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Nuclear Power – The Dream lives on!

It seems as if a day doesn’t go by when we don’t hear about the low price of gas in North America and its impact on potential growth in the nuclear industry.  In the past month, the price of gas actually dropped below $2 /million BTU; a price that was unimaginable just a few years ago.  Back in September I wrote about this when John Rowe, then Chairman of Exelon, America’s largest nuclear operator, said ““Nuclear is a business, not a religion”.  Mr. Rowe has been even more vocal about the impact of low gas prices on nuclear since his retirement.

Now it is clear that at $2 / million BTU, new build nuclear is not competitive.  Not a big surprise.  However it does need to be put in context and the time has come to make a few key points about the economic competitiveness of nuclear power on a global scale, not just in North America.  This is especially important following the article in the Economist on the first anniversary of the Fukushima accident.   With a cover that read “Nuclear Energy – The Dream that Failed, the Economist provided an analysis that was strong on data, but weak on insight resulting in understandable but still (in my view) wrong conclusions.

First let’s talk about gas prices.  Yes, gas prices are at a historical low in North America.  But this is the exception, not the rule globally.  In most markets as can be seen in the figure below, gas prices follow oil prices with Europe (UK’s National Balance Point – NBP and German Border Price) and Asia experiencing gas prices 3 to 5 times those in North America (Henry Hub).  It is easy to see the issue Japan is facing where LNG and Oil (Brent) are high so that nuclear power remains very competitive and as such is a needed source of supply to prevent electrical utilities from going bankrupt.

                    Fuel Prices ($/million BTU)

Source: Didier Houssin “International Energy Outlook” presented at the World Nuclear Fuel Conference, Helsinki April 2012

Second, the Energy Information Administration (EIA) in their 2012 Annual Energy Outlook Early Release continue to project gas prices below $5 million BTU for America until 2024 and thereafter rising to about $6.52 million BTU by 2035.  While this is below the $7.78 million BTU used by the International Energy Agency (IEA) in its “Project Cost of Electricity Generation 2010” that shows nuclear being competitive in the US, prices in the mid to high $6 range are sufficient for nuclear to be competitive. (Note: nuclear was about 15% less costly than gas in the IEA report).  And since most new plants will come in to service in the post 2023 time period, there is every likelihood that nuclear can be competitive in the US with gas in this crucial time period.

And finally, while the resource estimate for gas in the US continues to increase, there is rarely a discussion of price.  Yet resources are related to price.  The higher the price the more resource is exploitable and the lower the price, the less resource will come out of the ground.  With gas there is a bit of unique situation where the price has become decoupled from oil in the US and so for conventional gas, drilling will continue coincident with high oil prices.  However will we see much drilling for new shale gas at these low prices?  One thing the oil and gas industry knows how to do is make money and they are quick to walk away from projects that do not make economic sense.

In the short term, low gas prices in the US will likely reduce green house gas emissions as gas is used to replace coal.  At current prices, gas has become competitive with coal and emits about half the carbon when compared to coal.  But in the medium to long term, nuclear remains the only very low (essentially zero) carbon option for reliable base-load generation.

Source: TVA President’s Report to the Board February 2012

Going back to the article in the Economist let’s put some context on their conclusions related to nuclear competitiveness.

Economist: In liberalised energy markets, building nuclear power plants is no longer a commercially feasible option: they are simply too expensive.

What we think: New build nuclear has never been built into liberalized energy markets.  The reasons are somewhat complex and go beyond the discussion in this blog post.  The issues are more related to the fact that open markets work best with projects that can be built quickly with low capital costs.  And most markets have been designed with gas in mind.  Gas prices set the market price so the risk for gas plants is very low.  On the other hand, even when their energy cost are very competitive, nuclear plants have relatively high capital costs and long project schedules requiring predictable electricity prices into the future.  So this is nothing new although the UK will be the first to build such plants by modifying the market to try and accommodate the issues related to nuclear.  On the other hand, nuclear plants, once in operation, operate very successfully in liberalized markets due to their very low production costs.

Economist:  Existing reactors can be run very profitably; their capacity can be upgraded and their lives extended.

What we think: Very true

Economist:  But forecast reductions in the capital costs of new reactors in America and Europe have failed to materialise and construction periods have lengthened.

What we think: While the first new units in America and Europe have had challenges resulting in not meeting budgets or schedules, we cannot forget that in Asia where there are many plants under construction, the benefits of standardization and series construction have been and continue to be proven.  With a small number of plants being built in the western world, now is the time to ensure that lessons learned in Asia are transferred to the west so that the same benefits are achieved.

Economist:  Nobody will now build one without some form of subsidy to finance it or a promise of a favourable deal for selling the electricity.

What we think: The context of this statement is incorrect.  Modern liberalized electricity markets work well for gas and sometimes coal, but for nothing else.  Large complex projects such as nuclear and large hydro are not amenable to the current market structures.  The Economist does not mention that all wind and solar are heavily subsidized by governments around the world as they are not in any way currently economically competitive.  Yet somehow this is acceptable.  On the other hand, in most jurisdictions, nuclear is indeed competitive, but needs stability of electricity price to enable the large up front capital investment. So the issue in most cases is not requiring subsidy per se, but rather stability.  Yes, in the US the first movers are offered some support to help overcome first of kind issues related to not building in over 30 years.  But in the medium to long term, this support is expected to fall away whereas renewable support is expected to remain required for the foreseeable future.

