Security of supply – how does nuclear enhance it?

20 June 2011

Continuous availability (and also affordability) of energy and electricity is now crucial in modern industrial societies, which depend on these services for production, communications and exchange. Governments are therefore motivated to maximise security of supply, by understanding the factors which lie behind it and mitigating any obvious weaknesses. One of nuclear energy’s selling points is that it is claimed to enhance security of supply, on the basis that uranium is available in large quantities from many countries around the world and the energy intensity from this raw material is so great that price changes do not fundamentally affect the price of the power. Large quantities of nuclear electricity can be produced by plants located within any country, meaning that imports (beyond the fuel) are not required.

Beyond this basic reasoning, it is useful to examine the concept of energy security of supply in more detail, as it is not necessarily as simple as it may seem at first. Then, having decided on what it really is, it may be possible to examine quantitative indicators to see how important nuclear power has really been over the past decades. A recent OECD/NEA report (The Security of Energy Supply and the Contribution of Nuclear Energy) attempts to accomplish this and contains some useful insights.

Energy supply security can actually mean different things to different people, for example a foreign policy expert as opposed to a power network engineer or an economist. Different countries may also have alternative understandings of what it means; for example a country with good domestic energy resources but limited access to cross-border infrastructure will see things differently to a small, open economy without any significant energy resources. OECD-NEA make the excellent point that in some ways, energy security of supply is rather like the concept of sustainability, which is also frequently applied in energy policy prescriptions in many diverse ways in order to offer support for different objectives.

The report offers a consensus definition: “Security of energy supply is the resilience of the energy system to unique and unforeseeable events that threaten the physical integrity of energy flows or that lead to discontinuous energy price rises, independent of economic fundamentals”. Within this general definition, there are parameters that can be verified and possibly measured, such as import dependency, resource or carbon intensity and infrastructure adequacy. These are not, in themselves, identical with energy supply security, but are clearly important contributing factors.

Energy security of supply has to be something that governments are responsible for. An individual citizen cannot reasonably affect it, if they feel it is having an important impact, today or in the future, on their well-being. It is therefore an example of what economists call an externality: a negative impact that is not priced in the market place. Citizens of one country may currently be receiving the benefit of cheap imported oil from a single distant producer, but there has to be a risk that this will suddenly be cut off, without recourse to a similar advantageous arrangement. Risks like this are complex and hard to quantify, and only governments can step in and make important decisions on the citizen’s behalf.

The report helpfully then considers energy supply risks in terms of two main dimensions, the external (or geopolitical) dimension and the internal (including technical, financial and economic issues), in both of which nuclear power can conceivably play a positive role. The first of these is bound up the vagaries of geology and climate that impact primary energy production, where consumption is located (in many cases) a long distance away and characterised by complex trading relationships bound up in history. But only exploration and production are location-specific; the other areas of the supply chain, such as oil refining or uranium enrichment, can be located close to the final customer and, indeed, often be under its control. So maximising this degree of control, through ‘energy independence’ can become an important national policy objective, and whether this is possible depends on a country’s location, domestic energy endowment, transport and storage networks and, ultimately, the willingness of the population to accept higher energy prices to gain more security (but perhaps only in the short term).

France and Japan’s strong pro-nuclear policies from the 1970s onwards can be seen in this light; weak domestic energy resources bringing with them the probability of sudden rapid import price escalations (as happened with the oil twice in the 1970s). Electricity also poses a particular problem. Although an optimist could foresee world energy trade eventually having smoothly-functioning competitive markets, guaranteeing timely delivery of all energy resources, difficulties of storing electricity mean that it is only transported over relatively short distances. So a country may rely on imported oil and gas for transportation and home heating, but must have national electricity generation capacity to meet demand for lighting, appliances and industrial machinery. An additional consideration today in the geopolitical dimension of energy security is resilience to changes in climate policy; heavy dependence on imported fossil fuels may become a much more expensive option in the future.

The second dimension of energy security, the internal, relates to areas such as the adequacy of generation capacity to meet demand, the state of domestic transport infrastructure, the adequacy of energy market design and regulation, operational reliability in the energy sector and, ultimately, the degree of price stability. Governments are responsible for all of these elements and must establish policy frameworks that provide a mixture of public provision and private incentives that meet energy security needs. There is still substantial public ownership in energy production and exchange in many countries, but market liberalisation has led to increasing levels of private provision. It is sometimes argued that this, potentially at least, runs the risk of damaging security of supply. This doesn’t necessarily have to be the case, but we are still at the stage of experimenting with various models of electricity markets. Today, these markets are faced with additional challenges, mandated by public policy, of encouraging low-carbon domestically-produced energy resources such as renewables (and hopefully nuclear too).

