By Michael Liebreich, Chairman of the Advisory Board
Bloomberg New Energy Finance
Just over a decade ago, Stephen Pacala and Robert Socolow of Princeton University published “Stabilization Wedges: Solving the Climate Problem for the Next 50 Years with Current Technologies”. They postulated that if sufficient investment was made in a number of technology “wedges”, a “stabilization triangle” could be created that would prevent damaging increases in CO2 emissions and therefore in world temperatures.
The authors have subsequently updated their work to take account of the sharp growth in emissions since 2004, but the principle remains the same. Princeton’s Carbon Mitigation Initiative website is currently showing the need for eight wedges, and suggesting that these could be any of 15 possible technology options. The 15 include doubling vehicle fuel efficiency, using best efficiency practices in all buildings, increasing wind generation 10-fold, increasing solar generation 100-fold, replacing 1,400 coal plants with gas power stations, capturing and storing the emissions from 800 coal plants, adding double the current global nuclear capacity to replace coal, and so on.
Some of these wedge candidates look as if they are on track to deliver. Vehicle fuel efficiency is advancing, helped by high oil prices over nearly a decade, tighter government regulations and the spread of hybrid and electric vehicles. Energy efficiency is making strides, particularly in developed economies, with LED lighting leading the way, and electricity use falling way behind the economic rebound as countries emerge from the post-2008 recession. Renewable energy continues against the odds to record GW installation figures: according to Bloomberg New Energy Finance forecasts it will make up two thirds of global investment in power generation between now and 2030, and is well on track to deliver one of the required “wedges”.
Two once-promising wedges, however, have been big disappointments: carbon capture and storage (CCS), and nuclear power.
This month saw commissioning of the 110MW SaskPower plant at Boundary Dam in Canada, the world’s first large-scale pure CCS project to reach the operating stage. Behind it, however, are only a few more single projects, not the pipeline of projects that would be required for the technology to reach its potential and deliver one of the required “wedges”. CCS technology has not progressed as quickly as hoped, but the real problem has been a failure of political leadership. Other than the minority of projects which can deliver CO2 useable in enhanced oil recovery, there is no justification for CCS other than to mitigate greenhouse gas emissions, and politicians have shied away from making massive commitments to solve a problem the majority of their electorates simply does not see as of vital urgency. In the US, cheap gas and Environmental Protection Agency regulations have dealt coal-fired generation what looks like a mortal blow, with the reduced cost of solar and wind playing their part, and there seems little support for massive spending on CCS.
The failure of CCS to deliver a “wedge” puts the spotlight back on other technologies, particularly on the generation side. If the world is not prepared to make its fossil-based – particularly its coal-based – power stations carbon-neutral, then it is going to have to replace them with something else.
The stalling of the nuclear renaissance in the wake of Fukushima is therefore of particular concern.
OK, the nuclear star has not faded to the same extent as CCS. It remains an important current source of global electricity, accounting for 11% of world generation according to the International Energy Agency. There are even 72 nuclear projects under construction led by China with 27, and many more planned or proposed. The last time as many reactors were under construction was the early 1980s. However, nuclear is not on track to deliver one of the much-needed “wedges”, and certainly not on track to pick up any of the slack from the failure of CCS.
The nuclear landscape
Japan’s decision in the wake of the Fukushima accident to take all of its reactors off-line was understandable, given the need to assess damage and review the vulnerability of other nuclear stations. The fact that the country’s electricity system coped with the loss of capacity accounting for a quarter of its generation, without any forced black-outs, is a testament to the resilience, solidarity and inventiveness of the Japanese energy system.
However, three and a half years later, the country has been left with a giant gap in its generating capacity, fossil fuel emissions far above where they would otherwise have been, and a black hole in the balance of payments – as it is forced to buy large volumes of natural gas at a price 50% above European levels and 200% above US levels.
Japanese industry, backed by many politicians, is pushing to resume generation at several mothballed nuclear stations (though the country’s giant trading houses are doing very nicely out of the gas import business). However, public opposition remains strong – at some 70% according to certain polls – and it is by no means clear that even the half of Japan’s nuclear fleet that looks set to pass all safety tests will ever be able to restart. It is vital that it does – it is hard to see how Japan’s economy can maintain its stuttering growth while so dependent on high-cost energy imports, and impossible to see Japan returning to the leading role it used to play in the climate negotiations.
While Japan’s nuclear woes result from the Fukushima natural disaster, Germany’s are wholly self-inflicted. In 2011 Angela Merkel reversed her former determination to prolong the life of Germany’s nuclear fleet, quickly shutting eight of the country’s 17 reactors and returning to the previous policy of full nuclear phase-out by 2022. This left fossil generation’s contribution to the German electricity system largely unchanged until at least 2020, and possibly 2025. Combined with the collapse of the EU-ETS carbon price and a flood of cheap coal being squeezed out of the US by the glut of shale gas, and the result is Germany burning more coal and generating higher emissions.
