Nuclear Power Opportunities Move East

Nuclear Power Opportunities Move East

A birds-eye look at the nuclear power industry in 2013 reveals a depressing picture.

Early in the 2000s, thanks to a combination of rising fossil fuel prices and a lack of confidence in the return on renewable alternatives, nuclear power re-emerged as the potential silver bullet to reduce carbon emissions and promote energy independence. In the West, the Labour government in Britain approved 10 sites for nuclear power stations in 2009 with some of them coming online as early as 2018.

A year later Obama made up to $8 billion in federal loan guarantees available to build the first American nuclear power plants for over 30 years. Nuclear power was flourishing on the European continent as well. In 2011 14 of the 15 countries with the largest share of nuclear power as a percentage of total energy production were in Europe, with perennial ‘nuclear poster boy’ France producing 75 percent of their total energy from nuclear sources.

However, as the decade has dragged on, the rosy prospects for the industry have begun to look increasingly bleak. Two reasons emerge.

Firstly, the Fukushima disaster revived old fears about nuclear power at almost precisely the worst time. The fact that the circumstances surrounding the disaster were utterly unparalleled (few nuclear power plants are hit by both a massive earthquake and a tsunami) and the damage far less than feared (one of four reactors partially melted down, and nobody died either directly or indirectly) did nothing to mitigate the political and economic fallout.

Most notably, both Germany (16.1 percent of total energy output produced by nuclear power) and Switzerland (35.9 percent of total energy output produced by nuclear power) announced a phase-out of nuclear power from their energy portfolios, to be completed by 2022 and 2034 respectively. The price of uranium, which peaked at $130 per pound in 2007 and averaged $67.75 per pound before Fukushima, crashed to $53 per pound. Investors were also spooked by the inevitable rise in construction and insurance costs and regulations that followed in the wake of the disaster.

Secondly, and perhaps even more significantly, nuclear power has found itself facing competition from the new kid in town: shale gas. In 2008, at the height of nuclear optimism, the U.S. Energy Information Administration estimated that by 2013 gas prices would be at $6/million British thermal units (MMBtu) and the U.S. would be importing 2 trillion cubic feet of natural gas per year. To say that this estimate was inaccurate would be a colossal understatement. In 2013, gas prices are $4/MMBtu (and went as low as $2/MMBtu last year) and the U.S. government has approved the opening of a liquefied natural gas export facility in Texas.

The effect that this has had on the nuclear renaissance in the West is impossible to overstate. None of the 24 new nuclear power plants approved by the Nuclear Regulatory Commission in the United States are likely to be built any time soon, and many operational nuclear power plants such as Crystal River in Florida and Kewaunee in Wisconsin have been shut down as the economics turn increasingly against nuclear power. In the UK as well, the energy giant Centrica announced in February that it was pulling out of its plan to invest in nuclear energy because of an increase in “anticipated project costs”. Less than four months later the company announced a deal to acquire 25 percent of a license for shale gas exploration in Lancashire.

The combination of renewed public fears and the shale gas boom may not spell the death of investment in nuclear power. Memories fade, and the shale gas boom may yet prove to be the bubble that some energy industry analysts believe it to be. Public fears about the environmental hazards of shale gas (especially in Europe) may also lead to shale gas receiving the same mass disapproval that nuclear power already faces.

However, for the immediate future investors are best served by setting their sights outside the West for nuclear prospects. While some Asian countries (most notably China and Indonesia) are considering expanding into shale gas, the Asian shale market is barely developed in comparison to its Western counterpart. It does not share the political support, regulatory environment and low barriers to entry that shale gas industries enjoy in America and (to a lesser extent) Europe. Nuclear power, however, is both a known quantity and has considerable political and economic backing.

China is planning to expand its nuclear capacity from 12.85 gigawatts (GW) to 400 GW by 2050. By contrast, the United States currently possesses the greatest net nuclear capacity at 101.58 GW. South Korea is also planning to more than double its nuclear capacity from 20.7 GW to 43 GW by 2030. However, the most ambitious plan belongs to India, which is seeking to expand its nuclear capacity of 3.6 percent of total electricity production to 25 percent by 2050. On a smaller scale, Indonesia, Bangladesh, Thailand, Vietnam and Malaysia are all planning to develop a nuclear power capacity to various levels to tackle domestic electricity shortages. The nuclear renaissance may not have been stillborn after all. It just went East.

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