|The Schwarze Pumpe CCS demonstration project in Germany, featuring Alstom’s oxy-combustion technology Source: Vattenfall|
Two months after the 9.0 magnitude Tohoku earthquake that shook Japan and the tsunami that ripped through the Fukushima Daiichi nuclear power plant, the country is slowly coming to terms with the aftermath of an incident rated maximum level seven on the International Nuclear Event Scale (INES).
While the full extent of the destruction remains unclear, and its consequences the subject of a number of safety assessments around the world, level seven classification ensures Fukushima a dubious place in history, alongside Chernobyl in the Ukraine 25 years previously, as a milestone in nuclear power’s chequered past.
Just as it appeared both conscionable and apposite to consider nuclear power as a viable technology after the serious nuclear accidents at Chernobyl and Three Mile Island in the US before it, Fukushima has again raised fears about safety.
They include concerns not only on the ground in Japan, despite that country’s apparent preparedness, but serious questions over the transparency of Tokyo Electric Power (Tepco), the plant’s operator.
More worrying still for a world poised to launch itself headlong into a brave new chapter of nuclear power development, the event throws into sharp relief the fragile nature of the power industry’s relationship with a technology seen by its detractors as untrustworthy and too hot to handle.
Nonetheless, nuclear power remains firmly on the international energy agenda, or so many believe, if for no other reason than that of providing the potential to help nations meet their carbon emissions targets. Nowhere is this truer than in Europe, where nuclear power’s fortunes have enjoyed something of a renaissance in recent years, though some countries may decide to delay their plans. So, what will the impact of the crisis in Japan be on the wider energy markets?
Not exactly business as usual
Ravi Krishnaswamy, vice president, Energy and Power, for Frost & Sullivan, says while it’s not exactly “business as usual”, the US, China and India will not be swayed from their plans for nuclear power.
And, in Europe, the same goes for France, but Germany is another matter where a second policy U-turn looks set to seal the demise of a technology reviled by the Green movement, a political entity recently emboldened by electoral success.
“The cost of nuclear safety will increase, making combined-cycle gas turbine (CCGT) plants even more attractive,” Krishnaswamy told analysts in a briefing after the Japan incident. Contender countries such as Belarus, Italy and Poland will take more time than previously expected to access nuclear as feasibility reviews will be stricter.
Elsewhere, nuclear plant life extensions will be extremely difficult to refuse as the economic benefit is so large. A large number of reactors in Europe fall into the 20–30 years old category. Frost & Sullivan estimates the industry could benefit to the tune of €10–€13 trillion ($14.3 trillion–$18.6 trillion) and 7200 TWh through extending their lives by just five years.
In Europe last year, 16 units totalling 22 GW of power were either planned or under construction. As elsewhere, in the short term, they will be subject to stringent safety tests and industry bosses are bracing themselves for delays to the renewal of licenses or new nuclear plant building, all of which will have an adverse effect on nuclear-related stocks.
In the long term, increases in capital and operational expenditure for nuclear power are seen as inevitable following the imposition of a more exacting global regulatory regime, while renewables and energy efficiency will receive a considerable boost, and natural gas and clean coal will gain ground.
Nuclear set for more delays
“Fukushima is likely to delay approvals and mixed sentiments will plague the sector globally,” Krishnaswamy says. All major nuclear power generating countries, including the USA, France, China and India, have ordered reassessments of safety features in a range of likely disaster scenarios.
“But while Germany may or may not ultimately be alone in its abandonment of nuclear power, the political fallout of the crisis will impact to some degree across Europe, where obtaining finance for new plants will be delayed and become more expensive.
Yet, as the Frost & Sullivan analysis points out, even time and cost overruns can be forgiven to some extent, as experience at the Olkiluoto-3 power plant in Finland and Flamanville in France has shown. In both cases the current benchmark nuclear power construction costs of $6000/kW have been exceeded.