Anyone who promotes the Energiewende as Germany’s solution to climate change needs to understand that it is first being used to retire Germany’s zero-carbon nuclear fleet, and only when that has been completed will it start to squeeze fossil-based power off the grid. Germany has given nuclear retirement a higher priority than climate action, pure and simple.
To anyone not ideologically anti-nuclear power, this is a manifestly wrong-headed policy. The arguments about nuclear waste and proliferation hardly apply to existing nuclear power stations. The problems are real, but they are not worsened by continuing operation. Nor are they mitigated by early shut-down. They may be powerful arguments against building nuclear capacity in new countries, but are poor arguments in the case of Germany or Switzerland.
The fact is, as I showed in the statistics I presented in my BNEF Summit keynote in April 2012, nuclear power is far safer than coal-fired power generation. Deaths per TWh are around 15 times lower for nuclear power than for coal-fired power in the developed world, and 300 times safer than coal-fired power in China. And this is including the impact of Three Mile Island, Sellafield, Chernobyl and Fukushima, but before taking into account the appalling toll inflicted on the wider population by coal-driven air pollution and smog. The tsunami that hit Fukushima killed nearly 16,000 people; however, so far no one has been shown to have lost their life as a result of the nuclear disaster.
So much for those countries that have – illogically and to the detriment of the climate – decided to shut their nuclear fleet prematurely. What about the countries that are pushing ahead and replacing aging nuclear plants?
In the UK, the government has done a deal worth $24.7bn in 2012 money with EDF to build the 3.2GW Hinkley Point reactors, promising an electricity price of GBP 92.50 per MWh for 35 years, reducing to GBP 89.50 if a second project at Sizewell proceeds. The deal was this month approved by the European Commission, with the proviso that there be a mechanism to claw back more for the public purse if the power station proves more profitable at that price than projected in the business plan.
This looks like desperately poor value for the UK consumer. Areva’s European Pressurised Reactor (EPR) proposed for Hinkley has experienced huge cost overruns and significant delays in both Finland and France. It will cost more per MWh than onshore wind projects will get (GBP 90 per MWh) four years earlier than Hinkley’s scheduled completion date in 2023, and it will continue to rake in these elevated rates for 35 years, rather than the 15 years that renewable power technologies will have under the Contract for Difference support mechanism. To the argument that nuclear provides baseload power, first there always has to be back-up for planned or unplanned maintenance, and second, it is hard to imagine a supplementary 3.2GW of energy efficiency could not have been found between now and 2025, if it was given a $24.7bn budget.
In Turkey, national prestige is being invested in an ambitious nuclear programme that aims to build eight reactors within 10 years, the idea being to complete a reactor in time for the 100th anniversary of the establishment of the nation in 1923. Turkey has plumped for different designs at two different sites: at Akkuyu, on the Mediterranean coast, Russia’s Rosatom is to build four AES-2006 1200MW reactors for $20bn; and at Sinop on the Black Sea, Areva and Mitsubishi are teaming up to build four ATMEA 1000MW reactors at a proposed cost of $22bn using a new design from the French and Japanese firms that has yet to be built anywhere – always a risky proposition as the Finns have learned with their EPR experience. The danger for Turkey is that the rush to meet the symbolic deadline will drive up costs and risks.
China is not in the same boat in terms of cost as the UK. The rumour is that it may be able to build eight AP1000 reactors (of 1.1GW each) for $24bn, roughly the same price that the UK is building its two EPR 1.6GW plants. Some of that cost difference relates to a less onerous planning system, to lower-cost labour and subsidised finance, but the worry must be that China’s 27 reactors under construction – almost half the world total – may be vulnerable to performance or even safety problems.
China’s current new build is largely its Generation II, CPR-1000 reactors, though it is presently building newer Generation III+ designs like the four Westinghouse AP-1000s and two EPRs. Future new build will likely be all advanced Generation III+ technologies. What is fascinating is that despite China going all-out to build nuclear power at an unprecedented rate, the technology is set to lose market share to renewable energy. Meanwhile, next door in Taiwan, two reactors are almost complete, but they may never be commissioned and operated because of seismic and political concerns.
In the US, despite Fukushima and low natural gas prices, five reactors are under construction, with the first reactor in nearly 20 years expected online by 2016. Future nuclear new build may be limited for economic rather than social or political reasons as low natural gas prices are likely to persist though the next decade. It also remains uncertain to what extent the growth of small-scale solar and PTC-supported wind energy will put the squeeze on nuclear running hours and push operators such as Exelon towards nuclear retirements, rather than new build.
Surveying the international scene on nuclear, then, it is clear that an industry clearly capable of delivering an important “wedge” in the fight against climate change is off-track in almost every country in which it operates.
Clarity on costs
What should governments and the nuclear industry, be doing? I would argue that they need urgently to address three issues.
First, there needs to be clarity over current and future costs of nuclear. In renewables, it is clearly understood by everyone who is paying attention that the costs of solar, wind and other clean energy technologies have been falling steeply, and that they are likely to continue to do so. Most analysts, including mainstream ones like the IEA, the Energy Administration Administration, Shell, Exxon and BP accept that further, steady cost reductions for these renewable power sources are likely, though there is a strong sense that they are being overly conservative in their forecasts.
