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UK commits to nuclear new build – a critical decision for the future of nuclear

More than a decade since then Prime Minister Tony Blair launched a review into UK energy policy, a positive decision has been taken to approve the construction of the first new nuclear station in the UK in a generation, Hinkley Point C.

Finally, after more twists and turns than a good British mystery novel, including: EDF’s purchase of British Energy, the nuclear accident at Fukushima in Japan, agreement to an innovative Contract for Difference (CFD) type of contract to support the project, the introduction of a significant role for the Chinese, and most recently the Brexit vote; the UK decision shows that Europe remains a nuclear continent.

hinkleypoint-c-drawingi

The project is not without its opponents; some of whom are supportive of nuclear new build in the UK, but do not support this particular project.  Concerns range from the cost of energy to the inclusion of the Chinese.  But following extensive review and assessment, the decision has been taken, and its importance goes well beyond just approving a single new nuclear project in Britain.

Following the Fukushima accident in Japan, a number of European countries reconsidered their commitment to nuclear power, the most significant being Germany, who immediately shut down a number of their nuclear units and made a clear plan to retire the remainder.  Many said nuclear in Europe, where there are the most nuclear units in the world, is a technology of the past.  Renewables are the future.  Even the French government, with the world’s largest nuclear fleet in terms of share of electricity generated, said it would cut back on its use.

Through it all, the UK maintained its strong commitment to new nuclear.  Its existing fleet is aging and with domestic gas waning and energy imports on the rise, it recognized that new nuclear is the best, and likely only way, to both achieve energy security and meet its carbon reduction goals.

While all the talk has been about delays in securing approvals for its new nuclear ambitions, EDF Energy, the operator of the current UK fleet, has been quietly going about its business and making game-changing improvements in its operations.  On September 16, Heysham II was taken off line after 940 days of continuous operations, a new world record beating the record held by Pickering Unit 7 in Canada (894 days) for more than 20 years.  [As we all think about light water reactors (PWRs and BWRs) as the global standard, we often forget that these other reactor types, AGR in the case of Heysham and CANDU in the case of Pickering, have their own specific advantages.] In addition, EDF has been able to extend the lives of the AGR fleet by an average of 8 years.  This shows the strong capability of EDF Energy as an operating entity and bodes well for the next step; new build.

So why is the approval of Hinkley Point C so important to the nuclear industry?  First of all, it is the first new build nuclear project in the UK since Sizewell B came into service in 1995 and, even more importantly, is expected to be the start of a major ongoing new nuclear program.  It is the base to rebuild the UK nuclear supply chain, once a world leader, and support the broader European nuclear supply chain.  It is the first new unit to be built supported by a CFD type agreement and as stated by Duncan Hawthorne, CEO of Horizon Nuclear, likely the next to build in the UK, it “blazes the trail” for those that follow.  The UK is taking an interesting approach to new nuclear going forward as there are multiple companies who are planning to build a multitude of designs (EDF Energy with the EPR, Horizon with the ABWR, NuGen with the AP1000 and CGN with its HPR1000).  And finally, after years of cooperation in China, it entrenches EDFs global partnership with CGN and establishes China as a reputable exporter of nuclear power.

But most of all, it is further evidence that Europe remains a nuclear continent.  While most articles on nuclear tend to say nuclear is languishing everywhere except for its saving grace –  China – Europe is moving forward.  Sweden is taking real steps to keep its fleet operating, France and Finland have new build underway albeit while experiencing First of a Kind (FOAK) issues, Finland now has a second new unit going ahead, Hungary is waiting for an imminent decision from Europe on state aid and is ready to start its a new station at Paks, with other countries continuing to plan for new nuclear plants.  And now the UK starts a new program – one that will ultimately include a number of vendors and countries.

Of course the real challenge is just beginning – that is for EDF Energy to demonstrate that it can build Hinkley Point C on time and on budget – and as the 5th and 6th EPR units to be built, there is certainly a very good chance that they will.

Nuclear, a technology of the past in Europe – I don’t think so – in Europe nuclear power is a technology of the future.

It is broken markets, not uneconomic plants that are putting nuclear plants at risk

A huge milestone has been achieved in the United States as Watts Bar Unit 2 produced its first electricity; becoming the first new nuclear plant in the US to start up in 20 years since Watts Bar Unit 1 came into service in 1996.  Unfortunately, this good news was overshadowed by the announcement by Exelon that its Quad Cities and Clinton power stations in Illinois would close.  This decision was the most recent but not the first, with headlines such as “Nuclear plants need boost to stay open, industry warns” or” Nuclear power plants warn of closure crisis” pointing to more nuclear plants that are at risk of premature closure because they are no longer economic in the competitive markets in which they operate.

WattsBar

Watts Bar – America’s newest nuclear plant

There are many explanations as to the cause of this “crisis”.  Gas prices are currently very low, renewables are subsidized and the costs of some of the smaller oldest single unit nuclear plants in the country have been rising as they age.  While all of these points are true, they are not in and of themselves, the direct cause of the problem.  They are symptoms of deep structural issues in those parts of the country where electricity is bought and sold in so called open or deregulated markets.(Note: Watts Bar, owned by the Tennessee Valley Authority, is in a regulated market.)

This was the topic of a recent DOE summit on how to “save” the nuclear fleet (“Summit on Improving the Economics of America’s Nuclear Power Plants) to address the crisis and take steps to avoid the unnecessary closing of a significant number of plants.  So here we are and once again, we fall into the trap of incorrectly defining the problem as costly inefficient nuclear plants. After all the US summit is on how to improve the economics of nuclear plants, not how to fix poorly structured markets – the real problem.  (Note: In Europe there are similar issues driven by a high level of subsidized renewables rather than low gas prices.  But the need to find a solution is the same.  A European Commission official assured delegates at a recent nuclear financing conference held in Paris that the design of European wholesale electricity markets and the emissions trading system (EU ETS) will be improved to help – and no longer hinder – nuclear energy as a low-carbon source of electricity.)

