Why Pressure Is Growing For ‘Clear And Consistent’ Policy Support For Nuclear

15 Jun (NucNet): The Paris-based International Energy Agency has become the latest group to argue that nuclear energy can make a significant contribution to combatting global warming, but only if it receives clear and consistent policy support for existing capacity and new build. In its Energy Technology Perspectives 2017 report, released this month, the agency also called for nuclear to be included in clean energy incentive schemes.

The report says efforts are needed to reduce the investment risk in new nuclear due to uncertainties such as licensing and siting processes, which have clear requirements and do not require significant capital expenditure before receiving a final approval or decision. The report speaks of the need for “strong policy signals” and “multiple policy objectives”. But for the nuclear sector, it says little about what these signals and objectives should be.

The US offers some pointers. Since 2013, six nuclear reactors have permanently closed in the US, another 12 have been scheduled to shut down, and operators at several more plants have warned of other possible reactor closures in the coming years. The IEA report notes that reactors in the US are in jeopardy of shutting down because liberalised markets are dominated by low natural gas prices, with nuclear largely excluded from financial incentives offered to other low-carbon generation technologies.

The US nuclear industry has long been arguing in favour of incentives for nuclear plants. The Washington-based industry group, the Nuclear Energy Institute (NEI), said explicit government policies are in place to support both the entry of solar and wind into the market and their continued operation. Yet similar measures for nuclear plants are controversial. A close examination of federal energy incentives shows that nuclear energy receives the second smallest share of the pie, the NEI said.

A recent study for the NEI found that between 1950 and 2016, 40% of all federal energy incentives went to the oil industry. These incentives were mainly in the form of favourable tax policy. Renewables received the second highest amount of federal incentives – 16%, also largely in the form of tax policy. The nuclear industry received only 8% of federal energy incentives, and zero in tax policy. Only geothermal received less, according to the report.

A report by the National Council of State Legislatures (NCSL) says that although a number of reasons drive why legislators are exploring policies that support nuclear generation, primary factors include the high reliability of nuclear power, its carbon-free emissions profile and nuclear’s economic contribution to states. Nuclear plants are a reliable generation source – operating at 92% capacity factor in 2015 – higher than any other generation source. Commercial nuclear reactors account for approximately 60% of the nation’s carbon-free electricity, while providing jobs and tax revenue for the local communities and states in which they operate.

But the NCSL says nuclear faces a number of challenges – from economic pressures to competition with other energy sources – that have not been seen in this sector until recently. Competition in restructured electricity markets and pressures from competing technologies continue to challenge the nuclear fleet. The NCSL says these relatively short-term challenges are threatening long-term capital investments in nuclear plants, and so state legislatures are taking action to support the continued use of nuclear. This includes passing measures that encourage nuclear power in the nation’s generation mix, considering finance mechanisms that may help utilities recover operating costs, supporting the construction of new nuclear plants, and making efforts to engage the public and raise awareness of a particular nuclear issue.

According to the NCSL, it has only been in the past year or so that state governments have begun to adopt explicit policies to recognise nuclear energy’s value. In late 2016, New York and Illinois introduced policy mechanisms that aim to compensate struggling nuclear plants for their carbon-free attributes. It is likely that these zero emissions credits (ZECs), as they are known, will keep four at-risk power plants operating into the following decade. ZECs are similar to the renewable energy credits wind and solar generators receive that compensate certain generating facilities, based on avoided carbon emissions. Under these programmes, nuclear plants will receive a credit – a payment at a set rate – for every megawatt-hour of carbon-free electricity generated.

As of May 2017, at least three other eastern states have introduced bills to support the continued use of nuclear power in the 2017 legislative session, while a number of others are discussing the issue.

The NCSL said state legislatures have increasingly taken action to support state renewable portfolio standards; 29 states and the District of Columbia have adopted such measures. These standards – that primarily apply to investor owned utilities (IOUs) – require utilities to sell a specified percentage or amount of renewable electricity. Most states do not include nuclear energy in their renewable portfolio standards.

State legislatures can also help regulated utilities with the financing for new nuclear power plants by introducing policies allowing a utility to collect costs from customers during construction. This mechanism, known as advanced cost recovery or construction work in progress (CWIP), allows the utility to collect financing costs for a project before construction is completed. By allowing the costs to be recovered during construction, CWIP reduces the overall amount needed to finance a project and may reduce the total project costs that eventually are included in the customer rate base.

Florida, Georgia and South Carolina have used advanced cost recovery policies to lower the risk and total cost in order to increase investment in these projects. However, some consumer advocates oppose these mechanisms, contending that the tools place too much risk on the consumer. Bills have been proposed in Florida and Georgia to repeal or prevent the use of CWIP.

