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A two-speed nuclear world?

With the news that E.ON and RWE have pulled out of plans to build new nuclear plants in the UK, here is an article published in the August 2011 edition of The Energy Industry Times.

The Fukushima Daiichi nuclear plant accident has accelerated a trend towards a two-speed nuclear world. Photo: Reuters/Kim Kyung-Hoon

There is a general consensus that new nuclear build has been delayed rather than derailed by the Fukushima crisis in Japan. But Fukushima may have accelerated a trend already present before the accident – a two-speed nuclear world split into liberalised and state-directed power markets.

This year is shaping up to be an annus horribilis for the nuclear power industry. The accident at the Fukushima Daiichi plant in eastern Japan, the second worst in history, is still yet to be under full control, leaving plant owner Tokyo Electric Power teetering on the edge of bankruptcy.

Since the massive tsunami struck the crippled Fukushima facility on March 11, the United States, Italy, Switzerland, Egypt and Thailand have postponed or cancelled new build projects, while Germany has seemingly abandoned nuclear power forever. In total, 37 reactors have been axed or put on hold since the crisis.

In Europe, the nuclear industry has taken a succession of blows. Germany will close all 17 of her nuclear plants by 2022. Switzerland has banned the construction of new reactors, while Italians overwhelmingly voted against a return to nuclear power in a national referendum. Of the 55 per cent of citizens who participated in the plebiscite, a crushing 94 per cent voted against the construction of new plants.

Most European nations, however, are still pursuing nuclear power. There is particularly strong interest in Central and Eastern Europe, with Poland, the Czech Republic and Lithuania keen to reduce their dependence on Russian natural gas, while the UK and France are pressing on with renewing their aging fleets.

Crucially, the European Commission has stood by nuclear power, despite recent actions by certain national governments. Marc Deffrennes, nuclear officer at the European Commission DG RTD, told The Energy Industry Times: “The Commission has not become more anti-nuclear since Fukushima. The Commission’s 2050 Low Carbon Roadmap envisages a very high penetration of renewables, but that will require a ‘super-smart grid’ and a high level of energy storage capacity, and this will have an impact on affordability. It is important to keep open the nuclear option in order to stabilize costs, as well as provide security of supply.”

The Commission’s initiative to check the safety of nuclear power plants in extreme circumstances, the so-called stress tests, are well underway. The tests are being conducted on 196 reactors in the EU plus Switzerland, Armenia, Belarus, Croatia, Russia, Turkey and Ukraine. The tests focus on the aspects of plant safety highlighted by Fukushima: natural events like earthquakes and floods, as well as loss of safety functions and severe accident management following any kind of initiating event. The operators have to explain their means to maintain control of reactivity, fuel cooling, and confinement of radioactivity after such an event.

Plant operators will file final reports to national regulators by 31 October, with the regulators updating the Commission by 15 September before making their final reports by 31 December. It seems certain that some reactors will close following the stress tests; Belgium’s energy minister Paul Magnette, for example, said that any unit which fails the tests will be shut down. According to Greenpeace, the older units at Belgium’s Doel nuclear plant, just five miles from Antwerp, are at risk of failing the tests.

Public opinion may take another dip when the results of the stress tests are announced, but Malcolm Grimston, Associate Fellow (energy policy) at British think-tank Chatham House believes that the importance of public perception about nuclear has been overblown. “Nuclear doesn’t have to be popular to get on,” he said. “It hasn’t stopped bankers! Fukushima, rightly, should change people’s views about nuclear because we should learn lessons from it, but I don’t see a massive swell of public opinion against it.”

Financing nuclear is a headache

What matters more to the development of new build nuclear is finance. Allan Baker, global head of power at French banking group Societe Generale, says Fukushima has made an already difficult job even tougher for the financial community, and expects a number of new build projects to be delayed. “Even before Fukushima it was clear that there isn’t enough liquidity to finance these projects,” said Baker.

“We have found it incredibly difficult to mobilize capital for an industry which is seen as very expensive and, to be blunt, non-competitive in a competitive electricity market. No financial institution is willing to take the risk on cash flows over 20-25 years without visible government support for the nuclear industry.

