This can be seen by the slew of recent new nuclear plans announced across Europe in the months after the Ukraine invasion and the resulting energy crisis, which we summarized in our last blog.
Nuclear’ s unique role in the clean and secure energy transition was recently examined in a report released a few weeks ago by the International Energy Agency (“IEA”), “Nuclear Power and Secure Energy Transitions: From Today’s Challenges to Tomorrow’s Clean Energy Systems.” The IEA report examines how nuclear can address the two major crises the world is facing today—energy and climate— explaining that “[a]mid today’s global energy crisis, reducing reliance on imported fossil fuels has become the top energy security priority. No less important is the climate crisis: reaching net zero emissions of greenhouse gases by mid-century requires a rapid and complete decarbonization of electricity generation and heat production. Nuclear energy…contributes to both goals.”
The report further notes that “[e]nergy security concerns and the recent surge in energy prices, notably in the wake of Russia’s invasion of Ukraine, have highlighted the value of a diverse mix of nonfossil and domestic energy sources.” Looking back, the 1973 oil shock led to the construction in the subsequent decade of almost 170 GW of nuclear power plants—or about 40% of today’s nuclear capacity. The report asks whether today’s changed policy landscape paves opportunities for a nuclear “comeback” and therefore whether the world is at the “dawn of a new nuclear age.” With policy support and tight cost controls, it concludes, today’s energy crisis could lead to a similar revival for nuclear energy.
The recent report echoes an earlier IEA determination—first made in a 2021 IEA report on achieving worldwide net-zero emissions by 2050—that the worlds needs to double nuclear power from 413 GW in early 2022 to 812 GW in 2050, and that this increase would serve a harmonizing role with renewables.
The 95-page report ultimately provides recommendations directed at policymakers on how nuclear energy addresses two current predicaments—the energy crises and the climate emergency—noting that there are hurdles that nuclear will need to overcome to maximize its capabilities, such as cost, declined market leadership in advanced economies, and the need for nuclear-friendly government policies. But the report’s ultimate conclusion is clear: Nuclear power can reduce reliance on imported fossil fuels, cut carbon dioxide emissions, and stabilize electricity systems; and that building sustainable and clean energy systems will be harder, riskier, and more expensive without nuclear.
Summary of Key Findings:
Below is an overview of some key findings and recommendations from the IEA report.
- Nuclear and energy security
As the world endures a global energy crisis, such as skyrocketing fossil fuel prices, energy security challenges and ambitious climate commitments, the IEA report states that nuclear power has the potential to play a significant role in helping countries to transition to secure energy systems, particularly in markets dominated by renewables.
For one, nuclear power sources complement renewables by providing critical services to electricity systems. The report discusses how the predominance of wind and solar in the power mix and the end of unabated fossil generation must be complemented by a diverse mix of dispatchable generation to provide stability, short-term flexibility and adequate capacity during peak demand periods. For example, in an analysis of a carbon neutral power system in China, nuclear would provide only 10% of total electricity produced in 2060, but supply almost half the required inertia, a key component of system flexibility.
The report also notes that the energy crisis triggered by Russia’s invasion of Ukraine represents an opportunity to leverage nuclear power to increase energy security. For example, “[t]he oil security crisis of the 1970s spurred the first wave of nuclear new-builds: in the decade that followed the first oil shock, construction started on almost 170 GW of nuclear power plants; these plants still represent 40% of the nuclear capacity that is operating today,” the report says. “If policy support is forthcoming and costs are kept under control, the renewed interest in nuclear today could point in a similar direction.”
According to the report, achieving net zero globally will be harder and riskier without nuclear. One cost-effective path to net zero by 2050 is to extend the lifetimes of existing nuclear plants. Currently nuclear power provides about 413 GW of capacity operating in 32 countries. It makes up about 10% of global electricity generation, but is the second-largest source of carbon free power generation after hydroelectricity, and the leading source of carbon free power in advanced economies. In 2020, nuclear electricity still exceeded the total combined contribution of wind and solar PV generation worldwide, despite massive growth in those renewable sources.