Economist:  And at the same time as the cost of new nuclear plants has become prohibitive in much of the world

What we think:  As discussed above exactly the opposite is true.  In most parts of the world where nuclear is being built it is very competitive.  Higher gas prices and lower nuclear costs result in very economic new build plants in China and elsewhere.  The experience in Europe and the US is primarily due to building after a very long hiatus and now it is up to the industry to demonstrate that the price can come down in line with other markets.

Economist:  Nuclear is getting more expensive whereas renewables are getting cheaper

What we think:  Again, in China, Korea, India and other locations nuclear is indeed coming down in price with series new build of standardized designs.  As I discussed in my previous posting, the cost in the west is increasing due to the lack of new projects resulting in a lack of confidence.  Each bad experience causes estimates to go up while in the east each new project results in lower costs than the preceding project.  This is why the Asians are now becoming nuclear exporters.

Economist:  Nuclear power will continue to be a creature of politics not economics, with any growth a function of political will or a side-effect of protecting electrical utilities from open competition. This will limit the overall size of the industry.

What we think:  Nuclear power will always be a creature of politics.  However for success, it must also be economic.  In most jurisdictions there will be very little political will to move forward with new nuclear and all of its associated issues unless the project can be shown to be economically attractive.  China is building in large quantities because they need large scale base-load electricity and nuclear is very competitive with the alternatives.  The same goes for Korea and other markets.

In summary, nuclear is not a dream that failed, but rather is one of the most extraordinary discoveries of the 21st century that can still realize its potential for supplying global electricity for millennia.  The Asians see the benefits and are moving forward with nuclear power to meet their ever growing energy needs.  The question is will the western world wake up and learn from this eastern success.

For fully global success, new build nuclear must demonstrate that it is competitive in an economic sense.  The current state of gas prices and other issues will continue to present challenges to nuclear power but these can all be overcome in the longer term as standardization and series construction  continues to demonstrate that it is the most  economic, reliable and safe method of electricity generation.  The nuclear dream lives on.

Fukushima one year later – making sure we learn the right lessons

On March 11 it was the first anniversary of the great Tohoku earthquake and tsunami that devastated Japan and, of course, the accident that resulted at the Fukushima Daiichi Nuclear Power Station.  And as can be imagined, there were many many articles in the press to commemorate this event.

As I read and read and read, I found that most of the discussion to date has deteriorated into a form of public relations war.  There are those that are confident the accident demonstrates that nuclear power plants are fundamentally safe and those that are equally sure the accident demonstrates that nuclear power is far too dangerous for the world and must be stopped.

The week immediately after the 11th I was in Brazil teaching for the WNU at our annual course “Key Issues in the World Nuclear Industry Today”.  As can be imagined, the discussion this year was very focused on Fukushima.  Following an excellent presentation on the technical events throughout the accident and a good discussion of the lessons learned there was an important question from the audience.  A former senior nuclear regulator simply asked – so what is new here?  Are there new lessons to be learned?  And that is when the light bulb went off.

Yes, we understand the technical lessons – ensure cooling is available, translating into making sure emergency power is available, improved venting and hydrogen control and better emergency planning – and so on……  So look at these and ask yourself, what is actually new here?  Yes,  the events highlighted a number of shortcomings, both at the plant level and in the Japanese infrastructure to deal with such an accident.  And of course, these things should and will all be made better.

But this is where the discussion really got interesting.  It became clear to us all that as an industry, we have yet to see the real lessons to be learned from this event and certainly have not communicated them to the public.

I started the discussion on this issue in a previous blog when I noted that many people believe the industry is safely managing doomsday machines.  And now I feel more strongly than ever that this is the critical issue that needs to be addressed by the industry.

So looking at what we discussed before, let’s revisit it again with more rigour.  Take Germany for example.  With probably one of the most robust and safest nuclear programs in the world – with no risk of the type of initiating event we saw in Japan, and noting that the Fukushima accident killed no one and there are no long term health impacts anticipated from radiation, we saw their Chancellor state that We have seen the risks in a highly developed industrial country, risks which we considered impossible,” she said in a video interview posted on the government’s website. “It convinced me that we had to speed up the nuclear phase out.” – and with that the Germans turned their back on nuclear power.  This was all at great inconvenience and enormous cost to them as they immediately shut down 8 units and committed to shut the rest by the end of the decade.   Clearly not a decision to be taken lightly.

And yet, when they had a severe contamination event at an organic farm growing bean sprouts – that killed 50 and hospitalized 4,000 throughout Europe, there was no outcry – no call to review organic farming methods or study food safety – the problem was found, corrected and Germany and Europe moved on (as happens following most accidents such as plane crashes, mine collapses, off shore oil spills, the current gas leak in the British North Sea, and so on).

How can this happen? Well, finally the answer is becoming clear.

When it comes to organic farming, the public fundamentally believes it is safe – and that organic farming is important to society to bring safe healthy food, even healthier than food farmed the traditional non-organic way.  This event is then considered a onetime event that can be addressed as such, with no long term consequences to food safety.

On the other hand, the public fundamentally believes that nuclear power is dangerous with the potential to destroy life as we know it (yes – doomsday machines), and as such, the accident at Fukushima is proof that it indeed it is.  A lot of that thinking emanates from nuclear beginnings- nuclear weapons.  You don’t hear of gas terrorists but you do hear about nuclear terrorists – the subject of great discussion by President Obama and other country leaders in Seoul this past week.

