As a solution for climate change – nuclear power is falling behind

Recently, the 2014 edition of the International Energy Agency’s (IEA) Energy Technology Perspectives (ETP) was issued. The ETP is issued on a two year cycle; the current edition takes the World Energy Outlook 2013 forecasts and looks to the longer term out to 2050. With climate change now becoming even more pressing I thought it would be interesting to see the progress over the last two years (I wrote about the 2012 edition back in June of that year). According to the report, as an important contributor to meeting climate requirements going forward, nuclear power is falling behind.

On the positive side, the IEA sees the opportunity by which “policy and technology together become driving forces – rather than reactionary tools – in transforming the energy sector over the next 40 years.” The report looks to balance energy security, costs and energy-related environmental impacts. But in the end it concludes that “Radical action is needed to actively transform energy supply and end use. ”

Why is radical action required? Of all the technologies required to meet the 2D target (this scenario sets a target of only 2 degrees C change as compared to 6 degrees in the status quo scenario), the IEA suggests that only renewables are on track while pretty much every other clean technology is not moving fast enough. Two important technologies not meeting targets are Carbon Capture and Storage (CCS) and Nuclear Power. To no one’s surprise, CCS has yet to be proven and become a viable commercial option to de-carbonize fossil fuel emissions. As for nuclear power; after the Fukushima accident, growth has been slower than previously predicted and is expected to be 5 to 25% below the level required by the 2D scenario in 2025.

This leaves much of the burden on renewables to meet the need for lower carbon emissions. Surprisingly, in the hi-renewables scenario, solar becomes the dominant source of electricity reaching 40% penetration by 2050. Realistic or pipe dream? I don’t know. One thing is certain, (see chart below), with almost half of future electricity generation coming from variable renewables, compared to almost nothing today, the IEA is demonstrating the need for a huge technology transformation in how the world generates electricity.

IEAETP2014ElectricityGenerationbyTechnology

The following chart is the most telling of all. Over the past 40 years carbon intensity (the amount of carbon emitted per unit of energy supplied) has barely budged. Almost no change at all. Yet now we require the carbon intensity to be cut in half in the next 35 years (meaning less than half as much carbon produced per unit of energy supplied). This requires a complete change in how energy is delivered.

IEAETP2014CarbonIntensity

The reason is simple. Fossil fuels still represent 80% of global electricity generation and most of the energy used for transport. To disrupt the curve requires going off fossil fuels to cleaner alternatives. To achieve the 2D scenario, electrification is paramount given the option of generating electricity with clean alternatives. Fossil fuel use must then be cut in half to about 40% of electricity generation and much of the remainder makes use of CCS to reduce its carbon footprint. The report notes that gas must only be a bridging technology to support renewables in the short to medium term as gas still represents a major carbon source. So what’s left? Solar and wind to replace fossil fuels and CCS to make them cleaner.

Of course nuclear power is an obvious candidate to make a larger contribution. It is a mature technology and already is an important source of low carbon energy. Given its energy intensity it is certainly feasible to implement more nuclear power on a very large scale. And even with recent set-backs, there are now clear signs of renewal as the industry puts the Fukushima accident behind it.

For example, China continues to expand nuclear power at an ever increasing pace. Japan has reconfirmed its commitment to nuclear although restarts are slower than anticipated and the ultimate level of nuclear in post-Fukushima Japan remains unknown. Russia is increasing its commitment to nuclear and, of most interest, is becoming a major exporter offering innovative risk and financing structures that have not been seen in the market to date. Other markets are also starting to move; the latest being Hungary which has just approved a new plant for the PAKS site. However some other important nuclear markets are having challenges. Korea has cut back its long term plans and France is looking to limit the contribution of nuclear power in the future.

While nuclear power has challenges with public acceptance, this report notes the commercial issues – economics and implementation risk. As can be seen in the following chart, the IEA estimates nuclear to be the most expensive option after off-shore wind. I have not had time to delve into the details and review the numbers. However, taking this at face value, we know that some projects in the west are not doing as well as they should be. On the other hand, standardized series-build in countries like China and Russia are demonstrating a strong path to lower project costs and risks.

IEAETP2014economics

There is no hi-nuclear scenario in this edition of the report. That is quite unfortunate as a strong renewed commitment to nuclear power is a very good way to help move this plan to achieve a 2D future become a reality. By stating that nuclear power is not meeting expectations, the report lays out a clear challenge. Now it’s time to show the nuclear industry is up to it. If we really want to bend the carbon intensity curve, then more than ever, the world needs more nuclear power as an important part of a low carbon future.

