Yves Smeers Université Catholique de Louvain School of engineering ...
The Role of Nuclear Yves Smeers Université Catholique de Louvain School of engineering - INMA and CORE Climate Change & Energy Security International Conference Brussels - 15th and 16th december 2008. 1
1 - The AIE World Energy Outlook Previsions from 2008 to 2030 (but there are other scenarios)
2
1.1 - Nuclear in the reference scenario : 2008-2030 Global View • Global evolution : world nuclear market share is decreasing. • Nuclear capacity increases, but much less than - renewable in OECD countries - coal and gas in non OECD countries.
• Recent Carbon Capture and Sequestration (CCS) proposals and developments mostly coming from OECD countries.
3
1.1 - Nuclear in the reference scenario : 2008-2030 Global View
Fig. 1 - The widespread use of coal and gas in 2030. Source : AIE World Energy Outlook 2008.
4
1.1 - Nuclear in the reference scenario : 2008-2030 Global View
Global evolution : The power demand in non OECD countries will continue to rise.
Fig. 2 - Power plants in construction in OECD and Non-OECD countries. Source : AIE World Energy Outlook 2008. 5
1.1 - Nuclear in the reference scenario : 2008-2030 OECD vs. non OECD
• Still : two different behaviors. OECD countries and non OECD countries.
• OECD : Less coal. Avoid sharp increases in the use of gas. A boom in the use of renewable(specifically Hydro and Wind).
• Non OECD : A boom in the use of Coal, Gas and Hydro. • Although the number of nuclear plants significantly increases
(a “renaissance” of nuclear projects caused by environmental policies in OECD), nuclear market share falls.
6
1.1 - Nuclear in the reference scenario : 2008-2030 OECD electricity generation
Fig. 3 - Increase in electricity generation. The boom in the use of renewable technology in OECD Zone. The renaissance of nuclear. Source : AIE World Energy Outlook 2008. 7
1.2 - Nuclear in the alternative scenario : 2008-2030 The 550 policy scenario
• An alternative scenario : the 550 (ppm) policy scenario. Restriction on CO2 emissions.
• Previsions? Compared to the reference scenario : - coal based generation decreases by 32%; - nuclear generation rises by 20%… - but so does renewable generation (up to 23% compared to the reference scenario). Nuclear market share still decreases from 15% to 14% in 2030. 8
1.2 - Nuclear in the alternative scenario : 2008-2030 Reference vs. 550 policy scenario
Fig. 4 - The power generation mix variation from the reference to the 550 policy scenario. Source : AIE World Energy Outlook 2008. 9
1.3 - An important distinction
• Growth in OECD slower than in non OECD. • In OECD countries, on a global scale
Whatever the scenario, policies tend to restrict nuclear and favour renewable and conservation.
• In non OECD countries - in the reference scenario : emphasis put on coal, the nuclear coming second. No emphasis on conservation or CCS. - in the 550 scenario : emphasis on nuclear and on renewable. Some efforts on conservation and CCS. 10
1.4 - Whatever the scenario… …market share of nuclear decreases in the future.
Fig. 5 - Fuel shares in the reference and the 550 policy scenario. Source : AIE World Energy Outlook 2008.
1.5 - Is this credible? The standard criticism.
• Scenarios come from mathematical and economic models that
- are sometimes seen as “nonscience” by hard science; - do not always clearly delineate what is exogeneous and endogeneous - are often sensitive to calibration and “educated guess” assumptions; - exist in different mixes of underlying economic theories and solution methods. Different models give different “insights”.
• The only recourse today : look at alternative results from different models. 12
1.5 - Is this credible? The standard criticism. Scenarios results from assumptions on risks factors.
• Macroeconomics : e.g. potential growth in different regions of the world.
• Oil, coal and gas prices and the recurring question of their evolutions.
• Supply possibilities : availability of Russian gas for export as a function of domestic Russian prices; investment in OPEC, etc.