In the guise of providing the lowest cost to ratepayers, most markets are completely focused on the short term.  There is little consideration of risk built into the pricing mechanisms, only what is the lowest cost to generate electricity right now.  This means that there is no value attributed to any of the other important operating attributes required for a reliable and secure electricity supply system such as fuel availability, maneuverability, flexibility and price volatility.  On top of this, things like government environmental policies and subsidies further distort the markets to ensure that mandated renewables have a role in the system.  (Of course nuclear has not benefited from such support even though it is a low carbon option.)

This may have all worked fine 25 years ago when markets were opened with the objective of creating efficiencies in the existing operating fleet –a time when many jurisdictions were in oversupply.  But when it comes to adding capacity or making other substantive changes to the system, electricity markets are not nimble.  While there may be a desire to respond to price signals in the short term, building new plant takes time.  And one thing is for sure, no one will build new plant of any kind without some confidence that they will generate sufficient revenue to operate for their projected lives and earn a return on their investment.  Or as stated in the OECD report Project Costs of Electricity, “The structure of the electricity generation mix, as well as the electricity demand pattern, is quite inelastic in the short term: existing power plants have long lifetimes and building new capacity and transmission infrastructure may require a considerable lead time as well as significant upfront investments. In other terms, electricity systems are locked in with their existing generation mix and infrastructure, and cannot quickly adapt them to changing market conditions.”

It is also important to understand that not all market participants are equal.  In most markets gas is the price maker, not a price taker.  So when gas prices are high, everybody else in the market makes money and when gas prices are low, everybody struggles.  And yes, today gas prices are very very low.  Yet gas operators are relatively indifferent as they are the risk free players in the market.  Even in this enviable position, gas generators did not have sufficient incentive to build new plant, so many markets have responded with the development of capacity markets.  These capacity payments then compensate gas plants for sitting idle – effectively removing the risk to gas generators of building new plants.

So you may ask, what’s the problem with that as long as we have low energy prices?

If open markets are so efficient then we should expect that prices in these areas should be lower than in areas where regulated markets have remained.  Not so, says an April 2015 study by the American Public Power Association.  In fact, in 2014 prices in de-regulated markets were as much as 35% more than those in regulated states.  (Note: this study has been done by an organization with an interest in the result and as such may contain bias.)

So let’s go back to electricity system structuring.  When it comes to managing risk, we know risk is generally reduced through a diverse portfolio of alternatives.  The more diverse, the more risk can be reduced.  The current path will result in systems that are not diverse, but rather all gas, currently the most economic alternative.  If markets do not adapt to better accommodate risk management into their pricing strategies, we face a future of volatile energy prices, possible energy shortages as new plant construction lags market needs and increases rather than decreases in carbon emissions; all in the guise of more efficient markets.  Back to the decision in Illinois.  As stated in the referenced article, not only are these two plants Exelon’s best performers, they “support approximately 4,200 direct and indirect jobs and produce more than $1.2 billion in economic activity annually. A state report found that closing the plants would increase wholesale energy costs for the region by $439 million to $645 million annually. The report also found that keeping the plants open would avoid $10 billion in economic damages associated with higher carbon emissions over 10 years.”

We only need one major market disruption to remind us all of the importance of truly reliable baseload power at a stable and economic price and how that protects us from the risk of higher prices and lower security of supply.  And today, there is only one low carbon highly reliable baseload option, nuclear power.

So while a short term fix to keep operating nuclear plants open is required and more urgent than ever, let’s stop talking about how plants are uneconomic and work to properly improve market structures to build and maintain the strong, reliable, economic and low carbon systems needed to power our modern economies.

Abundant and economic – Nuclear power delivers

The past few weeks have seen lots of excitement as the world reached agreement to tackle climate change in Paris. What is key to the Paris deal is a requirement that every nation (all 195 of them) take part. Ahead of the talks, governments of 186 nations put forth public plans detailing how they would cut carbon emissions over the next 10 to 15 years. However, these plans alone, should they come to fruition, will cut emissions by only half the levels required to meet the targets set out in the agreement. The plans vary significantly from country to country with some like China depending upon nuclear power as part of their plan – and others not. With no concrete plan to achieve the goals in the agreement, one thing is clear; that if there is any chance of meeting these ambitious goals, there will have to be a larger role for nuclear power.

Critics of nuclear power generally focus on two main issues: safety, mostly concern that the consequences of a possible nuclear accident are not worth the risk; and cost, with many noting that nuclear is a high cost option that just diverts funds from the real environmental options for future generation, wind and solar. This month we will talk about cost and how to ensure that nuclear is seen for what it is, a capital intensive yet highly economic option for reliable 24/7 generation. If nuclear is to play the role that it can, and must play in the future generation mix, it can only get there by being the economic option of choice.

In our last post we noted the updated version of “Project Costs of Electricity” has recently been published. This is an important report that is now in its 8th edition from the IEA and NEA looking at the costs of various forms of electricity generation.

The results of this study are very clear. It shows that nuclear is a very competitive option on a Levelized Cost of Electricity (LCOE) basis.

baseload costs

renewable costs 2015 dec

In fact, at low discount rates (3%), it is the clear winner among both traditional fossil technologies and the cost of renewables. While the report acknowledges the huge gains made by renewables in reducing their costs, it also notes the belief that nuclear costs continue to rise is false.

What is of interest is how the results are presented. The main comparisons in the executive summary are provided varying only one parameter, discount rates, that range from 3% to 10%. This represents a three-fold increase in the discount rate over the range. It is therefore not surprising that the technologies that are capital intensive, i.e. nuclear and renewables show the greatest sensitivity to this one parameter. This is one way to look at the comparative economics. On the other hand, generating stations powered by fuels like coal and gas are much more sensitive to fuel price. This sensitivity is only shown later on in the report in a sensitivity section.

