The news that the UK is to start construction on the first nuclear power plant to be built in two decades at Hinkley Point C has put nuclear energy firmly back among the headlines, but will this new £25bn investment signal a new Nuclear era in Europe?
It looks unlikely. Nuclear power plants currently generate nearly 30% of the electricity produced in the EU, yet there is a growing trend towards nuclear phase-out among member states. France is widely considered the leading nuclear power provider in the world and the largest net exporter of electricity, but the passage in France of the Energy Bill will result in a 25% decrease in nuclear energy by 2025. Similarly, Spain’s 1994 nuclear moratorium banned the construction of new nuclear power plants and suspended any ongoing construction works.
While the EU is, on the whole, phasing out nuclear power, emerging markets are increasingly turning to nuclear power to meet the ever-escalating energy demand from their growing populations. According to the World Nuclear Industry Status Report 2015, there are currently 62 nuclear reactors under construction worldwide, dominated by emerging economies such as China, Russia and India.
Why is Europe Phasing-Out Nuclear Energy?
- Safety. The disaster at Fukushima left Europe re-evaluating the use of nuclear power generation and had immediate impact on Germany’s legal framework. Aiming to shut down all German nuclear plants by 2022, the German parliament passed the “Atomausstieg” in the summer of 2011. Under the new regulations, once the production quota is reached, nuclear operating licenses will expire. In the UK, the approval to construct and operate a nuclear power plant at Hinkley Point has been challenged, because the vessel installed at Hinkley is similar to that installed in the Flamanville EPR in France — a vessel which is reported to have anomalies in the composition of the steel in certain zones of the reactor vessel.
- Financing models. Finding a financing model which enables nuclear plants to run profitably has been a challenge for many member states. In March 2014, E.ON anticipated the closing of the Grafenrheinfeld plant in Germany due to high taxation on nuclear fuel, which made the operating of the plant non-profitable. Similarly, while at an early stage in the deployment of nuclear energy infrastructure, Poland is struggling to devise a financing model. A Polish Institute of International Affairs report issued in September 2014 stated: “The biggest challenge for the investor and the government is to find such a financing model for new blocks’ construction which will produce a positive return on investments and will not be classified by the European Commission as illegal state aid. The contracts for difference represent a solution, which reduces risk for an investor, being at the same time part of a market model.”
- Aging assets. The costs and risks associated with maintaining aging nuclear assets is driving phase-out. A leak was recently detected in a water supply pipe in the reactor of France’s oldest operating power plant, Fessenheim. As a result of this technical fault, the plant was shut down and committed to closure by the end of 2018. As new reactor commissioning grinds to a halt, assets simply continue to age — in France, the average power reactor is 30.4 years old. As operating costs continue to increase, the investment required for life extensions is substantial.
- Diversification. Nuclear is increasingly being supplemented or replaced by other forms of renewable energy. Germany’s Energiewende (energy transition) aims to reduce emissions by 80% and provide for 80% of the country’s electricity consumption from renewable sources by 2050. By 2030, wind energy will likely provide around 30% of German power production, with solar capturing 8% and hydroelectric claiming 5%. In addition, Germany is the EU Member State with the largest installed wind capacity followed by the UK, Spain, and France. 59.5% of all new installations in 2014 were located in just Germany and the UK. Spain currently has one of the most balanced energy mixes of the EU (34% wind power, 24% hydraulic, 18.9% nuclear and 10.8% cogeneration plants). Spain is seeking to increase its renewable energy share mainly through wind and photovoltaics (PV). The UK has not abandoned nuclear power but continues to diversify its energy sources. During 2010-2013, the UK invested £2 billion in nuclear power yet committed greater investment to solar PV (£6.4 billion) and biomass and bioenergy (£6.3 billion).
As Europe commits to nuclear plant closures, life extensions and new investment will ensure nuclear remains part of Europe’s energy mix as member states seek to:
- Balance increasing energy demand whilst meeting renewable targets. Europe’s energy policy cornerstone is to foster renewable energy sources. The Renewable Energy Directive establishes that a mandatory 20% share of EU energy consumption from renewable energy sources will be required by 2020.
- Extend life on existing assets to maximise nuclear power output. Whilst nuclear power likely will be a short to mid-term resource, the granting of life extensions to existing operating permits should bring, in principle, a stable framework for the industry. In Spain, Santa María de Garoña’s operator applied for the renewal of its operating permit until 2031. Notwithstanding the former, life extensions for existing facilities have been granted until 2020/2024. Similarly, in the UK, EDF has been granted life extensions for the operating permits of its nuclear energy fleet. For example, Hinkley Point B and Hunterston B will remain operating until 2023 and Dungeness B nuclear power station until 2028.
- Deploy nuclear infrastructure and expertise. New players, such as Poland, represent a relevant opportunity for the nuclear power industry. Poland’s energy consumption is forecast to grow 54% by 2030. This soaring energy demand combined with its current dependency on coal and imported gas from Russia, is compelling Poland to consider nuclear power. In an attempt to strengthen its geopolitical situation and meet the EU 2020 target, the Polish Nuclear Power Programme seeks to diversify electricity generation by introducing nuclear power and targeting 19% from nuclear energy by 2030. Some analysts have seen the recently announced Chinese investment in the construction of the Hinkley Point C nuclear power plant in the UK as a gateway through which China can begin to export its nuclear capabilities (Bradwell has been discussed as a potential site for the first nuclear power plant to be designed and built by China in the UK).
Undeniably EU member states are strongly committed to diversifying renewable energy sources at the expenses on nuclear energy. While nuclear energy will not carry the same weight as in past decades , it will continue to power Europe in the short- to mid-term.
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