• CO strategy and free allowance policy. • RES, nuclear and conservation policy (e.g. the offshore wind). • Fundamental factors like elasticity of demand. • The completely new financial economic situation. 2
13
1.5 - Focusing on the criticisms What is driving investment for nuclear in these models? Major assumptions have major impacts : Oil price and GDP growth (e.g. 2030 oil price from 40$2005 to 160$2005 in a sample of scenarios). (but think of oil price evolution in a few months in 2008)
•
• Investment costs assumptions have always been a nightmare. • C0 exogeneous or endogeneous prices? 2
A (very transparent) study with C02 prices ranging between 228 and 5100 €2005/t in 2030 depending on the scenario!!!
• Nuclear generation in EUR25 ranging from 600 to 1700 Twh in a (moderatly transparent) Eurelectric study 14
1.5 - Focusing on the criticisms
• Specifically for the rest of this talk : models assume some
investment behavior (the usual net present value calculation). Invest in : - Nuclear - Coal (with or without CCS?) - Gas - Conservation - Renewable -…
• What could decrease the incentive to invest in nuclear?
Could the same factors also affect other delicate technologies like renewable and CCS? 15
2 - The pros and cons of nuclear Old and new questions
16
2.1 - Safety and waste disposal
• Safety and nuclear waste old argument; repeated since 30 years; likely to remain with us.
• Operators’ hiding/delaying reporting incidents always backfires.
Examples : TEPCO(2000), VATTENFALL(2007), SOCATRI(2008).
• A new rational view : focus on perception.
“Perception has nothing to do with facts” (Iribane : Les français et les déchets nucléaires, 2005). Eurobarometer (2005, 2007) 2008.
• Opinions evolve. Long standing support in France, Finland,
Romania… evolution in UK, Netherland, Italy. A lot of new projects outside the EU : in US, Asia and the Middle East (but not all materialize (e.g. Exelon cancels a GE plant in Texas in 11/08) 17
2.2 - Proliferation Proliferation : the economic vs. geopolitic motivation
• Is this battle lost? • The interest for nuclear develops in quite different countries, sometimes located in the same “difficult” region (e.g. US nuclear cooperation with UAE, which is the largest trading partner of Iran!).
• Different positions in terms of non proliferation protocol,
Comprehensive Test Ban Treaty (CTBT) and capability to deploy ballistic missiles.
• There is a strong push for nuclear development by the
vendors : China, France, Russia, US. Many memorandum of understanding (MOU) between these vendors and countries in the Middle East+India, Pakistan.... 18
2.3 - The new pros Security of supply and climate change.
• The arithmetic of gas dependance and the question of
security of supply with the possible incentive for Gazprom to limit exports for purely economic reasons (absent geopolitic motivation).
• Climate change : nuclear does not emit C0 . 2
Is a non emitted ton of C02 not always equal to another non emitted ton of C02 ? (recall “perception has nothing to do with facts.”)
19
2.4 - The ever lasting challenge : conservation
• This is the way to go.
But it looks like the promised land since 30 years…
• and the same market failures are mentioned since 30 years. • An interesting and strong signal : Mc Kinsey’s interest for
conservation (Mc Kinsey Global Institute in 2007 and 2008).
20
3 - A new Problem : Changing Economic and Financial Conditions.
21
3.1 - The fundamental push for nuclear development
• Need for BASE LOAD generation as aging and dirty fleet has to retire.
• Upward tendency of fossil fuel prices (but price volatility has a counterproductive effect).
• Very long life of nuclear plants (even though shorter life will be used in computation).
• Important potential economies of scale in construction (e.g. by building in France and U.K.)
• Strong upward evolution of load factor in competitive system (e.g. in the U.S. where load factor were initially very bad). 22
3.1 - The fundamental push for nuclear development
Fig. 6 - Strong improvement of the load factor in the U.S. Source : Energy Information Administration. * : preliminary data for 2008. 23
3.2 – The old economics of nuclear A recent version of a (very) old picture : “Nuclear is the cheapest base load.”
Fig. 7 - Electricity generation costs. Source : Comparison of electricity generation costs. T. Risto and K. Aija, 2008. 24
3.2 – The old economics of nuclear
• A Finnish reference! (see www.industrie.gouv.fr/energie for a French view) OLD: Finland has a long nuclear tradition NEW: and initiated a technological (EPR) and contractual renaissance (cost based pricing for shareholders).