                                       Figure 7.12: LCOE as a function of fuel cost

Fuel Sensitivity

So for example, while gas plants (CCGT) vary little with discount rates due to their relatively low capital costs and higher fuel costs, their LCOE is very sensitive to fuel prices. In the chart above, the sensitivity only varies fuel prices by up to 50%; rather small in comparison to the three-fold change in discount rates in the earlier chart. Yet we all know that today’s very low gas prices in North America are easily less than half as much as they were only a few years ago. Doubling gas prices or more would have a huge impact on electricity costs.

As would be expected, the economics also vary by region. It is no accident that China is building the most nuclear plants in the world. Even though they are also building many more coal plants to meet their ever increasing hunger for energy, nuclear plants provide clean reliable energy at about half the cost of coal in China making it an easy decision to move forward with new nuclear plants as quickly as they can. On the other hand, this past month we have once again heard about nuclear plants in the United States that are likely going to close prematurely due to poor economics. This results mostly from very low gas prices that impact the economics in those parts of the country that have open competitive markets. The units that are most impacted are the older smaller single unit stations that are requiring capital investment at this stage of their life cycle. Without any acknowledgement of the low carbon characteristics of nuclear, or the reliability of fuel supply (gas plants generally are fed by pipelines that are at risk in cold winter months), these units are struggling. Yet the industry in the USA is not standing still. As reported in the December 10 Nucleonics Week, the US industry is targeting to reduce its costs for the existing fleet by 30%. Once achieved, this will ensure that once again nuclear will be the lowest cost generation on the system.

However, this is only the first step. Being a low carbon generator is only sufficient to ensure that nuclear remains an option. The key to long term success is the ability to reduce the capital costs of constructing the plant; producing low cost energy is what will really drive a strong new build program. This can be seen in countries such as China and Korea, where capital costs are relatively low, making nuclear by far the most economic option available. Lessons learned in these markets must be shared and implemented globally to bring down capital costs in other markets as well. China and Korea are showing the way. If the rest of the world follows, abundant nuclear power will play a large role in tackling climate change as the electrical grid workhorse of reliable low-carbon and mostly, economic generation, for decades to come.

Dreaming of a future with abundant clean reliable energy – then dream about nuclear

When we look to the future, people the world over are hopeful for an era of abundant reliable electricity supplying all of our energy needs; all at a reasonable cost and with little to no impact to the environment. Unfortunately, in many western countries the politics of electricity planning has become largely a case of exploring the depths of our imagination with no real path to achieving this essential goal.

As stated by Malcolm Grimston at the World Nuclear Association (WNA) Annual Symposium last month in his brilliant talk “Sclerosis at the heart of energy policy” (in advance of a book he has coming out), we have become so accustomed to reliable and cost effective electricity supply that we can no longer ever consider a scenario where this can be at risk. He noted we even use the less than frightening phrase “keeping the lights on” when talking about reliability which greatly understates the importance of reliable electricity supply to our modern society. (As he said, he turns out his lights every night without concern – certainly a large scale disruption to our energy supplies would be much worse than having the lights go off.)

Given we can’t imagine electricity reliability to be at risk; and given we have relatively slow growth in most western advanced economies there is a major reluctance to take decisions to protect and invest in our infrastructure for the future even while we want to work towards decarbonizing the system. Yes electricity demand growth is modest, but our lives depend more on reliable electricity supplies than ever before. Without electricity society quickly becomes paralyzed with no ability to communicate, travel, maintain our food supply, sanitation, deliver health care and so on…in fact it is very difficult for us in all of our modern comfort to imagine how severe the consequences would be. Therefore in our great complacency we continue to do nothing because we all expect that the next great technological breakthrough is just around the corner. All we need to do is wait and advanced renewables will be available so we can have clean limitless energy forever. And so goes the narrative.

Ben Heard in his excellent WNA presentation “World without Nuclear” quotes Naomi Klein as she spoke to the media against the nuclear option in South Australia – “What’s exciting about this renewables revolution spreading around the world, is that it shows us that we can power our economies without the enormous risk that we have come to accept”. She said the latest research showed renewables could power 100 per cent of the world’s economies. “We can do it without those huge risks and costs associated with nuclear so why wouldn’t we?” she said.

But of course if it sounds too good to be true, it probably is. Ben’s presentation goes on to review 20 studies that suggest that a world powered by 100% renewables can be a reality. However, in his review he rates most of these studies as poor. Overall he concludes that there is actually scant evidence for 100 % renewable feasibility while the literature affirms large dispatchable, i.e. guaranteed 24/7 supply is indispensable. His final conclusion is that global decarbonization requires a much faster-growing nuclear sector.

Fast Decarbonization

Reproduced from Agneta Rising Presentation at the WNA Annual Symposium 2015

But how can we have more nuclear when it has this perception of huge risks? We have written extensively on the issues associated with the perception of nuclear as a dangerous technology when in reality it has the best safety record of all technologies out there so we won’t talk about that again now. In his presentation Malcolm Grimston places much of the responsibility for this public perception squarely on the nuclear industry noting that the industry “spends half of its time implying that it is the new priesthood, with superhuman powers to guarantee safety; and the other half of its time behaving as if radiation is much much more dangerous than it actually is.” While it is hard to know what comes first, the fear or the industry reaction to it, we certainly agree that Malcolm makes a good point.

Then there are those that say nuclear power is way too expensive to be part of our future electricity system even though there is no doubt that wind and solar power are clearly the more expensive options. The most recent edition of “Project Costs of Electricity”; an important report that is now in its 8th edition from the IEA and NEA looking at the costs of various forms of electricity generation has just been published. (This report is a must for anyone seriously looking at trends and costs of electricity generation around the globe.) While the report acknowledges the huge gains made by renewables in reducing their costs, it also demonstrates that nuclear power is one of the lowest cost options available depending upon the scenario. Of more importance, the report notes that the belief that nuclear costs continue to rise is false stating that, in general, baseload technologies are not increasing in costs and specifically “this is particularly notable in the case of nuclear technologies, which have costs that are roughly on a par with those reported in the prior study, thus undermining the growing narrative that nuclear costs continue to increase globally”.

