The Russian actions in Ukraine, and the threat that the conflict could spread to nearby countries, has focused renewed attention on energy security of supply.
[Cartoon by Alexey Kovynev: "Klaus, did you forget that our plant has to pay EUR5 in tax for every valve we open?"]
This was discussed in some depth in my comment in March 2011 (Security of supply - how does nuclear enhance it?) as it is often mentioned as an important advantage of nuclear power. I pointed out then that one of the reasons why nuclear power appears to achieve a relatively high level of popular support the further east one goes in Europe (despite the proximity of these countries to Chernobyl, site of the 1986 accident) is the fear of over-dependence on oil and gas. Yet it isn't just these countries that have become dependent on Russia, and it is now conceivable that the merits of nuclear could be reconsidered in places where it was previously rejected.
It is important to note that energy supply security can mean different things to different people. It is akin to the notion of sustainability, which is also used in energy policy debates in lots of different ways. There are, however, two important dimensions of energy security. The first, which is relevant to the Russian position, is the aspect that is external to the local market and stems from the fact that primary energy production is often located a long way from consumers, with complex trading relationships set up over many years. Avoiding dependence on certain countries can be difficult, although the other areas of the supply chain, beyond exploration and production, can often be localised. For example, in the oil sector refining can happen close to the final market, which gives a customer the feeling of a greater degree of control. In the nuclear sector, both France and Japan built a lot of nuclear stations from the late 1970s onwards primarily for energy security reasons. Both are poorly endowed with primary energy resources. They knew that the cost of the uranium is not crucial in nuclear economics and that they could obtain supplies from many countries around the world. They could also build their own conversion, enrichment and fuel fabrication facilities to enhance their feeling of energy security.
The other dimension of energy security is internal to the local market. It consists of the ability of generation capacity to meet demand, the adequacy of energy market design and its regulation, the reliability of supply, and finally the degree of price stability. Nuclear power would seem to have some important attributes here too, which advocates are keen to promote. Nuclear plants operate with very high capacity factors and so reliably supply the baseload part of power requirements at low marginal generation costs. They also have stable operating costs, which helps avoid price escalation, although the considerable costs of building nuclear stations may require prices to be set at higher levels. We are arguably now seeing this with the Hinkley Point C project in the UK.
Implications of Germany's shift from nuclear
Germany has moved strongly away from nuclear power with its 'Energiewende' (or energy transition). This is arguably now having very adverse effects on the security of energy supply -- and also on carbon emissions, which remain a key selling point for nuclear in other markets.
With reference to the internal market, legal challenges by German nuclear power plant operators continue at the national and European level, with utilities pressing claims for compensation and in particular suing the government over a nuclear tax introduced in September 2010, before the turnaround in energy policy, in which power plant operators were required to pay €145 per gramme of fissile uranium or plutonium loaded into German power reactors. The tax is intended to take about half of the profit of nuclear power plants. The German government has also been ordered to refund about €2.2 billion in fuel taxes collected from RWE and E.On, pending final decisions in either the Federal Constitutional Court or the European Court of Justice. This latest ruling in the court battle over nuclear fuel taxes in Germany has come from the Hamburg Tax Court. Another important success for the industry was the German Supreme Administrative Court's ruling that the forced closure of RWE's Biblis nuclear power plant after the Fukushima accident was unlawful. The utility is now likely to sue for considerable damages.
Another interesting feature is a new law approved by the German cabinet, which aims to keep down the costs and slow the rate of growth of renewable energy. Subsidies aimed at stimulating the growth of renewables have now driven up consumer prices. Residential electricity prices increased 12.5% in 2013 compared with the previous year to 30 Euro cents per kWh. The new reforms to Germany's law on renewable energy, approved by the country's cabinet, seek to address this by making the expansion of renewables more gradual and predictable, revising the policy on financial support. The subsidies received by new wind, biomass and photovoltaic plants average 12 cents per kWh but vary according to the technology: onshore wind plants receive the least - 8.9 cents per kWh - and offshore wind the greatest, 19.4 cents per kWh. German energy and environment minister Peter Altmaier admitted that the Energiewende could eventually cost up to €1 trillion, with the feed-in tariffs supporting renewable energy possibly accounting for over two-thirds of the cost.
The closure of thousands of megawatts of nuclear capacity and the intention to rely instead on renewables also has big implications for the country's transmission grid. Plans to upgrade and expand the grid to support the energy transition were announced in May 2012 and a study by a prominent think-tank has estimated that the electricity distribution network expansion and rebuilding programme would cost Germany as much as €42.5 billion ($55.4 billion).