Meeting the energy needs of the 21st century – is it time for a real nuclear renaissance?

As I started to read this year’s World Energy Outlook (WEO 2013) from the International Energy Agency (IEA), it was the very first line in the executive summary that caught my interest.  The report starts out with “Many of the long-held tenets of the energy sector are being rewritten.

It then goes on to explain: “Major importers are becoming exporters, while countries long-defined as major energy exporters are also becoming leading centres of global demand growth. The right combination of policies and technologies is proving that the links between economic growth, energy demand and energy-related CO2 emissions can be weakened. The rise of unconventional oil and gas and of renewables is transforming our understanding of the distribution of the world’s energy resources. Awareness of the dynamics underpinning energy markets is essential for decision makers attempting to reconcile economic, energy and environmental objectives. Those that anticipate global energy developments successfully can derive an advantage, while those that fail to do so risk making poor policy and investment decisions.”

What is clear is that energy is important!  Most of all there is change in the air – ignore it at your peril.  And with change comes opportunity.  This is where I want to focus my discussion this month.  But before I go on, I think it is useful to summarize the key points from the report to further clarify the paragraph above. The WEO 2013 is concluding the following:

  • The centre of gravity of energy demand is switching decisively to the emerging economies, particularly China, India and the Middle East, which drive global energy use one-third higher.
  • As the source of two-thirds of global greenhouse-gas emissions, the energy sector will be pivotal in determining whether or not climate change goals are achieved.
  • Large differences in regional energy prices have started a debate about the role of energy in unleashing or frustrating economic growth.
  • Energy price variations are set to affect industrial competitiveness, influencing investment decisions and company strategies.
  • Countries can reduce the impact of high prices by promoting more efficient, competitive and interconnected energy markets.
  • A renewed focus on energy efficiency is taking hold and is set to deliver benefits that extend well beyond improvements in competitiveness.
  • Enhancing energy competitiveness does not mean diminishing efforts to tackle climate change. Renewables account for nearly half of the increase in global power generation to 2035, with variable sources – wind and solar photovoltaics – making up 45% of the expansion in renewables.
  • Coal remains a cheaper option than gas for generating electricity in many regions, but policy interventions to improve efficiency, curtail local air pollution and mitigate climate change will be critical in determining its longer-term prospects.
  • Market conditions vary strikingly in different regions of the world, but the flexibility and environmental benefits of natural gas compared with other fossil fuels put it in a position to prosper over the longer term.

So there you have it.  The fastest growing economies have the fastest growing demand, high energy prices are slowing growth in some markets and giving an economic advantage to others with lower prices; and climate change is having an impact on energy decisions.

The above makes it sound as if the path to a low carbon future is built on more renewables and gas.  But is it really?  Looking at the following chart we can see that in the OECD countries where demand growth is modest and electricity supply is already robust, gas is the go-to fuel both due to cost and as a cleaner alternative to coal; and renewables are the supposed clean generation of the future.  Not surprisingly in the non-OECD countries where demand is growing much more quickly (read mostly China!), they are doing everything they can to develop all kinds of supply – including more coal, more gas, more renewables and yes, more nuclear.

IEAWEONov2013a

So what does this mean for nuclear power? According to the IEA, “Nuclear power generation increases by two-thirds in the New Policies Scenario, reaching 4,300 terawatt-hours (TWh) in 2035. Demand is driven heavily by expansion in just a few countries: China accounts for around half of the global increase; Korea experiences the next largest increase over the projection period (the only OECD country to see appreciable growth), followed by India and Russia. Overall, non-OECD economies see their share of global demand for nuclear power jump from less than 20% to nearly 45% in 2035. While prospects for nuclear power at the global level are now less uncertain than they were two years ago, there are still key issues that remain unclear. These include the possibility of further changes in government policy, implications of the ongoing safety upgrades for plant economics and public confidence, and the impact of increased competition from shale gas.”

It should not be a surprise that those countries with the largest demand growth see a large benefit from increasing the use of nuclear power.  They need clean reliable baseload and nuclear meets this need.  In the more advanced OECD countries, many of these already have significant nuclear fleets (80% of current nuclear capacity is in OECD countries), have lower baseload growth and can (or at least they think they can) look at other alternatives.  Gas is replacing coal as a cleaner fossil option so long as it remains competitive and the challenges of new nuclear coupled with low demand growth put it more on the back burner.

