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Can Nuclear Energy Secure Financing? Nuclear Power and the Capital Challenge

Milton Caplan's picture
President MZConsulting Inc.

Milt has more than 40years experience in the nuclear industry advising utilities, governments and companies on new build nuclear projects and investments in uranium.

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  • Aug 27, 2014
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Quite often we hear about the problem of attracting financing to support new build nuclear projects. In fact financing will be a topic of major interest at a number of upcoming nuclear conferences. While it is easy to agree that financing nuclear projects is a big challenge, in my view difficulty securing financing is not the issue – rather it is a symptom of a number of other very important issues that are the root cause. Necessary conditions to secure financing for any project is first and foremost, an economically viable project. Next comes the project structure – or to state it more simply – ensuring the risks are managed in a way that can satisfy investors that they will receive an adequate return for their investment. These concepts will be discussed further in a future post.

For today, I will look at the $40 trillion energy industry and consider nuclear’s share of the overall expenditure needed for energy over the next 20 years. I would like to put some context on the issues related to financing nuclear plants by looking at a recent IEA report called the “World Energy Investment Outlook” or WEIO. I found this report of interest because it provides useful data on global funding required to support energy. Or as stated in the Forward to the report “…. data on today’s investment flows have not been readily available and projections and costs for tomorrow’s investment needs are often absent from the debate about the future of the energy sector.”

We often talk about the large size of nuclear projects and how they require huge amounts of funds. Nuclear projects are very capital intensive and have relatively long project schedules; both important issues when trying to secure financing. When we talk about large, a good first step is to try and understand how much funding is required for nuclear projects relative to the rest of the energy industry. And for this we turn to the WEIO.

With annual spending in 2013 of $1.6 trillion rising to about $2.0 trillion by 2035, meeting global demand for energy requires an enormous amount of money. This excludes another $500 billion or so per year to be spent on energy efficiency to try and moderate this growing demand.

Of even more interest, the report specifies that less than half of the $40 trillion dollars required to meet energy demand between today and 2035 goes to meet demand growth; the larger share is required to offset declining production from existing oil and gas fields and to replace power plants and other assets that reach the end of their productive life.

WEIOinvestment for replacement

A staggering statistic – more than $20 Billion is required over the next 20 years just to stand still. And of course, most of this investment is in fossil fuels that continue to emit carbon as the world tries to find a way to turn the corner and find alternatives.

WEIOtotalinvestment by sector

If we drill down and focus on the electricity sector, we can see that of the above $40 trillion about $16.4 trillion is investment in the electricity sector. The largest component of this investment (about 40%) is in transmission and distribution. In the developed world this essential infrastructure is ageing and requires significant investment to meet growing needs. In the developing world, there is a huge need to build up the infrastructure for a population hungry to enjoy the benefits of using electricity.

WEIOglobal Power sector

Looking further we can see two important facts.   First, nuclear power only needs about 6% of the funds for the electricity sector; this is assuming the very modest growth for nuclear in the WEO New Policy Scenario. The other is that renewables are demanding a very large share of the available funds as more and more markets turn to these forms of energy to meet their growing energy needs while trying to curb carbon emissions.

What can we learn from this high level look at the funding requirements for the energy industry? On the one hand, nuclear projects require only a very small portion of the total funds being invested today and for the next 20 years in energy. The main uses of funds are to replace existing depleted fossil fuel reserves – usually at a cost higher than the resources they replace; to invest in critical T&D infrastructure, in part due to the need to expand transmission to be able to accommodate renewable energy generation; and the investment in renewable energy generation itself, virtually all of this last investment subsidized by governments to encourage growth.

On the one hand, there is tremendous competition for funds in the energy industry meaning nuclear projects need to be an attractive financial proposition to get its share of these funds. And on the other hand, much of the competing technologies are being supported by governments with subsidies based on policy decisions.

So what is it that makes nuclear plants so difficult to finance? As I said at the start of this post, there are a number of issues that need to be discussed. These include project economics, energy market structures, poor project construction performance in a number of markets; and of course, public perception that skews the risk profile of nuclear projects in a way not seen in other industries. But a discussion of these factors will have to wait until another time…….

Note:  all figures above are from the IEA World Energy Investment Outlook.

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Paul O's picture
Paul O on Aug 27, 2014

I disagree based on the following:

 

1) Nuclear power demonstrably replaces Coal Plants and other  Carbon emitters if you consider Natural cas, without drastically changing the infrastructure.

2) Nuclear power is flexible enough to load follow pending the design.

3) The people complaining about Nuclear being dangerous typically seem to support killing safer Fourth Generation Nuclear Power  (ask Bill Clinton, John Kerry and Democrats about the Integral Fast Reactor).

4) Nuclear is not expensive as per govt. figures, and considering that it lasts up to 60yrs or more.

5) Multiple simultaneous plant construction renders the time argument mute. If we build 8 plants  simultaneously over 8years, that’s on average one plant per year.

