Nuclear Power Economics

At the World Nuclear Fuel Conference (WNFC) conference in Toronto this month, I will be presenting a paper Nuclear Power Economics and Project Structuring – 2017 Edition” to introduce the most recent version of this World Nuclear Association (WNA) report.  For full disclosure, I am the chair of the WNA Economics Working Group and this is the group responsible for the report’s preparation.

The report sets out to highlight that new nuclear build is justified in many countries on the strength of today’s economic criteria, to identify the key risks associated with a nuclear power project and how these may be managed to support a business case for nuclear investment and, of major importance, to promote a better understanding of these complex topics and encourage subsequent wider discussion.

When it comes to the conclusion, little has changed since the first report was issued back in 2005.  At that time, it concluded “In most industrialized countries today new nuclear power plants offer the most economical way to generate base-load electricity – even without consideration of the geopolitical and environmental advantages that nuclear energy confers.”  The 2017 version comes to the same conclusion stating, “Nuclear power is an economic source of electricity generation, combining the advantages of security, reliability, virtually zero greenhouse gas emissions and cost competitiveness.

Of course, while some will say this is no surprise given the report is prepared by the nuclear industry; it must also be noted that it is not based on any industry funded research – but rather it is based on high-quality mostly-government reports on the economics of various energy options such as the “Projected Costs of Electricity” issued by the IEA and the NEA.

While the conclusions may not have changed in the last decade, the nuclear world certainly has. Who would have guessed back in 2005 that the Koreans would have won a bid to build the first nuclear power plants in the UAE and that the first of these units would now be nearing completion while the first EPR in Finland continues to be delayed?  There was the accident at Fukushima in Japan in 2011, major financial issues at the traditional large nuclear power companies such as Areva of France and Westinghouse of the USA; all while the companies from Russia, China and Korea have grown both domestically and with exports.  Projects in the East are being built to cost and schedule with their outcomes being predictable due to the large programs underway in places like China and Korea using largely standardized designs.  On the other hand, first of a kind projects in Europe and the USA are experiencing significant challenges.  With new build being a function of capital cost and schedule, clearly poor construction performance will have an impact on the economics. The global industry is now also contemplating a new generation of Small Modular Reactors (SMRs) intended to reduce both project cost and risk.

And what about the competition?  There has been huge global growth in renewables strongly supported with government subsidies and a dramatic drop in the price of gas in North America.  The impacts of these subsidised intermittent renewables and ‘un-carbon costed’ gas have depressed wholesale prices in deregulated electricity markets creating a number of issues in maintaining existing large scale nuclear baseload generation (as well as other baseload options).  Policymakers are finally seeing the negative impact of these issues and are just starting to address these fundamental market design problems.

Yet in spite of all of these massive changes in the market, the reality remains that:

  • Existing nuclear plants are operating very efficiently and unit operating costs are low relative to alternative generating technologies in most markets
  • The global growth in demand for electricity creates opportunity for continued nuclear growth even when ignoring environmental considerations
  • Nuclear energy competitiveness depends mainly on the capital required to build the plant. At discount rates of 5-8% nuclear is generally competitive with other generating technologies

While there are a host of issues affecting the future of nuclear power that are far from easy to address, the fundamentals remain.  Overall, new nuclear plants can generate electricity at predictable, low and stable costs for 60 years of operating life and in all likelihood even longer in the future. Investment in nuclear should therefore be an attractive option for countries which require significant baseload amounts of low cost power over the long term.




In an era where facts no longer matter, consequences still do

Over the last few years, we have written extensively about the strength of peoples’ beliefs and how difficult it is to change them.  In spite of this, I thought we were making progress with a push to more evidence-based decision making.  For something as polarizing as nuclear power, facts-based decision making is critical to increasing support.  (I understand the paradigm of fear of radiation is more emotional than fact based and I agree that we need to appeal to emotions to create the change we need – but let’s leave that to a future discussion.  In any case it certainly doesn’t hurt to have the facts on your side.)

With the populist surge in 2016 we have seen an accompanying rise in complete disregard for facts; all the way to the propagation of absolute lies (or “alternative facts”) to support peoples’ beliefs.  I don’t want to get into a political discussion nor take sides on right versus left.  What I do want to do in today’s post is to discuss something more fundamental – i.e. that although we are free to believe what we want – that beliefs have consequences – and that consequences matter.

