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INTRODUCTION 2 NUCLEAR POWER S DECLINING SHARE OF GLOBAL ENERGY PRODUCTION 3 UNITED STATES: THE NUCLEAR RENAISSANCE THAT NEVER WAS 9

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December 16, 2013 THE NUCLEAR POWER SECTOR'S DIM PROSPECTS Angelo Katsoras Pierre Fournier TABLE OF CONTENTS INTRODUCTION 2 NUCLEAR POWER S DECLINING SHARE OF GLOBAL ENERGY PRODUCTION 3 BUILDING NUCLEAR
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December 16, 2013 THE NUCLEAR POWER SECTOR'S DIM PROSPECTS Angelo Katsoras Pierre Fournier TABLE OF CONTENTS INTRODUCTION 2 NUCLEAR POWER S DECLINING SHARE OF GLOBAL ENERGY PRODUCTION 3 BUILDING NUCLEAR PLANTS: MUCH HIGHER COSTS AND LONGER LEAD TIMES THAN OTHER MAJOR SOURCES OF ELECTRICITY 5 Decommissioning nuclear reactors is very expensive 5 The public s fears over the consequences of a nuclear accident 7 Will technological innovation ride to the rescue of nuclear power? 8 UNITED STATES: THE NUCLEAR RENAISSANCE THAT NEVER WAS 9 CANADA ALSO APPEARS TO BE GRADUALLY BACKING AWAY FROM NUCLEAR POWER 11 GERMANY ABANDONS NUCLEAR POWER 12 THE UK DECIDES TO STICK WITH NUCLEAR POWER FOR NOW 13 JAPAN IS STILL REELING FROM THE IMPACT OF FUKUSHIMA 14 CHINA STAYS ON THE NUCLEAR PATH 17 Keeping China s growing nuclear power sector in perspective 17 Worries over nuclear safety 18 INDIA S NUCLEAR EXPANSION FACES MAJOR HURDLES 19 SOUTH KOREA S NUCLEAR SCANDAL 20 NUCLEAR POWER ALSO HAS TO DEAL WITH THE SPECTRE OF PROLIFERATION 20 INVESTMENT OVERVIEW 21 Transitioning away from nuclear power is easier said than done 21 The principal short- and long-term benefactor of nuclear power s decline will be natural gas 22 A growing nuclear reactor disposal business 22 China is particularly well positioned 23 Long manufacturers of electrical equipment // Short electricity Providers 23 FOOTNOTES 25 DISCLOSURES 27 Angelo Katsoras, Senior Associate (514) Pierre Fournier, Geopolitical Analyst (514) ANGELO KATSORAS / PIERRE FOURNIER 1 INTRODUCTION Proponents of nuclear power regularly cite the several major advantages that it has over other major sources of energy. Unlike coal or natural gas, nuclear power emits no greenhouse gases, and is also much more reliable than wind or solar energy because it is able to generate large blocks of power when the sun does not shine or the wind is not blowing. Unfortunately, the strengths of nuclear power are overwhelmed by the formidable challenges facing it. These include: The high and often underestimated costs of both building new reactors and closing old ones The long timeline required to build a nuclear plant The complexities and costs of safely storing nuclear waste An increasing geopolitical backlash due to public fears over the risk of accidents at nuclear plants, especially following the March 2011 accident in Japan, and concerns that building more reactors worldwide will increase the spread of nuclear weapons. Because they must take into account public opinion, democratic countries are particularly vulnerable to antinuclear sentiment. The March 2011 nuclear accident in Japan also raises the following question: If a technologically sophisticated country like Japan cannot assure the safety of its nuclear power plants, is it realistic to assume that other countries, particularly those in the developing world, will be up to the task? The combined impact of all these challenges explains why nuclear power s share of global electricity demand will continue its long-term decline. This report provides an in-depth analysis of the significant cost, safety and regulatory-related challenges weighing on the global nuclear industry, with a particular focus on the United States, Canada, Europe, Japan, India and China. 2 ANGELO KATSORAS / PIERRE FOURNIER NUCLEAR POWER S DECLINING SHARE OF GLOBAL ENERGY PRODUCTION The chart below shows that even before the Fukushima accident in 2011 the growth in global nuclear production was slowing. From 1990 to 2011, annual growth had been just 0.7%, versus approximately over 2% for global electricity demand. In 2011 and 2012, largely as a result of the shutdown of reactors in Germany and Japan, world nuclear power output fell by 4.3% and 6.9%, respectively, the largest declines on record. WORLD NET ELECTRICITY GENERATION FROM NUCLEAR POWER PLANTS, Source: Fukushima Meltdown Hastens Decline of Nuclear Power, Earth Policy Institute, May 2012 In all, nuclear power s share of global electricity demand has fallen from a peak of 17% in 1993 to 10.4% in 2012, according to the 2013 World Nuclear Industry Status Report. Nuclear power s share of global energy demand as a whole was 4.5% in 2012, the smallest share since Going forward, there are widely varying scenarios for the nuclear power sector s long-term growth prospects. For example, BP came out with its annual global energy outlook in January in which it gave, in our opinion, an overly optimistic outlook for nuclear power s growth prospects. Between 2011and 2030, it projects the fastest growing fuels to be renewables (including biofuels) with growth averaging 7.6%, followed by