The above is a good example of “confirmation bias”.  I have seen much discussion on this topic recently in books and at conferences.  In other words, the majority of people already have a set of beliefs instilled in them and then look to find evidence to support these beliefs.  Most actually have no interest in learning they may be wrong and actually changing their point of view.  This goes directly against the scientific view prevalent in the nuclear industry that if we just explain things better (i.e. better educate the public) – they will come around.  Well, unfortunately this is just not so.

And as discussed in the previous blog, to make things even worse, who taught the public that nuclear power is dangerous?  Well, we did!  Not intentionally but we did.

The message has always been quite clear.  Nuclear power plants are safe because a serious accident can’t happen.  And we ensure it can’t happen with extraordinary robust designs, because we all assume that the potential consequences of an accident can be so severe that we must do anything and everything possible to avoid one.  Even those in the industry have believed that if there was ever another severe accident following Chernobyl, then the industry could not recover.  The concept of very low probability high consequence events is a hard sell.  Why? Because, even though the industry may be safe most of the time (i.e. low risk), the belief that an accident can be so catastrophic that it kills thousands, makes huge amounts of land uninhabitable and then causes thousands more long term deaths through cancer is just too great for most people to imagine.  Therefore as long as people believe a catastrophic accident of this magnitude can indeed happen, the probability becomes irrelevant.

So to get to the point, I would like to challenge this belief and state that it is unequivocally wrong.  And how do we know it is wrong?  Because this is what we have actually learned from the major accidents to date.

What have we learned?  First of all, nuclear power plants are safe and are getting safer all the time.  But even when an accident does indeed happen, the consequences are NOT so great as to be the end of the world as we know it.  We have proven with Fukushima that we can indeed protect the public and that even after very severe accidents; the impact on public health is manageable.  We are in the enviable position of knowing that after our very worst accidents, the impact on public health has been far smaller than almost any other type of industrial accident.

And yet, people don’t believe us.  They remain afraid.  The biggest hurdle that we have is fear – and this fear comes from the unknown and the belief we don’t understand the long term impacts of radiation releases to their lives.  But we do.  We know that the levels of radiation that people have been exposed to are not going to cause measureable health impacts and that in fact, the worst consequences of a terrible nuclear accident are actually better than many other disasters that we live with on a daily basis.  With over 100,000 people evacuated from their homes, the consequences of the Fukushima accident are not to be taken lightly.  But to put it in perspective, according to the Economist, over 42 MILLION people were displaced from their homes in Asia last year alone due to natural disasters related to extreme weather events.

So what are the lessons we need to learn from Fukushima?  We need a new paradigm for nuclear power.  I suggest the following:

  1. While the probability is low, accidents happen – and to suggest that we can ensure that there is never another accident with releases is absurd.  We can reduce the risk and make plants better, but we cannot guarantee that an accident never happens again.  To argue that there must never be another accident is a fool’s game (just imagine if the aircraft industry said all it will take is one more crash and the industry is finished – remember most plane crashes kill more people than have been killed by the nuclear industry in the last 50 years!).
  2. When an accident does happen, we can and will mitigate the consequences – and most of all we will protect people.  The so called “doomsday accident” is a fallacy and should not be what we fear.  Severe accidents will not happen very often and even less often based on what we learned from Fukushima.  However, we have also shown that when there are accidents, the impact to human health can be managed and we will strive to improve so that it is even less in the future.  A nuclear accident WILL NOT kill thousands and wipe a country or region off the map.  Changing this belief will take years and most of all; it must start with those of us in the industry.  Comments from the industry such as we must never again have an accident with Cesium releases is a laudable goal, but cannot be guaranteed and in fact just fuels the fear.
  3. We must improve international cooperation when it comes to nuclear safety.  Fukushima clearly taught us that an accident somewhere is an accident everywhere so we need to ensure that the industry is focused on working with EVERY nuclear plant operator in the world to ensure nuclear safety.  It is good to see organizations such as WANO taking this on and stating that when any plant shows deficiencies following a review, that the international community will take action and not just leave it to the local authorities.  Pressure must be used to ensure that all who operate nuclear plants do so to the highest standards.

These lessons are what we need to communicate to demonstrate to the public that nuclear power is safe.  We need to stop scaring people and focus on the many benefits of nuclear power.  Only then will they understand it offers safe, secure, reliable and economic electricity in the large quantities needed by society and to truly believe, as we do, that Nuclear Power is the best, not least worst way to generate electricity.

 

The nuclear renaissance gathers steam…….the importance of Southern Company receiving its COL for Plant Vogtle.

If 2011 was all about the events at Fukushima, 2012 is shaping up to be a big year in moving forward with the nuclear renaissance.

For the Chinese, this is the year of the dragon.   This is, in fact, the major symbol of good fortune in Chinese Astrology.  Of the 12 signs of the Chinese zodiac dragon is the most special, as it is a mystical being rather than an earthly animal.  In this context that means we can expect grand things this year. Bigger than life is very much a dragon thing.

And bigger than life is what was achieved last week – the granting of the COL for Plant Vogtle in Georgia – the first COL ever granted under the NRC process and the first license issued for a new nuclear plant in the USA in over 30 years.

We have been writing for some time now on how the nuclear industry is moving from west to east with China and India having more than 50% of the new plants under construction and planned while they only have 3% of the current nuclear capacity.  This shift is important but so is the restarting of nuclear new build in the established nuclear countries of the west.  Of the over 400 plants in operation globally about half of them are in Europe and one quarter are in the United States alone.  With 104 plants in operation, the US by far has the world’s largest nuclear operating fleet.