IEAWEONov2013b

But is this the right path?  As I said last year when I reported on the WEO 2012, it is important to remember the WEO is not a forecast per se; rather it is a projection of how existing and potential government policies would look once implemented.  And what we still see one year later is a world investing heavily in fossil fuels to protect the status quo while also investing in renewables as a token path to the future.  Of more importance, the WEO shows a path to meet climate change goals that is based on efficiency to lower demand, movement from coal to gas and CCS technology to clean up some of the coal and then more renewables.

What goes unsaid is how this is fantasy.  Not that the world will continue down the path of burning fossil fuels for our electricity, but rather that we can do so and meet climate goals. The 2013 WEO New Policy scenario “leaves the world on a trajectory consistent with a long term average temperature increase of 3.6C, far above the internationally agreed 2C target”.   In their 450 scenario where the target is 2 degrees, there is more renewables, more conservation, more technology to clean fossil fuels and yes, a little more nuclear.

Given the need to decarbonize the electricity sector and the limits to using wind and solar (about half the renewable additions), it should be obvious that nuclear be a stronger option.  Yes, currently in North America low gas prices are challenging its competitiveness while in Europe, green ideology has a larger impact.  There is a onetime carbon improvement as coal is replaced by gas; but then gas becomes the largest carbon producer on the system – so where do we go from there?  And renewables will remain intermittent and likely costly for some time to come.  Nuclear power is clean, reliable and in most cases, economic; but of most importance – abundant.  Yes, in a resource constrained world, the amount of electricity we can potentially generate with nuclear power is almost limitless.  So why don’t we see more of it in the developed world?

The answer is that we still don’t have the political will.  And that comes from lack of public support.  Just this week the World Bank reiterated its policy that they don’t support nuclear power – even though they support all other forms of electricity generation.  Continued negative press about the status of Fukushima keep the public on edge.  For example this past month TEPCO started to remove the used fuel from the Unit 4 spent fuel bay.  This should have been a good news story yet most stories made it seem like a horrifically dangerous undertaking (and of course it is not).

The WEO makes the case that government support is what drives nuclear.  “The rate of expansion of nuclear power continues to be mainly policy driven. It expands in markets where there is a supportive policy framework, which in some cases actively targets a larger role for nuclear in the mix in order to achieve energy security aims. But policy frameworks can also hinder or eliminate nuclear power, often as a result of public opposition: even where there is no explicit ban, long permitting processes, such as in the United States, can significantly hinder development by increasing uncertainty about project completion and increasing costs.”

I was listening to a radio interview this past week with climate change scientist Richard Peltier.  [Interview starts at about 31:40 in the link].  He makes a strong case for getting the message out about scientific consensus.  While he notes that between 95 and 98% of scientists agree on the science of climate change, the press reports make it seem there is much more disagreement than there really is with the result that the public is confused.  The answer is to get out and speak at the grass roots level. Governments will not strongly support policies that battle climate change until the public believes it is necessary.  The same is true for nuclear power.  Governments will not strongly support increasing its use until the public are in agreement that it is safe and necessary.

We are seeing some progress.  In Pandora’s Promise, five environmentalists are now convinced of the advantages of nuclear power and they are actively advocating its use.  This past month four other environmentalists have released an open letter calling on world leaders to support development of safer nuclear power systems. In their letter they state, “As climate and energy scientists concerned with global climate change, we are writing to urge you to advocate the development and deployment of safer nuclear energy systems. We appreciate your organization’s concern about global warming, and your advocacy of renewable energy. But continued opposition to nuclear power threatens humanity’s ability to avoid dangerous climate change.”

Some governments are also taking on the challenge.  In the UK there is pretty much political unanimity that new nuclear is required to meet their climate goals.  The result is strong political support for nuclear new build.  A recent quote by Hergen Haye, Head of New Nuclear & Strategy, Department of Energy and Climate Change (DECC), UK government “To replace Hinkley alone, we have to build 6000 wind turbines. Nuclear will help us to cut costs and to face the other environmental challenges. We cannot do without nuclear because renewables will not do things alone without making electricity bills rise.” (21 November 2013 in Brussels).

In France, after pandering to the greens and committing to close Fessenheim, the French government is finally saying that there will not be more closures. We see strong political support where nuclear is needed most in China, Russia and India although Korea is wrestling with their future plan due to recent scandals.