Probably the major achievement of the OECD-NEA report is to move on to provide some degree of quantification of energy security of supply, and nuclear’s past contribution. Consistent data for OECD countries over 40 years can be provided by IEA Energy Statistics, covering import dependency, fuel diversification, resource and carbon intensity and infrastructure adequacy. The report uses these statistics to calculate a Simplified Supply and Demand Index (SSDI) which is a weighted index (with a maximum of 100 for perfect security of supply) composed of relevant demand, infrastructure and supply variables bearing on supply diversity, energy consumption efficiency and the state of supply infrastructure.

The report shows that SSDI has increased significantly for most OECD countries since 1970, due essentially to three factors: the introduction of nuclear power, a decrease in the intensiveness of energy use (the amount of energy consumption per unit of output) and the increase in the diversification of primary energy sources. Exceptions tend to be those countries that have not embraced nuclear, such as Austria and Australia (although both of these have quite good energy security of supply through their domestic resources). The report also helpfully breaks down the specific nuclear contribution to the improvement in the SSDI scores and, not surprisingly, this is highest in France. By 2007, nuclear power’s contribution to its SSDI score is more than 12 points (about 30% of the total), while it is also high in both Scandinavia (Sweden and Finland) and the Pacific Rim (Japan and Korea). There is a lot more to energy security of supply than building more nuclear power plants, but they can make a significant contribution.

Nuclear’s main contribution clearly comes in the external dimension of supply security. In terms of value, nuclear plants can source more than 90% of their input requirements domestically, while uranium imports are widely diversified, with a competitive market where many participants are politically stable. It is also possible to store and finance large inventories of nuclear fuel, which would be unfeasible for coal, oil and gas. Nuclear will also be unaffected by any tightening of restrictions on greenhouse gas emissions; indeed it would likely benefit from this. In the face of geopolitical supply risks, nuclear power therefore holds advantages that other fuels do not enjoy, such as wide availability of resources for many years in the future, modest impacts of increases in resource prices on the final product and resilience to carbon policy.

Looking at the internal dimension, nuclear power faces a significant barrier in the capital investment costs of plants, but studies show that it can be competitive in many markets, particularly where real interest rates are no more than 5%. Once nuclear plants are in operation, costs remain relatively resistant to the event of fuel cost escalation and carbon value imposition, either through a tax or an emissions trading regime.

Assuming that security of energy supply is deemed important as a potential externality, governments must step in with policy measures to account for it. One way is to encourage the production of domestic sources of energy as far as economically feasible, but many countries have poor resource endowments that make this option unattractive; indeed, this can be the case for renewable as well as traditional energy sources. Transparent global markets are important in allowing patterns of production to develop with respect to the comparative advantage of countries, which should ensure the lowest prices. Political factors will always have an important influence in energy markets but these should be minimised, as far as possible, as should the impact of potential producer cartels. Within each country, the internal dimension of supply security suggests that governments should create appropriate market conditions and incentives so that all technologies can make their contribution to security of supply–in particular, technologies such as nuclear and renewables that have high fixed costs but longer-term advantages.

Although energy security of supply has historically come mostly into focus when oil prices have risen sharply (historically under the OPEC cartel) today it is natural gas supplies that tend to worry countries rather more. It is interesting that public support for nuclear power (so far as it can be accurately measured) appears to increase in Europe the further east one goes, towards the east European countries that were under the umbrella of the former Soviet Union. This is also reflected in national policy-making. Yet these countries were geographically the closest to the Chernobyl accident in 1986 and also generally received the highest radiation exposures from it. Although the way that people’s perceptions and government policies are determined is a very complex matter, it seems inconceivable that support for nuclear in these countries is unrelated to security of energy supply concerns and notably the role Russia plays in supplying (or occasionally shutting off) natural gas.

Although many people will argue that the increased attention paid to nuclear power by policy-makers and the general public is largely down to its environmental advantages in greenhouse gas emissions, it is important to remember that the prime motivation for many countries ‘going nuclear’ in the past was energy security of supply. The French and Japanese cases are the most obvious examples from the past, but it can still be an important factor today. In the UK, the conversion of former prime minister Tony Blair and other senior politicians to nuclear was heavily based on the environmental advantages, but UK energy security of supply is now falling rapidly as both oil and now gas from the North Sea are in decline. In common with most countries, recent investment in large-scale power generation in the UK has mainly been in gas-fired plants, but this now imposes some energy security issues that have to be addressed. The ‘dash for gas’ now looks, in retrospect, like a foolish short-termist policy. Renewed nuclear build in the UK will therefore help satisfy both environmental and energy security objectives.

Author Info:

Steve Kidd is deputy director general of the World Nuclear Association, where he has worked since 1995 (when it was still the Uranium Institute). Any views expressed are not necessarily those of the World Nuclear Association and/or its members.

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