So, let’s look at what happens when countries believe they can eliminate nuclear power from the mix and replace it with more wind and solar power.  Of course, I am talking about Germany.  Reducing carbon emissions is a reasonable goal as evidence (alternative facts notwithstanding) shows that climate change is impacting our environment and has long-term implications for our entire society.  On the other hand, removing a low-cost low-carbon source of energy like nuclear power because of safety concerns is based on a strong element of fear rather than evidence.  In fact, Germany’s nuclear plants are likely some of the safest in the world and there is no reason to suspect they will result in a catastrophic accident that means the end of Germany as we know it – yet that is what people fear.

So, what happens in a case like this?  The results are in.  Fossil fuel use is increasing in Germany, carbon emissions are going up and so is the cost of energy.  The German people are paying more money for an outcome that does more damage to the environment and hence, their health.  Frankly, it’s a high price to pay for the piece of mind that comes from eliminating the perceived risk of nuclear.  Or in other words, the extreme fear of nuclear is driving policy more than concern for either energy cost or the environment.

As shown above, closure of another nuclear plant in 2015 resulted in increased emissions in 2016 (the first full year it was out of service) even though there was a substantial substitution of gas to replace coal.

And after adding 10 percent more wind turbine capacity and 2.5 percent more solar panel capacity between 2015 and 2016, less than one percent more electricity from wind and one percent less electricity from solar was generated in 2016.  So, not only did new solar and wind not make up for the lost nuclear, the percentage of time during 2016 that solar and wind produced electricity declined dramatically.   And why was this the case?  Very simply because Germany had significantly less sunshine and wind in 2016 than 2015.

This analysis was done by Environmental Progress and shows that the intermittency of these renewable sources of electricity both throughout the day and from year to year mean that even huge increases in capacity of these forms of generation will continue to require fossil backup in the absence of nuclear power making 100% renewables an unachievable goal.  Another study shows that to achieve a 100% renewable system in Germany would require a back-up system capable of providing power at a level of 89% of peak load to address the intermittency.

Comparing Germany to France, France has more than double the share of low carbon energy sources and Germany has more than twice the cost of energy as France.

So, trying to decarbonize by also removing nuclear from the mix at the same time is simply too high a mountain to climb.  The following shows that German emissions were 43% higher in 2016 without the nuclear plants that have been already shut down.  Keep in mind that they still do have operating nuclear and with more plants to shut down, the future trend is not likely to change.

It’s not just about Germany.  As Japan struggles to get its nuclear plants back on line after the 2011 Fukushima accident, its use of coal has skyrocketed.  In 2015 its use of fossil fuels for electricity generation was 82% compared to 62% in 2010 when the nuclear plants were in operation.  And now Japan plans to build 45 new coal plants (20 GW) over the next decade to meet its energy needs.

Finally, we can also look at South Australia, a nuclear free zone.  Recent blackouts due in part to lower wind availability and the inability of thermal plants to make up the shortfall are also leading to questions on ‘how much renewables is too much’.

So, we can all continue to hold our beliefs very dearly and only listen to those that support them, while vilifying those that do not.  However, please keep in mind that in a world where the farcical becomes reality, results still matter.  And for now, the results are clear, taking nuclear power out of the mix in Germany is not achieving its political-planners’ goals.  Yet these results are also not likely to change any German minds when it comes to nuclear power.  But hey, why worry about the outcome when you know you are right or as said by comedian Chico Marx in the famous Marx brothers movie Duck Soup “Who you gonna believe – me or your own eyes?”?




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.




It’s not about being “advanced”, it is ongoing innovation that will keep nuclear strong

This month in the United States, the Nuclear Energy Innovation Capabilities Act was passed to support federal research and development and stimulate private investment in advanced nuclear reactor technologies.  All this good news about investment in the future made me think about how we use the words advanced and innovation in the nuclear industry.  We first wrote about innovation in the nuclear sector two years ago.  And what we said then still applies, in fact even more so, today.

