Topic 6: The Nuclear Industry. () Global Energy Issues, Industries and Markets 1 / 49

Transcription

1 Topic 6: The Nuclear Industry () Global Energy Issues, Industries and Markets 1 / 49

2 Introduction The set of slides is about the nuclear power industry Nuclear power used almost exclusively for energy generation... and has no CO2 emissions Many issues discussed in previous lectures on electricity are relevant (will not repeat here) Issues distinctive to nuclear power mostly relate to unique cost structure of industry Much in this lecture about cost structure Technological characteristics also important will briefly discuss some of these These characteristics lead to distinct cost structure but also political and environmental issues Reminder of big picture: next slide is BP s forecast of the future energy mix Following slide from IEA focusses only on electricity () Global Energy Issues, Industries and Markets 2 / 49

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5 The Cost Structure of Nuclear Power Plants Theme throughout this course: Energy projects often have high initial fixed costs then low variable (running) costs Holds true for many oil, natural gas and electricity generation projects Energy projects often have long time span and uncertainties exist over future profitability E.g. expensive LNG plant built now but lasts for decades, what will the future price of gas be? These characteristics lead to some of the economic theory issues discussed previously (e.g. natural monopoly) E.g. effi cient pricing (price = marginal cost) leads to losses (failure to recoup initial investment) () Global Energy Issues, Industries and Markets 5 / 49

6 The Cost Structure of Nuclear Power Plants (Overview) These characteristics also hold for nuclear power but to even bigger extent Nuclear power also has huge and uncertain decommissioning costs (and nuclear waste disposal, etc.) Nuclear power also has huge financial risks (who will pay if nuclear accident occurs?) Nuclear power has political risks (political decisions to stop nuclear power in Germany and Japan post-fukushima) Nuclear power also has security risks (terrorist worries, geo-political worries as stepping stone to nuclear weapons) The disadvantages mean nuclear power held back But nuclear power is a proven (and improving) technology and minimal CO 2 emissions IEA s World Energy Outlook, Chapter 11: Prospects for Nuclear Power: Retreat, Recovery or Ranaissance? () Global Energy Issues, Industries and Markets 6 / 49

7 A Very Brief History of Nuclear Power around the World Nuclear power boomed in 1960s and 1970s in US, Canada, Europe and Soviet Union Notable example: France (response to OPEC oil price shock) Nuclear power 8% of electricity generation in 1973, to 75% by 1990 Environmental worries (e.g. nuclear accidents at Three Mile Island and Chernobyl) and cheaper fossil fuel prices in 1980 s New nuclear construction fell rapidly after 1990s But increase in recent years in Asia (esp. China) Nuclear played important role in plans to reduce CO 2 These plans called into question after Fukushima Following figures (taken from IEA publications including IEA s Clean Energy Progress Report, 2011 and Nuclear Roadmap) illustrate these points () Global Energy Issues, Industries and Markets 7 / 49

11 The Cost Structure of Nuclear Power Plants In next lecture on renewables, will discuss cost estimates of various sources of power (including nuclear) But here is some material on cost structure based mainly on US data Other countries exhibit similar patterns and same issues arise With nuclear many costs and hard to quantify with certainty Financing risks, decommissioning and waste storage costs Next slide different estimates of electricity generating costs of nuclear compared with fossil fuels Different researchers obtain different estimates () Global Energy Issues, Industries and Markets 11 / 49

13 The Cost Structure of Nuclear Power Plants One cause of diverging estimates of costs of nuclear power plant are different assumptions about construction costs And given long time span, assumptions about discount rates have big effect (labelled Cost of capital rate in table) Also assumptions about future prices of fossil fuels are important If natural gas is cheap in future, nuclear is less attractive choice On purely economic grounds, is nuclear a good idea? Unclear (probably somewhat more costly than fossil fuels) But lots of uncertainty, depends on lots of factors (gas price, financing, etc.) Next few slides give more detail on these points () Global Energy Issues, Industries and Markets 13 / 49

