It is reasonable to talk about the nuclear renaissance in two discrete stages. Firstly, the industry had to prove that it could run the existing stock of reactors a lot better than it was doing in the late 1980s and early 1990s. Indeed, if it hadn’t done this, many of them would have closed down by now with the onset of electricity liberalisation in many countries. Much improved performance has now been accomplished almost universally, with reactors running at higher utilisation rates, more safely and also benefiting from power uprates and licence extensions. But the most important point is that operating reactors today are proving to be excellent cash cows in many countries, in fact to the extent that politicians are seeking additional ways to tax them (for example in Sweden, Belgium and now Germany). But if existing reactors resemble friendly ATMs, what is to stop stage two occurring, in other words that seemingly elusive time when additional reactors are commissioned in major nuclear countries, with some new countries gaining them for the first time?
It is undoubtedly true that this vital second level, a wave of new nuclear construction to parallel the experience of the late 1970s and early 1980s, has proved somewhat slow to get going. The IAEA reports that 65 new countries are now considering nuclear power; but it is unlikely that many will commission reactors unless there is a revival of construction in the more established markets. Most of the existing nuclear nations, however, are still merely talking about new reactors, rather than rushing forward to start construction. Nuclear critics may say that this talk is no more than a lot of hot air, and the mooted renaissance is dead. So what is delaying new reactors and could it be fatal?
If we make a comparison with two years ago, it is clear that prospects for new reactors in several countries now don’t look as promising as they did then. This is, however, balanced by the incredible performance of China, which has within the past few years started work on more than 20 additional reactors and with ever more expansive plans announced for the future. So looking on a world scale, forecasters have not been cutting their anticipated numbers of new reactors to be online in 2020 or 2030 – but there has been a notable switch in the market composition. The rise of China is clearly the big story, but the balance in the whole nuclear new build market has continued to swing sharply towards Asia. The expected rise of India and several possible new Asian nuclear countries are additions to the established programmes in Japan and Korea. So the nuclear sector is experiencing an overall renaissance if you talk of global orders for plant and equipment, but there are important countries that are lagging well behind.
The reasons for the slowdown in plans outside Asia can be discussed under three headings, namely the impact of the world economic recession, some specific changes in energy markets and finally some important developments in nuclear power itself.
One important impact of the recession has been a slowdown in electricity demand growth – indeed, world electricity demand fell in 2009 for the first time since 1945, despite rapid growth continuing in China and other developing countries. This decline was concentrated in the OECD countries and, in itself, has had a major impact on all energy investment plans, not just in nuclear. But in itself, this is likely to be only a delaying factor; demand is already returning to growth and the need to replace old, dirty generation assets remains. But the demonstration that power demand can fall as well as rise is a warning that prices can also be volatile, a message that is of concern to anyone planning projects like nuclear which require some certainty on future power prices – after all, there is only billions of kWh of power to sell, and nothing else.
Within the recession, the fact that financing has become more difficult must also have an impact on large projects like nuclear reactors that have huge upfront costs and long project cycles which carry a large variety of risks. Interest rates are now relatively low, but obtaining money has become more difficult, as lenders are drawing in their horns. The major impact of this in nuclear can be seen in Eastern Europe where a number of long-established projects are struggling to find finance, notably Belene in Bulgaria and the additional reactors at Cernavoda in Romania. Some potential backers have pulled out, perhaps because of electricity offtake uncertainties as much as finance cost and availability. Elsewhere in Western Europe, including the UK, likely investors are financially-strong utilities like EDF, E.On, Vattenfall, GDF Suez and RWE, who have the ability to invest in large projects. The position in the United States is clearly not so favourable as even the largest nuclear utilities are too small to undertake a project alone, so leaving consortia as the only route.
Another area where the recession has had a notable impact is on the importance (or not) of environmental considerations [see also pp32-34]. It would be a parody to say that harder economic times have forced people to forget about the environment, but climate change and global warming sometimes now sound like old news and firm commitments to doing anything about them have possibly wavered. The difficulties of getting any traction in the US Senate and Congress on emissions trading is a case in point – at a time when the economy is sick, effectively imposing a financial burden on important heavy energy-consuming areas with strong lobby groups becomes difficult. This may, again, be only a temporary phase which evaporates when the economy improves, but getting governments to help achieve their emissions targets via strong policy actions is proving as difficult as pessimists always anticipated. The subsidies to renewable energy remain, but even wind power companies are beginning to feel the pinch with some factory closures and deep scepticism about the economics of offshore projects.