Recent global decisions are starting to show a broad based nuclear renaissance with new build finally taking hold in the west.  In the UK, regulators have granted interim design acceptance of both Areva/EDF’s UK EPR and Westinghouse’s AP 1000; and planning application from EDF Energy for Hinkley C was accepted late in 2011.  More recently Finland accepted bids for its next nuclear plant following the first of a kind EPR under construction at Olkiluoto; and the French have embraced life extension for the current fleet and the French regulator has has given its preliminary approval of the safety options for the Atmea1 reactor design.  So even without the good news in the US last week, nuclear power is alive and well in the western world.

So why is the granting of the COL for Plant Vogtle so important to the future of the industry?  First of all, it clearly demonstrates that the US, the world’s largest nuclear operator remains committed to nuclear power going forward and what can be more important for the industry than that?  With the COL for SCANA’s Summer plant expected to follow shortly, there will be five nuclear units under construction in the US including TVA’s Watt’s Bar 2 which is nearing completion.  TVA also plans to complete its idled Belefonte plant.

It is somewhat unfortunate that in its decision to grant the COL, the chairman of the NRC was the sole abstaining vote – still overly focused on the impact of Fukushima, wanting conditions related to post Fukushima improvements added to the license.  To their credit, the remaining commissioners felt differently with Kristine Svinicki stating “There is no amnesia individually or collectively regarding the events of 11 March 2011 and the ensuing accident at Fukushima.” She added that NRC staff did not recommend and did not support Jazcko’s idea of a condition being attached to the licence, “because we found it would not improve our systematic regulatory approach to Fukushima, nor would it make any difference to the safety of operating or planned reactors.

It is interesting that just a few days earlier, a NRC sponsored long running study concluded “A severe accident at a US nuclear power plant would not be likely to cause any immediate deaths, while the risks of fatal cancers caused by such an accident would be millions of times lower than the general risks of dying of cancer”.  This study is very important going forward because as we have written before, while Fukushima has been a terrible accident, the actual consequence to human life of radiation releases has been very modest with no immediate deaths and no longer term deaths expected.

Now the other issue, again as we have written about in the past, is the price of gas.  Recent prices have been below $2.50 mmBTU – which is making it even more difficult for any alternative form of generation to gas to be economic.  So what does this mean for future commitments to nuclear power in North America?  Well, while gas prices are low right now, the gas industry is not without its own issues.  Recent studies are suggesting that at today’s prices, gas companies are losing money and that the cost of subsequent shale fields will continue to rise.  And of interest is new study reported in Nature magazine suggesting that with fracking, the carbon footprint of gas is becoming similar to coal, rather than half that of coal as it is for conventionally produced gas.  Now I don’t want to start a big conversation on the future of gas – the issue is that nothing is perfect and we can expect gas to have its issues as well.

So what’s the next step?  The industry needs to remain focused.  The cost of gas is not within our control.  However, delivering on our promises is!  After delays in Olkiluoto 3 and Flamanville, it is essential for the new US projects to be successful – meaning achieving costs and schedules.  As stated by Southern CEO Tom Flannery “We are committed to bringing these units online to deliver clean, safe and reliable energy to our customers. The project is on track, and our targets related to cost and schedule are achievable.”  Good luck Tom.  These units will be the 5th and 6th AP1000s to be built and we know that the first units in China are on schedule.   The industry is behind you and we are counting on you to make this project a success demonstrating that plants built in the west can indeed meet targets and be important parts of our future generation mix.

What a difference a year makes! With New Build taking hold in the west in 2012 now is the time to sell the benefits of nuclear power to overcome the Fukushima effect.

The good news is that as 2011 comes to a close, Fukushima has achieved cold shutdown and the recovery is moving to the next stage.  The emphasis is now on decontamination and getting the dislocated people back into their homes as soon as possible.  Does this mean that nuclear will overcome the effects of Fukushima starting in 2012?

It was only a year ago that the International Energy Agency (“IEA”) issued its Nuclear Roadmap 2010.  This report clearly demonstrates the important role that nuclear power can play in meeting climate change targets.  With a 50% CO2 reduction targeted by 2050 in the so-called IEA Blue Map scenario, nuclear capacity triples and its share of electricity generation rises from 14% today to 24%, the largest of any generation technology.  Under a postulated High Nuclear scenario, the nuclear share would reach as much as 38%!

IEA Nuclear Roadmap 2010 share of nuclear

But that was then and this is now.  On March 11, as we all know, a devastating earthquake and tsunami struck Japan with horrific consequences – killing more than 20,000 and causing a nuclear accident at the Fukushima Daiichi Nuclear Plant.    There was significant fuel melting in three units resulting in radioactive releases to the environment.  Even though there have been no fatalities due to radiation and there is little risk of any future radiation health impacts, the global impact of this event to the nuclear industry was overwhelming.  While many countries re-confirmed their commitment to nuclear power after reviewing plant safety and implementing lessons learned, some countries in Europe led by Germany have taken the decision to scale back or even move away from nuclear power.