14 The Cost Structure of Nuclear Power Plants Construction Costs (Capital Costs) Need large amount money up front (capital cost) to build nuclear power plant Servicing capital costs can account for 70-80% of costs of electricity Discount rate (or interest rate if money borrowed) is perhaps most important thing affecting costs. Table 3 (above) gives some numbers about size of capital cost Even excluding financing issues, next slide shows nuclear construction costs much higher than coal or natural gas () Global Energy Issues, Industries and Markets 14 / 49

16 The Cost Structure of Nuclear Power Plants Construction Costs: Cost over-runs Historically nuclear power suffered from: Increasing costs over time Cost over-runs (early estimates much too optimistic) In some countries (notably the U.S.) unexpected changes in licensing, inspection and certification meant delays and increased construction costs. E.g. Darlington Nuclear Generating Station (Canada) suffered delays due to policy changes Construction started in 1981 at an estimated cost of $7.4 billion and finished in 1993 at a cost of $14.5 billion. 70% of this price increase was due to interest charges incurred due to delays () Global Energy Issues, Industries and Markets 16 / 49

17 The Cost Structure of Nuclear Power Plants Construction Costs: Cost over-runs Japan and France, construction costs and delays are significantly diminished because of streamlined government licensing and certification procedures Figure on next slide shows US experience of rising construction costs Following slide shows US experience of delays Hot topic: Can UK government develop streamlined procedures to avoid these delays, uncertainties and cost over-runs? () Global Energy Issues, Industries and Markets 17 / 49

20 The Cost Structure of Nuclear Power Plants Financing Risks Companies have put up (or borrow) huge amounts of money with aim of eventually making a profit Riskier projects require higher expected return Summary of risks: Cost over-runs Timing (from time money raised to start producing electricity aim is 4 years, but often actuality much longer) During construction, no revenues are made Default: nuclear power industry full of bankruptcies () Global Energy Issues, Industries and Markets 20 / 49

21 The Cost Structure of Nuclear Power Plants Risks Regulatory risk: e.g. Shoreham plant (1989, US) was fully built but governor of New York refused to let operate (fears over evacuation plans) Costly Shoreham plant never produced any electricity Political risk: German and Japan shutdown of nuclear due to safety/environmental worries Political risk: e.g. in 2007/2008 nuclear power in US looked good due to proposed cap-and-trade system for carbon Legislation was not passed, setback for nuclear Uncertainty over costs of alternative electricity generation plants E.g. around 2007 gas prices were high and nuclear looked a good alternative But, in US, unconventional gas led to setback to nuclear () Global Energy Issues, Industries and Markets 21 / 49

22 The Cost Structure of Nuclear Power Plants Risks Technology risk: what if something better comes along during 40 year life of plant? E.g. carbon capture and storage becomes cheap (fossil fuels look good again) E.g. costs fall substantially for wind or solar () Global Energy Issues, Industries and Markets 22 / 49

23 The Cost Structure of Nuclear Power Plants Summary of Story So Far Before producing any electricity companies have to put up large amounts of money Must re-coup this money over long period (e.g years building years operating life) But companies face large uncertainties In days of government monopoly provision, government could take on all these risks. But will a private company? Will return to these issues below when discussing UK experience () Global Energy Issues, Industries and Markets 23 / 49

24 The Cost Structure of Nuclear Power Plants Operating Costs (variable costs) Operating costs of nuclear power plants low Uranium is the usual fuel Only small amounts of uranium used up in power generation Estimates: 16-28% of operating costs due to uranium Are there worries about future supply of uranium? Conflicting estimates exist Most say enough accessible uranium for a long time (e.g. 85 years is one estimate) () Global Energy Issues, Industries and Markets 24 / 49

25 The Cost Structure of Nuclear Power Plants Operating Costs (variable costs) Security costs Due to terrorism worries and green protest groups, nuclear plants spend a lot on security Safety costs are also high Administrative costs to comply with regulations also high relative to other forms of energy () Global Energy Issues, Industries and Markets 25 / 49