I come back to the first line of the WEO 2013, “Many of the long-held tenets of the energy sector are being rewritten.  This is a time of great opportunity.  So let’s make sure nuclear power is playing its increasingly important role by providing clean reliable generation to support economic growth and a brighter more secure future for us all.

If we don’t make decisions based on science…….what else is there?

I have written much about the strength of our beliefs and how they influence important decisions.  A case in point is the decision to close nuclear stations early in Germany.  As we in the rest of the western world try and understand the German approach to eliminating nuclear power on the road to their Energiewende (energy transition), we must remember that this plan started in 2010, a year before the Fukushima accident.  This energy transformation is a monumental task and a source of pride to most Germans.  It has a very aggressive target of reducing emissions by 80 per cent and providing for 80 per cent of the country’s electricity consumption from renewable sources by 2050 all while “aiming for a market-oriented energy policy that is free of ideology and open to all technologies, embracing all paths of use for power, heat and transport.

Much has already been said about the challenges along the way.  We now know that raising renewables quickly to as high a level as Germany has done has an impact on the stability of the system; is severely affecting the electricity markets at times when high levels of subsidized wind and solar drive down prices for all other forms of generation risking putting conventional generators out of business; all while increasing fossil generation in the short term at least to make up for lost nuclear with a resultant increase in carbon emissions.

It wasn’t supposed to be this way.  As stated in the 2010 policy paper, the purpose of the policy is to secure a reliable, economically viable and environmentally sound energy supply for the 21st century.  While targeting renewable energy to account for the biggest share in this future energy mix; in 2010 it was also accepted that nuclear energy would be a bridging technology on this road.  In fact, the plan made maximum use of the existing nuclear fleet during the transition.  Look at the following excerpt of the policy on the continued use of nuclear energy.

A limited extension of the operating lives of existing nuclear power plants makes a key contribution to achieving the three energy policy goals of climate protection, economic efficiency and supply security in Germany within a transitional period. It paves the way for the age of renewable energy, particularly through price-curbing impacts and a reduction in energy related greenhouse gas emissions.

The operating lives of the 17 nuclear power plants in Germany will be extended by an average of 12 years. In the case of nuclear power plants commissioned up to and including 1980 there will be an extension of 8 years. For plants commissioned after 1980 there will be an extension of 14 years.

Additionally, the regulations on safety requirements for German nuclear power plants will be expanded, with requirements remaining at the highest technical level, in the framework of a 12th amendment to the Atomic Energy Act.

The extension of operating lives also creates the opportunity to increase financing in the fields of renewable energies and energy efficiency. To this end – in addition to the tax on nuclear fuel limited to the end of 2016 – a contractual agreement will be concluded with the operators of Germany’s nuclear power plants on absorbing additional profits resulting from the extended operating lives.”

In summary they want to get rid of their nuclear plants while also acknowledging they are currently both very economic and safe. Therefore nuclear plant operating lives would be extended to make more money generating more taxes to pay for the energy transformation to enable nuclear to ultimately be eliminated.

And then it happened, the accident at Fukushima.  The result; this plan was abandoned and 8 nuclear units were shut down immediately while the remaining 9 will no longer get life extensions.  This makes for a much harder transformation with coal use having increased from 2011 to 2012 with most electricity continuing to be generated from fossil fuels followed by nuclear (at about 16% now about half of its pre-Fukushima peak of around 30%).  Acknowledging that Fukushima increased the fear of nuclear, is it rational to accelerate the removal of nuclear from the system when a plan was already in place to eliminate it; to the short term detriment of emissions and costs?  But what is rational?  If it means exhibiting behaviour consistent with your beliefs, then this decision may indeed be rational.  But is it reasonable to not challenge one’s beliefs to determine if they are valid at times like this?

And hence, the film Pandora’s Promise.  I was able to attend a showing where Robert Stone was also there to take questions from the audience.  It made for a lively discussion and an overall fun evening.

First and foremost, I found it absolutely riveting to see the transformation of these five environmentalists as they came to understand the facts about nuclear energy.    They talk about being a member of the environmental movement and how it went without saying that one would also be strongly opposed to nuclear power.  After all, it was an evil technology and radiation kills.  Frankly nuclear power can destroy the planet.