• This is also a very standard, very engineering, view
- cost based (not revenue based) - stylized 5% discount rate (not cost of capital of the firm)
• This is also a financial risk free view
- even though the paper contains sensitivity analysis 25
3.3 - Uncertainty and risks hinder nuclear development.
• Risks don’t help nuclear
…but they would help neither renewable (which are more capital intensive but of smaller size) nor CCS were it not for external guarantee. But one must distinguish :
• The old risks : in the monopoly regime. • A new source of risks : the competitive regime
and differentiated subsidies in the competitive regime.
26
3.3 - Uncertainty and risks hinder nuclear development. The old picture and the old risks
• There were risks before :
- uncertainties and delays in licensing procedures (FOK); - long construction time; - back-end costs (fuels and decommissioning); - uncertainties in construction (FOK).
• These risks affecting costs were largely (but note always) fully passed in the price to consumers.
27
3.3 - Uncertainty and risks hinder nuclear development. The new picture, the old and new risks
• NEW : old risks remain but they can no longer be passed
to the consumer : they thus appear in the cost of capital, or must be shared in some way (e.g. Areva vs. TVO)
• NEW : cost is no longer the sole risk today • NEW : revenue is an additional risk • NEW : leading to profits that are volatile • Remember : Firms in a competitive system are supposed to make decision on the basis of profit and risk, not costs. 28
Using an old picture to explain new risks…
Fig. 8 - Least cost generating capacity mix. Source : Joskow, 2006. “Competitive electricity markets and investment in new generating capacity.” Center for Energy and Environmental Policy Research, MIT. 29
3.4 - On nuclear margin.
• Nuclear gross margin is zero if the technology set the price
(unlikely in case of undercapacity in nuclear). Nuclear gross margin is negative when forced to run (for instance because of must run wind). It may have to pay to continue running (EEX negative prices with increasing German wind generation).
• Nuclear gross margin is coal or CCGT gas cost minus nuclear fuel cost when coal or gas set the price. It is equal to OCGT gas cost minus fuel nuclear cost when gas turbine set the price..
• These gross margins pay for the investment cost when the plant is not depreciated. Is this payment risky? 30
Fig. 9 - Forward power price for 2009 on EEX, APX and PWN. Source : GDF-Suez
• …margins can be very volatile… or (partially) self-hedged!!!
Fig. 10 - Spot Gas price on the NBP. Source : GDF-Suez 31
Fig. 9 - Forward power price for 2009 on EEX, APX and PWN. Source : GDF-Suez
…margins can be very volatile… or (partially) selfhedged!!!
Fig. 11 - Spot Coal MCIS index for 2008. Source : GDF-Suez 32
3.4 - On nuclear margin. Comments
• These graphs (describing admittedly very exceptional circumstances) show that :
• in contrast with a pure cost approach where nuclear is usually (but not always) economically less risky than other sources;
• it can be more risky in a revenue/profit based system
- because fossil plants are to some extent self-hedged… - while nuclear essentially runs on a fixed fuel cost.
33
3.5 - Impact on investment: a general principle. Consequences
• The increases of volatility decreases the incentive to invest. • The more capital intensive the plant is, the higher the decrease of the incentive to invest (except if there is some external protection against risks).
• This principle applies to all technologies but all technologies are not treated the same. (Example : feed-in tariffs in Germany eliminate investment risk. Could there be anything like that for nuclear?)
34
3.5 - Impact on investment: A U.S. example
Some measures to stimulate investment in new power plants…
35
Fig. 12 - Stimulus for New Plants. Source : Nuclear Energy Institute, 2008.
3.5 - Impact on investment - Are there alternatives?
• Deep pocket companies can take the risks : EdF plans in UK and its acquisition of nuclear fleets abroad
• Consortium of oil companies, utilities and nuclear vendors
(e.g. : Total, GdF Suez, Areva in UAE) - Oil companies have large equity bases. - Are forced more and more to work on huge, very risky projects with consortium of operators and lenders. - And are pushed to diversify into other energies as their access to hydrocarbon resources is progressively restricted by governments.
• Special average costs based contracts as in Finland or France (Exeltium).
36
4 - What About Belgium? Premises: two unquotable quotes
37
4.1 - Closing existing plants?
• Is closing of nuclear plants rational?
