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Challenging the nuclear finance status quo

Financial challenges facing nuclear energy need to be tackled by disrupting the status quo to help drive down costs, delegates heard at the recent World Nuclear Association 2018 Symposium in London.

Excluding nuclear energy drives up the cost of electricity in future low-carbon scenario projections, Idaho National Laboratory’s David Petti, executive director of the recently released MIT Energy Initiative study The future of nuclear energy in a carbon-constrained world, said. Simulations of optimal energy mixes carried out for the study found that nuclear would be important at all levels of decarbonisation, and emission levels of 10 g CO2 per kWh or less – essential for deep decarbonisation – would be extremely difficult and “incredibly” expensive to achieve without nuclear, he said.

Petti said the overnight costs of nuclear must be brought down to enable it to compete with other generation options, but if the cost of building nuclear plants can be reduced then the market for them will expand, bringing with it business opportunities. Civil works, site preparation, installation and indirect costs such as engineering oversight – rather than the costs of the nuclear technology itself – dominate the costs of building a nuclear plant. Measures such as standardisation on multi-unit sites, optimising seismic isolation, employing advanced concrete solutions – together with updating codes to enable their use – and modular construction techniques using factory-fabricated modules could help to reduce these costs, he said.

Diversification in China

China, which has the largest number of nuclear power units under construction and aims to become a reactor vendor, has so far mostly relied on domestic loans for its new build projects but this trend is changing, Dongchen Zhao, executive director of ICBC International Research Limited, said.

Approvals of new construction projects iwere suspended in 2013-2014 but these resumed in 2015, first with Hongyanhe 5 and 6, followed by the Fuqing Hulaong One project, China’s first self-developed Generation III reactor. The 13th Five-Year Plan calls for coal capacity to be limited to 1100 GWe, with nuclear reaching 58 GWe.

Although investment in nuclear – and all energy – has decreased over recent years, nuclear’s share of China’s total energy investment has continued to increase. The financing structure for Chinese projects is heavily reliant on domestic loans, which make up nearly 70% of finance, with strict investment criteria and limited access for individual investors, Zhao said. In contrast, nuclear finance in more developed nuclear countries includes a large number of participating enterprises, particularly by individual investors and transnational financing.

Diversification is on the way, however, Zhao said. The Taishan 1 and 2 EPR projects have enjoyed foreign capital from the start, with CNY16.45 billion of the total CNY49.87 billion investment from joint venture partners and the remainder borrowed from the Central Bank of France. The involvement of the Guangdong Yudian Group, which in 2012 took a 19% share in the Taishan Nuclear Power Joint Venture is a step towards diversification in financing, he said.

Ongoing power sector reforms are making on-grid tariffs market- rather than government-driven, and levelised costs for Generation III nuclear, at CNY 0.42 per kWh, is the second cheapest generation option for China after thermal coal. This will prompt investment in nuclear power, while financial sector and state-owned enterprise reforms are allowing private and foreign capital to be directly involved in nuclear construction, Zhao said.

Market reforms

It is crucial for the USA to keep its existing nuclear fleet if it is to meet its carbon goals, Jason Barker, Exelon’s director of wholesale market development, said.

Economic challenges facing its nuclear sector centre on 20 years of flat demand and the impact of shale gas, plus inconsistent carbon policy and a clash between state and federal policy. The area served by regional transmission organisation PJM – the largest power market in the USA – is underlain by major shale gas systems which have driven down the cost of natural gas production, crushing gas prices and spurring an increase in consumption. This “glut” of natural gas is pushing down power supply costs and pushing down the revenues available from electricity markets, he said. PJM’s wholesale prices are now at their lowest in 40 years, and the revenues earned by nuclear power plants are now below the costs of running the units, he said.

Nuclear is one of cheapest means of achieving decarbonisation goals but it is not being compensated for this, Barker said, with prematurely retired nuclear capacity likely to be replaced with gas in the near term, further threatening climate goals. Four nuclear power plants in Ohio and Pennsylvania for which deactivation plans have already been announced – Davis-Besse, Perry, Beaver Valley 1 and 2 and Three Mile Island – together generated more electricity in 2017 than all the solar and wind generation capacity in the PJM. Their retirement would in effect “wipe out” 25 years of investment in wind and solar in the region, he said.

In the absence of federal US policy to ensure the continued operation of nuclear units, individual states are stepping in to recognise the carbon value but also the economic value of these units to the communities where they are located, he said. However, he warned of a federal-state jurisdictional clash. Wholesale electricity markets are regulated at the federal level, and state policies recognising the attributes of nuclear could be seen from a federal point of view as a subsidy to be mitigated on the wholesale capacity market, which could strip nuclear plants of the ability to earn revenue from the forward-looking capacity market auctions.

Barker also highlighted issues with the design of the US energy market, where prices fail to reflect all generation dispatched to meet load at a given time. Also, as gas generation increases the grid becomes more susceptible to common-mode fuel supply disruptions but the resilience benefits from nuclear’s long-term fuel supply are not being compensated.

“Immediate reforms are needed for nuclear power in the United States,” Barker said. “The discussion today is not how to build new nuclear in the United States, it’s how to save the assets that we have.”

Disruptive mindset

Jeff Holland, senior controller at Bruce Power, explored how the nuclear industry can challenge itself to “do things better” while maintaining safety and reliability. Challenging the financial status quo to do things differently can bring cost drivers down, helping to secure the nuclear industry’s long-term future, he said.

Holland gave examples of a “disruptive mindset” outside the industry that successfully challenged the status quo. Barack Obama’s 2008 US election campaign leveraged social media in a new way and was thus dubbed the ‘Facebook election’, he said. Netflix reformed itself from being a mail-order DVD service to a streaming platform and then to an entertainment production company, he added.

Catalysts for change in the nuclear industry are found in the political environment, where policies can change quickly, he said. These include market conditions, for example the availability of ‘cheap’ alternatives like shale gas in the USA, and emerging new technologies, which offer both a threat and an opportunity for nuclear. The nuclear industry needs to take advantage of new technology, he said, such as automated equipment monitoring, machine learning and robotics. It must also be ready to face threats such as cyber security and technological advances that may be advantageous for other energy options, such as improvements in storage capacity for electricity generated by wind and solar.

Bruce Power’s finance team has responded to these challenges with its 2020 Finance Plan. Bruce’s finance delivery model devotes more time to integrating with business and less on data mining, consolidation and reconciliation. The understanding gained from closer integration of the finance team with the business means opportunities to bring costs down can be more readily identified, Holland said. This is supported by the use of technological solutions to transform data into information.

“Knowing the business is really important for all support staff in a nuclear organisation,” he said. “We’re sending our accountants on plant fundamentals courses.”

Integrating finance with business has already identified money-saving solutions for Bruce. For example, through their interactions with operations teams, analysts have identified ways to improve helium management.

“We’ve actually saved half a million dollars at each of our plants over the past 18 months,” Holland said. The company has also introduced commercial awareness training for all leaders within the company.

“Let’s work to challenge the status quo to bring our cost drivers down,” he said. “Let’s work together, as nuclear finance professionals, and professionals as a whole, to develop strategies that will bring cost drivers down. Together we can secure a long-term future.”

Source: World Nuclear News