For some reason, these folks took the time to listen and see that much of what they believed in the past about nuclear power was simply wrong.  I am sure that most of you in the nuclear industry have been providing these facts consistently to all that would listen over the last 30 plus years.  So why are they listening now?  Why listen when you haven’t in the past?  The facts are the same.  But in this case the driver is different.  This group is overwhelming alarmed by the threat of climate change.  And as such (and different to many others), they decided to explore ALL the options; even the ones that would have seemed ludicrous to them in the not too distant past.  Or in other words, they chose to challenge their strongly held beliefs.

The film was not so much about advocating nuclear power (although it does) but rather of documenting the journey of these five individuals.  They visit plants. They visit Chernobyl and Fukushima and they explore the realities about the technology.  What I found the most compelling was the hand held dosimeter they carried as they traveled that showed radiation levels no higher at Chernobyl or Fukushima than most of the rest of the world.  This kind of evidence is hard to argue with.

But as interesting as this all is, this post is not about a group of environmentalists who have decided to put their faith in science as search for the truth.  Rather it is about why so many others don’t do the same.  It seems as science is always appreciated when it supports your side of an issue.  i.e. science is proving climate change which is pro-environment so science is right.  Science shows that nuclear power is good but that disagrees with environmental dogma so sweep it aside.  It’s good news when those who use science to make their climate case are realizing they should do the same when they evaluate nuclear power.  We should applaud anyone who takes the time to challenge a long held belief.

So, while Germany is aiming for a market-oriented energy policy that is free of ideology, why are they so dogmatic that nuclear needs to go and the quicker the better?   I recently was provided with a copy of a very interesting presentation made by Dr. Thomas Petersen at the  Jahrestagung Kerntechnik 2013 in Berlin this past spring that explores “Nuclear energy and the perception of risk in Germany”.  While presented at a conference the presentation has not been available on line to date.  I want to thank Dr. Petersen for giving me permission to post it so you can see what I think is a remarkable set of data.

Most of us outside of Germany probably believe that Germany is  a world leading innovator when it comes to technology.  Yet in this presentation it would appear that most Germans do not have faith (or trust) in experts when it comes to science.  They overestimate risk and consequences and are extremely averse to taking any risk they perceive can cause harm.  The slides note that a majority believe life is becoming more dangerous with time; are concerned that technological progress is risky and that research into certain technologies should be stopped; and that in politics, decisions are too often made on the basis of facts rather than how people feel.

When it comes to nuclear power, it is  high on the list of technologies that carry too much risk.  Consider the following slide:

PetersenPresentationSlide

Pulling all of these thoughts together is saying something along the lines of “I believe what I believe – I know that nuclear power is dangerous so please don’t try and deter me with facts or truth”.  The really scary part is that in today’s western democracies this is indeed how we make decisions.  And while we may want to laugh, or cry; it is always important to remember these decisions have very real consequences.  Less nuclear, more carbon.  Fact.  Less nuclear, more fossil fuels. Fact.  Less nuclear, more coal – and more illness and fatalities from pollution. Fact.

So what is happening in Germany?  The great transformation.  Yes, they are doing great things with renewables.  There is no doubt.  But at what cost in the short term?  The subsidies are destroying European energy markets, new coal plants are being built and carbon emissions are going up.  All to replace perfectly safe well run nuclear plants before they reach their end of life.  Nuclear plants have never hurt a single individual in Germany and likely never will.  So what exactly are these people being protected from?

The answer is clear as I close with this final quote from a pro-transition blog that disputes the negative impact on coal use of the policy by arguing it is a short term blip.  When talking about the reduction in nuclear generation over the last two years, the author concludes, “This reduction is a long-hoped for goal and the inspiration for the nation’s energy transition. Germans don’t want nuclear reactors. They haven’t since the 1970′s and they really don’t want them after Fukushima.

We can see that five environmentalists have taken on their beliefs due to a larger concern – climate change.  I wonder what issue it will take, if anything, for Germans to do the same?

Note:

In addition to the film, Pandora’s Promise, Mark Lynas has released a short book called Nuclear 2.0 available on Amazon in electronic format only.  I have read it and frankly it is extremely well done. It meticulously addresses the concerns with nuclear one by one by one with clear and effective information to make the reader see the facts.  I recommend it if you haven’t had a chance to read it.

 

Tackling market reform to enable nuclear projects – The UK moves forward!