The usual economic response : a cost/benefice analysis. What is the benefit of closing Belgian nuclear units in the current global (relative) expansion (in GW not in market share) of the technology? Difficult to know!!! What does it cost Belgium to close nuclear units in current climate change policy? Check 080908 FPB: hard times with little fuel substitution flexibility, partly because of phasing out of nuclear!!!
• Can one physically close down the plants? Ecolo’s statement “Yes we can”: But we can what? - replace cheap (depreciated), base, non emitting capacity, by a mix of expensive, base and intermittent capacities, some of them emitting - that requires capital expenses, possibly also in the gas grid. 38
4.2 - Suppose we do not close down these plants… Would we have new investments in nuclear? Not clear. Financial risks are probably high in Belgium Weak institutions and regulatory (legal?) uncertainty
• • A special small country risk : consider the (absurd but
realistic) scenario. • EC: The internal market remains geographically segmented. • EC and B: Competition Authorities and Regulator argue against a nuclear monopoly in Belgium and ask for competition in nuclear generation in the country. • Because of plant size (EPR is 1.6 GW) with respect to the relevant maket, investors would face a huge demand risk. 39
4.3 - …to conclude on a possible follow up of a yes/ no nuclear scenario.
• Consider the position of the Energy Intensive Industries and carbon leakage: EIIs moving out because of lack of cheap electricity (Belgian EIIs are already energy efficient (FPB))
- No evidence of CL so far but no evidence that it will not happen (IEA 2008); - Underlying move of the EIIs towards Asia accelerated by the current crisis; Global EIIs will not suffer much; MS will. - uncertainly on nuclear enhances demand risk and reduces the incentive to invest; - No nuclear enhances EIIs’ incentive to move out. 40
5 -Conclusion
41
• We probably need nuclear (IEA and most scenarios but
Greenpeace) (too many constraints in a non cooperative economic system), even if we would prefer not.
• The old difficulties remain : safety and waste disposal, proliferation, etc. New difficulties arise : high investment risks.
• Barring some “ex ante bailing out” of the technology (e.g. the US example or a large, positively oriented market), only companies with deep pockets or well diversified consortia can take the risks of more scattered developments.
• No need to further complicate the situation with confusing
and even erroneous statements on nuclear rent, base load equivalent of intermittent sources, free renewable.... 42
1 - The AIE World Energy Outlook Previsions from 2008 to 2030 (but there are other scenarios)
2
1.1 - Nuclear in the reference scenario : 2008-2030 Global View • Global evolution : world nuclear market share is decreasing. • Nuclear capacity increases, but much less than - renewable in OECD countries - coal and gas in non OECD countries.
• Recent Carbon Capture and Sequestration (CCS) proposals and developments mostly coming from OECD countries.
3
1.1 - Nuclear in the reference scenario : 2008-2030 Global View
Fig. 1 - The widespread use of coal and gas in 2030. Source : AIE World Energy Outlook 2008.
4
1.1 - Nuclear in the reference scenario : 2008-2030 Global View
Global evolution : The power demand in non OECD countries will continue to rise.
Fig. 2 - Power plants in construction in OECD and Non-OECD countries. Source : AIE World Energy Outlook 2008. 5
1.1 - Nuclear in the reference scenario : 2008-2030 OECD vs. non OECD
• Still : two different behaviors. OECD countries and non OECD countries.
• OECD : Less coal. Avoid sharp increases in the use of gas. A boom in the use of renewable(specifically Hydro and Wind).
• Non OECD : A boom in the use of Coal, Gas and Hydro. • Although the number of nuclear plants significantly increases
(a “renaissance” of nuclear projects caused by environmental policies in OECD), nuclear market share falls.
6
1.1 - Nuclear in the reference scenario : 2008-2030 OECD electricity generation
Fig. 3 - Increase in electricity generation. The boom in the use of renewable technology in OECD Zone. The renaissance of nuclear. Source : AIE World Energy Outlook 2008. 7
1.2 - Nuclear in the alternative scenario : 2008-2030 The 550 policy scenario
• An alternative scenario : the 550 (ppm) policy scenario. Restriction on CO2 emissions.
