHMENT OPTIONS FOR FEDERAL INVESTMENT

• Options for Federal Investment
• The Analysis--Conclusions, Cautions, and Methods
• Initial Analysis of the Options
• Sensitivity Analysis--The Effects of Changed Assumptions

APPENDIX A. DESCRIPTION OF ANALYTIC METHOD AND ASSUMPTIONS

APPENDIX B. SENSITIVITY ANALYSIS--DETAIL
 

TABLES
1.	Current Outlay Schedule for the Gas Centrifuge Enrichment Plant, to 1994
2.	Federal Expenditures for and Revenues from Uranium Enrichment, 1971-1982
3.	Existing and Planned Annual Worldwide Uranium Enrichment Capacity, by Nationality, to 1995
4.	Two Paths of Projected World Uranium Enrichment Demand, to Year 2025
5.	Projected Worldwide Demand and Capacity for Uranium Enrichment, to Year 2025
6.	Projected Worldwide Supply and Demand Balance in Uranium Enrichment, to Year 2025
7.	Composition and Technology Timetable Assumed Under the Options
8.	Summary of Discounted Costs and Outlays Under Each Option, 1983-2025
9.	Undiscounted Enrichment Costs Under the Options, by Technology, 1983-2005
A-1.	Base/DOE Plan--Annual SWU Production, Enterprise Costs, and Federal Outlays, 1983-2025
A-2.	Option I--Annual SWU Production, Enterprise Costs, and Federal Outlays, 1983-2025
A-3.	Option II--Annual SWU Production, Enterprise Costs, and Federal Outlays, 1983-2025
A-4.	Option III--Annual SWU Production, Enterprise Costs, and Federal Outlays, 1983-2025
A-5.	Option IV--Annual SWU Production, Enterprise Costs, and Federal Outlays, 1983-2025
B-1.	Discounted Costs of Options Assuming Three-Year Project Delays for AVLIS and AGC
B-2.	Discounted Costs of Options Assuming Project Cost Overruns
B-3.	Discounted Costs of Options Assuming a 6 Percent Real Discount Rate
B-4.	Costs of Options Assuming a Zero Percent Real Discount Rate
B-5.	Discounted Costs of Options Assuming a Real Power Inflation Rate of 2.0 Percent
B-6.	Discounted Costs of Options Assuming Full Capacity Used at 75 Percent
B-7.	Discounted Cost of Options Assuming Capacity Scaled Down to Meet Low Demand
B-8.	The Base/DOE Plan Assuming Low SWU Demand
B-9.	Option I Assuming Low SWU Demand
B-10.	Option II Assuming Low SWU Demand
B-11.	Option III Assuming Low SWU Demand
B-12.	Option IV Assuming Low SWU Demand
B-13.	Cost of Alternative Enrichment Programs Assuming a Tails Assay of 0.10 Percent, from 2000-2025
FIGURE
1.	Annual Federal Outlays for Base/DOE Plan, Four Options, and Continued Reliance on Gaseous Diffusion, 1983-2003

 

SUMMARY

The U.S. government supplies a major portion of the enriched uranium used to fuel most of the nuclear power plants that furnish electricity in the free world. As manager of the U.S. uranium enrichment concern, the Department of Energy (DOE) is investigating a number of technological choices to improve enrichment service and remain a significant world supplier. The Congress will ultimately select a strategy for federal investment in the uranium enrichment enterprise. A fundamental policy choice between possible future roles--that of the free world's main supplier of enrichment services, and that of a mainly domestic supplier--will underlie any investment decision the Congress makes.
 

THE UNCERTAIN ENVIRONMENT FOR DECISIONMAKING

Several important trends and uncertainties complicate that choice.

• The outlook for nuclear power. Whether demand for electricity and reliance on nuclear power will continue to grow as they have in the past is unclear.
  
  
• Competition in the world market. The monopoly the United States once held in the world market for this product has begun to slip--to 60 percent by 1983. Up to now, the United States has sought to dominate the world supply of enriched uranium to assure the peaceful use of nuclear fuels. This goal is made explicit in the Nuclear Nonproliferation Act of 1978, but competition from abroad makes it increasingly difficult to achieve. Mounting competition from non-U.S. enrichment suppliers--relative newcomers to this expanding market--shows clear signs of becoming stiffer.
  
  
• The current technology's high cost. The process by which the United States has thus far produced enriched uranium fuel--begun after World War II for the weapons program and called gaseous diffusion--is now old. Although the plants have recently been upgraded, they are highly energy intensive and expensive to run, and they promise to become increasingly so.
  
  
• Current overcapacity and oversupply. At present, the United States and foreign suppliers of enrichment services have more than sufficient capacity to meet anticipated demand and both suppliers and users have overstocked inventories of enriched fuel. Whether future requirements will warrant sizable investment of federal dollars in new enrichment capacity is uncertain.
  
  
• Pricing. Federal statute requires DOE to recover from sales the full costs of its enrichment services; foreign suppliers, in contrast, have greater latitude to alter prices to adapt to shifting market conditions. While foreign suppliers now sell enrichment services at prices between $100 and $120 per Separative Work Unit (the SWU is the standard in which these services are measured), the current U.S. charge must be set at $140 per SWU to recover the full cost of processing.

Thus, with many factors likely to influence the world enrichment market, the Congress faces decisions about achieving nonproliferation policy objectives and about investing in future technologies in a highly uncertain market. One important consideration is cost effectiveness--any overall strategy should consider the effects on the federal budget and on the utility companies that purchase uranium enrichment services. To assist the Congress in devising the best enrichment strategy, the Congressional Budget Office has analyzed the cost effectiveness of the principal investment options.

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