We will have more to say about this report in upcoming posts. But for now, let’s all do more than dream about a future of abundant, reliable, clean and yes, economic electricity; let’s make this dream a reality by making sure that the electricity system of the future includes highly reliable 24/7 nuclear power.

Optimism is the way forward – Nuclear Power delivers

We had an important piece of good news this month as Sendai Unit 1 was restarted in Japan, ending a long period of no nuclear generation in that country after the Fukushima accident in 2011. Sendai Unit 2 is following close behind and Japan will continue to restart many of its nuclear plants as it moves to put the accident behind it and reap the benefits of nuclear generation once again. Recent experience without nuclear has led the country to import vast quantities of fossil fuels, increase its carbon emissions and damage its balance of trade. While difficult for many, the Japanese understand the benefits of continuing with nuclear power are essential to the well-being of their society.

Sendai Nuclear Japan

                                                   Sendai Nuclear Power Plant

Unfortunately as we have learned from this accident so far, it is fear of radiation that is having the largest impact on peoples’ health rather than the radiation itself. To date no one has died from radiation at Fukushima and no one is likely to die from radiation in the future, yet fear is what is consuming these people and their lives – and the policy decisions being taken by government.

Of course, we must always think about those that were directly impacted by the accident. Many remain out of their homes and those that are permitted to return are often afraid. We must continue to understand their plight and work together to help them get their lives back and of most importance, once again have hope for their future.

A couple of weeks ago I was watching Fareed Zakaria on CNN interview President Obama about the Iran nuclear deal. I don’t want to talk about that here but I do want to share Fareed’s thoughts on President Obama’s optimism. He suggested that Obama is an optimist and noted that “history suggests that it’s the optimists who have tended to be right”. He went on to say that “today we are awash in pessimism, with people who see the world as a dark and dangerous place, where threats are growing and enemies are gaining strength.”

It made me think of our own world of nuclear power, where we are awash in pessimism; And it is easy to be pessimistic when articles such as the one by Michael Ignatieff, (who has previously run for Prime Minister of Canada) concludes after his visit to the Fukushima area with a message that seems to be the prevailing view of nuclear power to many. “For the rest of us, outside Japan, we have moved on, more dubious about nuclear power than before, but still locked into the energy and economic system that requires it. Fukushima is now classed with Three Mile Island and Chernobyl in a trio of warning disasters, but so far none of these has persuaded the world, at least so far, to exit nuclear.” Clearly the message is – we need it for now, but when are we going to realize that the risk is just not worth the benefits?

It is easy to be pessimistic when there are documentaries that reach similar conclusions. In “Uranium – Twisting the Dragon’s Tail” by Dr. Derek Muller, a physicist by training, the two part series focused on the bomb in Episode 1 and on the accidents at Chernobyl and Fukushima in Episode 2. Watching one can see that positive facts are presented such as radiation is not as dangerous as people think but the series is not about the benefits of nuclear power – rather it focuses on fueling the fear.

And there is no doubt the biggest issue is fear of radiation. As stated in Mr. Ignatieff’s article, “Today, Tokyo shoppers still won’t buy rice, soya, or miso produced in the region and nobody will touch the catch from the local fishermen, even though the fish have been pronounced safe.” On his visit to the region he says “In the enclosed valleys, as our bus climbed up the winding roads towards the coast—still many miles from the nuclear plant—radiation rose to double the levels in Tokyo. We’re told it’s safe to travel to Namie but it’s still not clear what safe means.” After this accident trust is in short supply and lack of trust definitely increases the fear.

What is also clear is that setting policy based on fear does not result in good policy. In Germany, they prematurely shut down safe, effective and economic plants much earlier than needed. Even while building a huge amount of renewable generation, the Germans had to also build new coal plants both increasing electricity costs and emissions. It doesn’t take much to realize that even with a strategic goal of eliminating nuclear power, taking the time to build clean replacements and shutting the existing plants down more slowly would have worked just fine – but setting policy driven by short-term fear of radiation doesn’t allow for sensible decisions. With over 200 nuclear plants throughout Europe, nuclear power has been a safe and essential element of electricity generation for decades without a single incident of harm.

Going back to what was said by Fareed Zakaria, “history suggests that it’s the optimists who have tended to be right”, we definitely choose to be optimistic and here is why.

The world needs clean and abundant energy for a better future for us all. For those with limited or no access to a reliable source of electricity, providing this resource makes a huge positive impact in their standard of living. And while we all agree that in richer countries there is opportunity to become more energy efficient, just look how dramatically our lives are impacted if there is an outage for any sustained period of time. Nuclear energy meets that need. It provides clean, abundant, economic and reliable electricity. Its energy density is matched by none so it can provide huge quantities of electricity from very small quantities of fuel, clearly what will be needed as the world population approaches 9 billion in the years to come.

The rapidly growing economies in the world like China and India are very aware of the benefits that come with robust nuclear programs as they embrace nuclear power to support their rapid growth in energy demand. Other energy-poor countries are also eager to move forward. The 67 units under construction around the world represents the largest new build program in decades and while many (25) are being built in China, the rest are distributed in 12 different countries.

But most of all what makes us optimistic about the future are the large numbers of energetic, bright and talented young people entering the industry. This month I had the opportunity to lecture at the World Nuclear University Summer Institute in Uppsala, Sweden. The current generation of young engineers and scientists have grown up in an era where they are strongly supportive of technology and believe that anything is possible if they put their mind to it. It did not take long to see that the future of the industry is in good hands.