Turning to energy markets, the key development here has been within natural gas. The economics of generating power through combined cycle gas turbines (CCGTs) is almost 100% to do with the gas price. Investing in these has also been something of a no-brainer for power companies over the past 10 or so years. In liberalised power markets, they tend to be the marginal supplier (getting turned on and off to cope with peaks and troughs in the load) and the power prices at the time have to cover their marginal costs of operation (mainly gas). So provided the (relatively low) capital investment costs of the plants can be covered in the good times, investing in CCGTs is a relatively safe option. This is, however, threatened by high gas prices; new projects look unattractive if one assumes high prices will remain. In addition, plants have run at low operating levels when power demand has been low.
Gas prices have historically been closely related to oil prices, and obviously there is an important complication on how the gas gets to the customer, either piped or liquified. Gas prices escalated sharply with oil prices in 2006-8, and initially fell back with oil thereafter. But they have continued falling, while oil has stabilised at about $80 per barrel. The reason for this is largely down to the discovery of large quantities of unconventional shale gas, particularly in the United States and technological advances which demonstrate that these can be exploited cheaply and brought to market. The potential magnitude of these unconventional resources outside the United States is not known with any great precision but the geological settings which favour them are extensive. The outlook for gas prices has therefore changed significantly, with many commentators now expecting them to be in the $4-6 per million BTU range going ahead, rather than $8-10 as expected before.
This poses a major problem for nuclear projects, at least where cheap gas is available and its future supply relatively secure. Capital investment costs for 1000We of power generation capacity are about one fifth for a CCGT plant compared with nuclear. The simple option in this case is to build gas – indeed, the quickest way to save carbon emissions in the US electricity sector could be to shut down all the old and dirty coal plants and replace them with new CCGTs. Such a decision may have long term implications for sustainable use of valuable resources (the gas will clearly become exhausted at some stage). But particularly in liberalised markets where a quick return on investment is prized, more gas plants will probably be built.
The major development within the nuclear sector itself that is influencing future reactor plans is the continued adverse news on escalating reactor costs and the delay to the construction schedules for the EPRs in Finland and France. This is where the experience in Europe and North America compared with Asia is so different. Although making cost comparisons is hazardous, the latest IEA and OECD-NEA report on projecting electricity generating costs show a major gap, with reactors in China and Korea built for around $2000 per kW on an overnight (i.e. excluding interest costs during construction) basis, while Europe and North America examples are assessed at two to three times this level. China and Korea are also mainly reliant on relatively expensive liquified natural gas, so the economic equation is very much slanted towards more nuclear build.
It is clear that something has to be done in the western world about the high capital costs of nuclear – at the levels being quoted today, the project risks are such that only the biggest utilities (as mentioned above) can consider investing. The answer has to do with more standardization in designs and the regulatory system, but the experience of series construction of advanced reactor designs in China should push some costs down. But new nuclear reactors are huge civil engineering projects, involving a lot of local labour and locally produced materials such as concrete, so it is impossible to cut some areas of the cost structure. Simplified reactors built in volume in both Europe and North America are surely the answer – both of conventional evolutionary large designs but also note the renewed interest today in small and medium sized reactors (SMRs).
Within the United States, the delays to the federal loan guarantee programme are often cited as an important additional factor slowing new nuclear projects. It is generally agreed that with the gas price and reactor cost issues, loan guarantees are essential, although they in themselves cannot be sufficient to determine whether a nuclear project flies or not. After all, the $5 billion or so it costs to build a new reactor still have to be paid back – the guarantee simply makes the financing easier (and so cheaper).
We are therefore currently living in two nuclear worlds, with rapidly-developing Asian countries experiencing nuclear booms similar to those in the West in the late 1970s and early 1980s, whereas the rest of the world is still feeling the water again. Ultimately there should be a link between the two, when the experience of construction in Asia translates elsewhere. China and India will likely join Japan and Korea as significant exporters of nuclear technology and components, but their project management experiences are also crucial. For the reactor owners and operators in the West, the key thing is to carry on running their reactors very well and eventually the penny will drop – putting into operation new large nuclear generating units with low, stable and predictable operating costs is maybe not so difficult after all.
Steve Kidd is director of strategy & research at 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.