Ironically, it might be on the very land it made prosper so greatly that might now have turned into its deathbed. With the conclusion of COP28 in Dubai, the Global Renewables & Energy Efficiency pledge has emerged. Endorsed by 130 national governments, it stipulates that all signatories will commit to triple the global renewable energy use by 2030, along with doubling the rate of energy efficiency improvement every year. Are fossil fuels soon to be buried and condemned to merely a relic of the past? Much is yet to be done to honour the pledge, but what concerns targets for net-zero - a glimmer of light has been sighted. On the other side of the deathbed we find a slumbering giant. President Macron of France has hailed the new pledge as a victory for nuclear power, anticipating a dramatic increase in its demand over the second half of the decade. Though not defined as a renewable energy source due to its finite supply, nuclear energy does provide clean energy. Is the declaration of victory for nuclear power premature? Or will its unlocked capacities be too alluring for the world to ignore?
In this short article we will disentangle some of the mysteries surrounding nuclear energy and assess implications for various stakeholders as the next chapter of the energy transition unfolds:
Nuclear Energy in the context of the Energy Transition
Energy Security and Rare Risk Events
Production Costs and the future of Nuclear Power
Nuclear Energy in the context of the Energy Transition
Nuclear fission is a prominent source of energy in many countries, with France standing out as its main proponent. The rise of nuclear power in France dates back to the late 1970s, and since then, nuclear energy production has claimed a substantial share of 62.6% in the energy mix (Statista, 2023), largely due to heavy state subsidies. Alongside France's remarkable expansion of nuclear energy production was a rapid phase-out of carbon-intensive fossil fuels, as illustrated in Figure 1 below.
The price of carbon is expected to increase steadily over time. Both through international cooperation exemplified by COP28, and continuous expansion and innovation of carbon pricing mechanisms. Reliance on fossil fuels has shown to be a dire strait in the past, evidenced recently by the energy crisis. Geopolitical risks have always had important implications for fossil fuel import countries and fossil fuel dependent industries. The power and stability of OPEC and the activities of Russia have been main talking points. The presence of the energy transition is now certain to feature more heavily in such discussions.
Along with the Global Renewables & Energy Efficiency pledge another pledge to triple nuclear energy production by 2050 was signed by 22 countries, including France, the United States and the UK. The ability of these countries to scale up their nuclear energy production may hinge on a variety of factors. One of such factors would be to convince the World Bank, international financial institutions and multilateral development banks to include nuclear energy in their energy lending policies.
Energy Security and Rare Risk Events
While the development at COP28 presents a promising evolution for the energy transition, energy security does pose important concerns for many stakeholders. A common issue with renewable energy sources like solar and wind is its intermittency. Nuclear does provide stability in that regard, but concerns about dependence on supplier nations may still play a role, even in a possible aftermath of OPEC. Figure 2 gives an overview of the nuclear fuel cycle. Several potential sources of vulnerability in the nuclear fuel supply chain can be derived. For example mining, reactor construction and heavy water supply. Mining of uranium constitutes one of the most critical links in the chain.
Figure 3 demonstrates the distribution of uranium resources extractable for under $130/kg. A large concentration is found in Russia, Kazakhstan, Canada and Australia. Furthermore, figure 4 shows the price evolution of uranium over the last 10 years. Upon the emergence of the Russo-Ukrainian war in February 2022, uranium saw a spike in prices. COP28, along with persistent western embargoes on Russia continued to influence prices and trade streams in 2023, seeing prices of uranium surge close to $91 per pound. 2023 also featured military coups in Niger and complications in Canadian mines, further contributing to the price surge and exemplifying sources of concerns for energy security (trading economics, 2023).
Moreover, a long standing issue related to nuclear energy production is its rather apocalyptic connotations. It is no secret that in the event of a disaster, serious consequences would follow. The Fukushima nuclear disaster illustrates a recent example, where a tsunami in the pacific ocean led to a power outage and a subsequent meltdown. Worryingly, the expected temperature increases to be witnessed in the coming decades will increase the risk of natural disasters, akin to that of the Fukushima disaster. Consequently, it is not surprising that nuclear energy production sparks serious debates within the political economy. In addition to accident risks, geopolitics poses other serious concerns. Factors such as terrorism and geopolitical conflicts add serious threats to safety surrounding nuclear power plants and waste storages. Hydropower, a renewable energy source, faces similar risks from power generation via dams. However, the pursuit of deterring hostile destruction of nuclear power plants is accompanied by another important factor - ensuring the use of nuclear technology for civilian purposes. Proliferation of nuclear power plants could see the risk of serious economic and humanitarian catastrophes heightened.
Production Costs and the future of Nuclear Power
Tied to the political risks associated with nuclear energy production is overall production costs. As illustrated in figure 5 below, the cost of producing renewable energy in the US, such as wind and solar energy, has steadily decreased over the last two decades, while the cost of nuclear energy production has increased. Despite nuclear power plants having been a prominent source of energy for some time, one might expect technological advancements to have reduced the cost of plant construction and production, as well as shortened construction times. However, this has not been the case, with costs often exceeding projections in the US. Across the globe, median construction times have fluctuated significantly throughout the decades, landing at 7.5 years in 2022 (Statista, 2023). One major reason for recent increases in construction time is the implementation of more stringent regulations (Stauffer, 2020). Regional factors play a role, too. For example in the US, competition among nuclear plant operators is more intense due to a larger number of firms (NEI, 2023), resulting in more diversity of reactor designs. This is in contrast to China, where large state-owned firms may enable returns to scale. Less firms and more rigid state-intervention may also provide a more stable regulatory landscape, streamlining construction processes. Notably, the construction time of a nuclear reactor is about 7 times shorter in China than in the US (Statista, 2023).
Furthermore, as construction time heavily depends on developments in the regulatory environment and technological advancements, investors face elevated uncertainty when making nuclear energy-reliant investment decisions. With long investment horizons, estimating the value of a nuclear power plant construction is challenging. In this sense, nuclear energy projects encounter similar ambiguities in estimating their value as climate change mitigation efforts. This is also an issue related to renewable energy sources like wind and solar. However, the regulatory environment surrounding nuclear energy contributes to inertia in reducing risk and uncertainty in the realm of investment horizons. In line with increased risks of natural disasters, the expansion of nuclear energy production may be subject to even more stringent regulations over time. The long construction times may also bring strongly unwelcome lags in the energy transition, resulting in damages and elevated stranded asset risks due to the nonlinearities associated with climate change.
In considering the future of nuclear power, attention turns to compelling factors favouring investment, such as the utopian prospects of fusion technology. Fusion involves fusing small atoms together, and while it naturally occurs in the sun, humans successfully recreated it for the first time in 2022 at the National Ignition Facility in the US (DOE, 2023). Despite holding the promise of generating more energy than its input, the economic viability of nuclear fusion remains a challenge, with scientists anticipating it could take decades, if ever, to reach that state (Orsagh, 2023). The experiment did showcase a net gain in energy during fusion, but the overall feasibility is hindered by the considerable amount of energy required to run the facilities, often sourced from non-clean energy sources, thereby maintaining the initial problem of carbon intensity.
Nonetheless, nuclear fusion, along with other technological breakthroughs aimed at improving safety and efficiency, is poised to gain attention and resources in the shift towards advancing nuclear power generation and pushing the technological frontier.
Author: August Borgstrand
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