6) Nuclear supports better, efficient Land use, and doesn’t Kill Endangered species, and also does not rely on the whims of the weather.

Why do I personally support nuclear power? It’s because all along,  for decades,  we have had a solution for our energy and climate problems, yet we have chosen to listen to scare mongers.  This has impeded the design and construction of the very thing we badly need, safe and plentiful energy without any funky demand response or such compromises.

Fukushimas and such, should not even be able to happen at all if the development of things like the integral fast reactor had not been stopped. We can still design and build Molten Salt Reactors that are safe and melt-down proof if we wanted to. They are designed to be melted and we don’t want to cool them.

Distributed solar in micro grids is a fallacy. If you think about it, it would even eliminate wind power. Moreover it does not address the question of what places like Alaska, North Dakota, Minnesota, etc would do in the winter.  The battery storage issue is a huge bug-a-boo, and has been discussed at length.

Peter Lang's picture
Peter Lang on Aug 30, 2014

Milton Caplan,

Thank you for an interesting and informative post.

In your last paragraph you said: “So what is it that makes nuclear plants so difficult to finance? … [issues] include project economics, energy market structures, poor project construction performance in a number of markets; and of course, public perception that skews the risk profile of nuclear projects in a way not seen in other industries.”

I suspect “public perception that skews the risk profile of nuclear projects in a way not seen in other industries.” is the cause of all the other issues you list.  The “public perception” is a result of 50 years of anti-nuclear didinfomration and scaremongeing by the anti-nuclear activists.  This has caused governments to make laws and regulations that distort markets in a way that disadvantages nuclear power compared with other alternatives.

What can governents do?  I’d suggest they focus on removing the impediments that are preventing the world from getting low-cost nuclear power.  Here are some suggestions: 

1.     IAEA end the LNT fallacy and ALARA rules (as low as reasonably achievable).  Move to AHARS (As high as relatively safe). 

2.     Change the regulatory and licencing environment accordingly 

a.      Repeal legislation and remove regulations that favour one technology over another unless they are justified on an objective basis that is the same for all technologies. 

3.     Fund research focused on how to implement policies that have a high probability of reducing global GHG emissions 

a.     Get academia involved in this 

b.   Focus on educating students and student teachers so they get the information out to children and through them to parents over the course of a decade or so.  The purpose is to reduce irrational nuclear paranoia over time in the population of the developed countries over a period of decade or so.

 

Mark Pawelek's picture
Mark Pawelek on Aug 29, 2014

7) High cost of nuclear results from regulations applying only to it. If the same regulations were applied to coal – all US coal plants would have to shut down tomorrow. These regulations are not based on fact and science but upon speculation and guesswork. LNT and ALARA are speculative frameworks created by anti-nukes to kill nuclear power.

Paul O's picture
Paul O on Aug 30, 2014

LOL Brian, too funny.

Pls See George Larson’s reply above.

Mark Pawelek's picture
Mark Pawelek on Aug 31, 2014

For the the past 58 years ever since the US NAS accepted the Linear no threshold, LNT, model of radiation risk (1956), the nuclear industry has shot itself in the foot by not opposing this draconian theory. Recent research shows LNT to be fraudulent. The recent Fukushima fiasco should’ve taught the nuclear industry how cowardice eventually comes home to roost. It’s time for the nuclear industry to make a stand. See: Ed Calabrese – Researching Dose Response: blog, podcast.

Yes there are much better designs that the AP1000. Transatomic Power calculate US electricity priced at 6¢/kWh from their projected WA-MSR (which looks like a rock solid design to me).

Renewables are a fools paradise. The EROI on all renewables is too small to sustain US civilisation. See: Catch 22 of energy storage, and Jessica Lambert, Charles Hall, et al, 2013.  Lambert/Hall say an EROI of 25 is good. and an EROI of 13 is the least acceptable. Renewables have low EROIs, especially when energy storage is factored in. Investing in renewables is pouring money down the drain.

Mark Pawelek's picture
Mark Pawelek on Sep 1, 2014

@Brian Donovan

  • The transmission ‘infrastructure supporting nuclear and coal’ you decry was made to limit blackouts and brownouts.
  • The bio-fuels supporting renewables you talk about are often wood chips, imported from thousands of miles away, made by chopping down forests.  Renewable energy is evil.
  • Yes we do support killing taxpayer funded research.” : Are you Tea Party, libertarian, or an anarchist?
Joris van Dorp's picture
Joris van Dorp on Sep 2, 2014

German coal plants are for export.”

 

I’ve been seeing this cop-out line more and more in the last few weeks. Every time such a new excuse for the wholesale German energy debacle appears on the internet blogosphere, I am again surprised at the skilful – albeit despicable – ability of the anti-nuke community to duck, dive, dodge and duck again away from any and all matters at hand.

Who are they trying to fool? Have they fooled themselves, one wonders?

Math Geurts's picture
Math Geurts on Sep 2, 2014
Germany needs coal to balance dependency on Russian gas -watchdog

 

http://www.reuters.com/article/2014/08/27/germany-energy-regulator-idUSL...