The time has come to get off our hind foot and stand up proudly and proclaim what we know to be true – that nuclear power has an important place in the world and will continue to expand its role as we need reliable economic and abundant energy for society. It is an essential energy option of choice, not of last resort, that we shouldn’t wish we could do without.

It’s time to put nuclear on the offensive – and make it the low carbon energy generation option of choice

Have you ever seen something that just amazed you? We were wowed by a recent YouTube video showing what the Chinese have achieved in turning conventional high-rise construction on its head. A 57 story building was built in 19 days – yes – 19 days! Who would ever believe this could be possible? I live in Toronto, a city that has been undergoing a huge hi-rise building boom over the last few years and the time it takes to build these tall towers can be measured in months and years, not days. This just shows what can be achieved when the imagination is let loose and innovation results in outcomes never before thought possible.

We first wrote about the importance of innovation in the nuclear sector last year. In its history nuclear power has shown incredible innovation, leading the way in a range of technologies especially with respect to delivering a level of safety and security not seen in any other industry. More recently there have been dramatic improvements in operations as the global fleet has reached a level of performance never even dreamed of in the early days of the industry. Current new build projects are using the most up to date methodology in modularization and other advanced construction techniques.

And yet when the IEA issued the 2015 version of its Energy Technology Perspectives (ETP 2105) report focusing on the need for energy technology innovation if the world is to address climate change; it doesn’t mention this innovation, nor does it include discussion of potential future innovation with respect to the nuclear option.

As stated, “Energy technology innovation is central to meeting climate mitigation goals while also supporting economic and energy security objectives. Ultimately, deploying proven, cost-effective technologies is what will make the energy system transformation possible. Continued dependence on fossil fuels and recent trends such as unexpected energy market fluctuations reinforce the role of governments, individually and collectively, to stimulate targeted action to ensure that resources are optimally aligned to accelerate progress. Establishing policy and market frameworks that support innovation and build investor confidence over the long term is a first-order task to deliver.”

The report is clear when it says that “Innovation support is crucial across the low-carbon technology spectrum”. The discussion focuses on renewable technologies in the short term due their relative readiness and lack of a need for long term investment in development; and carbon capture (CCS) in the medium to longer term even though it requires substantive investment in development as it remains essential to address the large number of fossil plants being built and still in operation by 2050 that will require decarbonizing.

As usual, the same issues that have plagued nuclear for the last 30 years; primarily public acceptance issues, mute a positive discussion for the nuclear option. While recognizing its importance in achieving increased energy security, diversity of fuel supply and lower emissions, the report goes on to state “this awareness has yet to be translated into policy support for long-term operation of the existing fleet and construction of new plants” … “to recognize the vital contribution that nuclear energy can make.”

Yet the actual IEA scenarios have changed little from last year. As shown below, when considering technologies individually (rather than grouping into “renewables”), nuclear actually plays the largest role of any single technology in meeting carbon reduction targets showing that, even as it is stands today, the nuclear option is absolutely essential to moving to the IEA 2 Degree Scenario (2DS).

ETP2015

This can only be the case if nuclear is currently meeting its responsibility to be economic and reliable while being an essential large scale low carbon option. Given that we know the largest challenges in building new nuclear plants is related to their relatively high capital costs and long project schedules relative to other options; consider the role nuclear can play if improvements similar to those demonstrated in the Chinese YouTube video were implemented. Not marginal improvements, but mind blowing changes in approach that shake current thoughts about the costs and schedules of nuclear projects to their very core. This is the way forward. While discussion of next generation plants and SMRs is of interest, we need continued innovation that takes what we know now and improves it beyond what anyone can imagine.

The report shows that government investment in nuclear R&D has been dropping and in renewables has been increasing. This investment must be refocused on project improvement and innovation rather than the traditional areas of research such as safety and waste management where it has been spent for decades. While important for the nuclear industry, too much of this spending is focused in these areas just to pander to the ongoing public beliefs that safety and waste issues remain unresolved. Rather, emphasis should be on continuing to improve new build project performance. Let’s think about new build nuclear in the same way we think about renewable technologies; that more investment and research will lead to shorter construction schedules and lower costs. It is time to let the innovation genie out of the bottle, stop being on the defensive and move forward with great things. With changes like this, the nuclear share will grow well beyond current expectations bringing a real solution to climate change while keeping electricity bills low and system reliability high.

So remember, nuclear power is essential in achieving increased energy security, diversity of fuel supply and lower emissions; and is already expected to have the largest impact on meeting climate goals of any other single technology. Today’s plants are economically competitive and provide safe and reliable electricity. Talking about investing in energy innovation without a discussion of investing in nuclear, when it’s currently the best option available, is absurd. Governments need to recognize the incredible innovation already achieved by the nuclear option, and unleash even greater potential by investing in this well proven technology.

As 2014 comes to a close, nuclear power is at a crossroads – again!

The world needs nuclear power – so says the latest edition of the World Energy Outlook (WEO) issued in November. “Nuclear power is one of the few options available at scale to reduce carbon-dioxide emissions while providing or displacing other forms of baseload generation. It has avoided the release of an estimated 56 gigatonnes of C02 since 1971, or almost two years of total global emissions at current rates.”

Yet looking back at 2014, the industry has had its ups and downs. There were setbacks as France formalized its intention to reduce its reliance on nuclear going forward, Sweden pulled back after its most recent election, and in Finland the Olkiluoto 3 project was delayed once again. In the US, the most recent plant to be shutdown is the Vermont Yankee plant; shutdown after 42 years of operation as not being economic, yet its shutdown will definitely raise electricity costs for its consumers and impact the local economy as a result of its closure-related job losses.

Yankee Atomic 2014

Vermont Yankee shuts down

There was good news in Japan as the first units were approved for restart since the 2011 Fukushima accident, although the actual restarts are taking longer than expected. The re-election of the Abe government also bodes well for Japan’s nuclear future. In the UK, there was a big win as Europe approved the project at Hinkley Point as not contravening state-aid rules; but once again progress is slower than most would like.

