EU Energy Policy Blog

There are two major drivers for renewed interest in nuclear power in many countries of the European Union: the need for secure electricity supplies and the need to reduce greenhouse gas emissions.

During the course of the CESSA project the scope of ambition for new nuclear power plant construction in Europe has broadened. In 2007 the most ambitious nuclear new build plans for Europe would not have done more than replace exiting nuclear energy capacity. However, in early 2008 several countries (such as the UK, Italy and Romania) are considering measures that raise the possibility of a long-term net growth in European nuclear energy capacity, now made more attractive by the large increase in fossil fuel prices.

Several EU countries (including Ireland and Austria) remain resolutely opposed to nuclear power. The growth of the EU from 12 states to 27 has reduced the proportion of member countries with an anti-nuclear stance.

Concerns for global climate change have led to the European Emissions Trading Scheme and other policy measures that act in favour of nuclear new build by internalising a key externality and rendering nuclear power more cost competitive. However, several measures at both an international and a national level either continue to exclude nuclear power (e.g. Kyoto Protocol Clean Development Mechanism) or are reserved for renewables only (e.g. UK Renewables Obligation Certificates). Such policies may be defended as supporting emerging low-carbon technologies, but uncertainties about their likely penetration of renewables in electricity may have adverse impacts on the economics of nuclear power. For instance, high levels of intermittent wind power capacity could force down power prices on windy days with low demand while causing very high prices on still evenings with high power demand. However, if renewables play only a minor role, prices are likely to be much more stable. Uncertainty on such matters makes the economics of future nuclear power difficult to predict. It would perhaps be reckless to assume that the future supply demand balance in electricity will be similar to that operating today.

Issues of electricity security differ greatly across the member states of the European Union. In western member states, history has provided a robust and flexible electricity system and market liberalisation is generally well advanced. These countries enjoy a diverse range of energy sources and much investment is underway to expand this range of supply options. Investment in nuclear energy represents one such option. For many countries in central and eastern Europe there are extremely high levels of dependency upon natural gas imported from Russia. These countries fear both long-term high prices (arising from contracts linked to oil prices) and risks of supply interruptions with a wide range of possible causes (ranging from the technical to the geopolitical and upstream market power). Some of these countries also face poor electrical interconnections, combined with problematic gas supply pipeline routes and strong policy pressure to decommission legacy nuclear plant. It is unsurprising therefore that several of these EU states are among those most interested in new nuclear power programmes.

For the world as a whole the fuel of the future is coal – this presents enormous challenges to climate change policy. Generally worldwide nuclear new build is in competition with new pulverised coal plant. In the future there could be a competition with clean coal (e.g. Integrated Gasification Combined Cycle technology perhaps with Carbon Capture and Storage). In Europe today the main generation choice is still between new nuclear build and new investment in combined cycle gas turbine plant, although there are signs that coal is returning to favour as gas prices rise.

Across the European Union there is much consideration being given to the question of how, and whether, to replace aging nuclear power plants with new nuclear power plants. However it is also important to recognise the need to replace aging conventional power plants (particularly coal-fired power plants). If Carbon Capture and Storage can be developed and deployed at scale, then coal may have a significant place in the future European electricity mix. If not, there may be increasing pressure to replace coal-fired power plants with nuclear energy, depending on the success or otherwise of renewables generation and the ability to retain enough flexible plant to manage intermittency.

In considering a technology choice between gas and nuclear one should note that, while it is true that modern nuclear power plants can operate flexibly, generally nuclear power is much more likely to play a base-load role. This is primarily an economic rather than a technical matter owing to the more capital-intensive nature of the cost structure of nuclear generation and the very low variable costs. There is some evidence that nuclear power can supply short-term balancing services to compensate for sudden increases in wind output.

It is unlikely that Europe will be able to “speak with one voice” on matters of energy policy. This is especially true of electricity generation mix and nuclear power. Formally all member states accept that the generation mix is a sovereign matter for each state consistent with the subsidiarity principle. This is only tempered by a need formally to show sensitivity to the concerns of neighbouring states. Noting that both climate change and European Union energy import dependency are both issues that face the EU as a whole, CESSA has repeatedly returned to the question as to whether issues of the energy mix would be better handled at a European rather than at a member state level. While there is a widespread sense that such a shift could have real merit, CESSA recognises that the political realities militate against such an approach. CESSA accepts that the energy mix will not be determined at a European level anytime soon. Despite this, we note that the European Union in January 2007 published a most useful policy roadmap for renewables. We suggest therefore that, as a minimum first step, the Commission should initiate a process for a European Nuclear Energy Roadmap motivated by established European Greenhouse gas emission targets.

Nuclear Power policy is shaped by two regulatory pressures: the regulation of electricity markets and the safety regulation of a hazardous and politically contentious technology. While the benefits of a single European electricity market are widely recognised, progress on the question of pan-European safety regulation is much less developed. International project collaboration is emerging, particularly in Eastern EU Member States. CESSA would support moves towards the regionalisation and the eventual Europeanisation of safety regulation.