About 260 GW, or 63%, of today’s nuclear plants are over 30 years old and nearing the end of their initial operating licenses. Despite attempts to extend the lifetimes of plants representing about 10% of the worldwide fleet, the nuclear fleet operating in advanced economies could shrink by one-third by 2030. The reports states that the capital cost for most extensions is about USD 500 to USD 1100 per kilowatt (“kW”) in 2030, yielding a levelized cost of electricity generally well below USD 40 per megawatt-hour (“MWh”), making them competitive even with solar and wind in most regions.
Less nuclear power would make net zero ambitions harder and more expensive. The Low Nuclear Case variant of the IEA’s Net Zero Emissions by 2050 Scenario (“NZE”), considers the impact of failing to accelerate nuclear construction and extend lifetimes. In this case, nuclear’s share of total generation declines from 10% in 2020 to 3% in 2050. Solar and wind would need to fill the gap, pushing the frontiers of integrating high shares of variable renewables. More energy storage and fossil fuel plants fitted with carbon capture, utilization and storage would be needed. As a result, the NZE’s Low Nuclear Case would require USD 500 billion more investment and raise consumer electricity bills on average by USD 20 billion a year to 2050.
Additionally, the report looks at the role of new technologies in the context to net zero, particularly SMRs and their potential development and deployment.
- Nuclear needs streamlined investment and supportive policies
According to the report, to maximize the capabilities associated with nuclear energy, public-private coordination is required. For example, industry must deliver projects on time and on budget to fulfil its role, while robust government policies are needed to support the use of nuclear and enhance its safety. This means completing nuclear projects in advanced economies at around USD 5000/kW by 2030, compared with the reported capital costs of around USD 9000/kW (excluding financing costs) for first-of-a kind projects. The IEA further observes that advanced economies have lost market leadership in nuclear energy to Russia and China, but that there are some proven methods to reduce costs and deployment timing, such as including finalizing designs before starting construction, sticking with the same design for subsequent units, and building multiple units at the same site. Stable regulatory frameworks throughout construction would also help avoid delays.
Advanced economies have lost market leadership. The report states that although advanced economies have nearly 70% of global nuclear capacity, investment has stalled and the latest projects have run over budget and behind schedule. As a result, the project pipelines and preferred designs have shifted. Of the 31 reactors that began construction since the beginning of 2017, all but four are of Russian or Chinese design.
Government financing will remain necessary to mobilize new investment, not just for plants but also to develop the latest technologies. This is because there is rarely sufficient private sector financing for such capital-intensive and long-lived assets, particularly those exposed to significant policy risk. Innovative financing mechanisms, such as the recently approved Regulated Asset Base model by the United Kingdom, can help to secure adequate financing while assigning risks to those best situated to accept it. And for countries where nuclear power is considered an acceptable part of the future energy mix, the report identifies the potential policy, regulatory and market changes that could be implemented to create new investment opportunities.
The report makes a number of recommendations “directed at policy makers in countries that see a future for nuclear energy.” The recommendations are as follows:
- Extend the operations of existing nuclear power plants to continue to deliver cost-effective low-carbon electricity generation.
- Design electricity markets to ensure nuclear power plants are compensated in a competitive and non-discriminatory manner for the avoidance of emissions and the services provided to maintain energy security.
- Create financing frameworks to support new reactors, to mobilize capital for new plants at an acceptable cost and with fair sharing of risks between investors and consumers.
- Promote efficient and effective safety regulation. Ensure that safety regulators have the resources and skills to undertake timely reviews of new projects and designs, develop harmonized safety criteria for new designs, and engage with potential developers and the public to ensure that licensing requirements are clearly communicated.
- Implement solutions for nuclear waste disposal.
- Accelerate the development and deployment of SMRs. Identify opportunities where SMRs could be a cost-effective low emissions source of electricity, heat and hydrogen. Support investment in demonstration projects and in developing supply chains.
- Re-evaluate plans according to performance. Make long-term support contingent on the industry delivering safe projects on time and on budget.
For more information on the IEA report and nuclear energy opportunities, contact Amy Roma, Partner or Stephanie Fishman, Associate.