nuclear at 2.6%, hydro at 2%, natural gas at 2%, coal at 1.2% and oil at 0.8%. But it is important to note that even in this optimistic scenario, renewables (solar and wind) are projected to account for a larger share of global electricity demand than nuclear power over the long term. SHARES OF WORLD PRIMARY ENERGY Source: BP Energy Outlook, January 2013 ANGELO KATSORAS / PIERRE FOURNIER 3 In 2012, the International Energy Agency published two scenarios regarding demand for nuclear power. The positive scenario showed nuclear power maintaining its 2010 market share of 13% of global electricity production through Its more negative scenario had nuclear power s share of global electricity demand dropping to 7% by The more negative scenario had advanced economies barely building any new reactors, developing countries not meeting their nuclear energy growth targets and regulators being less open to extending the life of existing plants. 2 We mostly concur with the latter scenario for reasons that will be explained in further detail later in the report. It should also be noted that nuclear power is projected to attract much less in investments than many other sources of electricity over the period of 2011 to SPLIT OF $9.7TRN GLOBAL INVESTMENT IN POWER GENERATION BY TECHNOLOGY Source: Energy Darwinism, Citi GPS, October 2013 For all of 2012, only three new reactors began operating, while six reactors were shut down. Moreover, of the 66 reactors officially listed under construction worldwide, nine have been listed as being under construction for more than two decades and another four have been in the building phase for more than a decade. 3 4 ANGELO KATSORAS / PIERRE FOURNIER BUILDING NUCLEAR PLANTS: MUCH HIGHER COSTS AND LONGER LEAD TIMES THAN OTHER MAJOR SOURCES OF ELECTRICITY The enormous cost of building a nuclear reactor is one of the main challenges facing nuclear power. Estimates range anywhere from $6 billion 4 to over $12 billion, versus an estimated $1 billion for a similar sized gas-fired plant. 5 The time its takes to build a typical nuclear plant is also a problem. The average construction time for a new nuclear reactor is close to 10 years, 6 versus months for a natural gas fired plant. 7 Unfortunately, cost overruns and schedule delays are becoming increasingly common. The Olkiluoto plant in Finland, which is the first plant to be built in Europe in over several decades, is a case in point. In 2000, it was announced that the completion date would be 2009 and the cost would be three billion euros. Today, the completion date has been pushed back to 2015 and the price tag has been revised upwards to 8.5 billion euros. 8 The second reactor being built in Europe (this time in France) is having similar problems. In 2005, EDF, the French state-owned utility, estimated the reactor s cost at 3.3 billion euros. The estimated price is now 8.5 billion euros and counting. The original 2010 start date has been pushed back to The large upfront building costs and long lead time required to build a nuclear plant have dissuaded many private sector utility companies from expanding into this sector. Indeed, even before the 2011 accident in Japan, Moody s warned in 2010 that building a nuclear power plant was a bet-the-farm risk, and that utilities embarking on such projects could face a ratings downgrade. The major risks for utilities are that regulators won t let utilities increase rates enough to offset the cost of building nuclear power plants, and that they won t be able to afford to wait years before beginning to recoup their capital expenditures. Indeed, many nuclear plants in the United States were built about 30 years ago by utility companies that either went bankrupt or ran into significant financial difficulties before they could recoup their costs. Washington Public Power Supply System, for example, defaulted on billions of dollars of it bonds over a failed project to build five nuclear reactors in the 1980s due to major costs overruns. Only one reactor was ever completed. In most cases, building nuclear power plants is not viable without massive government support. Not surprisingly, nuclear expansion is projected to mainly occur in countries with a high degree of state involvement such as China, Russia and India. Decommissioning nuclear reactors is very expensive Nuclear power plants are not only very expensive to build, they are also very costly to close. There are three ways to decommission a nuclear reactor. The first option is to remove the fuel, take apart the structure and find a safe place to store all the radioactive parts. The second is to take out the fuel, and then lock up the reactor (for years) until it becomes less radioactive. The third option is to bury the reactor in a tomb of concrete for the next 1,400 years. 10 The United States currently operates 103 commercial nuclear power plants. Most were built in the 1970s and are slated for decommissioning over the next three decades. The cost of closing down a reactor in the United States is estimated to be between $500 million and $1 billion. 