The UK is unique in its approach to the nuclear renaissance.  Once the cradle of the nuclear industry, with some of the world’s oldest plants and research centres, the UK has mostly dismantled its nuclear industry in recent years.  From privatizing British Energy to selling off Westinghouse and dismantling BNFL, it is fair to say that the industry has been through the ringer.  Yet, all of this restructuring has been in a context of encouraging the next round of nuclear new build to replace the current rapidly aging nuclear fleet, and meet both carbon reduction and security of supply targets over the next 40 years.

The thrust of the industry restructuring has been to get government out of the way and encourage private sector leadership for the next round of nuclear new build.  This is totally consistent with UK policies on electricity generation.  The UK was one of the first countries in the world to privatize electricity supply and today has a vigorous and effective private sector electricity generation infrastructure.

The path to new build nuclear has not been a fast one.  Numerous consultations since 2003 have slowly moved the issue forward.  The last one set in motion the Generic Design Assessment process with the regulator and the government’s move to simplify and improve the planning process.  But one thing has been a constant throughout.  Government has stated that it will move out of the way, and that it will be up to the private sector to implement nuclear new build.  Definitely a challenge, but the evidence to date is positive as the success of the site auctions shows.

But now, the most important piece of the puzzle has been launched.  In November of last year, government initiated a consultation on electricity market reform.  This consultation is due to close in early March.  It is this topic that I want to discuss today.

First of all, there is a very important statement in the consultation – it makes it clear that the current market structure is based, and was developed, to suit gas fired generation.  To quote the high capital costs and low operating cost of low-carbon generation are not well suited to the UK market where gas is the marginal plant. This is because gas is generally the price setting plant and can pass through any changes in gas or carbon prices to the electricity price. Therefore electricity and gas prices (and hence revenues and costs) tend to move together. By contrast low-carbon generators are price takers and are more exposed to gas or carbon price volatility.” High capital cost, low operating cost nuclear plants are at a considerable disadvantage in this type of market.

The objectives of government are:   security of supply, decarbonisation and affordability.  Meeting these objectives the four broad principles of cost effectiveness, durability and flexibility, practicality and coherence will be used to judge the effectiveness of different market design options.

The four elements of change under consideration in this consultation are:

–        Carbon price support where the price of carbon is maintained to provide more incentive to low carbon options

–        Feed in tariffs to guarantee revenues to specific generation types to provide the certainty necessary to support the project financing

–        Capacity payments to ensure that adequate capacity is built to ensure security of supply

–        Emissions performance standards which simply prohibits plants from emitting more than a maximum amount of carbon.

It is generally the first two items that we will discuss here as these are the ones that help to support nuclear power plants.  First and simple to understand is the concept of a minimum carbon price.  This provides an institutionalized economic advantage to low carbon generating options such as nuclear power.

Levelised Cost of Generation Technologies (UK Consultation)

The bigger issue for nuclear is the potential use of Feed In Tariffs to provide market support to nuclear.  While often used around the world for renewable projects, this is the first time a market is suggesting that feed in tariffs  be used for large projects such as nuclear plants.  Feed in tariffs are used to support renewables primarily because these plants are not sufficiently economic to compete in the market thus requiring subsidy in the form of tariffs that are usually significantly higher than the market price.  This is not the case for nuclear.  As shown in the figure above, nuclear plants are indeed competitive with the alternatives.  It is their risk profile that is the issue.  So the real question becomes – will a feed in tariff be sufficient to incentivize new build nuclear plants?

To answer this question, we must first discuss the nature of nuclear projects.  They are different than renewable projects in that they not only have relatively high capital costs, but they also have very long project schedules – and this is the difference that matters.  Why?  Because taking 10 to 15 years from planning to in-service offers up a very different risk profile than a wind project that takes two years to build.  This is why it is difficult to enter the market.  The timetable is just too long and the price of electricity so many years in the future is too uncertain.  So the question becomes – can a nuclear generator adequately predict the electricity price he needs to be profitable so far in advance?  And then will a fixed tariff be the right solution?

Another way to look at it is to consider the risk I like to call “completion risk”.  This is the overall  risk of bringing in the plant on time and on budget.  A nuclear project can only proceed when there is a willing party to take on this risk.  So while price certainty helps, it does not do much good if the project is late and over budget.  This means the owner can lose substantial money if the plant is late and/or over budget – or in the extreme to lose the entire investment in the case where the plant is never completed.  This is the best way to gain understanding into this issue.  Having certainty for the price of electricity does no good if electricity is never produced.  This is why a power purchase agreement or a feed in tariff is not sufficient to raise financing on a non recourse project basis.  Someone must take the completion risk.

