On paper the case for new nuclear in Europe is as compelling today as it was during the 1970s oil crisis, indeed more so because of new imperatives to control CO2 emissions.
Until CO2 regulations are set in stone well beyond 2020 a nuclear revival of substance is doubtful.

All the fundamental evidence points in nuclear's favor. Oil is at $130/barrel. Calendar 2009 baseload power is around €70/MWh (see chart: Platts year-ahead base power assessment), driven by the hydrocarbon energy complex and tighter CO2 emission allocations. The European Commission is calling for 100% auctioning of CO2 credits from 2013.

European gas prices are high, squeezing spark spreads, but nonetheless LNG tankers sail past European terminals en route to higher-priced Asian markets, where a dash for gas in the power sector may be brewing, driven by clean development mechanism incentives.

Global coal prices are at record highs, forcing developers to think twice before embarking on new projects. Those who decide to proceed have to contend with strong, well organized opposition from NGOs, yet to be convinced that the science behind carbon capture and storage is keeping pace with policy.

Nuclear's benefits in this context are clear: near-zero carbon baseload power; ideal for balancing intermittent wind; fuel price stability relative to hydrocarbons; security of supply, with fuel availability decoupled from political risk; and proven technology, with no wing-and-a-prayer promise of a low-carbon future as with coal and carbon capture.

Looked at in these terms, then, it is hard to credit that Europe's major utilities, with strong cashflows and solid credit ratings, are not falling over themselves to at least submit plans for new reactors.

In the liberalized west European markets, only TVO of Finland and EDF of France are building new reactors. In development are new reactor proposals for Finland, France and Switzerland. The UK, meanwhile, awaits the first concrete plans for a new reactor, with the focus for now on the government's sale of its British Energy stake.

EDF's desire to build four European Pressurized Reactors totaling 6.6 GW in the UK remains just that. Meanwhile the UK is set to need 15-20 GW of new capacity in the next 15 years to offset closure of first generation reactors and non-LCPD-compliant coal plant.

Taken together, these new nuclear plans will do no more than slightly impede the technology's declining contribution to west European power supply. For now, Germany is sticking to its phase out plan. A reprieve for existing reactors is possible -- even likely if today's hydrocarbon prices remain at these levels -- but new nuclear build in Germany is a distant prospect, with gas, wind and coal planned.

Belgium meanwhile is considering reversing its nuclear phase out law, but again all planned new build is either gas or wind or coal. Sweden is ignoring its phase out plan, but there is no new build in the works. As noted, all but one of the UK's nuclear plants, now producing about 20% of UK supply, will have closed by 2023.

No other state in continental west Europe is seriously considering new nuclear. One has to go east to Russia to find the next new build, and to state-sponsored schemes in Lithuania, Belarus, Romania, Bulgaria and Ukraine for active development (see table: Central and East Europe: nuclear capacity in operation and under construction).

A basic fact about new nuclear build is that liberalized generation markets and nuclear do not mix. For all the espousal of balanced portfolios, west European utilities have met recent central plant capacity needs with the 'least-worst' option of gas-fired plant in combined cycle -- cheap, quick to build, and flexible to operate, utilities are happier to carry the fuel cost risk in order to get kWhs into the system as soon as possible.

Competition vs. security of supply

In the UK, in Spain and in Italy, dependence on gas for power has become a political issue. Now central and eastern European countries with good relations with Gazprom are getting in on the act. Even nuclear France is building CCGTs.

The only other technology anywhere near gas in terms of new installed MWs is wind, with massive state-sponsored incentives bringing forward plenty of new capacity to the increasing anxiety of transmission system operators.

Many of these projects are poor deliverers of power. French wind turbines had average availability of 24% in 2007. As such, the displacement by wind of CO2 emissions from polluting thermal plant is quite slight, and considerably less that the 50% cut in CO2 emissions achieved when a modern CCGT replaces conventional coal-fired output.

With gas MWs cheaper than coal or nuclear MWs, financiers will tell you that, today, new coal and nuclear are "out of the money." There are five coal projects in construction in Germany, backed by large incumbents, but over 6-GW have been cancelled.

For smaller developers of coal, and for potential backers of new nuclear, the EU Emissions Trading Scheme is too short term for comfort. Beyond a third phase running to 2020, there is no surety. Until CO2 regulations are set in stone well beyond 2020, when the first new reactors could conceivably be up and running, a nuclear revival of substance is doubtful.

Hence the special circumstances surrounding any active nuclear project in development -- state tenders, favorable state bank funding, or the Finnish model, whereby heavy consumers club together and build the facility themselves, for their own use. This would appear to be an effective way to ring-fence a project from the shorter-term concerns of the market. But even then there are significant cost risks to consider.

Created: May 28, 2008