11 While these costs will be mostly borne by the private sector, the U.S. federal government must ANGELO KATSORAS / PIERRE FOURNIER 5 pay for the costs of decontaminating the hundreds of sites used for America s nuclear weapons program during the Cold War. The Energy Department efforts to clean up the old Savannah River nuclear site highlights the challenges involved. The Energy department began cleaning up this site in 1996 and estimates it will not be done until the 2040s. In all, the cost of cleaning up all these sites is estimated to be $350 billion. 12 As for Europe, it is on track to decommission nearly 150 nuclear power plants in the next two decades. The EU currently has 77 reactors offline in various stages of decommissioning. 13 It is estimated that it will cost at least $81 billion to decommission all of these reactors over the next 20 years or so. 14 The difficulties in closing down reactors can be seen in the EU s efforts to safely dismantle three Soviet-era power plants in Lithuania, Slovakia and Bulgaria. The estimated cost of closing these plants has risen from 4 billion to 5.3 billion Euros in the span of a few years, and this does not even include the cost of dismantling the reactor cores. The job was due to be completed between 2025 and 2035, but will likely take much longer and cost much more. 15 In Japan the bill for closing all the plants would reach $47 billion if the country s 50 reactors were all decommissioned, according to a study by a group of Japanese lawmakers who are calling for an end to nuclear power. 16 The life span of nuclear reactors Commercial nuclear reactors are usually licensed for a period of 40 years, and can apply to extend their licence for another 20 years on the condition that necessary modernizations are undertaken. France, which is the most nuclear-dependant country in the world, is an example of a country with an aging nuclear fleet. By the end of 2022, 22 out of the 58 reactors in France will have been in operation for 40 years. Extending their life for another 20 years will cost an estimated 50 billion. 17 As for the United States, given that the average age of its nuclear fleet is 33 years, it will also be facing significant refurbishing costs in the near future. Finally, it is feared that closing down nuclear plants will end up costing much more than estimated due to a lack of experience and temptation of managers and politicians to understate costs in order to avoid a backlash from both investors and the public. The long-term storage of nuclear waste is another unresolved challenge Countries must deal with the risks, costs and political opposition associated with storing nuclear waste. In the United States, despite the fact the government spent $15 billion since 1983 analyzing Nevada s Yucca Mountain as a waste storage site, the Obama administration cancelled the project due to intense local opposition. In 2004, the Finnish government began building a storage site 400 feet below the ground for its spent nuclear fuel. It is projected that the site will cost 3.3 billion euros and be ready to store waste by The site is owned by two Finnish utilities, Fortum Corp. and Teollisuuden Voima Oyj. In France, the nuclear waste management agency plans to store its spent fuel 500 metres below the ground in a remote part of eastern France. Work on the industrial site is due to start in 2017, and be completed by The price tag is estimated to be 35 billion euros. 6 ANGELO KATSORAS / PIERRE FOURNIER As for Japan, it is considered too earthquake-prone and too densely populated for underground disposal. The loss of public trust in the government following the accident will make it very difficult to find a suitable site. In 2012, the International Atomic Energy Agency estimated the total amount of spent nuclear fuel to be 345,000 metric tons in 2010, up 50% from a decade earlier. It is estimated that nuclear waste will remain hazardous for thousands of years. 18 The public s fears over the consequences of a nuclear accident While it is true that the coal, gas and oil sectors have higher accident rates than the nuclear power sector, 19 it is only nuclear power that risks producing a nuclear meltdown. Further, when a major nuclear mishap does occur, it has long lasting impact on public opinion. For example, scenes of hundreds of thousands of people being evacuated from the surrounding areas of Fukushima in 2011 reawakened memories of the 1979 Three Mile Island and 1986 Chernobyl reactor accidents. Scenes such as these explain why arguments about the reliability of nuclear power tend to fall on deaf ears. A poll commissioned by BBC found public opposition to nuclear power has risen significantly between 2005 and SHIFTING OPINIONS Source: BBC World Service/GlobeScan Nuclear power is far less compatible with renewable energy than natural gas One of the biggest challenges to increasing renewable energy s share of electricity output is that wind and solar power generate irregular power flows. Wind cannot generate power when it stops blowing and the sun cannot generate energy when it does not shine. Given that electricity cannot be easily stored, integrating