In the IEA’s World Energy Outlook 2011 released in early November they added a new scenario – Low Nuclear – to account for a possible post-Fukushima shift away from nuclear power in addition to the New Policies (reference) and Current Policies scenarios.  In the reference case, global nuclear power is expected to rise 70% by 2035 with China, Korea and India leading the growth.  This case is only slightly less than the projection last year.  In the new Low Nuclear Case, the total amount of nuclear capacity actually falls from 393 GW at the end of 2010 to 335 GW in 2035.   According to the IEA, this scenario has severe implications for energy security, diversity of the fuel mix, spending on energy imports and energy-related CO2 emissions.

In this low nuclear scenario, by 2035, coal demand increases to over twice the level of Australia’s current steam coal exports. The increase in gas demand is equal to two-thirds of Russia’s natural gas exports in 2010.  The increase in renewables-based generation is equal to almost five-times the current generation from renewables in Germany.  Energy-related CO2 emissions also rise with increased use of fossil fuels in the power sector.  This clearly has significant implications for global energy supply making it extraordinarily difficult to meet carbon targets.  As stated in the IEA’s WEO report “Following this trajectory would depend on heroic achievements in the deployment of emerging low-carbon technologies, which have yet to be proven. Countries that rely heavily on nuclear power would find it particularly challenging and significantly more costly to meet their targeted levels of emissions.”

WEO New Policies (Reference) and Low Nuclear Scenarios nuclear capacities

And now, Europe has issued its Energy Roadmap 2050 with the overall emphasis on renewables and energy efficiency; a policy document that has been clearly impacted by the post Fukushima shift in thinking in Europe.   As illustrated in the chart below, even with five different scenarios, the one thing they all have in common is a large increase in renewable energy generation.  No other form of generation increases anywhere near to that of renewables; and in fact most other forms decline over the plan period with only the size of the decline depending upon the specific scenario.  But even with this emphasis on renewables, the report does make important positive points on the role of nuclear power noting that nuclear energy is an important contributor to meeting the roadmap objectives.

In fact the report notes that today nuclear energy is the decarbonisation option providing most of the low-carbon electricity consumed in the EU.   It then goes on to note the post Fukushima reality.  “Some Member States consider the risks related to nuclear energy as unacceptable. Since the accident in Fukushima, public policy on nuclear energy has changed in some Member States while others continue to see nuclear energy as a secure, reliable and affordable source of low-carbon electricity generation.”

When it comes to cost, the impact is clear.  Consistent with the IEA Nuclear Roadmap, this report states “the scenario analysis shows that nuclear energy contributes to lower system costs and electricity prices. As a large scale low-carbon option, nuclear energy will remain in the EU power generation mix.”

This is critical since the average capital costs of the energy system will increase significantly due to investments in power plants and grids, industrial energy equipment, heating and cooling systems, smart meters, insulation material, more efficient and low carbon vehicles, devices for exploiting local renewable energy sources (solar heat and photovoltaic), durable energy consuming goods etc.  And the reality is that renewables are expensive with the highest electricity costs in the “near 100% RES power” scenario which the RES power generation capacity in 2050 would be more than twice as high as today’s total power generation capacity from all sources (I am assuming primarily due to the low capacity factors of renewable generation).  Other scenarios such as the High Energy Efficiency scenario and the Diversified Supply Technology scenario have the lowest electricity prices due to somewhat lower renewable penetration (60 to 65%) taking advantage of the lower costs of efficiency, gas and nuclear.   The report notes that many renewable technologies need further development to bring down costs.

So as we enter 2012, where does this leave us?  One lesson from Fukushima is that many in the world are still very afraid of nuclear power because of the huge fear of radiation.  There was an interesting piece on this in a CNN Health article this past week which argues that public trust in nuclear energy should be built on the existing acceptance of medical radiation dose levels.  The public welcome moderate medical radiation levels from both internal and external sources, for medical imaging (CT, PET, SPECT scans) yet fear the much smaller levels from nuclear plants. And as I stated in my last blog entry, as an industry our work is cut out for us in changing this thinking.  Reducing the public fear of radiation is no small task and will take time and a carefully coordinated approach from us all.  Professor Wade Allison argues that the ALARA principle has hurt us and increases this fear of radiation and suggests that this policy should be replaced with “As High As Relatively Safe (AHARS)”, mindful of other dangers, local and global.  An interesting approach indeed.

One thing is clear from the above IEA studies and the European Roadmap 2050.  Reading between the lines nuclear power is essential to meeting long term carbon reduction goals.  Relying too much on renewables is far too risky an approach and is more of a wishful thinking scenario than a realistic one.  To achieve global carbon reduction objectives, it makes no sense to not take advantage of the one true large scale low carbon technology – nuclear power.  It is here today – it is safe and in most jurisdictions it is economic.

So what about 2012?  So far it looks like it can be a good year for nuclear power.  Important progress in new build is being made in the UK; the US will see its first COLs enabling the first new builds to start construction in a generation; Canada may make a decision on its new build; and, of course China and others in Asia will continue to expand their programs.

Work in Japan will continue and will not be easy as the government works to decontaminate the area around Fukushima and hopefully many will get to return to their homes.  Of importance we can expect to see many of the idled plants in Japan get approvals to restart easing the electricity shortage caused by these units not running.  Again a recent Japanese study shows that nuclear remains the low cost option to 2030.

But of most importance, this is not time for industry complacency.  This has to be the year where the industry marshals its forces to get the message out – in a thoughtful, clear, unambiguous way.   The future is up to us so let’s get on with it and tell our story.  Even though truth may be on our side, the path is going to be long and the work hard……..but in the end it is worth it for us all………

We offer a proven large scale clean, economic and, of utmost importance, safe option for electricity generation.  As the only proven large scale low carbon option that can meet the world’s energy needs, nuclear power must continue to be an important part of the electricity generation mix now and into the future.