“Banks are also not keen on the construction, completion and cost over-run risks. Sponsors will need certainty over completion and cost over-run guarantees and European utilities don’t necessarily have the balance sheets to take on those risks without the credit rating agencies downgrading them.

“It’s not the costs of nuclear per se, but the uncertainty of costs, which is the killer for financial institutions. If you’re building something which costs $10 billion and there is a 20 per cent cost over-run, then there’s another $2 billion to find. Where does that come from? Does it come from the sponsors or additional debt? And will it be recovered soon, or over the entire lifetime of the plant?”

Professor Stephen Thomas, Director of Research at the UK’s University of Greenwich’s Business School, believes the writing is on the wall for nuclear power in Europe. “Fukushima could be the final straw for light water reactors (LWRs),” he told The Energy Industry Times. “After 60 years of development, real costs have only ever gone one way. Has any other technology had similar experience and still been pursued? Economic LWRs that can survive loss-of-coolant and loss-of-power accidents are an impossible dream.

“The promise of simpler, safer and cheap nuclear power at $1000/kW was either self-delusion or deception. Most recent cost estimates are more than $6000/kW. The future for nuclear power is going to be outside Europe. There will be very few orders in Western Europe and the US. Financing will be geared along national lines; Team Russia, Team Korea, Team Japan, Team France, perhaps Team China in the future. They will sell reactors as a package with financing included.”

Growth in state-run power sectors

In its recent report entitled, ‘The future of nuclear energy: One step back, two steps forward’, the Economist Intelligence Unit (EIU) says the overriding global trend for nuclear power over the next decade will be one of growth, despite recent events.

The EIU has revised down its forecasts for capacity additions in the top ten nuclear nations – USA, France, Japan, Russia, Germany, South Korea, Ukraine, Canada, UK and China – but by 2020 it still expects a 27 per cent rise in these nations to 405 GW, compared to 2010. However, the bulk of this new capacity will be built in state-directed economies like China and Russia where financing of nuclear is of much less of an issue. China’s nuclear capacity will rise by a staggering 527 per cent to 53 GW by 2020; while Russia will see an 81 per cent increase to 18.3 GW.

In the USA, France, Japan, Germany, Canada and the UK, new nuclear capacity will be profoundly slower, reports the EIU. Japan’s nuclear output is expected to fall by 5 per cent, Germany’s by 56 per cent, while the USA and France will witness modest growth of 8 per cent and 5 per cent respectively.

In liberalised power markets, where quick-to-build, relatively low cost CCGTs make far more financial sense, gas will be the clear winner from any slowdown in nuclear build-out, not least because the recent shale gas boom in the US has eased geopolitical concerns about the future sources of natural gas. Plenty of new build coal is the pipeline, not least in Germany, but plant investment decisions made in the medium term are less likely to include coal since Fukushima, according to Point Carbon.

The carbon market analysts say that the German nuclear phase-out will push up the price of carbon permits within the European Union’s emissions trading scheme by about €5 a tonne, leading to a greater switch to gas from coal, particularly in the UK, Italy and Spain. Renewables will also accelerate due to the phase-out, it said.

According to the International Energy Agency (IEA), nuclear power currently accounts for 14 per cent of global power generation. Prior to Fukushima, the IEA forecast 360 GW of nuclear new build, in addition to the existing installed base 390 GW. Following the accident, the IEA has halved the projection for new capacity to 180 GW and expects nuclear power to account for just 10 per cent of the global mix by 2035.

Most of the new capacity will come outside Europe, like in the Middle East where Abu Dhabi is pressing on with its new build programme. Paige Crewson, Special Counsel for Global Projects at Baker Botts LLP’s Abu Dhabi office, said: “Progress in the Middle East hasn’t even really slowed.  The UAE programme is still on schedule for first operation in 2017 and Saudi Arabia has just entered into preliminary arrangements.

“The biggest impact of Fukushima is likely to be international changes to safety standards which will be a design (and licensing of design) issue, rather than a project management one.  If new standards come online before Middle Eastern reactors, they will be expected to comply. The key drivers behind new build – diversifying local economies, carbon reduction, profitability of fossil fuel exports, and increased energy demands from a booming population – haven’t changed.”

About timprobert

Freelance Journalist & Owner, Millicent Media


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