And then there are places where nuclear power is booming. China brought new units into operations and approved numerous new units with a larger-than-life target for its nuclear share in 2020 and beyond. The Chinese also approved its first Hualong One reactor, the evolution and combining of designs from both CGNPC and CNNC, as they plan for future exports. Korea approved new units and its first new site in decades. Russia continues to grow both domestically and continues to be very aggressive in the export market.

Given the importance of nuclear power, it is the first time since 2006 the WEO includes a special chapter on nuclear – in fact this time 3 full chapters performing a detailed in-depth analysis of the nuclear option. It clearly demonstrates the benefits of nuclear power in addition to being one of the only generation options at scale available to reduce carbon emissions; it also plays an important role as a reliable source of baseload electricity that enhances energy security. Clearly the benefits and the need for more nuclear is becoming clearer than ever. So why is there this continuing imbalance as we look around the world at various counties’ policies for nuclear power?

The WEO notes two significant issues holding back a large-scale nuclear renaissance. These are public concern and economics. Both are valid and need to be better addressed by the industry. We have written much over the past year or so on the importance of improving public attitudes and, in fact, in many countries we now see improvement. But we also acknowledge there is a long way to go to reduce public fear about nuclear power. For example, even though the main objective of Germany’s Energiewende is to reduce carbon emissions; their even stronger emotional response against nuclear is causing a short term increase in carbon emissions .i.e. their fear of nuclear is stronger than their desire for a cleaner environment.

On the cost side, concerns about high capital costs and completing projects to cost and schedule are valid. The industry has more work to do on this issue as evidenced by some recent projects. At the same time we see that countries such as Korea and China, who are building series of plants in sequence and are achieving the benefits of replication and standardization resulting in lower costs and improved certainty, are completing projects to cost and schedule. Yes, it can be done. But even these countries are not immune to public concerns.

The real problem is that these concerns tend to overwhelm the discussion even amongst energy professionals. For example the summary in Chapter 12 of the WEO, “The Implications of Nuclear Power”, starts “Provided waste disposal and safety issues can be satisfactorily addressed, nuclear power’s limited exposure to disruptions in international fuel markets and its role as a reliable source of baseload electricity can enhance energy security….. “. Renewables are always addressed with hope and little concern for their very real issues while discussions about nuclear are most often focused on its challenges.

Yet even at Google, engineers have come to a conclusion that the challenges to achieving climate goals with renewables are very large. Two Google engineers assigned by the company to show how renewable energy can tackle climate change each came to a blunt conclusion: It can’t be done. As stated, “Trying to combat climate change exclusively with today’s renewable energy technologies simply won’t work; we need a fundamentally different approach.”

The following figure sums it up very clearly. In the case that doom and gloom overwhelms good policy and decision making, we may end up with the Low Nuclear Scenario. But this scenario has real implications – “taken at the global level, a substantial shift away from nuclear power, as depicted in the Low Nuclear Case, has adverse implications for energy security, and economic and climate trends, with more severe consequences for import-dependent countries that had been planning to rely relatively heavily on nuclear power.” Of more importance, at the other end of the spectrum is the 450 Scenario which the IEA believes we need to achieve to truly have an impact on climate change. And in this case, even more nuclear power than the so called “High Nuclear Case” Is needed.

WEOFigure11 12

So there it is, the best way to economically and efficiently address climate change is with a substantial contribution by nuclear power. This year’s WEO lays out the challenge very clearly – once gain nuclear power is at a crossroads. The options range from a slow decline to a more than doubling of nuclear power in the next 25 years. Nuclear power must be an important part of any future low carbon energy system but there are beliefs that are very well entrenched in the minds of both the public and even many global energy professionals that must be addressed once and for all. It is our responsibility to take on these challenges for a brighter future. It’s time to go big and work together to build a strong base of global support for nuclear power. Beliefs are hard to change, but change them we must if we are to have a sustainable, abundant and economic energy future for us all.

And as 2014 comes to a close, I want to thank all of you for continuing to read our blog and contribute to the discussion. Wishing you all a very happy, healthy and prosperous 2015!

If we are serious about carbon free electricity – there must be more nuclear power

Last month, we wrote about the ongoing push by the United Nations to combat climate change and its underwhelming support for nuclear power as an important part of the solution. To no one’s surprise, the final volume of the current IPCC report on climate change issued November 1 is no different. Yet this report is very clear in its conclusion that limiting the impact of climate change may require reducing greenhouse gases emissions to zero this century. So while the world is focused on developing a range of new technologies to meet this challenge, fossil fuel use continues to grow. In reality, the answer is right in front of our eyes. What the world needs is a massive increase in nuclear power.

While many will write about this most recent IPCC report, we want to bring some new perspective and once again discuss the role of nuclear power as an essential tool to reduce carbon emissions. There are a few new studies and announcements this past month that show the paradox of current policies.

First there was a study released in Nature that suggests that even though natural gas emits about half the carbon of coal, abundant natural gas alone will do little to slow climate change. The study’s lead author Haewon McJeon, an economist at the US Department of Energy’s Pacific Northwest National Laboratory said, “Global deployment of advanced natural gas production technology could double or triple the global natural gas production by 2050, but greenhouse gas emissions will continue to grow in the absence of climate policies that promote lower carbon energy sources.” This is in contrast to many who believe that gas is an important part of the solution. We have no issue with gas and believe it can be an important part of a diversified electricity system; but according to this study, it is not a great tool in the fight against climate change.