 

Lower demand and more renewables – is Surplus Base Load Generation here to stay?

Late in November I blogged about a recent phenomenon being experienced in some systems – Surplus Baseload Generation (SBG).  This is being experienced in Ontario, Canada due to falling electricity demand and the increased use of variable renewable energy sources such as wind and solar.

At that time, I started a poll asking about the future of baseload power.  Since then, the IESO in Ontario has published its latest Reliability Outlook.  The numbers are striking.  Demand was down 6.4% in 2009.  The following graph shows that demand is not expected to reach pre-economic crisis peaks even by 2018.

Ontario Demand Forecast

As of result the province continues to experience Surplus Baseload Generation (SBG).  Forecasts of SBG are now made daily.  With the growth of renewable generation SBG is expected to continue into the future.  This will certainly impact any decision for building new nuclear, as nuclear plants are most suited to providing long term stable baseload power and energy. 

The commitment to renewable energy continues to grow.  Wind generation in Ontario rose by more than 60 per cent in 2009 over the previous year, to 2.3 TWh.  Ontario has implemented the Green Energy Act, arguably making it one of the “greenest” jurisdictions in North America.  Just this past week, government announced a $7 Billion deal for 2,500 MW of new renewable generation from a Korean consortium led by Samsung C&T.  The deal includes the implementation of new manufacturing in the province for both wind and solar components.

While the above chart does not show baseload, with 1,000 MW of wind on the system and 11,500 MW of nuclear, this spring, Ontario started to experience SBG on a weekly basis.  This resulted in nuclear unit reductions on 54 days, nuclear shutdowns on five days and water spillage at hydro facilities on 33 days.  In the Reliability Outlook the projection is for 1600 MW of wind by 2013.  With the Samsung deal and other FIT program renewables, we could be approaching 4,000 MW of wind and solar in the coming years while the overall demand is not expected to increase dramatically.  Therefore, the baseload requirements will be further squeezed from the bottom as renewable generation has priority to the system when available.  In other words, both renewables and nuclear are “non flexible” load i.e. not readily dispatchable.  Clearly SBG will be an ongoing issue. 

And now, for the results of my earlier poll.  Although the number of votes was somewhat modest, the trend was clear. 

While the comments suggested that baseload is important, only 10% of respondents thought that renewables will have a small impact on the use of baseload.   The most votes were for “Medium Impact” as it seems to be recognized that renewables are here to stay and that the nature of electric grids are going to be changed forever.

Happy New Year 2010!!

As usual at this time of year I find myself asking “Where did the time go?”  Seems like just yesterday the year was beginning.  And in this case, it was a very busy year.  I am thankful to have been busy as we have been going through the worst economic times in recent history.

There have been a number of events that have defined the year in the nuclear sector.  And it was a decision at the very end of the year that clearly demonstrated the nuclear industry strength moving from west to east.  The announcement that the Koreans have won the bid for four new nuclear units in the UAE was HUGE.  With an estimated value of $40 billion ($20 billion for construction of 4 units and $20 billion for their operation), this is an absolute “game changer” in the nuclear industry.  The Koreans have now achieved their desire to become a global nuclear player exporting their domestic designed APR 1400. Of more importance it shows that commercial issues have won out over political strength in this case. The Korean bid was reported to be significantly less costly than the alternatives from Areva and GEH. So far I have not seen any mention of the commercial conditions, so I cannot comment on if or how much the actual commercial conditions (i.e. how much risk the Koreans were willing to take) impacted the decision.

Never under estimate the capability of Korea!! The nature of international nuclear competition has changed!  Of course, they still have to deliver.  Given my own long experience in Korea, I would expect them to succeed.

This caps a year where nuclear growth in the east was substantial.  Sticking with Korea for a moment, in addition to winning their first nuclear export, their new electricity plan calls for a large increase in nuclear capacity within the country to 2030.  Korea also made a big investment in uranium as KEPCO purchased 17% of Denison Mines this year.

In China, nuclear growth exploded!  With 11 units in operation, China now has 18 under construction.  They have increased their target for 2020 from 20 GW to 60 GW or more and growing even faster after that.  With construction under way for AP1000 units and EPR units as well as the existing CPR1000 units, their program is as broad as it is large.  As domestication of the industry continues, the first CAP1400 – a Chinese derivation of the AP1000 was announced this year to be launched in 2013.  China also continued its entry into international uranium development.  CNNC bought Western Prospector with a property in Mongolia this past year and CGNPC bought a 70% interest in Energy Metals in Australia.

And of course, there is India.  In 2009 India truly joined the international nuclear community.  With just under 4,000 MW in operation, India is now on track to meet its target of 20,000 MW in service by 2020 and more than 60,000 MW by 2030.  With new agreements from Russia for VVER units, agreements to build the EPR from France and new agreements anticipated to build US designed units, the PWR program is expanding quickly to supplement their home grown PHWR program.

Of more importance, India now has access to international supplies of uranium to meets its domestic fuel needs.  So far there have been arrangements made with Russia, France and Kazakhstan to import uranium and agreements are in place to enable uranium importation from Mongolia and Namibia.  Towards the end of the year, India also concluded a Nuclear Cooperation Agreement with Canada opening the door for uranium imports. Cameco has opened an office in India and has big plans for this country.