When thinking about innovation in the nuclear industry, the discussion often centres around future reactor designs.  However, this far too narrow focus tends to an argument that a so called advanced design is what is required to save the industry and implies that today’s designs are just not good enough.  When we have a technology that produces abundant economic and reliable electricity with very low carbon, all while being one of the safest on earth; what we have today is something worth celebrating.  Yet it is not unusual for some supporters of nuclear power to use the idea that new advanced designs are the magic sauce that will make nuclear great again.

occupieds01e010069

                    Futuristic Thorium Plant from the Norwegian series “Occupied”

I was recently at a meeting where it was noted by someone who had recently visited Havana Cuba, that without access to newer technology, cars in Cuba are stuck in the past.  The Cubans have found ways to keep these old cars running well past their original lives as they had no access to anything newer.   And while we may find these relics fun to look at, we certainly don’t expect to be driving cars of this vintage.  In fact, we know that while the cars of today basically look the same and operate in a similar manner to those of the 1950s, there is likely not one part that is the same as was made 50 years ago.  Today’s car is made up of different materials, is computer controlled, is way more efficient and much much safer.  This is all due to years and years of innovation.  The same applies to nuclear plants.  What would have happened if back in 1955 or so people only talked about and invested in what would replace cars for individual transport (i.e. “advanced” cars meaning electric vehicles or even flying cars) instead of how to make them better?  The thought of it is just ridiculous.  Yet that seems to be a common view of nuclear – that all we are doing is keeping old outdated plants (like 1950’s cars) operating until we get these shiny new plants of the future ready for deployment.  Nothing can be further from the truth.

While yes, it is important to research and develop new concepts based on specific needs, for example closing the fuel cycle or using new types of fuel such as thorium; it is not the case that this is what is required to continue to evolve safety, reliability and economics.  For that we must continue to focus our efforts on improving what we have – innovating, taking the reactor designs available today – and making them better.  Just like cars, there is abundant technology in any given nuclear plant that extends far beyond what kind of fuel we choose to burn.  Implementing changes means using a large spectrum of new technologies that are being constantly developed as is necessary in every industry that wants to keep moving forward.

A great current example is the commitment in the US through the “Delivering the Nuclear Promise: Advancing Safety, Reliability and Economic Performance” initiative as the way forward to address falling prices of alternative generation options.  As stated, this “three-year program will identify efficiency measures and adopt best practices and technology solutions to improve operations, reduce generation cost and prevent premature reactor closure.”   Now this is what drives innovation.

Extending the lives of current reactors through better understanding of how materials age, first to 60 years and next possibly to 80 years, use of remote tooling to reduce dose and shorten outages, use of new technology in controls to improve reliability; all of these things require innovation.

When it comes to new build, there is innovation in methods to reduce construction time and improve quality such as computer engineering tools, modularization and even simple things such as moving platforms to replace scaffolding and on and on and on.  This is innovation.   And let’s not forget about commercial innovation.  Innovative business models such as those used in Canada for refurbishment and in the UK for new build are critical to future industry success.  This even includes models from places like Russia where they are working with foreign customers in ways thought not possible in the past.  Will this all work?  Some things will and some things wont, but this is innovation.  It is messy, it takes time – and it continues to move the industry forward.  And most of this innovation will apply to all reactor types, todays and those of the future.

I support the development of future designs– just not at the expense of making the public think our current designs have hit their ‘best before date’.  I am concerned that the industry is risking too much on the importance of government money for advanced designs– i.e. here is a few hundred million dollars to study designs for the 2030s so shut up and focus on the future – then come back in 20 years or so when you have the next great thing.  We cannot afford a mindset that says nuclear must stop until then as the world continues to build more and more gas plants and renewables.  Every year these alternatives, wind and solar get better – and we need to do the same (and frankly we are).

The world needs abundant low carbon, economic and reliable electricity now if we are to replace coal and meet the needs of an energy hungry world.  To meet the WNA target of 1,000 GW – 1000 new, 1000 MW nuclear plants by 2050 means we need to be building lots of new plants TODAY – not waiting until the next big thing comes around in a decade or two.

So, today’s nuclear technology must continue to move forward and demonstrate it is a technology of the future and that improvements are continuing to come that make every project better than the last.  We need to better celebrate our achievements and we need to continue to invest in further innovation because there is no choice but to continue to get better.

Our strength is through our performance.  And our performance continues to get better through innovation, each and every day.




Canada makes big decisions to further strengthen its commitment to nuclear power

As Canadians, we were truly excited when this past fall, Arthur McDonald of Queens University in Canada was jointly awarded the Nobel Prize in Physics with Takaaki Kajita of Japan for discovering that neutrinos have mass. Dr. McDonald and his Canadian team captured neutrinos using a uniquely sensitive new detector 6800 feet below ground at the Sudbury Neutrino Observatory (SNO).  SNO is a collaborative effort by six Canadian universities and the group were able to borrow $300 million worth of heavy water – used in the country’s CANDU nuclear reactors- for 10 years for $1. Dr. McDonald began his career at the AECL Chalk River Nuclear Laboratory (now CNL) and is the 4th Nobel Laurate to have worked there.