Some nuclear advocates, along with a number of other groups, feel that a state tax on carbon emissions could serve to level the playing field by forcing generation technologies to account for their environmental costs. While nuclear plants must account for the plant’s decommissioning and handling of spent nuclear fuel in the price at which they sell electricity, other technologies do not have to account for much of their environmental impact. “Through a carbon tax, fossil fuel plants would have to include the cost of carbon pollution in their electricity prices, which would make nuclear more competitive,” the NCSL said.

The IEA report, which examines how the energy sector can be transformed by clean energy and avoid dangerous levels of climate change, remains relatively optimistic about nuclear. It says nuclear saw 10 GW of capacity additions in 2016, the highest rate since 1990. Yet doubling of the 2016 annual capacity addition rate to 20 GW annually is needed to meet a target of limiting global warming to two degrees Celsius by 2060 – the “2DS scenario”. This would offset planned retirements and phaseout policies in some countries.

The report concludes that the global power sector can reach net-zero CO2 emissions by 2060 under the 2DS scenario. This would require increased deployment of a portfolio of technologies, including 74% of generation from renewables, up from approximately 24%, and 15% from nuclear, up from approximately 11%.

What is clear is that the global energy system is changing, the IEA said. Concerns about energy security, energy poverty, air quality, climate change and economic competitiveness are all bringing about a substantial shift in energy trends. In 2016, renewables supplied half of global electricity demand growth and overtook coal as the largest source of power generating capacity globally, while nuclear net capacity reached its highest level since 1993.

Progress with almost all technologies is falling well short of the 2DS targets, with onshore wind, solar PV, electric vehicles and energy storage the exceptions. But progress with these technologies alone is insufficient to achieve the 2DS. Many key technologies for achieving the 2DS were not recognised in the national climate strategies pledges before COP21. Collectively the “intended nationally determined contributions”, or INDCs, have limited reference to a role for carbon capture and storage, improved efficiency in buildings, alternative vehicle fuels – or nuclear. This “lack of progress and policy attention” could impede the availability of these technologies to contribute the achievement of energy and climate goals and exacerbate the future policy challenge, the IEA said.

The 10 countries that explicitly mentioned nuclear energy in their INDCS include countries with ambitious nuclear development programmes – China and India, for example. Premature closure of operational nuclear power plants remains a major threat to meeting 2DS targets.

Projected nuclear growth remains strongest in Asia, as China released a new five year plan to more than double its 2015 capacity to 58 GW (net) by 2020, with an additional 30 GW (net) under construction at that time. However, with 31.4 GW (net) in operation at the end of 2016 and 21.5 GW (net) under construction, China will likely miss that target by a year or two. South Korea also projects considerable growth – from 23 GW in 2016 to 38 GW by 2029.

Russia reduced its projections during 2016, noting that the reductions were to better align with reduced projections of electricity demand. In the UK, final approvals were given for the Hinkley Point C contract for difference after a government review of the entire project, and EDF Energy made the final investment decision in July 2016.

Poland delayed a decision on its nuclear programme until mid- 2017, citing the need to find a suitable financing model for the country, and Vietnam abandoned plans to build two reactors due to lower electricity demand and the cost of nuclear technology compared with coal.

Given the debate surrounding policies and incentives, it comes as little surprise that China, Russia, and the UAE, countries where major infrastructure projects are backed by the state, are implementing ambitious new-build programmes. In India, another country with ambitious nuclear plans, significant investment has come from Russia. The Hanhikivi-1 nuclear unit under construction in Finland is being supplied by Russia, as are two planned reactors for Paks 2 in Hungary.

In the rest of Europe, where Russian investment might be considered too politically sensitive, policy decisions are proving to be a little trickier. Hinkley Point C, where France’s state-controlled utility EDF is planning to build two EPR units, was identified as a new-build site in 2010, but it wasn’t until March 2017 that concrete was poured for the nuclear station’s galleries. The facility is unlikely to begin generating electricity until 2025.

These long-term upfront commitments and costs are what makes nuclear seem a risky investment. In the UK, the government’s solution was to pay EDF £92.50 (about €106, $119) per MWh for the electricity it produces. This “strike price”, which will rise with inflation every year, is guaranteed for 35 years. Similar strike prices are being discussed as possible options for Poland, Hungary and Romania, countries planning to build new reactors but struggling with the financial model. EDF is hoping for UK-style subsidies for the construction of new nuclear plants in France. The company’s chief financial officer Xavier Girre said EDF would discuss power market regulation with new president Emmanuel Macron’s team. The UK, meanwhile, in what seems to be a sign of the times, has turned to China, with China General Nuclear Group taking a 66.5% interest in the planned Bradwell B and a 20% stake in Sizewell C. The two Hualong One, or HPR1000 units planned for Bradwell, could become the first indigenous Chinese units built in Europe.

The IEA report is online: http://bit.ly/2r1d9u3

The NCSL report is online: http://bit.ly/2qZhq1Y

Source  NucNet
Editor  David Dalton