• Previsions? Compared to the reference scenario : - coal based generation decreases by 32%; - nuclear generation rises by 20%… - but so does renewable generation (up to 23% compared to the reference scenario). Nuclear market share still decreases from 15% to 14% in 2030. 8
1.2 - Nuclear in the alternative scenario : 2008-2030 Reference vs. 550 policy scenario
Fig. 4 - The power generation mix variation from the reference to the 550 policy scenario. Source : AIE World Energy Outlook 2008. 9
1.3 - An important distinction
• Growth in OECD slower than in non OECD. • In OECD countries, on a global scale
Whatever the scenario, policies tend to restrict nuclear and favour renewable and conservation.
• In non OECD countries - in the reference scenario : emphasis put on coal, the nuclear coming second. No emphasis on conservation or CCS. - in the 550 scenario : emphasis on nuclear and on renewable. Some efforts on conservation and CCS. 10
1.4 - Whatever the scenario… …market share of nuclear decreases in the future.
Fig. 5 - Fuel shares in the reference and the 550 policy scenario. Source : AIE World Energy Outlook 2008.
1.5 - Is this credible? The standard criticism.
• Scenarios come from mathematical and economic models that
- are sometimes seen as “nonscience” by hard science; - do not always clearly delineate what is exogeneous and endogeneous - are often sensitive to calibration and “educated guess” assumptions; - exist in different mixes of underlying economic theories and solution methods. Different models give different “insights”.
• The only recourse today : look at alternative results from different models. 12
1.5 - Is this credible? The standard criticism. Scenarios results from assumptions on risks factors.
• Macroeconomics : e.g. potential growth in different regions of the world.
• Oil, coal and gas prices and the recurring question of their evolutions.
• Supply possibilities : availability of Russian gas for export as a function of domestic Russian prices; investment in OPEC, etc.
• CO strategy and free allowance policy. • RES, nuclear and conservation policy (e.g. the offshore wind). • Fundamental factors like elasticity of demand. • The completely new financial economic situation. 2
13
1.5 - Focusing on the criticisms What is driving investment for nuclear in these models? Major assumptions have major impacts : Oil price and GDP growth (e.g. 2030 oil price from 40$2005 to 160$2005 in a sample of scenarios). (but think of oil price evolution in a few months in 2008)
•
• Investment costs assumptions have always been a nightmare. • C0 exogeneous or endogeneous prices? 2
A (very transparent) study with C02 prices ranging between 228 and 5100 €2005/t in 2030 depending on the scenario!!!
• Nuclear generation in EUR25 ranging from 600 to 1700 Twh in a (moderatly transparent) Eurelectric study 14
1.5 - Focusing on the criticisms
• Specifically for the rest of this talk : models assume some
investment behavior (the usual net present value calculation). Invest in : - Nuclear - Coal (with or without CCS?) - Gas - Conservation - Renewable -…
• What could decrease the incentive to invest in nuclear?
Could the same factors also affect other delicate technologies like renewable and CCS? 15
2 - The pros and cons of nuclear Old and new questions
16
2.1 - Safety and waste disposal
• Safety and nuclear waste old argument; repeated since 30 years; likely to remain with us.
• Operators’ hiding/delaying reporting incidents always backfires.
Examples : TEPCO(2000), VATTENFALL(2007), SOCATRI(2008).
• A new rational view : focus on perception.
“Perception has nothing to do with facts” (Iribane : Les français et les déchets nucléaires, 2005). Eurobarometer (2005, 2007) 2008.
• Opinions evolve. Long standing support in France, Finland,
Romania… evolution in UK, Netherland, Italy. A lot of new projects outside the EU : in US, Asia and the Middle East (but not all materialize (e.g. Exelon cancels a GE plant in Texas in 11/08) 17
2.2 - Proliferation Proliferation : the economic vs. geopolitic motivation
• Is this battle lost? • The interest for nuclear develops in quite different countries, sometimes located in the same “difficult” region (e.g. US nuclear cooperation with UAE, which is the largest trading partner of Iran!).
• Different positions in terms of non proliferation protocol,
Comprehensive Test Ban Treaty (CTBT) and capability to deploy ballistic missiles.
• There is a strong push for nuclear development by the
vendors : China, France, Russia, US. Many memorandum of understanding (MOU) between these vendors and countries in the Middle East+India, Pakistan.... 18
2.3 - The new pros Security of supply and climate change.