Math Geurts's picture
Math Geurts on Sep 2, 2014

“That 10-20% is what waste to fuels can provide. Holland already does 12%”

12% of what?


Nathan Wilson's picture
Nathan Wilson on Sep 3, 2014

Brian, the page you linked does not say the Netherlands gets 12% of its total energy or even total electricity from waste, but rather, ” The Dutch waste-to-energy plants currently deliver almost 12% of all sustainable energy produced in the Netherlands.” [emphasis added]

According to this Wikipedia page, in 2009 the Netherlands got an unusually high (bad) 85% of their electricity from fossile fuels.  According to this Wikipedia page, much of the renewable power sold to consumers there is actually imported hydro power from Norway.  Not a success story.


Nathan Wilson's picture
Nathan Wilson on Sep 3, 2014

If the LFTR is so safe why does it need the melt plug? What would happen if the melt plug jammed?

The melt plug (freeze valve) would be included in a LFTR to protect the plant equipment from damage due to pump failures; the public would never be in any danger from failed pumps at LFTR plants.  The fluoride salt in which the fuel is disolved is also able to contain hazardous fission products such as cesium and iodine in liquid form, so a leaking/cracked weld or even a complete rupture of the reactor vessel will not allow these products to escape from the containment.  (Modern light water reactors achieve safety by using other passive techniques to prevent solid fuel rods from overheating in accidents, such as air-cooling the containment exterior, so that cooling water that boils away during passive cooling can be condensed on the containment inner-wall and reused for cooling).

Your claims of nuclear power being dangerous fly in the face of compelling arguments that nuclear power is much safer than fossil fuels. 

 

Nathan Wilson's picture
Nathan Wilson on Sep 3, 2014

I think the issue you are overlooking is that power plants don’t just produce electricity, they provide load following service.  

The article you linked (which shares your misunderstanding of the importance of load following) shows a plot of German electrical production from Oct 2013, and it clearly shows that coal provides most of Germany’s load following, with their exports providing the next biggest chunk of load following.  Their wind power creates the need for even more load following, solar sometimes helps and sometime hurts, and occasional imports help. [Note also that the same graph shows that about 2/3 of German demand could be met by baseload plants, were it not for the additional added variability from wind and solar.]

So Germany is still dependent on coal, and is additionally dependent on exports to stabilize its grid.

donough shanahan's picture
donough shanahan on Sep 3, 2014

And the main reason for that is over capacity leading to over production. i will repeat what I said before

On week thirty we see that there are significant imports around when the solar is kicking in and significant exports when the solar hits its peak. Taken to its extreme? Well just look at week 25. We see a staggering amount of overcapacity with 1/6th of the electricity produced being exported at some times.

Now obviously this is difficult to prove that solar is driving these exports or it solar ‘electricity’ since we cannot measure the path of a certin type of electricity as it goes into the grid. This is neatly illustrated in week 35 where we have export during periods of renewables and no renewables. However on casual obersvation, exports nearly always occur when there is a large amount of solar on the grid.

http://www.ise.fraunhofer.de/en/downloads-englisch/pdf-files-englisch/news/electricity-production-from-solar-and-wind-in-germany-in-2013.pdf

NowI will have a look at the link posted earlier as it may allow me to work out which power is being exported.

Robert Bernal's picture
Robert Bernal on Sep 4, 2014

Negative learning curves are a result of piss poor national energy strategy and by regulators that “only know” the LWR. The seriousness of excess CO2 demands ALL the clean energy options, but especially, the ones that require less loss to storage and that are of high EROEI.

Robert Bernal's picture
Robert Bernal on Sep 4, 2014

Solar “must” be backed by natural gas. The more solar, the less baseload (and thus, even more NG). The only way around this is by building pumped hydro storage and molten fuels nuclear. PHS has an ESOI in FAR excess of that from batteries. Nuclear is required for all the energy necessary to desalinate water.

We will not have a livable planet if we do not desalinate water necessary for greening the deserts which is necessary to capture the excess CO2 and provide some kind of economic benefit such as edible (and even biofuels?) crops. The soil would capture excess CO2 (as long as the greening of the deserts do not require fertilizer made from fossil fuelled processes. Nuclear produced ammonia solves that problem as well).

Solar and wind does NOT have the high EROEI to do this, power a 10 billion person planetary civilization AND provide for the losses due to the overbuilds necessary to make up for their piss poor capacity factors, losses due to much energy input required to make storage and losses to ineffeciency of that storage.

However, solar and wind can help as long as they are NOT backed by fossil fuels!

Robert Bernal's picture
Robert Bernal on Sep 4, 2014

12% of “sustainable” is not 10% of “all”. If we are to ever get an appreciable amount of energy from biofuels, it will be from the greening of the deserts. Of course, it would take nuclear power to enable (the desalination and ammoina fertilizer for) that daunting task. I say appreciable, because it is this that could actually sequester excess CO2, not because of the mere fraction that resulting biofuels would produce.

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