renewables on a large scale can be problematic for a company that must always have enough energy on hand to meet demand. One of the main advantages of natural gas-fired plants is that, unlike coal and nuclear powered-plants, they can vary their output with precision. This makes it a perfect complement to irregular wind and solar power. ANGELO KATSORAS / PIERRE FOURNIER 7 Further, despite the fact nuclear power does not emit carbon dioxide, its ability to reduce greenhouse emissions is limited by the 10 years or so that it takes on average to build a reactor, assuming there is no time delay. A 2003 Massachusetts Institute of Technology study concluded that more than two new reactors would have to start operating somewhere in the world every month over the next 50 years to displace emissions from plants that run on fossil fuels. 21 The lofty goal is in stark contrast to the fact that, for all of 2012, only three new reactors began operating, while six reactors were shut down. Moreover, of the 66 reactors officially listed under construction worldwide, nine have been listed as being under construction for more than two decades and another four have been in the building phase for more than a decade. 22 Will technological innovation ride to the rescue of nuclear power? Is smaller better? Research is under way to develop reactors that are only10% to 30% the size of traditional reactors. These smaller reactors would be built in factories and transported to the sites in question. Many experts, however, are unconvinced that smaller reactors can deliver significant cost savings. Components such as control systems, for example, are needed for all reactors, regardless of the size. Does it make sense to build 10 small reactors with 10 control systems rather than one big reactor? 23 To date, the U.S. Nuclear Regulatory Commission hasn t certified any of these small reactor designs. The potential of thorium reactors Other experts feel thorium has the potential to be a much safer nuclear fuel than uranium. For starters, compared with uranium, it is more abundant in the earth s crust. It is also much safer than uranium. That is, it is not prone to runaway chain reactions that can lead to nuclear disasters; its waste products remain dangerous for a much shorter period; and its by-products aren t useful for making nuclear weapons. 24 Critics counter that attempts to create thorium-based reactors in the past have failed. Japan built a thorium-based reactor in the early 90s for $10 billion. It has been plagued by problems, and has only managed to produce one hour s worth of electricity over the last two decades. 25 Germany abandoned a similar plant in the late 80s. Finally, any potential technological innovation will take decades to design, test and build. It is important to note that it was America s deployment of nuclear powered-submarines in the fifties that eventually provided its nuclear scientists with the expertise to adapt nuclear power for civilian use. 8 ANGELO KATSORAS / PIERRE FOURNIER UNITED STATES: THE NUCLEAR RENAISSANCE THAT NEVER WAS Only six years ago, U.S. politicians and energy experts were touting America s nuclear renaissance. The reasons for their enthusiasm were: The 2005 Energy Policy Act, which limited the liability of companies in the case of major accidents and tens of billions of dollars worth of loan guarantees Natural gas prices had reached $15 per million British thermal units, which motivated utilities to diversify their energy sources An expectation that a price would be placed on carbon emissions. But the good news did not last. Even with government financial aid, many utilities concluded that nuclear reactors were too costly and time consuming to build, while the U.S. shale gas production boom encouraged utilities to turns towards natural gas. On the political front, meanwhile, cap-and-trade never got off the ground. Finally, as the recent poll below highlights, the nuclear accident in Japan reawakened safety concerns and public opposition in the United States. PROMOTING THE INCREASED USE OF NUCLEAR POWER A failure to find a permanent repository for spent nuclear fuel has also hurt the prospects of nuclear power in the United States. A June 2012 court ruling blocked the federal Nuclear Regulatory Commission from issuing new reactor licenses or renewals until it sufficiently assesses the risks of storing spent radioactive fuel at nuclear plant sites. The 75,000 tons of waste now stored at 80 temporary sites in 35 states is projected to double by Nine states, including California, Connecticut and Illinois, have prohibited the building of new nuclear plants until a permanent solution to the waste issue is found. 26 As a result of all of these hurdles, the overwhelming majority of the close to 30 nuclear projects that were announced only a few years back never got off the ground. 27 ANGELO KATSORAS / PIERRE FOURNIER 9 GAS IS CHEAPER NUCLEAR OPTIONS Sources: Fracked off, The Economist, June 1, 2013 & Vermont Nuclear Plant's Closure Shows Impact of Cheap Gas, The Wall Stree
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