However, engineering and construction costs at future plants are likely to rise significantly because of the the need for multiple levels of redundancy. Moreover, safety checks and disaster planning will increase the operation costs and insurance costs look set to increase as a result of the Fukushima incident.
The collateral effects of Fukushima are many. It will, for example, be politically damaging for governments not to support renewable energy or energy efficiency, hence the current subsidies will continue, Frost & Sullivan believes. Such a consideration has been taken to heart in Germany, whose wind power industry claims it can deliver 65 per cent of the country’s energy needs in the long term, completely replacing nuclear power.
Price of gas set to rise
Natural gas markets are certain to benefit from this most recent of energy crises, as it is the easiest option to add significant baseload and peaking capacity. Yet while abundant natural gas supplies from Qatar and Russia will raise some tough questions over security of supply, liquefied natural gas (LNG) and piped natural gas are time-tested and resilient in nature.
Frost & Sullivan also points to clean coal technologies such as integrated gasification combined-cycle (IGCC), oxy fuel and post-combustion capture benefiting from renewed focus and government funding in some European countries.
Germany has been under greater pressure over its response to the unfolding situation in Japan than any of its EU peers because its policy on extensions was already controversial, even before state elections in March in Baden-Württemburg where the Greens triumphed. The overriding issue in Baden-Württemburg was greatly influenced by the disaster in Fukushima and the question of nuclear power, to such an extent that the outcome of the poll there may signal a de facto referendum on Germany’s nuclear policy for chancellor Merkel and the Christian Democratic Union party (CDU).
Annett Urbaczka, spokesperson for the RWE Group explains her company’s position: “We are still convinced that a broad energy mix is the best basis for a secure, enviromentally-friendly and economically-viable energy supply.”
Even with a renewable energy growth to 40 per cent by 2030, coupled with a nuclear phase-out Germany would not be ableit to reduce its CO2 emissions. In effect there would be no room for progress. With a focus on fossil fired power plants RWE says it needs to introduce the newest technologies to improve efficiency and make them CCS-ready. Urbaczka says the nuclear moratorium in Germany has increased wholesale power prices, threatening the country’s industrial strength and competitiveness in the near term.
Ironically, while the German utilities’ nuclear expertise may be shunned in their home markets, RWE and E.ON remain active in the European core markets of the Netherlands and the UK, latterly where they have joined in a venture to build new nuclear power plants. And, Urbaczka points out, growing European electricity demand will further underline the importance of gas fired power plants in the energy mix.
Deutsche Bank’s Mark Lewis agrees that Japan’s nuclear crisis will worsen the economic case for nuclear power. “Frankly, before Fukushima I was sceptical of the economics for new nukes. It is very difficult to build new nuclear power plants in a liberalized power market, full stop.
“Events in Japan have simply highlighted the problems. Who is going to pick-up the bill for cleaning up after Fukushima? The private sector hasn’t got the wherewithal. I think the probability of new build has been set back. It’s pushed up the cost and developers will have to be seen to be going the extra mile for safety.”
Price of equity rises for nuclear
Lewis says recent events have raised the “equity risk profile premium” since investors will naturally be more cautious and demand a higher return on their investment than they would have done pre-Fukushima.
“Also, from a planning perspective it makes it more difficult to get public opinion backing, particularly as there is a lot of cheap gas around and because of the shale gas revolution in the US that is set to spread to other parts of the world. Gas fired power stations are much quicker to build and are much more responsive in real time; they can ramp-up production in minutes. Overall, gas is a much better foil for renewables than nuclear and much less expensive to build.”
|The 430 MW power plant at Blénod-lès-Pont-à Mousson, the first CCGT unit to be built by EDF in France Source: EDF/Emerson Process Management|
In stark contrast, France remains a staunch supporter of nuclear power. Yet its state-owned utility EDF, with 25 GW of installed capacity, is the fifth largest global producer of renewable energy generation capacity, mainly thanks to hydropower.