With all this activity in Asia, how about the west?  Well, while there was progress with projects in the USA and the UK program is continuing to develop, there have been no new firm commitments this year.  Hopefully 2010 will see the continued growth with a new build project formally starting in the US.  In the UK government suspport for new build nuclear has continued to grow while EDF concluded its purchase of British Energy.  In the US, there was progress in a number of states.  The DOE has announced that it will provide its first loan guarantee when a utility receives a COL from the NRC.  Activity is increasing in both markets.

In Canada, the year started with a bang.  Ontario looked to be leading North America with its international bidding process for new units.  This fizzled later in the year when the project was suspended.  The other three provinces with nuclear ambitions also had major decision points.  In New Brunswick, the government is proposing to sell its utility NB Power to Hydro Quebec, Saskatchewan has decided against nuclear power in the short term and Alberta has stated that it is open to keeping nuclear as an option for implementation by the private sector.

Definitely a busy year for the nuclear industry.  Of course, 2009 was also an important year for the climate change issue.  I think that this posting is already long enough so I will comment on Copenhagen and the move to reduce green house gases in a subsequent posting.  There were also many developments with renewables that deserve attention.  More to come.

One thing is for sure, energy continues to be high on the agenda.  With the economy starting to recover, energy issues are expected to continue to be of importance going into 2010.

Is there a future for base load generation? Please respond to the poll?

System operators have recently seen something rather new  – SBG – or “Surplus Baseload Generation”.  This is due to falling demand related to the current economic situation and a newer phenomenon; the displacement of base load by variable load renewable generation.

With governments everywhere and the public strongly supporting new renewable generation, primarily wind and solar; these forms of variable generation are displacing base load by being must run when the resource is available.   So the question is “Is there a future for base load generation?”.  Please respond to the poll at the bottom of this blog entry

This issue was addressed at last week’s Association of Power Producers of Ontario (APPrO) annual conference where a session was dedicated to this new phenomenon.  The following shows the amount of time Ontario experienced SBG over the past 18 months.  Excess generation of well over 1,000 MW was experienced!  This resulted in shutting down low marginal cost nuclear plant as well as spilling water at hydro plants.  The 18-month forecast by the IESO in Ontario expects SBG to continue to be an issue going forward.

Surplus Base load Generation

IESO Presentation to APPrO 2009

IESO Presentation to APPrO 2009

The variability of the wind is shown in the following chart illustrating how two days in a row the wind at the same time varied from 989 MW to 7 MW on the following day.

Wind Capacity on Consecutive Days

IESO Presentation to APPrO 2009

IESO Presentation to APPrO 2009

So what does this all mean?  In the smart systems of the future is the concept of large scale base load generation doomed?  Do you have to be able to manoeuvre to survive?  Or will policies change to ensure that low cost base load generation is not displaced for higher cost alternatives?

This is just the beginning of the discussion for this subject.  Please answer the following simple poll.  I would like to get your views.  More work is needed on this issue as we plan the systems of the future.

The precarious world of uranium supply and demand

Last month, the supply of uranium was severely interrupted when BHP declared force majeure on its deliveries of uranium as the main haulage system failed at Olympic Dam.  Production has been reduced to about 20% of nominal and it is expected to take a number of months to repair and bring production back to its full output.  Olympic Dam is a major producer of uranium, producing about 4,000 tonnes U per annum or just under 10% of global primary production.  Therefore, losing the equivalent of 3,000 tonnes per year for six months or so (say 1,500 tonnes) represents a significant event in overall production that affects the delicate balance between uranium supply and demand.

Many people do not appreciate that the supply / demand situation for uranium is somewhat unique amongst commodities.  I first gave a paper on this topic in 2007 to the Raymond James Uranium conference in New York (when the price of uranium was at its peak).

So what makes uranium so special in the world of commodities?  A few things come to mind immediately.  First, uranium is a single use commodity. Its demand is completely dependent upon how many nuclear power plants are in operation and how much fuel they need.  In recent years, the global nuclear fleet has been consistently improving its operations but now has pretty much achieved it maximum.  This means that demand cannot go up for the current fleet of nuclear power plants – there can only be negative shocks if a plant performs poorly. For example, following an earthquake in Japan, some plants were shut down for an extended period. This means that they are not using fuel so demand decreases.

As for the future of demand, the forecasts are for a dramatic growth in new nuclear plants. The WNA is projecting growth of more than 50% in the number of GW in production over the next 20 years.  This means a significant increase in demand that must be accommodated in future supply plans.  However, it takes from 10 to 15 years to implement a new nuclear project from conception so there are really no surprises in demand in the short to medium term.  We all know what plants are under construction so the projection for new demand is quite stable for the next 5 to 10 years with some uncertainty starting to appear at the 10 year mark.

So what does this mean?  It means that demand increases in a predictable fashion and that the potential is always there for negative demand shocks if existing units perform poorly or are taken out of operation for any reason.

Now for supply.  Similar to nuclear power plants, bringing new uranium mines into production takes quite some time and effort.  Many projects are delayed as companies have been having difficulty in bring on new mines.  Therefore, supply potential is also quite predictable for at least 5 years going forward.  Again, as with nuclear power, the risk is that shocks affect the system negatively as there have been a number of events over the past few years that have halted production or delayed new mines.

