We’ve all become accustomed to attending nuclear conferences where much of the discussion has been about the renaissance in the industry. The evidence for this comes from several quarters – from the much improved performance of current reactors which is leading to power uprates and licence extensions, from the increased interest in building new nuclear plants in the USA and UK as well as in China and India and also from improvements in expressed public support for nuclear in many countries. Certainly the industry is able to walk much taller than in the recent past and is now receiving interest from respectable bodies formally, at best, agnostic. For example, the International Energy Agency, long seen as a bastion of fossil fuel dominated thinking, will include a chapter on nuclear in this year’s World Energy Outlook. Some sceptics claim that the only reason for the increased attention is nuclear’s possible role in greenhouse gas abatement, but the energy security and the economic arguments are also slowly beginning to win over. The economic advantages are undoubtedly the most difficult to put across, as there is still widespread scepticism about the viability of new nuclear build, but they are arguably the most compelling – cheap and reliable power is a great selling point.
There is certainly, however, a risk that the industry will begin to see the battle as already won. It is indeed tempting to imagine the industry’s profile in terms of a sharp rise in fortunes in the 1950s to the 1980s, then a 25 year period where things flattened out, only to be followed by a resumption of the strong upward path from today onwards. Mentally picturing a graph, we can envisage a strongly rising trend in the period from 1950 to 2050, but with a flattened kink in the middle. At the time, the kink may have seemed like maturity for the industry, to be followed by a long decline as reactors gradually shut down without much new build as replacements and certainly little as incremental capacity. Indeed, up until relatively recently, this was how nearly everyone, including many people in the industry, felt that things would most likely develop. But now more and more people have the vision of resumed growth, maybe rather slowly at the beginning but accelerating as time goes on. For example, the World Nuclear Association’s upper scenario for nuclear generating capacity shows a doubling on a worldwide basis by 2030. Yet some other pundits have observed that this may now even be a conservative vision, with even faster growth possible from around 2020 onwards.
But is this still just a wild dream? The essential element is surely obtaining lots of orders for new reactors and as soon as possible too. Keeping the existing reactors going for longer has been a tremendous achievement, but now the industry has to prove that it can make a further huge dent in carbon emissions, contribute to enhanced energy security, while supplying billions of kilowatt hours for the masses. There is plenty of talk of new reactors – in the USA, now the UK too, China, India, Russia and also many other countries, some of which currently don’t have nuclear power (such as Indonesia and Vietnam). Yet talk can be very cheap and there is always a risk that it will amount to little more than that. People in the financial sector say that at any one time, they are looking at huge numbers of prospects for new investment, but nearly all fall by the wayside – could new nuclear build meet a similar fate? If so, what is needed to prevent this?
Two important things are already in place: sound economics and better public acceptance. Over the past couple of years, there have been a number of studies showing that new nuclear power plants can definitely be economic propositions, when compared with the alternative of building gas- or coal-powered generating capacity of similar magnitude. The most important factors in these assessments are now well-understood – particularly the construction cost of the nuclear plants, the price of gas and the rate of interest assumed in the plant financing. Yet nobody is yet rushing to build new nuclear plants in the Western world, when the studies show that investors could potentially make a lot of money out of doing so.
Secondly, it is rapidly becoming apparent that the arguments of the anti-nukes are sounding tired and worn. It may be slightly premature to say that the long intellectual battle fought by the industry against its opponents has been won, but it’s increasingly looking that way. Public opinion is moving to the industry’s side as people are becoming comfortable with the solutions proposed to deal with the challenges the industry faces on safety, proliferation of nuclear weapons, waste management and plant decommissioning. Although local people must be carefully involved in plans to build new reactors, it seems that large-scale national campaigns against new build will now be much harder to sustain. This, of course, depends on the continuation of the industry’s excellent safety record and progress in satisfying reasonable demands to activate solutions to nuclear wastes, which is probably the most difficult remaining issue in obtaining full public acceptance.