26 The Cost Structure of Nuclear Power Plants Other Costs: Waste Disposal Disposal of nuclear waste Nuclear waste can be hazardous for hundreds or thousands of years Long term storage issues not sorted out E.g. Obama (2009) said planned Yucca Mountain nuclear waste repository would not be used Short term storage is the practice U.S. a surcharge of a tenth of a cent per kilowatt-hour is added to electricity bills for nuclear waste storage Canadian provinces which use nuclear power add 1% on electricity bills to nuclear waste disposal () Global Energy Issues, Industries and Markets 26 / 49

27 The Cost Structure of Nuclear Power Plants Other Costs: Decommissioning At the end of a nuclear plant s lifetime plant must be decommissioned. Dismantling, safe storage or entombment. Companies usually required to build up a fund to cover these costs while plant in operation May cost $300 million or more to shut down and decommission a plant () Global Energy Issues, Industries and Markets 27 / 49

28 The Cost Structure of Nuclear Power Plants Other Costs: What if an Accident Occurs? History of nuclear power has (so far) been quite safe Very few fatalities relative to coal mining, etc. But consequences of an accident can be huge Small risk of HUGE loss () Global Energy Issues, Industries and Markets 28 / 49

29 The Cost Structure of Nuclear Power Plants Other Costs: What if an Accident Occurs? To reduce uncertainty faced by nuclear power companies, state usually covers these costs E.g. UK, Nuclear Installations Act of 1965 limits cost for the operator to 140 million U.S. is more complicated (Price-Anderson Nuclear Industries Indemnity Act) Nuclear power plants have private insurance pooled into a fund currently worth about $10 billion. Insurance claims beyond the fund s size would be organized by, and probably paid by, the U.S. government International: Vienna Convention on Civil Liability for Nuclear Damage and Paris Convention on Third Party Liability in the Field of Nuclear Energy () Global Energy Issues, Industries and Markets 29 / 49

30 The Role of Nuclear Power in Reducing Carbon Emissions Nuclear power produces very little CO 2 emissions IEA has, in prepartion for UN conference in Paris in December 2015, various scenarios in Energy and Climate Change Scenarios describe actions taken to reduce CO 2 emissions Future lectures will discuss these scenarios in more detail INDC = Intended National Determined Contributions submitted by individual countries INDC scenario = IEAs prediction of what will happen if countries meet their INDCs IEA s Bridge Scenario = INDC + some other low cost policy recommendations of IEA Next figure shows nuclear s role in electricity generation under bridge scenario Nuclear has small but significant role () Global Energy Issues, Industries and Markets 30 / 49

32 The Role of Nuclear Power in Reducing Carbon Emissions Renewables will be discussed in next lecture, but note a couple points: Electricity generated by renewables more costly than nuclear (although some dispute this) Hydro-electric power is limited by geography Nuclear is main low carbon alternative Important issue: wind and solar power are intermittent Nuclear power is not intermittent But intermittency raises need for peaking plants Remember (Topic 3): distinction between base load and peaking plants Nuclear good for base load, not good for peaking (gas plants are good for peaking) Possible that new designs for nuclear power plants may be more suitable as peaking plant () Global Energy Issues, Industries and Markets 32 / 49

33 The Role of Nuclear Power in Reducing Carbon Emissions Will there be a nuclear power renaissance driven by desire to reduce carbon emissions? My reading: probably not (or only a small amount of expansion) When I read policy reports, academic papers, lots of disagreement about basic issues, but Costs probably too high relative to fossil fuels (and Europeans may be willing to pay more for wind/solar power) Too many environmental worries (even if those in industry think these are ill-founded, popular opposition still exists) Big game changer would be strong evidence of major climate change jolting us into realization of need for immediate action: Prominent environmentalist James Lovelock says: Now is much too late to establish sustainable development. [nuclear] is the only effective medicine we have now Onshore wind turbines are merely... a gesture to prove [our leaders ] environmental credentials. () Global Energy Issues, Industries and Markets 33 / 49