• The arithmetic of gas dependance and the question of
security of supply with the possible incentive for Gazprom to limit exports for purely economic reasons (absent geopolitic motivation).
• Climate change : nuclear does not emit C0 . 2
Is a non emitted ton of C02 not always equal to another non emitted ton of C02 ? (recall “perception has nothing to do with facts.”)
19
2.4 - The ever lasting challenge : conservation
• This is the way to go.
But it looks like the promised land since 30 years…
• and the same market failures are mentioned since 30 years. • An interesting and strong signal : Mc Kinsey’s interest for
conservation (Mc Kinsey Global Institute in 2007 and 2008).
20
3 - A new Problem : Changing Economic and Financial Conditions.
21
3.1 - The fundamental push for nuclear development
• Need for BASE LOAD generation as aging and dirty fleet has to retire.
• Upward tendency of fossil fuel prices (but price volatility has a counterproductive effect).
• Very long life of nuclear plants (even though shorter life will be used in computation).
• Important potential economies of scale in construction (e.g. by building in France and U.K.)
• Strong upward evolution of load factor in competitive system (e.g. in the U.S. where load factor were initially very bad). 22
3.1 - The fundamental push for nuclear development
Fig. 6 - Strong improvement of the load factor in the U.S. Source : Energy Information Administration. * : preliminary data for 2008. 23
3.2 – The old economics of nuclear A recent version of a (very) old picture : “Nuclear is the cheapest base load.”
Fig. 7 - Electricity generation costs. Source : Comparison of electricity generation costs. T. Risto and K. Aija, 2008. 24
3.2 – The old economics of nuclear
• A Finnish reference! (see www.industrie.gouv.fr/energie for a French view) OLD: Finland has a long nuclear tradition NEW: and initiated a technological (EPR) and contractual renaissance (cost based pricing for shareholders).
• This is also a very standard, very engineering, view
- cost based (not revenue based) - stylized 5% discount rate (not cost of capital of the firm)
• This is also a financial risk free view
- even though the paper contains sensitivity analysis 25
3.3 - Uncertainty and risks hinder nuclear development.
• Risks don’t help nuclear
…but they would help neither renewable (which are more capital intensive but of smaller size) nor CCS were it not for external guarantee. But one must distinguish :
• The old risks : in the monopoly regime. • A new source of risks : the competitive regime
and differentiated subsidies in the competitive regime.
26
3.3 - Uncertainty and risks hinder nuclear development. The old picture and the old risks
• There were risks before :
- uncertainties and delays in licensing procedures (FOK); - long construction time; - back-end costs (fuels and decommissioning); - uncertainties in construction (FOK).
• These risks affecting costs were largely (but note always) fully passed in the price to consumers.
27
3.3 - Uncertainty and risks hinder nuclear development. The new picture, the old and new risks
• NEW : old risks remain but they can no longer be passed
to the consumer : they thus appear in the cost of capital, or must be shared in some way (e.g. Areva vs. TVO)
• NEW : cost is no longer the sole risk today • NEW : revenue is an additional risk • NEW : leading to profits that are volatile • Remember : Firms in a competitive system are supposed to make decision on the basis of profit and risk, not costs. 28
Using an old picture to explain new risks…
Fig. 8 - Least cost generating capacity mix. Source : Joskow, 2006. “Competitive electricity markets and investment in new generating capacity.” Center for Energy and Environmental Policy Research, MIT. 29
3.4 - On nuclear margin.
• Nuclear gross margin is zero if the technology set the price
(unlikely in case of undercapacity in nuclear). Nuclear gross margin is negative when forced to run (for instance because of must run wind). It may have to pay to continue running (EEX negative prices with increasing German wind generation).
• Nuclear gross margin is coal or CCGT gas cost minus nuclear fuel cost when coal or gas set the price. It is equal to OCGT gas cost minus fuel nuclear cost when gas turbine set the price..
• These gross margins pay for the investment cost when the plant is not depreciated. Is this payment risky? 30
Fig. 9 - Forward power price for 2009 on EEX, APX and PWN. Source : GDF-Suez
• …margins can be very volatile… or (partially) self-hedged!!!