Alongside nuclear production, renewable energies provide EDF with a portfolio of 74 per cent decarbonized energy production. By increasing its stake in EDF Energies Nouvelles last month, it has strengthened its position still further. The company continues to hedge its bets with a presence across the entire natural gas chain, principally through EDF Energy (UK), Edison (Italy), SPE (Belgium) and directly in Germany and France.
Advocates of carbon capture and storage (CCS) were also hoping to see a step-change in the take-up of low carbon technologies. But such a move has been slow to materialize. “It is difficult to predict the impact of recent events on the energy mix up to 2050,” says Daniel Jefferson, an analyst of the EU Emissions Trading Scheme for Thomson Reuters Point Carbon.
“If CCS proves workable, then in the absence of nuclear it might be expected to play a more significant role, but it is not yet clear that it will prove workable on a large-scale. The policy environment over these time-scales is also very uncertain, and this uncertainty has perhaps been amplified by recent developments, given the rapidity with which German energy policy has changed.”
In the UK, the government’s climate change watchdog reported earlier this month that two more nuclear reactors than envisaged initially might be needed within 20 years if carbon reduction targets are to be met in a cost-effective way.
At the same time, plans to place thousands more wind turbines offshore by the end of the next decade may have to be slowed because of the cost, according to a study of renewable energy by the Committee on Climate Change (CCC).
The report said there were many “promising” renewable technologies that could provide as much as 45 per cent of the UK’s overall energy needs by 2030 – a significant jump from today’s 3 per cent and significantly above the 15 per cent renewables target set for 2020. Yet the study maintained that nuclear power was likely to provide the cheapest means of providing low-carbon electricity well into the next decade.
Nuclear still the cheapest low-carbon option
David Kennedy, the CCC’s chief executive, said nuclear remained the lowest cost low-carbon technology. “Up to probably the second half of the 2020s, nuclear will be the cheapest option.” Two further nuclear reactors could be built at a cost of £4.5 billion ($7.4 billion) each, in addition to the 12 being planned on seven sites during 2018–2025, in a new build programme that is already one of the most ambitious in Europe.
The committee, which advises the government on meeting its climate change targets, recommended that the government makes “clear commitments” to support less mature renewable technologies, such as offshore wind, but noted that was unlikely to be competitive with other low-carbon technologies for many years. At least 8000 more onshore wind turbines may be required by 2030, the report said, despite strong public opposition.
Current growth in renewables in the UK is driven by an ambitious target of sourcing 20 per cent of the EU’s energy from renewables by 2020. The UK must source 15 per cent of its energy from renewables.
RenewableUK says this target needs to be ambitious, not just because of the urgent need to curb emissions. “The UK is now a net importer of fossil fuels, and developing domestic renewable energy production can only enhance our energy security. For instance, in addition to oil, we now import around 50 per cent of our coal.”
Wind and marine energy will help the UK on both counts, says RenewableUK. “We are expecting to hit 10 per cent of electricity from renewables within the UK within the next 12 months. Beyond that we already have enough wind farms in construction and with planning consent to take the total contribution of renewables beyond that of nuclear, or to around 15 per cent.” For the UK, this will represent the half way post in meeting its 2020 targets.
Eivind Hoff is the director of Bellona Europa, the Brussels branch of the environmental non-governmental organization Bellona Foundation. Hoff says even before Fukushima, Bellona did not believe in a future for nuclear. “Our global emission scenario, ‘How to combat global warming’, from 2008 shows how the world can reduce its emissions by 85 per cent between 1990 and 2050 – whilst nuclear power is phased out.
“To achieve the 85 per cent reduction, the power sector becomes carbon-negative thanks in large part to renewables in combination with CCS. Burning biomass for power and heat, while storing the biogenic CO2 will absorb carbon from the atmosphere.
