The recently published World Energy Outlook 2006 (WEO 2006) from the International Energy Agency (IEA) represents a considerable advance for a number of reasons. This annual report has long been recognised as the most comprehensive covering energy trends and the new report will certainly cement that fine reputation. Having been mandated by world leaders to report on the ways in which recent energy trends (which are widely regarded as unsustainable for environmental and security of supply reasons) can be changed at minimum cost and disruption, the 2006 report now sets out a detailed alternative policy scenario which goes a long way to achieving this. That this includes a significant prospective role for nuclear power is naturally pleasing for the industry, but the force with which the IEA has said this has taken many people by surprise.
The IEA has historically been regarded as at best agnostic about nuclear. Some have seen this as being as a result of its close identification with oil and gas interests – indeed, the IEA was set up in the aftermath of the early 1970s oil price escalation, as an Organisation for Economic Cooperation and Development (OECD) body. Its remit has always involved detailed analysis of the fossil fuels world, with little attention given to nuclear. As the IEA works essentially on an assumption of ‘unchanged government policies’, it has felt free to ignore nuclear during a period when it has been essentially out of favour in major governmental circuits. Its energy models also build in economic factors as important determinants of supply and demand, so with nuclear appearing to be a generally uneconomic option, it could easily be put to one side.
Now that nuclear is getting much more attention from governments around the world and its economic prospects have undoubtedly improved – quite apart from anything the industry has done to cut costs, the sharp increase in fossil fuel prices ensure this is true – the IEA cannot ignore it any longer. Indeed, the increased requirement for the IEA to come up with energy options that avert greenhouse gases has pushed it gradually towards nuclear. Yet the IEA is not really making forecasts in its report, it is merely assessing what will be the outcome if present policies stay essentially unchanged (the reference scenario, RS) or are modified in particular ways (the alternative policy scenario, APS). As such, it is doing something rather different from the World Nuclear Association (WNA), whose nuclear generating capacity scenarios are also widely quoted. The WNA develops three distinctive scenarios, reference, lower and upper, each of which aims to be a realistic and believable view of the future, but containing different generic assumptions on much more than government policies – such as nuclear economics, responses to environmental concerns and movements in public acceptance.
One of the most pleasing aspects of WEO 2006 is that it dispels several of the myths that the antinuclear movement has tried to build up. For example, claims that there will be insufficient uranium to fuel strong nuclear growth is comprehensively rebutted. Also the argument that nuclear cannot contribute in a substantial way to the avoidance of greenhouse gas emissions. The economic analysis is also revealing, showing that decommissioning costs, where provided for adequately, are a very minor consideration in new nuclear plant economics. The fact that nuclear costs, both fuel, operations and maintenance, are relatively low and stable over time, is also highlighted. But the best part is the demonstration that new nuclear build can be highly economic against alternatives, principally coal and gas, in many circumstances. Indeed, the upsurge in world gas prices has caused the IEA to completely revise its view of the role of gas in future energy markets. It was previously viewed as nuclear energy’s main competitor but is now seen as attractive mainly for its assumed quick return on capital rather than fundamentally sound long-term economics. The risks any investor runs with the gas price are certainly emphasised. Coal is, however, making a comeback as a serious baseload generation option, even if it has to bear environmental penalties, such as paying the cost of carbon sequestration or an imposed carbon tax.
Nevertheless, the report doesn’t make enough of the superb economics of existing nuclear plants and also doesn’t sufficiently question why these cannot be translated into even more new nuclear plants. Some of the relevant factors, principally the various risks involved in new nuclear build, are discussed but in a rather negative fashion. The question, as always, should be: “How can a small and environmentally friendly European country like Finland be building its fifth nuclear reactor while others are either sitting on their hands or even shutting plants down?” The IEA will say that this is simply due to different government policies, but it seems clear that it doesn’t fully understand that the Finnish investors are looking at costs well below the 5¢/kWh that the IEA believes is achievable for nuclear, while gaining long-term security of supply. This example can no doubt be replicated many times over in many places around the world. It will just take similar drive and initiative from interested local people. It also rather demonstrates one of the weaknesses of the IEA, it’s a governmental body and naïvely seems to believe that it is governments which change the world, whereas in fact most evidence suggests that they are usually short sighted and ineffectual. For example, the strong upsurge in world gas prices was caused by a set of circumstances which were possibly predictable, but in which government policies played only a minor part.