Economics is central to the future of nuclear power. We stress that nuclear power plants can be developed in a liberalized electricity market with no direct subsidy. This possibility is favoured by stable long-term carbon prices; sustained high oil and gas prices and regulatory approval for grid reinforcement by monopoly transmission companies similar to that put in place to assist new renewables projects. During the CESSA project the relative economic attractiveness of nuclear energy investment has improved significantly, such that economic risks now appear less daunting, although important issues of economic risk do remain, notably arising from the recent rapid escalation in construction costs and remaining uncertainties about the time before commissioning.

We observe significant interest from private companies in new nuclear power plant construction. In Finland the approach has been based on a consortium of companies with none having majority control. In Romania, despite substantial private sector enthusiasm, the current approach is for public sector leadership and control. In the UK it seems likely that leadership will come from large international electricity companies. The UK has arguably the most liberalised electricity sect0or in Europe. In such circumstances, at least for first of a kind (FOAK) plants, we expect large diversified electricity companies to hold the economic risks themselves via “corporate finance” rather than by creating new businesses specifically for the new build project, i.e. “project finance”. We note much thought is being given to novel financial structures for new nuclear power plants which are better suited to the economic project risks. These risks change with time, e.g. as a FOAK plant is completed risks decrease and the new financial structures become attractive. Furthermore when a sequence of plants is planned later plants can be collateralised against an operational FOAK plant, reducing financial risks and costs.

One possible threat to nuclear energy security in Europe relates to the global supply chain of key components for the construction of new nuclear power plants (e.g. nuclear pressure vessels and non-nuclear turbo-generator components). For the next few plants in Europe these concerns are not pressing as components are already reserved. Also in the very long term new engineering firms can be expected to enter the market and existing firms will increase their production capacity removing the constraints. However, there is a real risk of a problem for new European nuclear power plant projects with construction start dates planned in the medium-term, approximately 2015-2020.

Nuclear energy was the first large-scale energy system to attempt to fully manage its wastes. European countries adopt different approaches to the fuel cycle. For instance, France strongly advocates nuclear fuel reprocessing whereas Sweden takes the view that spent fuel should be regarded as a waste for disposal. The economic benefits of direct disposal of spent fuel can improve if associated with a medium-term option to retrieve. Such an option might be exercised if nuclear fuel reprocessing became overwhelmingly attractive in the future.

While uranium yellowcake prices have risen steeply in recent years there is no immediate or medium-term prospect of fuel resource scarcity, nor do rising prices have much impact on the economics of nuclear power. CESSA notes however that a global shift from replace nuclear with nuclear towards policies of nuclear expansion could put uranium supply under pressure and hence greatly improve the economics of reprocessing.

Reprocessing based fuel cycles raise a set of special issues such as policy for separated plutonium. CESSA has links to the EC Red-Impact project. That project has considered options for plutonium management.

CESSA noted the lack of European Commission research support for next generation nuclear energy systems. CESSA notes that Generation III nuclear power systems have only modest research needs and existing EC efforts appear sufficient. It is important, however, for Europe to consider its role in the longer-term future of nuclear energy generation. If Europe is to ensure the option of Generation IV nuclear systems then EC sponsored research would be appropriate. Such a policy would help provide a Generation IV option for member states, but would in no sense represent an obligation on them. It is important to stress that such research could extend the benefits of nuclear energy beyond electricity generation, for instance to include hydrogen production. This aspect of our work benefited greatly from the structure of the CESSA project with its thematic emphasis on hydrogen.

Noting the ITER machine under construction in Cadarache, France, CESSA has considered Europe’s leading position in Fusion energy research. CESSA researchers have expressed concern for the very long timescales of fusion research and the very high sunk costs. This presents Europe with a policy choice: either: wholeheartedly to assume global leadership in this field or cut our losses and divert fusion research funds to other opportunities with possibly better prospects. CESSA was not best placed to answer this question, but we believe it to be important and hence we recommend a high-level European review of fusion research policy.

The proliferation of nuclear weapons rightly remains a major global concern. While there may be geopolitical merit in European countries leading by example (for instance by unilaterally removing highly enriched uranium and separated plutonium from their civil nuclear activities), it is important to note that all European Union countries are robust in their measures to prevent proliferation. Furthermore any European member state decision to expand nuclear power would not raise the risk of nuclear weapons proliferation in any direct way. CESSA expresses no opinion on proliferation, safety and nuclear fuel cycles issues outside the EU.

William J. Nuttall and David M. Newbery, Cambridge

P.S. This Policy brief is informed by the work of the CESSA project, especially by the CESSA Conferences held at Berlin in June 2007 and in Cambridge in December 2007.

This entry was posted on Friday, September 5th, 2008 at 4:15 pm and is filed under Nuclear Power. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.