In the US, this issue is clearly understood.  This is why they have turned to a loan guarantee as the mechanism for project support.  This works as it protects the owner from project failure limiting his risk to the equity in the project (usually around 20% in this case).  This does not eliminate the completion risk but it mitigates it sufficiently to encourage new build projects to proceed.  I am not commenting on whether or not an owner should be protected as this is a matter of policy;  but what is clear is that no company will risk bankruptcy over a single project.

Does this mean that a feed in tariff should not be part of the solution?  Not at all.  It can be an important part of a package that helps to reduce the risk of a large nuclear project.  In this case the UK is recommending a “contract for difference” model where the nuclear plant operates in the market and collects a difference if there is a shortfall from its agreed tariff and reimburses most of the overage if the market price exceeds the agreed tariff.  Now indeed this is a complex model and gives the illusion of operating in the market when in fact, the opposite is true.  What is actually being done is a continuous comparison to the market to illustrate how well the pre-agreed price compares with the market price.

In the case of project delay or overruns, the owner can lose substantial amounts of money, even if the market price of the day has risen significantly compared to what was anticipated as the electricity price will be limited to the pre-agreed tariff.  I would suggest some flexibility to allow the operator to enjoy a larger portion of the upside in this case to recoup his losses.

The other big issue with all of this is that the market soon ceases to be real as more and more of the operating plants operate outside of it as the system is decarbonized.  Do we really want a market and then have, say 80%, of the plant operate at pre-agreed prices ?  In this case, how can the market price really reflect the system?

As you can see there are many issues when devising a way to modify the markets to meet these needs and there is lots of work to be done to get to the right answer.  But what is important here is the clear understanding that current market design is suitable for gas but not necessarily for other sources of generation, primarily those with high capital costs and longer project schedules even though they’re economically competitive.  It is great to see this important discussion on market redesign begin.

Delivering Happiness – about shoes and nuclear power plants!

As I write this I am on my way home from speaking at an event in Hong Kong put on by a think tank called Civic Exchange.  I want to thank Civic Exchange for asking me to participate and congratulate them on their format.  The topic for this, their 14th energy forum, was “Expanding Hong Kong’s Nuclear Power Base“.  Hong Kong has recently issued a paper on climate change and is having a consultation to seek input on its recommendations.  One of these recommendations is to increase the amount of nuclear generation coming from the mainland from the current 23% to 50% of electricity supply by 2020 as part of a plan to reduce Hong Kong’s carbon intensity.

The format of the event was excellent.  More than presentations (I was asked to provide an international perspective on nuclear power), it was a conversation.  After opening remarks by 5 speakers – on Hong Kong’s plan, on China’s nuclear plans, an international perspective, a view from Greenpeace and finally thoughts from the utility – the floor was opened to more than an hour and a half of questions and discussion.  The room was full and the discussion was very lively.  I believe that we all left that room with a little bit more understanding of the issues and I expect that many attendees were able to continue to develop their own point of view.  Overall a success!

This brings me to the book that I read recently called “Delivering Happiness” by Tony Hsieh, founder and CEO of Zappos.com.  Now zappos.com is essentially an online retailer that started selling shoes over the internet.  After 10 years in business growing to over $1 billion in revenues, the company was sold to Amazon for more than $1 billion dollars.

So what does selling shoes online have to do with nuclear power?  A pretty good question.  But it’s not about shoes – it’s about providing a customer experience that WOW’s the customer (I like that term – the objective is absolutely clear!).  Or as zappos.com evolved their vision – their business is about “delivering happiness”.  They also created a unique work environment where employees are valued and feel a part of something.  I could go on but I would rather suggest you read the book.

What struck me at this event in Hong Kong is that after years of trying to defend our industry, we seem to have accepted the current position; the position that yes, we may not want nuclear power, but it is what we’ve got and if we want to fight climate change, then it needs to be part of the mix.  We have accepted the “we are the green option of last resort” argument.  It is what finally allowed politicians to stand up and support nuclear power after years of avoiding the issue.  But is that enough?  I don’t think so.  In fact, being the option of last resort just plain sucks.

What we really have with nuclear power is something special, an electricity source that is essentially carbon free, offers a high level of security of supply and uses a fuel that is both abundant and has no real other use or value.  It is also an economic option offering both competitive electricity costs and of even more importance in this volatile world of fossil fuel pricing, it offers long term price stability.