Fig. 10 - Spot Gas price on the NBP. Source : GDF-Suez 31
Fig. 9 - Forward power price for 2009 on EEX, APX and PWN. Source : GDF-Suez
…margins can be very volatile… or (partially) selfhedged!!!
Fig. 11 - Spot Coal MCIS index for 2008. Source : GDF-Suez 32
3.4 - On nuclear margin. Comments
• These graphs (describing admittedly very exceptional circumstances) show that :
• in contrast with a pure cost approach where nuclear is usually (but not always) economically less risky than other sources;
• it can be more risky in a revenue/profit based system
- because fossil plants are to some extent self-hedged… - while nuclear essentially runs on a fixed fuel cost.
33
3.5 - Impact on investment: a general principle. Consequences
• The increases of volatility decreases the incentive to invest. • The more capital intensive the plant is, the higher the decrease of the incentive to invest (except if there is some external protection against risks).
• This principle applies to all technologies but all technologies are not treated the same. (Example : feed-in tariffs in Germany eliminate investment risk. Could there be anything like that for nuclear?)
34
3.5 - Impact on investment: A U.S. example
Some measures to stimulate investment in new power plants…
35
Fig. 12 - Stimulus for New Plants. Source : Nuclear Energy Institute, 2008.
3.5 - Impact on investment - Are there alternatives?
• Deep pocket companies can take the risks : EdF plans in UK and its acquisition of nuclear fleets abroad
• Consortium of oil companies, utilities and nuclear vendors
(e.g. : Total, GdF Suez, Areva in UAE) - Oil companies have large equity bases. - Are forced more and more to work on huge, very risky projects with consortium of operators and lenders. - And are pushed to diversify into other energies as their access to hydrocarbon resources is progressively restricted by governments.
• Special average costs based contracts as in Finland or France (Exeltium).
36
4 - What About Belgium? Premises: two unquotable quotes
37
4.1 - Closing existing plants?
• Is closing of nuclear plants rational?
The usual economic response : a cost/benefice analysis. What is the benefit of closing Belgian nuclear units in the current global (relative) expansion (in GW not in market share) of the technology? Difficult to know!!! What does it cost Belgium to close nuclear units in current climate change policy? Check 080908 FPB: hard times with little fuel substitution flexibility, partly because of phasing out of nuclear!!!
• Can one physically close down the plants? Ecolo’s statement “Yes we can”: But we can what? - replace cheap (depreciated), base, non emitting capacity, by a mix of expensive, base and intermittent capacities, some of them emitting - that requires capital expenses, possibly also in the gas grid. 38
4.2 - Suppose we do not close down these plants… Would we have new investments in nuclear? Not clear. Financial risks are probably high in Belgium Weak institutions and regulatory (legal?) uncertainty
• • A special small country risk : consider the (absurd but
realistic) scenario. • EC: The internal market remains geographically segmented. • EC and B: Competition Authorities and Regulator argue against a nuclear monopoly in Belgium and ask for competition in nuclear generation in the country. • Because of plant size (EPR is 1.6 GW) with respect to the relevant maket, investors would face a huge demand risk. 39
4.3 - …to conclude on a possible follow up of a yes/ no nuclear scenario.
• Consider the position of the Energy Intensive Industries and carbon leakage: EIIs moving out because of lack of cheap electricity (Belgian EIIs are already energy efficient (FPB))
- No evidence of CL so far but no evidence that it will not happen (IEA 2008); - Underlying move of the EIIs towards Asia accelerated by the current crisis; Global EIIs will not suffer much; MS will. - uncertainly on nuclear enhances demand risk and reduces the incentive to invest; - No nuclear enhances EIIs’ incentive to move out. 40
5 -Conclusion
41
• We probably need nuclear (IEA and most scenarios but
Greenpeace) (too many constraints in a non cooperative economic system), even if we would prefer not.
• The old difficulties remain : safety and waste disposal, proliferation, etc. New difficulties arise : high investment risks.
• Barring some “ex ante bailing out” of the technology (e.g. the US example or a large, positively oriented market), only companies with deep pockets or well diversified consortia can take the risks of more scattered developments.
• No need to further complicate the situation with confusing
and even erroneous statements on nuclear rent, base load equivalent of intermittent sources, free renewable.... 42
