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Against a backdrop of increasingly pressing climate challenges, an energy supply crisis accompanied by surging prices, the nuclear power industry is enjoying somewhat of a political comeback in Europe. China meanwhile has been ramping up its nuclear capacity and proprietary technological know-how. But what spurred this change in sentiment, and should we expect to see more nuclear power generation in the years ahead?
In a webinar moderated by Alain Gallois, Global Head of Advisory and Coverage and EMEA platform for Natixis CIB, Ivan Pavlovic, Energy Transition Specialist; Eric Benoist, Tech & Data Research Specialist; and, Gary Ng, Senior Economist, Asia Pacific, Thematic Research, shared their insights into the rebirth of the sector
The Role of Nuclear in the Transition to Net-Zero
As the world takes on its most significant energy transformation in over a century, the political and economic environment is ripe for a rebirth of nuclear power. Indeed, all of the Intergovernmental Panel on Climate Change’s “net zero” scenarios incorporate nuclear power into the projected energy mix.
In Europe, three clear challenges have spurred a re-think into the use of nuclear power generation, notably, (i) increased demand for more low carbon energy generation to decarbonize existing fossil fuel power generation and meet the Fit for 55 (FF55) ambitions, (ii) the war in Ukraine, which brought to the fore the importance of long-term energy security, and (iii) disruptions to Russian gas supplies, which fueled unprecedented price spikes across EU markets.
The inclusion of nuclear power in the EU’s Green Taxonomy is probably the best example of the growing recognition of its potential role in combating climate change. And, while accelerating the rollout of renewable energies is one of the main pillars in the EU Commission’s energy transition plan, civil nuclear power is also a means of strengthening the EU’s energy independence from Russia, as well as moving away from an energy market where wholesale prices are solely/largely dictated by fossil fuel prices.
For China too, nuclear is firmly on the agenda. As the world’s largest carbon emitter, China is seeking ways to pursue a reduction in carbon emissions by lowering its reliance on coal while maintaining the ability to fuel important economic growth. China has been actively building its indigenous technologies and developing self-owned intellectual property across the nuclear sector. Tellingly, former Premier Li Keqiang described the country’s nuclear strategy as “proactive” for the first time in the 2021 Central Government Work Report, while President Xi Jinping mentioned “proactively developing nuclear power” in his report to the 20th National Party Congress in 2022.
Nuclear: A win on all fronts?
Over the past decade or so, the re-launch of nuclear energy has faced multiple challenges. The Fukushima-Daiichi accident in 2011 prompted a deep reflection from all countries pursuing nuclear energy and an overhaul of safety standards globally. In Europe, recent new build projects have faced significant cost overruns, which in-turn have fueled doubts not only among investors, but the public at large, about the real economic benefits of nuclear energy, particularly when compared with the development of other low-carbon energy sources such as wind and solar photovoltaic. Interestingly however, cost overruns for projects in countries including Korea and China have been much more limited.
Investment costs for the development phase of nuclear project are substantial – accounting for 70% of outlays, compared with only 42% for coal-fired power plants and 25% for gas combined cycle power plants.1
Source: Misc, Natixis CIB Research
That said, in the case of nuclear, these significant costs are counterbalanced by relatively modest operation, maintenance and fuel costs (15% of the total in each case).
By contrast, fuel costs represent almost 70% of total costs in the case of gas combined cycle power plants, and slightly more than 40% in the case of power plants burning supercritical pulverized coal.2
In order to optimize the construction phase, minimize capital costs and provide a favorable operating environment (demand, prices) after the reactor’s commissioning, nuclear is on the lookout for a new economic and financial model.
Revival? Forging a new path for nuclear
From the 1970’s to the 1990’s, a state-centric electricity sector organization in Europe enabled the undertaking of large nuclear projects. In theory, this market organization meant that electricity producers had an extremely stable cash flow generation profile, with little-to-no volume risk, and no price risk. While the liberalization of European electricity markets undermined the very foundations that underpinned the nuclear construction program, it allowed for public and private initiatives to take root.
Key initiatives include:
Source: Natixis CIB Research
China, meanwhile, continues to restrict the building and operating of nuclear plants exclusively to state-owned enterprises (SOEs) - which has allowed it to increase its autonomy through the entire value chain, building on existing foreign technologies with its own domestic content. However, the absence of a closed fuel cycle, better financing options and geopolitical tensions have been holding back Beijing’s effort in exporting its nuclear technologies.
A focus on new technology?
At present the industry is at a crossroads, but attention is starting to shift to small modular reactors (SMRs), which provide compelling energy production benefits and smaller upfront capital commitment in comparison to their larger conventional cousins.
The smaller, modular nature of SMRs also means that they can be used in a variety of locations – from remote, off-grid areas to cities and industrial sites where energy is in high demand. SMRs are scalable too, offering stakeholders a "plug and play" approach, and minimizing the need for large capital injections as demand for electricity increases. That said, recent research suggests that SMRs may have higher overnight costs than initially expected, and that they may generate larger quantities of nuclear waste than their competitors.
Growing Presence
Ultimately, for Europe, the re-launch of nuclear energy – whether SMR or larger Generation III and IV systems – will require a clear and sustainable energy policy framework, addressing a combination of political, regulatory, and financial conditions.
In China, nuclear forms just 5% of the energy mix today, but the country has already overtaken France as the second largest consumer of nuclear energy in the world, accounting for 15% of the global consumption due to its economic size. It is widely expected that the share of nuclear in China’s energy mix may rise to 7-8% by 2050.3
While this increase may appear small, China’s nuclear demand will fuel sizeable investment as its electricity demand continue to grow.
The situations may differ significantly across the globe, but nuclear power could play a role as countries each pursue energy transition initiatives to achieve carbon neutrality by 2050.
To find out how Natixis CIB can accompany you through your energy transition, reach out to our Green & Sustainable Hub experts.
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