34 History of Nuclear Power in the UK First Wave of Nuclear Power Provide brief history of nuclear power in UK Shows how one country responded to the issues described previously Nuclear power started early in UK (1955) In mid 1960s UK generating more nuclear electricity than rest of world put together Technology plus wish for energy diversity (London smogs from coal, worries about global oil supplies around time of Suez) Early Magnox nuclear plants ineffi cient Windscale accident, CND protests dampened enthusiasm () Global Energy Issues, Industries and Markets 34 / 49

35 History of Nuclear Power in the UK Second Wave of Nuclear Power A new technology was chosen (AGR = advanced gas cooled reactor) Decision cut off UK from nuclear mainstream for 25 years Rest of the world mostly chose another technology (PWR = pressurized water reactor) 1964 government minister told parliament: we have hit the jackpot... we have the greatest breakthrough of all time But this was based on prototype, needed to scale up by factor of 20 to make power station AGRs were a disappointment First station, Dungeness B (Kent) ordered in 1965, did not produce electricity until 1993 (large cost over-runs) () Global Energy Issues, Industries and Markets 35 / 49

36 History of Nuclear Power in the UK Second Wave of Nuclear Power Experimented with 4 different AGR designs Note: probably the best of these was used at our local Hunterston B Theme: decision made under uncertainty and industry is stuck with it for a long time AGRs are gradually being phased out, phase out currently scheduled to end in 2023 Note: criticism of research programme leading to AGRs Experts made (wrong?) decisions without democratic or commercial oversight () Global Energy Issues, Industries and Markets 36 / 49

37 History of Nuclear Power in the UK Third Wave of Nuclear Power I won t give full details of squabbling over nuclear power in 1970s due to disappointment with AGRs Choice between 3 technologies (AGR, PWR or SGHWR = steam generating heavy water reactor) Government announced SGHWR and then backtracked (technology problems, etc.) A few were built using PWR (Sizewell B) 1979 Margaret Thatcher came to power with hopes to build 10 new PWR plants But with Three Mile Island, public opposition and privatization these were not pursued () Global Energy Issues, Industries and Markets 37 / 49

38 History of Nuclear Power in the UK Ownership of Nuclear Power In early years nuclear power government run Advantage: Able to make long run decisions and take on long run risks Disadvantage: Decisions (probably) bad ones plus costly and ineffi cient Re-organization in early 1970s Until early 1970 s nuclear power and nuclear bombs in one agency Then military plus civilian use separated Fuel (British Nuclear Fuels), Construction (National Nuclear Corporation) and electricity generation separated () Global Energy Issues, Industries and Markets 38 / 49

39 History of Nuclear Power in the UK Ownership of Nuclear Power In Topic 3: Electricity Generation: Deregulation and Competition discussed liberalization of UK electricity markets Will not repeat all here (nuclear was part of this), but remember: Central Electric Generating Board (CEGB), state owned, controlled generation and transmission CEGB provided power to 12 local monopolies over distribution Nuclear power stations were part of CEGB or SSEB (South of Scotland Electricity Board) Remember: Liberalization/privatization of electricity markets around 1990 But nuclear power did not find ready buyers so not privatized at time other electricity plants were () Global Energy Issues, Industries and Markets 39 / 49

40 History of Nuclear Power in the UK Did Privatization Spell the End of UK Nuclear Power? New company, Nuclear Electric, kept in state ownership Nuclear reactors "were so unprofitable they could not be sold." In 1995, Nuclear Electric and Scottish Nuclear were combined and split as follows: UK s eight most modern nuclear plants privatized in 1996 as British Energy Government gave them away to British Energy But even with this, British Energy, had to be bailed out in 2004 to the extent of 3.4 billion pounds In 2009, British Energy was acquired by Électricité de France (EDF) Old Magnox reactors left in state ownership (BNFL), although in 2007 spun off to company called EnergySolutions () Global Energy Issues, Industries and Markets 40 / 49