Germany has also increased its carbon dioxide emissions for the second year in a row. In 2013, the country's emissions were at their highest for five years, at 834 million tonnes, according to an estimate by the Federal Environment Agency. The figure was up 1.2% on 2012 and a shade above 2010, the last full year before eight nuclear reactors were ordered to shut as a political reaction to the Fukushima accident. The reduction of nuclear generation from 22.2% in 2010 to last year's 15.4% of electricity supply is an underlying factor in the emissions growth. One direct cause is that coal's dominance has grown, both to substitute for nuclear power and as a back-up fuel for renewable intermittency. That intermittency has become more important with the growth of renewable sources from a 16.6% share of supply in 2010 to 23.9% in 2013.
Europe's dependence of Russian gas
Germany has strengthened Russia's domination of the natural gas business in Europe by participating in the Nord Stream pipeline.
Russia and Germany agreed to build this pipeline around the outside of the Baltic states and Poland. It creates a direct link between the two countries, effectively isolating EU member states Estonia, Latvia, Lithuania and Poland in the process. They now have to contract directly with Russia for their gas, rather than doing so under the protective umbrella of Germany. The pipeline was given German government approval during Gerhard Schröder's chancellorship (1998-2005), an example of the longstanding special relationship between Germany and Russia. Critics in Europe claim that this underlies the supply of oil to Germany at the outset of the Second World War, the "Oestpolitik" of German chancellors Willy Brandt and Helmut Schmidt in the 1970s, and now the deep relationship between large corporations in both countries. A few weeks after granting his approval, Schröder emerged as chairman of the Nord Stream pipeline company.
After the invasion of Crimea, Russian relationships with European and especially German corporate interests reduced the chances of meaningful sanctions being imposed on Russia.
Europe has several options to overcome its dependence on Russian gas. It can develop alternative pipelines and supplies. It can diversify away from gas and maybe back towards nuclear power. It can also try to enforce competition law against Gazprom and act in a more unified way as a central buyer for gas, reducing Russia's "divide and rule" strategy.
Europe is actually surrounded by alternative gas resources. To the north, Norway is one obvious supplier. Then there are the North African countries, such as Libya and Algeria. To the southeast, there are supplies in the Caspian Sea and big potential reserves in northern Iraq and Iran. There is liquefied natural gas as well, and the USA may eventually become an exporter that will help reduce the current high prices. But switching from Russia will take a long time.
Poland is in a particularly interesting position as it depends on coal for over 90 per cent of its electricity generation. But the application of the EU energy targets to Poland forces it to abandon coal. It cannot want to import gas directly from Russia, and wind farms or solar panels can do little to help. So the country needs LNG (liquefied natural gas) terminals and its first nuclear power stations. Hence the interest in nuclear plants expressed by the Polish utility PGE and the plans to replace coal with nuclear.
Russian actions: prompting a move towards nuclear in Europe?
It remains to be seen whether there will be a move towards new nuclear build stemming from the Russian actions. It's early days yet and the situation is still fluid, but it seems unlikely that there will be much of a reaction in Germany itself. The feeling against nuclear remains strong and residential electricity customers - the voters - seem prepared to take the pain of higher prices on the chin. It is the corporate buyers who are likely to complain most, as they have to be internationally competitive against countries with an increasing amount of nuclear power, such as China and Korea.
Outside Germany, there may be a further positive reaction in countries such as the Czech Republic, Bulgaria and Romania. But there seems to be acceptance that Russia holds most of the cards in this game. Cynics could see Russia's dominance of the gas market being of great benefit to the marketing of nuclear plants by Rosatom. If a country does not want to buy so much Russian gas, it can have Russian nuclear power plants instead, and Russia will help with the financing too.
What is clearly lacking in Europe is any great unity on energy policy. The disunity against Russia is just another example of particular countries seeking their own advantage to the cost of all. Even if the EU Commission starts to take a more pro-nuclear stance, to improve EU security of supply, nuclear policy will remain a national matter for many years to come. Some countries will seek more nuclear plants, for a variety of reasons, of which energy security of supply is just one.
The European Union is also quite dependent on Russia for nuclear fuel supply. Taking uranium and enrichment together, the EU is depends on Russia for about a third of its supply. This is something that the Euratom Supply Agency (ESA) watches closely. Its mandate is to prevent EU over-dependence on any geographical area. The supply ratio has not altered much in recent years and there is at least a very competitive market available for the nuclear operators. Very much unlike the EU gas market.
About the author
Steve Kidd is an independent nuclear consultant and economist with 17 years of work in senior positions at the World Nuclear Association and its predecessor organisation, the Uranium Institute.