Nobel

When we think about nuclear power around the world these days, two things come to mind – the rapid growth in Asia led by China fueling the industry forward, and the challenges facing the industry in the west with some plants closing early in the USA and new build projects in Europe being delayed and over budget. With so much going on in the global nuclear industry – it’s hard to find people talking about Canada and our home-grown CANDU reactors. In fact, in my very frequent travels, I often get asked if there is anything at all going on in the Canadian industry.

Well, we are here to tell you that nuclear power is indeed alive and well in Canada – and that 2015 was a bellwether year with hugely important decisions having been made by government that will set the stage for a strong nuclear industry for decades to come.

Canada is blessed with natural resources. When it comes to electricity, Canada has one of the lowest carbon and most economic generation anywhere. Most of the country is lucky to have large hydro resources, so much so that in Canada, we call electricity “hydro”, not electricity. We pay the “hydro” bill and worry when a storm knocks down “hydro wires”. Many of our electric companies have the word “Hydro” in their name. Yet what many people do not know is that in Ontario, Canada’s most populous province, about 60% of our electricity is generated by nuclear power. Yes, in Ontario more than half of our electricity comes from nuclear plants. And in New Brunswick, the only other province with an operating nuclear plant; the 630 MW Point Lepreau Generating Station is the workhorse of the electrical system, supplying a third of that province’s electricity.

Ontario’s nuclear electricity comes from three plants operated by two utilities. The Bruce Nuclear Power Station, again to many people’s surprise, is currently the world’s largest, generating 6,300 MW of electricity, and the Darlington Nuclear Generating Station and Pickering Nuclear Generating Station together add another 6,600 MW to the system. While these stations are generating most of Ontario’s electricity, these units are aging as are most nuclear power stations in the western world. CANDU type reactors can be refurbished to extend and effectively double their operating lives, but this requires significant investment and hence, a strong commitment to a nuclear future.

Over the past two months, decisions have been taken by the government of Ontario to refurbish both the remaining 6 units at Bruce (2 have already been refurbished) and the 4 units at Darlington. Together this represents a 15 year, $25 billion program of work that will have these nuclear units remain the backbone of the Ontario electricity system until the 2060s. Making things even more interesting, the Bruce refurbishment will be undertaken by Bruce Power, a private sector operator with private funds, through an agreement to buy electricity from the Ontario Independent Electricity System Operator (IESO) while the Darlington refurbishment will be undertaken by its public sector owner/operator, OPG on a regulated basis.  To top it off, a decision was also taken to extend the lives of the older Pickering units to 2024 before they are shut down at their end of life.

This is an exciting time for the nuclear industry in Canada. These refurbishment programs provide the industry with a stable work environment for the next 15 years, allowing it to hire and train a new generation of young engineers and trades people who can look forward to an exciting career in nuclear.

This alone would be exciting enough as Canada recommits to nuclear power for the long term, but that is not all. Canada has long been known for its excellence in nuclear research. The Chalk River Nuclear Laboratory has been an institution in nuclear research for 60 years. Today CNL has emerged from its restructuring as a government-owned, private-sector run world-class nuclear research centre.

And finally, we cannot talk about the nuclear industry in Canada without talking about uranium. Canada’s Athabasca Basin is home to the world’s highest grade uranium and is the world’s second largest producer of uranium, fueling nuclear reactors around the world, helping countries lower their carbon emissions.   This past year Cameco, the region’s major producer, placed its newest uranium mine, Cigar Lake, into production producing about 10 million lbs of U3O8 and is on track to increase this production to 16 million lbs in 2016. They also signed a deal to provide India with uranium, the first since Canada and India signed a nuclear cooperation agreement in 2013, paving the way for renewed nuclear cooperation between these two countries.

As Canadians, we were extremely proud to see Dr. McDonald’s work recognized with a Nobel prize. Canada has a great history of research and development in the nuclear industry, from fundamental nuclear physics to medical applications to power production. This is a pleasant reminder as to why we went into this challenging industry so many years ago. At that time, we had a vision – to make the world a better place through use of clean, economic, safe and abundant nuclear energy. Now here we are 35 years later – a little grayer and with a little less hair – and with the decisions made this past year, we feel confident that Canadians will continue to reap the benefits of this industry for the foreseeable future.

 




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.




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.




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.