41 History of Nuclear Power in the UK Future of Nuclear Power in UK? Except for Sizewell B, UK nuclear power plants all scheduled to close by 2023 In 2007 Blair government backed new generation of nuclear plants Said could be built without public subsidy Current government also views nuclear as key part of de-carbonization policy But things are not going well SNP government in Scotland says no nuclear plants will be allowed 2008: three consortia (EDF-Centrica, RWE-E.ON and Iberdrola - SSE - GdF-Suez) announce plans to build new nuclear plants. Sweden s Vattenfall also expresses interest () Global Energy Issues, Industries and Markets 41 / 49

42 History of Nuclear Power in the UK Future of Nuclear Power in UK? 2009: 11 locations for nuclear power plants chosen (later reduced to 8), mostly on sites of current nuclear plants 2009: government says carbon price floor needs to be set to encourage nuclear Financial Times, November 11, 2009 Vattenfall, the state-owned Swedish power group, has dropped plans to sell its domestic electricity distribution business and invest in UK nuclear power amid a political storm over the proposals. 2012: RWE-E.ON withdraws Iberdrola - SSE - GdF-Suez still aim to go ahead but decision years off () Global Energy Issues, Industries and Markets 42 / 49

43 History of Nuclear Power in the UK Future of Nuclear Power in UK? One aspect is long term contracts for difference Designed to guarantee revenues for renewable energy and nuclear power generators, even if market prices dip Next slide illustrates how contracts for different work Decision on strike price key At end of 2013, EDF and government came to agreement for one (or maybe two) plants Hinkley Point But strike price (high, about twice as high as current wholesale price of electricity) and deal holds for 35 years... () Global Energy Issues, Industries and Markets 43 / 49

45 History of Nuclear Power in the UK Future of Nuclear Power in UK? Legal hassles: subsidies challenged as illegal state aid. EU approved them, but now Austria is challenging in European Court of Justice But recent newspaper headlines reflect worries: French reactor problems cast doubt on UK nuclear power plant (FT, 14 June, 2015) And worries over financing But Nuclear industry confident over long-term prospects (FT, 12 July, 2015) with plans for other nuclear power plants Basic funding scheme with contracts-for-difference (and possibly government guarantees for debt) same as Hinkley Point will be used (and for renewables) () Global Energy Issues, Industries and Markets 45 / 49

46 Case Study Topic: Impacts of Fukushima After Fukushima nuclear plants shut down, current government has begun to re-start small number of them Reading to get you started: A. Miyamoto, C. Ishiguro, M. Nakamura (2012). A realistic perspective on Japan s LNG Demand after Fukushima, Oxford Institute for Energy Studies (available on web through Financial Times, 2 August, 2012, Japan Starts Debate on Power Deregulation Or could be broadened out to be broader study of future of nuclear energy Reading to get you started: The Economist, Special Report on Nuclear Power (March 10, 2012): The dream that failed Next slide, taken from the Institute for Sustainable Energy Policies (Tokyo) gives idea of magnitude of impact () Global Energy Issues, Industries and Markets 46 / 49

48 Case Study Topic: Germany s Energiewende This topic relates more to renewables But Germany s recent nuclear exit has important implications Readings to get you started: D. Buchan (2012). The Energiwende: Germany s Gamble, Oxford Institute for Energy Studies (available on web through The Economist, 23 June, 2012, Germany s energy giants: Don t mention the atom () Global Energy Issues, Industries and Markets 48 / 49

49 Summary Nuclear power has some advantages: Known technology, reliable power that can be scaled up to be any size you want (unlike renewable) Minimal CO 2 emissions (unlike fossil fuels) But disadvantages: High initial costs, low running costs but great uncertainties and risks Probably not commercially viable without government subsidies or price guarantees Article in Financial Times, July 30, 2012, Nuclear Hard to Justify Says GE Chief ( It s really a gas and wind world today, say Jeff Immelt... ) () Global Energy Issues, Industries and Markets 49 / 49