Nuclear, by contrast, is shrouded in fog when it comes to costs. Stated figures are highly project-specific. In Belarus, two 1.2GW AES-2006 reactors are under construction at a stated cost of $10bn, which equates to $4.2m per MW. Turkey’s 2010, $20bn contract with Rosatom of Russia to build the 4.8GW Akkuyu nuclear project came in at a similar $4.2m per MW. New nuclear projects in the United Arab Emirates and Pakistan, as well as in China, have been proposed with budgets of $3m to $5m per MW. However, in the US, two new units at the Vogtle plant in Georgia, totalling 2.2GW, are under construction and the mooted cost is $14bn – some $6.4m per MW. Hinkley’s 3.2GW are expected to cost GBP 16bn, which works out at $24.7bn or $7.65m per MW.
Some of these disparities will reflect different accounting treatment. For instance, project costs may be stated in current dollars, or they may be adjusted to take account of inflation over the project development and construction period. The cost of capital may be government-subsidised or it may be private sector. The cost of decommissioning and of waste storage for a period may be included – or not. Disparities may also reflect different building standards and planning system expenses. The industry and its supporters need to settle on standard methodologies for how costs are calculated. If the only way to make nuclear seem economically attractive is to hide costs and play tricks with discount rates, the industry will never gain public trust.
While it is understandable that different nuclear projects have different costs, there really is no excuse for the gross cost over-runs and delays that have plagued many recent nuclear new-build projects. The public can have no confidence in a technology that can cost twice as much and take twice as long to deliver as planned.
Give new a chance
The second issue that needs to be addressed is new technology. There are promising nuclear technologies that could bring improved cost-competitiveness relative to renewable and fossil fuel generation sources, lower the risk of construction delay, or help manage the issues of nuclear proliferation and waste. However, those new technologies are finding disappointingly little traction around the world, as governments plump for mature (not to say decades-only) designs such as the EPR.
Small modular reactors have been promoted as more nimble, quicker-to-build, flexible-in-size successors to the old behemoth plants. Unfortunately, this promotion has been going on a long time. Commissioning of the first SMR in the US was predicted for 2020, now that has slipped to 2023 or 2024. The technology is American, but the US is in thrall to cheap gas and two of the four SMR makers (Westinghouse and Babcock & Wilcox) have slowed development. The UK could have taken on the role of pioneering SMRs, and perhaps built a local supply chain, but decided not the take the opportunity. Argentina is making the high-profile move at the moment, having broken ground earlier this year for 25MW prototype based on local technology, although there are other efforts in China, Korea and Russia.
Thorium and other molten salt reactors are the other great hopes of nuclear fission. Thorium’s advantages over uranium are that it is four times as plentiful, and its processing does not lead so directly to the production of plutonium, so it is seen as carrying less danger of nuclear weapon proliferation. Sweden and Norway have been testing thorium technology, but are a long way from building a reactor. The best chance for the use of this material may be India, which has an ambitious nuclear programme of its own plus big domestic supplies of thorium, and China, which recently announced it was pushing ahead on research into thorium reactors.
The point here is not to endorse any particular new design. It is to point out that if new designs are to be part of the nuclear solution, then one would need to see first of all a much clearer statement of intent to that effect by government and industry, then much more money being invested in their development by all stakeholders, and a system of technical approval that is far more accelerated than is currently the case. You do not achieve a moon-shot by spending one decade in debate and another decade in theoretical discussion about whether the moon is made of cheese
The third issue that governments and the industry need to address is the disposal of spent fuel. Countries are adopting different strategies on this, none of them convincing. Japan has spent $20bn on its Rokkasho reprocessing plant, due to open Q4 2014. In the reprocessing of spent fuel, however, the plant will produce plutonium and a new set of problems. The US has opted to put the waste in concrete casks on site for 100 years, but this looks like an interim solution given that the fuel remains dangerous for many thousands of years. The proposed $6bn vault at Yucca Mountain seems on permanent hold.
What chance is there of addressing these three challenges for nuclear – clarity on costs, technology and waste? The short-term outlook may not look positive, but I would not write off the nuclear industry. Companies and policy-makers involved in renewable energy have proved surprisingly effective over the past three years at putting aside their differences and presenting a coherent vision of future potential. Nuclear could do the same.
Clearly the nuclear sector took a huge blow with the Fukushima accident, which took the wind out of the sails of a patiently-built narrative of nuclear renaissance. In many ways Fukushima was sui generis: an accident that could not happen in a more modern reactor, and certainly not under a modern, capable regulator.
Bloomberg New Energy Finance’s 2030 Market Outlook, published this summer, sees strong growth for nuclear, forecasting a 69% expansion in capacity worldwide from 345GW in 2012 to 583GW by 2030. Even then, and with $5 trillion in 2013 money being invested in renewables including hydro, global emissions will still not peak until the second half of the 2020s.
If nuclear is to deliver a full climate “wedge”, particularly in a world in which CCS fails to launch, the world needs it do much more.