Are their issues?  Yes.  And it is positive events like this one in Hong Kong that enables us to have the conversation that we need to have with our stakeholders.   And yes we need to improve our delivery capability so that projects are routinely on time and on budget.  We are far from perfect.  In fact, I welcomed the talk by Greenpeace as I think we need to be constantly challenged to improve.  We work in an industry with the world’s most rigorous safety standards with regulators always pushing us to improve safety.   This is our safety culture and we should be proud.  We have a good case and we should be out there building the relationships with our customers so that they understand what we all understand, that nuclear power is not the option of last resort but rather is one of the best options available to meet our global needs as an essential part of a low carbon electricity infrastructure.   Nuclear plants are wonderful places to work providing high quality stable jobs and the nuclear industry can be a vibrant exciting place to have a fulfilling career.  The communities where we have plants have clean air and good jobs.

After completing a project for a new client earlier this year, we received a compliment that still resonates with me.  Yes, we were told that they were happy with our report – and that’s great as we strive to provide a high quality service providing unique insights into the nuclear industry.  But of more importance, we were told that they enjoyed the experience of working with us – and that is what I will always remember – as that is what we all need to work towards in our jobs as we play our role in this industry.  So what does this have to do with selling shoes?  I want to achieve the same customer experience as zappos.com -  a unique customer experience building  strong lasting relationships with high quality services that meet their needs, all with an exceptional overall experience.  In other words, I want them to always be “WOWed”.

We all need to strive to deliver this level of service to our communities to ensure that nuclear power achieves its potential as a key contributor to solving the issue of climate change while providing low cost reliable electricity.

I don’t want nuclear power to be the option of last resort.  Let’s all do our part to ensure that we are wanted for our positive attributes, not just tolerated as the least bad solution.  And that means always working hard to improve.

A bit rambling, but that’s what I thought about when I read this book – we all need to work together to “deliver happiness”.

Yes – we are environmentalists!

Inspiring!  That is the best word I can think of to describe Stewart Brand’s book “Whole Earth Discipline.”  My faith in people has been restored.

To be frank I have heard Stewart Brand speak twice when I went out and bought his most recent book.  His conversion to an ardent supporter of nuclear power was interesting and indeed exciting.  And while he is an excellent speaker, his book is even better.

As an experienced and life long environmentalist, he has the credentials to support his case; and what a case it is.  He argues that being open minded to science and technology is the route to solving environmental issues.  And of most importance, he is willing to listen and learn with time and to modify his beliefs based on this learning.  He even openly criticizes some of the environmental movement as they are stuck in their beliefs and are not willing to take advantage of good information to support their ultimate cause.

He then goes on to blast three key areas of long term environmental criticism as just plain wrong.  Or as he says quite eloquently “Cities are green.  Nuclear energy is green.   Genetic engineering is green.”  His book has a chapter on each and the case is quite compelling.  He then uses part of his book to establish how not to repeat the mistakes we made on these three.  Can you imagine??

With the greens (and he proudly says that it is cool to own a colour) seeming to win on their most recent and perhaps most difficult issue, climate change, Brand is critical.

“The long-evolved green agenda is suddenly outdated – too negative, too tradition-bound, too specialized, too politically one-sided for the scale of the climate problem.  Far from taking a dominant role, environmentalists risk being marginalized more than ever, with many of their deep goals and well-honed strategies irrelevant to the new tasks.  Accustomed to saving natural systems from civilization, Greens how have the unfamiliar task of saving civilization from a natural system – climate dynamics.”

There is too much of value in this book to repeat here.  For our interest, those of us in the nuclear industry it is so nice to actually see someone hear what we have been saying for years.  I accept that we have not necessarily been good at delivering the messages, but yes, a thoughtful and experienced environmentalist has listened and heard our arguments.  Of importance are the comments on nuclear safety.  Quoting from Bill McKibben, “Nuclear power is a potential safety threat, if something goes wrong.  Coal-fired power is guaranteed destruction, filling the atmosphere with planet-heating carbon when it operates as it is supposed to.”

And of more importance, he recognizes that nuclear power is actually the safest of all of our forms of energy, with radiation killing no one in the United States, when all the alternatives have; and yet it is the one form of energy we fear the most.

It is easy to go and on but the best recommendation is to read the book.  It has given me faith in the environmental movement when we need it most, and has shown that new thinking is possible.  The planet has hope after all.

So what are you waiting for?  If you want to be inspired, go and read this book now!

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.