It is also important to note that although both WEO 2006 scenarios show a rather better future for nuclear than they have in the past, in both cases the share of nuclear in world electricity falls from the current 16%. World nuclear generating capacity rises from 364GWe today to only 416GWe in the RS by 2030 (representing only 10% of world electricity) and to 519GWe in the APS (or 14% of the world total). Indeed, the WEO 2006 APS is quite close in overall terms to the WNA RS at 2030, while the RS is between the WNA reference and lower cases.
Upon closer examination the WEO 2006 scenarios seem illogical and inconsistent. For example, in the APS, the OECD North America region shows an increase in nuclear generating capacity from 112GWe in 2004 to 144GWe in 2030, while at the same time OECD Europe suffers a decline in nuclear capacity from 132GWe to 110GWe. This clearly results from the IEA’s extrapolation of changing government policies, but is ridiculous. Given that nuclear is fundamentally more economic in Europe than North America (the former has inferior access to cheap coal), it has governments much more disposed to measures to curb greenhouse gas emissions, and suffers from the greater concerns on energy security of supply, a continued slow phaseout in Europe while there is substantial new build in North America looks highly unlikely. And on grounds of consistency, will developing countries be increasing their nuclear capacity from 18GWe in 2004 to 93GWe, while Germany is still shutting down serviceable reactors (only one is left in 2030 in the APS) and the UK is not replacing its aged AGRs as they close? (There is no new build in the UK, so like Germany, there will be only be one reactor in service in 2030.) China and India certainly have big plans for nuclear, but it seems highly unlikely that Europe will continue to effectively write off this technology option while the rest of the world embraces it.
The IEA is wisely not a believer in the ‘peak oil’ concept, recently put about by many commentators. This is rather like those claiming that uranium could be in short supply by 2030. Clearly both resources are finite, but there should be sufficient available to prevent shortages and huge price swings. The consequence is that the world continues to be fuelled by fossil fuels in both the RS and APS, and carbon emissions rise. The APS is successful, however, in making a substantial dent in greenhouse gas emissions by 2030. Nuclear has an important part to play in this, despite falling as a share of world electricity, accounting for about 10% of the reduction from the RS. The majority, however, some 80%, is attributable to energy savings by consumers and also by more fuel-efficient cars and the like.
To stabilise emissions at their 2004 level to 2030 will require a much greater effort. WEO 2006 rather briefly poses a beyond the alternative policy scenario (BAPS) which contains a significantly greater number of conservation measures and also much more clean generation technology, a lot more nuclear and renewables, plus a much higher level of carbon sequestration. Nuclear generating capacity in the BAPS would be 680GWe in 2030, approaching the level of the WNA upper scenario (740GWe). The latter, however, is based on the assumption that electricity demand will remain essentially unchanged, so the nuclear share of world electricity will be similar in both, at around 20%.
Whatever the quirks of the scenarios in WEO 2006 there is an important final message, which has been well understood by commentators. This is that nuclear needs supportive governments, as it cannot flourish without. This means that in liberalised power markets, where governments will not provide any financial assistance to any generation technology, they still need to have a vision for the national energy mix. They also need to have in place a firm but fair regulatory regime, policies on nuclear waste management and decommissioning and act to assure the public on nuclear proliferation and plant security. The recent period of energy turbulence has confirmed that electricity cannot be treated like just any good or service in a market environment, as some of the theorists postulated back in the 1980s in encouraging liberalisation. Energy is too important to modern civilisation to allow this and continues to require some special attention from governments, perhaps analogous to the provision of clean water.
Steve Kidd is Head of Strategy and Research at the World Nuclear Association, where he has worked since 1995 (when it was the Uranium Institute). Any views expressed are not necessarily those of the World Nuclear Association and/or its members