The U.S. Energy Information Administration’s forecasts can be used as a pre-fukushima baseline scenario. They use the year 2035 as their terminal year. This is unfortunate and potentially misleading. Many existing nuclear plants (essentially all existing U.S. plants) will retire within a few years after 2035, even if they are able to secure 20-year license extensions. This means that sustaining nuclear’s share of total electricity generation, would require substantial construction of new nuclear plants well before midcentury both to meet growing electricity demand and to replace retiring units.
Turning first to the OECD countries with existing nuclear power programs, several countries where there was the possibility that they would build nuclear power plants to replace those that are retiring have now reversed course. These include Germany, Switzerland, Italy, Spain, and Belgium (probably). The situation in Japan necessarily remains in flux, but as the country with the third largest nuclear program a decision to move away from nuclear power, together with Germany’s decision would have a material effect on future trends. However, in the rest of the OECD countries with existing nuclear power programs we believe that construction of new nuclear capacity would have been slow absent Fukushima. Any tightening of safety requirements resulting from the Fukushima accident will only make the economic status of nuclear power less attractive.
A potential exception is the UK, where a large fraction of the existing fleet of nuclear plants is likely to retire for economic and technical reasons. Thus, there is a replacement market in the UK that does not yet exist in the U.S., France, etc. In 2008, the UK government decided to support building new nuclear plants, and that decision has, so far, not changed as a result of Fukushima, though the UK is participating in the larger EU review and this will delay pursuing new construction pending the outcome of “lessons learned” from Fukushima. Three consortia have been pursuing construction of several new nuclear units (EDF-Centrica, RWE-E.On, GDF-Iberdrola) using modern light water reactor technologies. However, the prospective new builds in the UK face challenges. The UK has a very large and heavily subsidized renewable energy program, and while natural gas prices are still high compared to the U.S., additional supplies of LNG, and pipeline supplies from Norway, Russia and Central Asia are coming on line, and shale gas deposits have been identified in England and other parts of Europe. In addition, England and Wales has the most liberalized wholesale spot electricity market in the world, with no capacity payments or long term contracts. This market does not appear to be conducive to investments in nuclear generation. In order to attract nuclear power investment the government is pursuing floor prices for carbon allowances and additional electricity market reforms are planned, including long term contracts and a capacity payment mechanism. Nevertheless, in September 2011, Scottish and Southern reported that it was withdrawing from the GDF/Iberdrola consortium and would pursue renewable energy opportunities instead, though the other members of the consortium indicated that they would continue.It has also been reported that RWE is re-evaluating investing in new nuclear plants in the UK. At least in the case of RWE this decision is indirectly related to Fukushima, as the German government’s decision to close its older nuclear plants immediately has had significant adverse effects on the finances of German utilities. It does appear that the UK government is going to great lengths to support nuclear power as part of its GHG mitigation strategy.
Of course, the economic situation confronting investment in nuclear power could change. Experience with the few new plants that are still expected to be built in the U.S. and Europe may demonstrate that current construction cost estimates are too high (so far France and Finland’s experience has been just the opposite) and that optimistic break-in periods allowing these plants to achieve high capacity factors quickly are realistic despite the more pessimistic history—see Du and Parsons (2010). Natural gas prices could increase again. Countries could back off of lavish subsidies and goals for renewable energy and energy efficiency programs. This experience will probably take a decade to accumulate. Thus, we do not expect a dramatic increase in investment in new nuclear plants in the OECD countries with existing programs in this decade, even absent Fukushima.
In the non-OECD countries the major action is in China, first and foremost, as well as in Russia and the former FSU countries in Eastern Europe, and the rest of Asia. The post-Fukushima assessments have had little direct effect so far on plans to construct new nuclear units in the countries where significant nuclear programs were being planned prior to Fukushima. China did reduce its plan for new plants by 2020 by 10 GWe, but many considered the original 100 GWe goal for 2020 unrealistic and the reduction may have reflected considerations other than safety. Russia, India, South Korea and most other non-OECD countries are continuing as planned, pending additional information from reactor safety audits and more information from Fukushima. After reviewing the post-Fukushima situation some countries have now decided that they will not enter or reenter the nuclear expansion business (e.g. Taiwan, Chile, Israel, Venezuela), but the impact on the aggregate global nuclear supply would have been small anyway. On the other hand, non-nuclear Turkey, Saudi Arabia, Vietnam, and Abu Dhabi have recommitted to start building nuclear power plants.
We do believe that the countries that are entering the nuclear power business and those that are considering dramatic increases in nuclear capacity may be underestimating the challenges associated with these plans. China currently has 15 operating reactors with a capacity of 11 GWe. It has 27 units under construction and plans to increase it nuclear capacity by a factor of seven or eight by 2020. It is relying on two foreign and two Chinese companies to lead this expansion. If there is one thing that we learned from the large expansion of nuclear capacity in the U.S. in the 1970s and 1980s it is that many unexpected construction and operating problems can emerge if the program is rushed, operates subject to constraints on the supply of skilled workers (like high-skilled welders, engineers, and construction managers) and does not build in time to respond to unexpected problems and to learn from experience. Successful nuclear power programs must meet economic, stringent safety and reliability criteria. We think that there is a serious risk that China’s program is too ambitious to achieve these criteria. Given the expected rapid growth in electricity demand, the small share of production contributed by nuclear power today (2%) and under the plan (6%), its dependence on imports of fossil fuels, and its goal of reducing dependence on dirty domestic coal supplies, China may be willing to sacrifice on the economics in order to meet energy security and environmental goals. However, China cannot fail to meet high safety standards and this may prove to be a constraint on how quickly its nuclear program can actually proceed.
Countries like Vietnam, Saudi Arabia, Turkey, and Abu Dhabi face additional challenges. They do not have the regulatory infrastructure, internal technical expertise, waste handling, non-proliferation, or industrial structures necessary to rapidly launch a nuclear power program. Indeed, one of the reasons they are interested in starting such a program is to gain and internalize technical expertise and some industrial infrastructure to help to advance their economies. Abu Dhabi has taken an approach that “outsources” most of what is needed to start a nuclear power program in all of these dimensions. It would be would be wise for other countries in this group to learn from its experience.
Paul L. Joskow and John E. Parsons, MIT-CEEPR
P.S. This post is an excerpt from The future of Nuclear Power After Fukushima