Market forces |
Jeremy Wilcox is managing director of the Energy Partnership, an independent Thailand-based energy and environment consulting firm 8/27 Sukhumvit Soi 8, Klongtoey, Bangkok 10110, Thailand | T: +66 2 653 1263 | Mobile: +66 860993375 | S: energypartnership
A nuclear solution?
While progress on fossil fuel abatement, although falling short of an agreement to phase out coal, should have been one of the main takeaways from the annual climate summit held in Dubai last November the more interesting headline was a nuclear pact agreement. Led by France, 22 countries including the USA, UK, and South Korea signed a pledge to triple nuclear capacity from 2020 to 2030 with the declaration recognising “the key role of nuclear energy in achieving global net-zero greenhouse gas emissions/carbon neutrality by or around mid-century”, in line with the Paris Accord.
What makes this nuclear declaration, which is not legally binding, more interesting is the current state of the offshore wind industry, which is suffering from rising costs and supply chain disruption that has led to numerous projects being paused. 2023 was an annus horribilis for the offshore wind industry. Projects off the coast of Britain, the Netherlands and Norway were either delayed or shelved due to rising costs and supply chain constraints while Britain’s renewable energy auction in September failed to attract any bids from offshore wind developers, also because of high industry costs.
In February Danish company Orsted, the world’s largest offshore wind developer, announced plans to cut jobs, pause its dividend payouts to shareholders and exit several offshore wind markets after a tumultuous year of rising costs. Measures include a reduction of as many as 800 jobs worldwide, a pause for dividends for the financial years 2023 to 2025 and a retreat from markets in Norway, Spain and Portugal. Orsted said it was now targeting 35 to 38 GW of power generation capacity by the end of the decade, a downward revision from its previous target of 50 GW.
Offshore wind project delays not only place 2030 renewable capacity targets at risk, but also, potentially, feed into longer-term decarbonisation targets. But is the pledge to triple nuclear capacity complimentary to renewable capacity development or does it risk diverting investment away from renewables projects?
Europe’s nuclear
pedigree is badly dented by its inability to deliver projects as planned …
An unpalatable truth may be that the market cannot deliver decarbonisation. If so, governments will have to step in. And the quickest route … is presented by nuclear.
In January the proposed text of a new French energy bill supported the continuing development of nuclear power, but omitted setting targets for solar and wind power and other renewable resources. The proposed text affirmed “the sustainable choice of using nuclear energy as a competitive and carbon- free” source of electricity and targeted the construction of at least six but as many as 14 new reactors to pull off the transition to clean energy and meet climate change goals. Yet just two months earlier the government put forward initial figures proposing a doubling to 18 GW of offshore wind power in 2035 as well as setting out the annual rate of deployment of solar panels needed to hit 75 GW in 2035, while also aiming for a doubling of onshore wind power capacity to 40 GW in 2035.
France, which fully nationalised nuclear utility EDF in 2023, is seemingly prioritising a commitment to nuclear power to ensure energy sovereignty, and in doing so effectively places supply security above sustainability. While the government has rejected suggestions that it is sidelining renewables there is nonetheless a risk that France’s renewed nuclear drive could subjugate the appetite for renewable investment. Indeed, ever since the European Commission included nuclear in its sustainable finance taxonomy this risk has been apparent. The European Commission’s communication on the EU’s 2040 climate targets, which was adopted on 6 February, recognised small modular reactors (SMR) as contributors to reaching the climate targets, and announced the launch of the European SMR Industrial Alliance which it said aims to leverage the EU’s manufacturing and innovation capabilities to accelerate the development of the first SMR projects in the EU by early 2030. And to achieve a fully decarbonised power system by 2040 the Commission’s assessment shows it will be majority delivered by renewable energy and complemented by nuclear energy.
The problem with nuclear is that outside China 10 | March 2024 |
www.modernpowersystems.com
the development of new capacity has been beset by cost and delivery overruns. Flamanville-3 in France, that will finally commence fuelling this quarter is over a decade behind schedule while Hinkley Point C in Britain may not now open until 2031, which would be 14 years later than its initial target of 2017, while the cost has ballooned from £18 billion to potentially £46 billion. Both projects are EPR reactors being built by EDF. It is aspirational to state that nuclear will complement renewables to decarbonise Europe’s power system within the next 15 years. And while SMRs present a flexible nuclear solution, and if delivered on time will play an important role in Europe’s decarbonisation, Europe’s nuclear pedigree is badly dented by its inability to deliver projects as planned which surely reduces confidence in the SMR programme if the same supply chain partners are involved, which is likely, given the limited nuclear expertise in Europe. Europe is facing a new energy challenge less than two years after it successfully navigated the loss of Russian gas imports. In the medium-term it must keep the aged nuclear fleet operational beyond the operational lifetime of the reactors until new planned reactors are commissioned and it must rejuvenate renewable investment, while at the same time keeping to its coal phase– out timeline and providing affordable supply security.
The current problems with offshore wind projects suggest that the market is not functioning to support investment, which has led to calls for more government involvement. Manufacturing activity is still contracting amid continuing economic weakness, with carbon prices slumping under an oversupply of allowances. UK carbon traded at a record low in February and EU carbon was testing new 23-month lows in mid-February. An unpalatable truth may be that the market cannot deliver decarbonisation. If so, governments will have to step in. And the quickest route to decarbonisation is presented by nuclear.
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