Of even more relevance to the discussion, a recent report issued by Hatch Ltd. in Canada,”Lifecycle Assessment Literature Review of Nuclear, Wind and Natural Gas Power Generation”, demonstrates the challenges of relying too much on wind to drive down emissions. This report notes that wind as an intermittent resource is usually backed up by gas. So if wind generally operates about 20% of the time, the gas backup would be operating the other 80% continuing to emit carbon. Therefore nuclear emits some 20 times less carbon than a wind/gas combination (see figure below). Most of us in the energy industry know this is why gas producers are often strong supporters of wind and solar. While the public believe wind is good for the environment; it’s even better for the gas industry.

Even the wind industry acknowledges these results. They note this is only one scenario and that there are more plausible scenarios where wind would be supported by demand side management, storage and other means of clean generation. This is indeed a laudable goal for the future, but the reality remains, today most renewables are backed up by gas.

HatchEmissions

All of the above would suggest that there should be more support for nuclear as a very important element for a solution to climate change. It is effective and available today and most of all can provide large amounts of clean reliable electricity.

In fact, the public is quite aware of this. A just released study in the USA is showing eighty-two percent of those surveyed agree with the statement, “We should take advantage of all low-carbon energy sources, including nuclear, hydro and renewable energy, to produce the electricity we need while limiting greenhouse gas emissions.” Further 75 percent of those polled said nuclear energy will be “very important” or “somewhat important” in meeting America’s future electricity needs. Seventy-three percent of those surveyed associate nuclear energy with clean air. Clearly a very important step in securing the support required to increase the use of nuclear energy.

On the other hand, we have also seen more negative political views. In Sweden, after reconfirming the need for more nuclear power in 2009; the outcome of the most recent election had the new government stepping back in order to gain support from the Greens.   Social Democrat leader Stefan Lofven said “Sweden has very good potential to expand renewable energy through our good access to water, wind and forests. In time, Sweden will have an energy system with 100% renewable energy.” Reality clearly has no place in politics.

And of even more concern is the recent vote by the French parliament to reduce the use of nuclear energy from 75% to no more than 50% by 2025. They must remove a plant from service when Flamanville comes into service in the next year or so as the amount of nuclear power cannot increase.  And it looks like the French president himself will take the decision on which plant to shut down. Taking safe clean reliable power out of service prior to its end of life purely as policy seems foolish at best. The Hatch study shows this strategy will most likely lead to increased use of fossil fuels and thus higher carbon emissions at least in the short to medium term. This is exactly what we have seen in Germany. Taking a large amount of nuclear out of service is requiring the construction of new coal generation even though Germany is expanding renewable generation at a very high rate.

So what does this all mean? As we have said many times before, removing and / or reducing nuclear strictly for policy reasons, especially in the case of successfully operating units means only one thing – that there remains an overriding societal belief that nuclear is not safe – and therefore less is always better than more. While some environmentalists now realize this is not the case; this truth has not yet caught up with the public at large and hence is not always supported by their politicians.

The IPCC report is clear that the world must take action to combat climate change. Nuclear power is the only large scale source of clean abundant reliable electricity generation available and that should make it an essential part of the solution. Trying to generate all electricity with zero carbon emissions without making extensive use of nuclear power is simply making what is already very difficult, pretty much impossible.

Attention to climate change is on the rise… nuclear power is an essential part of the solution

September 2014 was a most interesting month in the fight against climate change. As world leaders prepared to meet at the United Nations Climate Summit on September 23, there was a large global march in New York on September 21 to bring public concern for climate change to their attention. As stated by the UN meeting chair, “The purpose of the 2014 Climate Summit was to raise political momentum for a meaningful universal climate agreement in Paris in 2015 and to galvanize transformative action in all countries to reduce emissions and build resilience to the adverse impacts of climate change.”

climatechange march2014

The New York march had some 300,000 participants, well above the 100,000 people expected. Has the tide turned and is climate change finally getting the international attention it deserves? Is public concern finally pushing governments to act? The climate summit had a large attendance, including 100 Heads of State and Government and more than 800 business and other leaders.

The summit did appear to make progress. A summary of the outcome can be read here. Of importance,

  • World leaders agreed that climate change is a defining issue of our time and that bold action is needed today to reduce emissions and build resilience and that they would lead this effort.
  • Leaders committed to limit global temperature rise to less than 2 degrees Celsius from pre-industrial levels.
  • Leaders committed to finalize a meaningful, universal new agreement under the United Nations Framework Convention on Climate Change (UNFCCC) at COP-21, in Paris in 2015, and to arrive at the first draft of such an agreement at COP-20 in Lima, in December 2014.

Another important gesture of the new global commitment to reducing carbon was the fact that the Rockefeller Brothers Fund, which has $860 million in assets and was founded in 1940 by the sons of oil tycoon John D. Rockefeller, decided to divest its fossil fuel holdings in response to climate change and announced this just prior to the UN meeting.  While this fund is not huge in size, the statement is important given the Rockefellers made their fortune in oil. This announcement makes their fund join the approximately 800 other global investors representing $50 billion in assets who have decided to move away from fossil fuels to support a solution to climate change.

So what about the role of nuclear power in this fight to reduce carbon emissions? The Economist published a very interesting figure demonstrating that, when it comes to energy production, the worldwide use of nuclear power is second only to hydro (and not by much) in having reduced global emissions to date. And while renewables are a growing source of emissions-free energy, all other efforts to reduce emissions have been one or two orders of magnitude less effective in reducing global carbon so far.

Economist climate change 2014

Nuclear power’s critical role in the fight against climate change has been confirmed by US Energy Secretary Montiz who has said “that nuclear energy, as an important low carbon energy source, must play a major part in meeting the most pressing challenge of climate change.”

Yet there continues to be a disconnect. Looking deeper into the outcome of the UN Climate Summit, their statement on energy says “A shift toward renewable sources of energy such as solar, wind and geothermal — along with greater energy efficiency in appliances, buildings, lighting and vehicles — is essential to use the world’s resources sustainably, diversify economies and successfully address the challenge of climate changes. Sustainable Energy for All, an initiative led by the United Nations and World Bank, has set 2030 as a goal for doubling the global rate of energy efficiency improvement, doubling renewable energy’s share in the global energy mix, and ensuring universal access to modern energy services.”