And finally, as a fuel, uranium is also unique in that it is bought in batches.  The volume of fuel required to operate a nuclear power plant is quite small so utilities can carry a significant inventory to reduce their risk.  This means that buying and selling is not completely in step with usage.  This is different from say, coal or gas that must be consistently delivered to keep fossil generating plants operating.

In the end, uranium prices have remained rather low over the past 20 years with a short term blip in 2007.  These prices remain low because in most scenarios, supply and demand are in balance making it difficult for price increases that are needed to encourage new supply.  However, for utilities the risk remains.   Therefore, the trend is now for utilities in the east (Japan, China, Korea and India) who are fast becoming the world’s biggest users of fuel to invest in the resource itself to help them mitigate the risk.  These countries also have little domestic supply so need to rely on supply from other countries.

Events like the one at Olympic Dam demonstrate how precarious supply can be. So we should expect countries with growing demand and little domestic supply to continue to step up their efforts to invest in global resources to reduce their overall supply risk.

Falling electricity demand and the impact on nuclear projects – An interesting article

 Today, Bruce Power announced that reduced operations to cope with reduced demand is the new short term reality.  See the following quote from the article linked here:

“Bruce Power officials say running at reduced capacity is the new reality for the nuclear plant for the foreseeable future, despite getting the green light to return a reactor to service after a 22-day shutdown due to a provincewide slump in energy use.

“This will have an impact on us, on our machines, our people — this is an ongoing situation that we’re going to have to work through,” Steve Cannon, a Bruce Power spokesman, said yesterday.

“At the end of the year we are going to take stock of this year and determine exactly how big the impact has been on our business plan . . . when we compare it to what we expected the market to look like, what we expected our generation output to be and what we expected our revenues to be.””

Hard to imagine but true.  In the short term, demand in Ontario has fallen to the extent that baseload generation has been affected.  It will be interesting to see how long it takes to recover and the extent of the recovery in demand.  How much of the reduction is due to the economy and how much due to successful conservation?  And if the economy, is there permanent structural change?

Thought this was worth adding after last week’s entry.  Would really like to hear from others about what is going on in their jurisdictions.

Falling electricity demand and the impact on nuclear projects

During the summer I have been a slacker when it comes to contributing to my blog.  It is a time for relaxation; a good time for reading and reflection.   

As we all start the big climb out of the current economic crisis, it may be time to start thinking about what lies ahead and the legacy that this crisis will have left us.  There has been an assessment by the IEA in May about the impact of the financial crisis on energy in general and a more detailed assessment of nuclear power in the USA by Moody’s in June.  So why am I thinking of talking about this now in August?

Well, this week OPG (Ontario Power Generation) announced their second quarter results here in Ontario Canada (home for me).  They reported a 19% drop in electricity production for the second quarter.  In part this is due to lower overall demand and also is related to production by others in the market.   Now there are a number of reasons for this lower demand.  First and foremost, this has been a mild summer so the air conditioning loads are down.  Second the economy has had a big effect on industrial loads and finally, the success of the OPA conservation programs is starting to show benefits in the market.

This summer has seen some unusual things happen in the Ontario market.  Nuclear plants have had to be shut down due to the lack of load.  This is a result of low off peak demand and an increasing amount of renewables on the system that displace base load when the resource is available according to electricity market rules.  Also this summer, the government of Ontario suspended its bidding process for a new build nuclear plant.  The reasons given were the high cost of the bid and the uncertainty over the future of AECL, the lead bidder.   AECL’s shareholder; the Government of Canada, is looking to partially privatize the national nuclear vendor.  I would guess that the lower demand probably also had an impact.  Hard to think about spending large amounts of capital when demand is shrinking. 

In any case, reading about OPG made me think so I have had a look at the numbers.  Demand has decreased in Ontario since 2005.  Current projections by the IESO are for a 4% drop in demand this year and a further 0.35 drop next year.  Wow!  A far cry from even the modest 1% or so growth assumed in the current Integrated Power System Plan.  This is consistent with the IEA forecasts.  They are expecting a drop of 3.5% in 2009; the first drop in global electricity demand since the second world war!

The Moody’s report is more focused and suggests that US utilities that are considering new nuclear plants are not doing what is necessary to strengthen their balance sheets to get ready for these large projects.   Moody’s claims that the size of these projects makes them “bet the farm” projects – a term I often use when teaching project structuring for the World Nuclear University.  However, they also note on the positive side that there is a demand for new low carbon generation and that nuclear as an economic alternative can play a role.

So what does this mean for the future of nuclear in North America?  The IEA is somewhat negative and states that the crisis may hold back some programs.  It mentions South Africa as an example of one country that has delayed its new build projects for financial reasons.  On the other hand, it also states that nuclear is probably the only large scale viable low carbon generation option and that its economics improve as carbon is priced.  They also note that most programs that are in the advanced planning stages are continuing and once operating nuclear plants are viewed favourably by the financial community.

To answer the question – the current economic climate may delay some new nuclear projects, however it is expected that most will continue and that they will be able to raise the necessary financing as the economy starts to improve.   Most likely, investor-owned utilities in North America will look to strategic partnerships to share costs and risks.  The lower demand may also buy the industry some time to ensure that it plans and executes new projects with the necessary diligence and oversight to ensure project success.  Given the relatively high capital costs and long project schedules of a nuclear plant, projects currently in the preparation phase will be in service towards the end of the decade.  And of course, continued focus on implementing new projects on budget and on schedule will be key to a successful future.