Subsidy for eight nuclear reactors rejected

What the market should not take for granted

GDP impact on demand and load factors

Consensus view is that electricity demand in the wide European region will grow by 1.5% p.a. over the next couple of decades. This is a view shared by UCTE in its latest System Adequacy Report. Although it is virtually impossible to produce irrefutable electricity demand forecast we are tempted to argue that the risks are on the downside since:

1. During the boom years of 2003-07, when GDP growth was strong and infrastructure investment high on the back of very liquid debt markets and due to the convergence of the new EU joiners, electricity consumption grew by 2.1% p.a.

2. Energy efficiency is likely to become a bigger driver as technology advances and as awareness rises. It is important to highlight that such measures also fall under the Climate Change agenda of governments, which has been one of the driving forces behind the renaissance of new nuclear.

As a result, we would expect electricity demand growth to be in the 0-1% range for at least the next 5 years, before returning to more normal pace of 1.5-2%. We therefore see scope for an extra 346TWh of electricity that needs to be covered by 2020 vs. 2008 levels.

Should EU countries go half way towards meeting their renewables target of 20% by 2020 that would be an extra ca. 440TWh. Even if EU went only half way, which by all means is a very conservative estimate, that would still be ca.220TWh of additional generation. Under its conservative ‘scenario A’ forecast, UCTE expects 28GW of net new fossil fuel capacity to be constructed by 2020. On an average load factor of 45% for those plants that’s an extra 110TWh.

Therefore under very conservative assumptions on renewables, we can reliably expect an extra 330TWh of electricity to be generated by 2020, leaving a shortfall of 16TWh to be made up by either energy efficiency or new nuclear.

There are currently 10GW of nuclear capacity under construction/development, including the UK proposed plants that should be on operation by 2020. If we assume that energy efficiency will not contribute, that would imply a load factor for the plants of 18%. Looking at the entire available nuclear fleet that would imply a load factor of just 76%. We do believe though that steps towards energy efficiency will also be taken, thus the impact on load factors could be larger.

Under a scenario of the renewables target being fully delivered then the load factor for nuclear would fall to 56%.

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Citigroup Global Markets European Nuclear Generation 2 December 2008

...Cooper's study, which VLS (Vermont Law School - K) is publishing today on the Institute for Engergy and Environment website, is titled "Policy Challenges of Nuclear Reactor Construction: Cost Escalation and Crowding Out Alternatives. Lessons from the U.S. and France for the Effort to Revive the U.S. Industry with Loan Guarantees and Tax Subsidies."

Key study findings include the following:

* Nuclear reactors are not cheaper in France. Both the U.S. and French nuclear industries have experienced severe cost escalation in recent years. Measured in 2008 dollars, U.S. and French overnight costs were similar in the early 1970s, about $1,000 per kilowatt (kW). In the U.S. they escalated to the range of $3,000 to $4,000 per kW by the mid-1980s. The final reactors were generally in the $5,000 to $6,000 range. French costs increased to the range of $2,000-$3,000 in the mid-1980s and $3,000 to $5,000 in the 1990s. The report finds that the claim that standardization, learning, or large increases in the number (and size) of reactors under construction will lower costs is not supported in the data.

* In France and the U.S. building nuclear reactors and central station facilities crowd out energy efficiency and renewable energy. The French track record on energy efficiency and renewables is poor compared to similar European nations. In the U.S., past nuclear construction future nuclear plans appear to crowd out alternatives - a trend that would worsen significantly under large-scale subsidization of nuclear reactors, which mirrors the French model. States in which utilities have not expressed an interest in getting licenses for new nuclear reactors have a better track record on efficiency and renewable and more aggressive plans for future development of efficiency and renewables. With respect to efficiency and renewable energy the "no nuclear plans" U.S. states have (in comparison to U.S. "nuclear states"): had three times as much renewable energy and ten times as much non-hydro renewable energy in their 1990 generation mix; set Renewable Portfolio Standards (RPS) goals for the next decade that are 50 percent higher; spent three times as much on efficiency in 2006; saved over three times as much energy in the 1992-2006 period; and have much stronger utility efficiency programs in place.
* The U.S. would have even more to lose in terms of renewables than France if it followed France's model of more nuclear power. According to the new report, the U.S. has a much greater opportunity to develop alternatives not only because the cost disadvantage of nuclear in the U.S. is greater, but also because the portfolio of alternative resources is much greater in the U.S. The U.S. consumes about 50 percent more electricity per dollar of gross domestic product per capita than France, which has the highest electricity consumption among comparable Western European nations. The U.S. has renewable opportunities that are four times as great as Europe...