One of the main beneficiaries of the ‘go green’ mantra is nuclear power, but can a nuclear renaissance be sustained within a free-market model? The British government believes it can yet those utilities seeking to lead Britain’s new nuclear generation now appear less sure.
In a veiled threat to the government last month, Vincent de Rivaz, EDF Energy’s aggressive chief executive, warned that the current carbon market was not sufficient to ensure investments in low-carbon technologies like nuclear, and he intimated that without a level investment field to ensure nuclear and other clean energy projects could compete with the heavily subsidised renewable energy market Britain’s nuclear build programme could be at risk.
The British government argues that a free electricity market, supported by the carbon market, will be sufficient to support investment in new nuclear capacity and in theory it may be right. Analysts point out that a plunge in energy, and carbon, prices should not have a significant impact on nuclear build. Considering that new nuclear reactors will have around 60-year lifetimes analysts believe any price downturn would have to last well beyond five years before its investment impact became decisive. And most, if not all, analysts are fairly bullish on carbon prices from 2013 onwards.
Arguably the utility calls for a ‘level investment field’ for nuclear are nothing more than attention seeking. EDF Energy, for example, accepts that the government is unlikely provide any nuclear subsidies. But what it wants, and indeed needs, is greater government support and this is best quantified by either direct or indirect investment.
The common factor in all the countries involved in the nuclear renaissance is strong government backing and in all cases, with the notable exception of Britain, this support correlates with direct government control. According to the World Nuclear Association, 12 of the 45 nuclear reactors currently under construction are in China with a further eight in Russia, while France’s leading nuclear companies – EDF and Areva – are effectively extensions of the French government.
In theory, private sector backed nuclear investment should not present problems provided there is a framework in place to support nuclear investment returns and make the economics transparent. After all, the technology is proven, unlike that of clean coal plants, and nuclear power provides guaranteed base load generation, unlike the intermittently-supplying wind farms that dominate the renewable portfolio.
But stacked against these ‘benefits’ is the heightened political sensitivity of nuclear power and the uncertain revenue streams likely to be accrued over the 60-year lifetime of a new nuclear build. This being so, potential nuclear investors rightly want to guard against a future government reversing its nuclear support and the potentially devastating impact this would have on investment returns.
Carefully watching the progress of the UK’s free market nuclear model is the US. President Barack Obama is pro-nuclear, yet he appears constrained by the political correctness that argues for government subsidies in the renewable energy sector but not for nuclear.
If the nuclear renaissance had commenced pre-recession there would be limited debate on whether a nuclear free market could be sustained. Unfortunately, the toxic combination of a deep recession, and the accusations that the free market was complicit in the economic downturn, have increased investment nervousness and will likely force the British government to take a more prominent role in nuclear investment. Its challenge will be to preserve as free a market model as possible.
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