The same goes for the Rockefeller Brothers Fund. Stephen Heintz, president of the fund, said in their statement, “We are quite convinced that if he were alive today (John D. Rockefeller), as an astute businessman looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy.”

As I see it, there has to be a more explicit understanding by the UN and others that nuclear power has and continues to be a leading source of low- carbon energy. The implication of their words seems to be the future belongs to renewables (solar, wind and geothermal). Nuclear is not explicitly mentioned yet, as illustrated by the Economist, it is a very clean technology playing an essential role in reducing carbon emissions. In fact, the word nuclear seems to be purposely avoided. Why is this? As an industry, we have allowed these beliefs to be perpetrated. Somehow we have tolerated nuclear power being seen as yesterday’s technology while solar and wind are tomorrow’s. Or is the issue that we have allowed the fear of nuclear to persist and continue to outweigh the potential benefits to many?

This is a major concern and a disservice to the fight against climate change. As one of the outcomes of the UN Climate Summit is a commitment to increase the amount of funds available to support clean energy technologies, it is essential that nuclear power be specifically included. Yet in their statement on financing, we see “the goal of reaching a “Clean Trillion” in annual energy investments has been a widely cited target, with a minimum of 5% of a portfolio invested in renewables and clean technology as a benchmark for investors.” It’s time for nuclear to be included as the clean energy technology leader that it is.

The time to act is now. There is work to do to ensure that, as climate change concerns continue to build, government policies around the world recognize an essential part of the solution is a significant new nuclear build program using both technology already available today as well as continuing to invest in the more fuel efficient nuclear technologies of future. And that means funds being allocated to a cleaner tomorrow be directed to new nuclear as well as all the other initiatives to reduce the global carbon footprint.

The challenge of financing nuclear plants – financing energy requires huge investment

 

Quite often we hear about the problem of attracting financing to support new build nuclear projects. In fact financing will be a topic of major interest at a number of upcoming nuclear conferences. While it is easy to agree that financing nuclear projects is a big challenge, in my view difficulty securing financing is not the issue – rather it is a symptom of a number of other very important issues that are the root cause. Necessary conditions to secure financing for any project is first and foremost, an economically viable project. Next comes the project structure – or to state it more simply – ensuring the risks are managed in a way that can satisfy investors that they will receive an adequate return for their investment. These concepts will be discussed further in a future post.

For today, I will look at the $40 trillion energy industry and consider nuclear’s share of the overall expenditure needed for energy over the next 20 years. I would like to put some context on the issues related to financing nuclear plants by looking at a recent IEA report called the “World Energy Investment Outlook” or WEIO. I found this report of interest because it provides useful data on global funding required to support energy. Or as stated in the Forward to the report “…. data on today’s investment flows have not been readily available and projections and costs for tomorrow’s investment needs are often absent from the debate about the future of the energy sector.”

We often talk about the large size of nuclear projects and how they require huge amounts of funds. Nuclear projects are very capital intensive and have relatively long project schedules; both important issues when trying to secure financing. When we talk about large, a good first step is to try and understand how much funding is required for nuclear projects relative to the rest of the energy industry. And for this we turn to the WEIO.

With annual spending in 2013 of $1.6 trillion rising to about $2.0 trillion by 2035, meeting global demand for energy requires an enormous amount of money. This excludes another $500 billion or so per year to be spent on energy efficiency to try and moderate this growing demand.

Of even more interest, the report specifies that less than half of the $40 trillion dollars required to meet energy demand between today and 2035 goes to meet demand growth; the larger share is required to offset declining production from existing oil and gas fields and to replace power plants and other assets that reach the end of their productive life.

WEIOinvestment for replacement

A staggering statistic – more than $20 trillion is required over the next 20 years just to stand still. And of course, most of this investment is in fossil fuels that continue to emit carbon as the world tries to find a way to turn the corner and find alternatives.

WEIOtotalinvestment by sector

If we drill down and focus on the electricity sector, we can see that of the above $40 trillion about $16.4 trillion is investment in the electricity sector. The largest component of this investment (about 40%) is in transmission and distribution. In the developed world this essential infrastructure is ageing and requires significant investment to meet growing needs. In the developing world, there is a huge need to build up the infrastructure for a population hungry to enjoy the benefits of using electricity.

WEIOglobal Power sector

Looking further we can see two important facts.   First, nuclear power only needs about 6% of the funds for the electricity sector; this is assuming the very modest growth for nuclear in the WEO New Policy Scenario. The other is that renewables are demanding a very large share of the available funds as more and more markets turn to these forms of energy to meet their growing energy needs while trying to curb carbon emissions.

What can we learn from this high level look at the funding requirements for the energy industry? On the one hand, nuclear projects require only a very small portion of the total funds being invested today and for the next 20 years in energy. The main uses of funds are to replace existing depleted fossil fuel reserves – usually at a cost higher than the resources they replace; to invest in critical T&D infrastructure, in part due to the need to expand transmission to be able to accommodate renewable energy generation; and the investment in renewable energy generation itself, virtually all of this last investment subsidized by governments to encourage growth.

On the one hand, there is tremendous competition for funds in the energy industry meaning nuclear projects need to be an attractive financial proposition to get its share of these funds. And on the other hand, much of the competing technologies are being supported by governments with subsidies based on policy decisions.

So what is it that makes nuclear plants so difficult to finance? As I said at the start of this post, there are a number of issues that need to be discussed. These include project economics, energy market structures, poor project construction performance in a number of markets; and of course, public perception that skews the risk profile of nuclear projects in a way not seen in other industries. But a discussion of these factors will have to wait until another time…….

Note:  all figures above are from the IEA World Energy Investment Outlook.