utility industry. It is here referred to as a benchmark since it is derived not from actual project construction costs, but rather from a periodic sampling of a market basket of over 50 standard commodities and components used in conventional utility plant construction. The market basket contents have not been updated significantly in many years, so that the index more closely tracks a lower bound of cost increases. Thus, the Handy-Whitman Index does not appropriately account for technological or regulatory cost increases, as is typified by the added cost of sulfur-removal or nuclear- safety requirements imposed by legislation in recent years. However, this index does measure the nominal real cost increases in power plant construction. The lack of revision in commodity mix is judged not to be a serious problem, since the mix of added environmental and safety equipment and personnel in post-1970 plants is the same as that of the plants overall. Over the 30-year period 1948-1978, the Handy-Whitman Index has increased in real terms (relative to the GNP deflator) at an average compound rate of 1.5% per year. For the period 1948-1978, increases were about 1% per year, while for the period 1968-1978 increases averaged over 2% per year relative to the GNP deflator. The analysis of the Handy-Whitman Index indicates that the compound annual real cost increases exhibited over the past 10 years are 1.5% per year for coal and 2.0% per year for nuclear. Information on factor 2 was derived from construction cost information assembled over the past decade. Although the available data contain the cost estimates of actual construction projects, these estimates are for a mix of plant sizes. However, the data indicate approximately a 10% per year real increase early in the period, with the rate of increase tapering off to about 7% per year more recently. These rates of real escalation are due primarily to added safety regulations and environmental controls that have been imposed over this period; no time-related factors are included. The easing of these rates in more recent years is a result of attempts to consolidate and simplify the existing regulations and of a decrease in the escalation rate due to new regulations. Although these rates may ease even more in the future, it is also possible that they may continue to be quite substantial. Thus, continuing rates of 5% and 6% per year have been assumed as a high range of escalation for the coal and nuclear technologies, respectively. Factor 3 uncertainties are based on judgments about the technical uncertainty surrounding an advanced technology. Since this is a comparative assessment, these numbers were derived from a range of estimates reported for each technology or from uncertainty in the technology definition. Low, nominal, and high capital costs were derived for each technology, using the three factors just described. The uncertainties for each technology, at the low, nominal and high cost levels, are summarized in Table 4.10. A factor of 1.3 was applied to the combined-cycle system and one of 1.35 to the LMFBR system. For the combined-cycle alternative, the gasifier elements make up the major technological uncertainty and also compose 30% of the nominal plant costs. It has been assumed that this component might increase in cost by as much as 100%. For the LMFBR, two recent estimates provided by United Engineers and Constructors show plant costs to vary by 35%.
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