There are then a couple of issues which have been posed as barriers to new build, which are really not so difficult when they are considered more closely – namely financing and possible shortages of materials, plant components and staff.
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Talk can be very cheap and there is always a risk that it will amount to little more than that |
There has been a lot of talk about the difficulties of financing new nuclear plants. Yet assuming the economic case is strong, finance is unlikely to be a barrier, although it is clear that financing new build will prove challenging. Nuclear has a lingering bad reputation, with memories of the cost overruns of plants in the 1970s and 1980s still alive, with the attendant power utility ‘stranded costs’ (those investment costs never likely to be repaid by future electricity sales). Most equity finance may have to come from existing power market companies, and loan finance is likely to come only with a risk premium. Yet there is a huge wall of money available internationally for new investments of all kinds – the difficulty is in locating sound prospects. The key issue is the clear identification and management of the risks. Structuring a nuclear project in an appropriate way is vital, in particular how much of the risk is to be taken by the private sector and how much will be left in the government domain. The financial sector can be incredibly creative once it is convinced that there is good money to be made in something – they are now at the stage of beginning to see this with nuclear, but need help with understanding the nature of the potential risks. But finance is essentially an output, rather than an input, to a good project – there is no magic wand that can be waved to rescue what is fundamentally a bad project anyway. But once a good plan has been devised, the financiers will do the necessary.
It is clear that a new nuclear build programme in the UK, for example, will almost be like establishing a new industry. Despite significant experience of nuclear in the past, there are now at least potential shortages of men and materials for a new programme, particularly if other countries are building many reactors at the same time. This is undoubtedly a global issue, but the timescales involved should be sufficient to allow solutions to be found. There are already many programmes in place to remedy the deficiencies observed in nuclear education and training, but nobody is going to invest in capacity to produce the necessary plant components unless the orders are certain and likely to be repeated. Yet given the timescales of nuclear projects, it is not complacent to expect markets to react and bring forward the required staff, materials, components and services by the time they are required.
If the above factors should not now be big barriers to new build, where are the potential weak points? These lie in two main areas: firstly with national governments and secondly with the companies that should lead the new projects. The real challenge to a nuclear revival will come from either a lack of political will or a lack of guts from those charged with making decisions on new generating capacity. We can see each of these by referring to the UK and the USA, in both of which a new nuclear build revival is crucial as a lead to the remainder of Europe (UK) and the rest of the world (USA).
In the UK, the government has to demonstrate the political will to support new build. It must develop the regulatory system to ensure that reactors can be approved and built in a reasonable time, finalise policies on waste management and decommissioning (so the plant owners know exactly the extent of the financial provisions they must make) and satisfy the requirements on plant security and nuclear liability. The USA has got rather further ahead in most of these, so the issue there is more “who is ready to invest?”
Nuclear power plants are highly complex projects and it is almost understandable if a power utility chief executive holds up his hands in horror at the prospect and says: “Let’s build a gas or coal plant instead.” This may be a much safer business decision, so some courage is needed, at least for the first investor to commit. It is clear that the major fear of big power companies is the reaction of financial markets to any further engagement in nuclear power. Their credit ratings are likely to take a hit while the impact on their earnings per share of a major investment project, with no financial return for several years, must be carefully considered. It may need some initial government subsidies to encourage them, such as the loan guarantees and production credits already proposed, but these will hopefully be sufficient to get the ball rolling.
The industry cannot expect guarantees that policies will never change, but needs some general degree of political consensus to invest – if it’s going to be used as a political football as in the past, there is little prospect of new plants. Brave investors, with strong belief in the long-term benefits of nuclear and the willingness to put their money where their mouth is, are crucial as well. The nuclear sector should then be able to stand on its own feet and show that it can indeed generate a huge quantity of power economically and environmentally-soundly, while contributing to national and regional energy security of supply.
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