“All sustainable energy solutions are needed and need to be explored. Few observers in 1971 would foresee that most new installations of power generating capacity in Europe forty years later would be renewable. Likewise we should not think that in 2011 we can pick the winners for 2050. We just need to get the incentives in place for developing all kinds of truly sustainable energy generation.”
Predictable response to Fukushima
Ronan O’Regan, who is director at Energy and Utilities, Pricewaterhouse Coopers, says the industry’s initial response to Fukushima was predictable. “It was inevitable that companies would put their plans on ice in the wake of the incident, pending the outcomes of the various safety reviews still under way.”
The Little Cheyne Court onshore wind farm located on Romney Marsh, UK Source: A. Wilson
But there is still firm commitment to new nuclear build in Europe, he says. “It raises an interesting question: if countries decide there is no place for nuclear after 2020, how are they going to meet their commitments on the reductions of CO2? Can they meet them, and what is the potential cost of that in a nuclear-free energy mix? I think it’s difficult to see how they can meet their targets without nuclear.”
“Inevitably,” says O’Regan, more renewable energy will be needed. “You need a much higher penetration of renewables, for a start. Then what sort of renewables will you have? If you’re to ramp-up onshore and offshore wind, you’re going to have to have a much more favourable planning environment, so you’re going to have to change planning laws to make onshore wind more acceptable and, as we’ve seen in the UK, that’s not necessarily as easy as it sounds.
“With offshore wind, the issue is all about financing. You need to have someone underwriting the financing, or if not then at least provide the mechanisms to ensure that the risks associated with building offshore wind farms are underwritten in some way. There are a number of significant hurdles that need to be overcome to allow that to happen.”
“Whichever way you cut it, it’s going to be much more expensive. You’re bringing forward a capital replacement programme much earlier. And in the case of renewables, as in nuclear, new build has a very heavy upfront capital cost. If you close nuclear plants and replace them with renewables, the consequences of your actions are going to flow through to consumers sooner, rather than later.
“Most of the rhetoric suggests [emissions] targets will get harder, not softer, and across Europe we’re seeing a number of risk factors emerge. Where we’ve seen bailout packages from the EU, in Portugal, for example, we could see countries saying they just can’t afford this commitment and therefore they’re going to renege on it.”
Under such circumstances, O’Regan says, there is a strong case for collective action across Europe to make things like interconnections and offshore grids more feasible. “Access to low-carbon electricity across the EU zone is going to become increasingly important.
“Access to investment is a big issue. Countries are competing against one another for the same euros to invest in renewables. You’ve got to make your market look as attractive, or more attractive, than other markets. If investors feel the risk return profile looks better in other markets, then that’s where the money will go. So 2020 is a very challenging target for most countries.”
O’Regan believes natural gas and rewables will play an increasingly important role in the energy mix in countries where nuclear power is shunned, and even so where it is not in the short-term, to take up the slack left by long construction lead-in times. Flexible gas fired generation is by no means a silver bullet, but can plug a hole while new nuclear power plants are built.
Capital cost considerations are likely to rule out offshore wind in the near-term, even though there is some offsetting to be gained through better wind profile characteristics and resources.
The situation for onshore wind is more favourable. “If you’re looking at the economic case alone, we should be building more onshore wind – it’s quicker, easier, cheaper and less risky. Bigger volumes and more favourable planning issues would drive more investment offshore, but not for now.”
Enguerran Ripert, a Frost & Sullivan consultant, believes the situation in Germany is unique, and says that, although the cost of new nuclear construction is bound to rise, it will not be significant enough to rule out new build. “We’ll see costs rise as a result of scheduling and the introduction of new fail-safe systems. And, in terms of the actual construction process it will take longer. While this has been decreasing over the last ten years, we’re now likely to see it increase, what will more checks and evaluation – a bit like we’ve seen in Finland and France. It may deter some of the countries that have decided nuclear is on the border line. But for those countries like France and others in Europe that have put nuclear on the agenda it won’t change anything.”
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