Levelling the Playing Field for Nuclear Make or Break

Transcription

1 Presentation 14 Session 4 Levelling the Playing Field for Nuclear Make or Break Dr Ron Cameron Nuclear Consultant and former Head of Nuclear Development at the OECD Biography Dr Ron Cameron has an in-depth knowledge of the nuclear industry acquired over 35 years, covering both power and research reactors. He is a director of his own consultancy company, providing specialist advice to the UK Government on nuclear new build until July 2016, interacting directly with overseas vendors, investors and their supply chains. Prior to that role, he was Head of the Nuclear Development Division at the OECD Nuclear Energy Agency, which provides advice to 28 member governments on policy and strategic issues related to all aspects of nuclear power development and the nuclear fuel cycle. He has also held executive roles as Chief of Operations, Executive General Manager and interim Chief Executive of the nuclear science and technology organisation in Australia and was the Project Director for the construction of the OPAL research reactor in Sydney. Previously, he held leadership roles in the UK Atomic Energy Authority and in the International Atomic Energy Agency in Vienna. Abstract It is increasingly clear that building large nuclear plants represents a significant challenge in all countries and is especially difficult in liberalised electricity markets and where debt financing is required. However, when operating, nuclear plants provide essential system reliability, low carbon and resilience against shocks. This talk will explain how markets have developed to their current state and how they might be reformed to incentivise nuclear new build, while allowing the transition to more renewable sources. This relates both to ensuring price certainty and requisite financial returns to investors, while fully accounting for the system effects of current technologies. Following the discussion on markets, the talk will look at the interaction between market reform and construction finance, using examples from the UK and elsewhere. Finally, some ideas will be presented about what Australia needs to do if nuclear is ever to be successfully introduced. ANA2017 Conference, Sydney, 6 Oct

2 Levelling the playing field for nuclear make or break? Dr Ron Cameron 1 Presentation title - edit in the Master slide

3 1 The difficulties of building and operating nuclear 1. The high capital costs of nuclear mean that it is difficult to finance and entails significant construction risk, which private investors are not willing to take. 2. Current electricity markets are not designed to enable construction of high capital cost infrastructure Current demand for electricity is not increasing in many developed countries. 4. In the absence of the inclusion of nuclear in GHG reduction goals, there is not sufficient policy motivation for utilities or grid operators to support nuclear Even older operating nuclear plants cannot profitably compete in an environment where subsidised renewables above about 20% or low cost fuels (such as shale gas) are present. 6. No compensation is provided for nuclear s role in grid stability, back-up, frequency control or resilience. 7. The social licence for nuclear remains weak in many countries. 2

4 Electricity markets and new nuclear 1. From the 1980s, electricity markets were de-regulated in many countries, with a separation of generation and distribution and transfer of assets to the private sector. This was the privatisation era (Thatcherism in the UK). 2. Such liberalised markets are good as sweating assets but not good at building new infrastructure. Markets are, however, seen as important for competition and are unlikely to be abandoned quickly. 3. Price variability is a natural consequence with lack of certainty on returns to investors. Even with capacity auctions, the timeframe of 3-5 years is too short for nuclear and innovative technologies. 4. This led to market failures and government intervention e.g. to encourage renewable uptake through the RET, FITs, grid priority etc. (but with no penalties for under-delivery) and distorting subsidies. 5. Resulting consequences were unintended and undesirable in terms of energy planning and price stability. In nearly every country with a liberalised market, long term planning declined or ceased and prices rose. 3

5 Major concern for investors 4 4

6 5 5 NO CURRENT NEW BUILD IN A LIBERALISED MARKET

7 Competitiveness and affordability Energy triangle Affordability Industry OECD Europe, Japan, USA, Q Retail electricity prices (USD/MWh) IEA

8 7 Jacobs Analysis for the AEMO May 2016

9 Electricity Market Structures and Nuclear Regulated markets Liberalised markets Long-term price certainty Investor Short/Medium-term price certainty FITs & grid priority for renewables Uncertain pricing 8 8 Investor

10 Short-Run Impacts In the short-run, renewables with zero marginal costs replace technologies with higher marginal costs, including nuclear as well as gas and coal plants. This means: Gas (CCGT): Lost load 80 Load losses 30% Penetration level Wind Solar Gas Turbine (OCGT) -54% -40% -87% -51% Gas Turbine (CCGT) -34% -26% -71% -43% Coal -27% -28% -62% -44% Nuclear -4% -5% -20% -23% Gas Turbine (OCGT) -54% -40% -87% -51% Gas Turbine (CCGT) -42% -31% -79% -46% Coal -35% -30% -69% -46% -24% -23% -55% -39% -14% -13% -33% -23% Nuclear Electricity price variation 9 Nuclear: Lost load Yearly Load Profitability losses 10% Penetration level Wind Solar Coal: Lost load 70 Reductions in electricity produced by dispatchable power plants (lower load factors, compression effect). Reduction in the average electricity price on wholesale power markets, merit order effect (by 13-14% and 23-33%). Gas (OCGT): Lost load 90 Power (GW) Residual load Utilisation time (hours/year) Declining profitability especially for gas (nuclear is affected later). Insufficient incentives for new investment. Security of supply risks as coal and then nuclear plants close. 9

11 Capacity (GW) Capacity (GW) Capacity (GW) Capacity (GW) 100 Long-Run Renewables Impacts Capacity Credit Renewables Gas (OCGT) 80 Capacity Credit Gas 90 (CCGT) 100 Gas (OCGT) Coal Renewables Gas (CCGT) Nuclear Capacity Credit 90 Coal Gas 60 (OCGT) Nuclear Gas (CCGT) Coal 80 Nuclear Yearly load Residual load: wind at 30% penetration Dispatchable 20 Dispatchable Renewables Without VaRen With VaRen Dispatchable Dispatchable 10 Renewables Without VaRen With 0 0 VaRen 0 Dispatchable Dispatchable Renewables 0 Dispatchable Dispatchable 3000 Renewables Utilisation time (hours/year) Without VaRen With VaRen Without VaRen With VaRen Renewable production will also change generation structure for back-up. Without countervailing measures (e.g. carbon taxes), nuclear power will be displaced by a more carbon-intensive mix of renewables and gas e.g. in Germany. Cost for residual dispatchable load will rise as more expensive technologies are used. No change in electricity prices for renewable penetration levels < 25% but more rapidly thereafter

12 South Australia Supply and Demand 11 11

13 South Australia variability of electricity supply and demand Adding more renewables does not reduce max residual demand Source AEMO 12 12

14 The Energiewende is broken! says prominent German economist Heiner Flassbeck in 2030, with nuclear power no longer available, a capacity of at least 50 gigawatts is required by other means, despite an enormously expanded network of wind turbines and solar systems Source: Energy Post Of power demand totaling 69.0 gigawatts (GW) at 3 pm on the 12th, for instance, just 0.7 GW was provided by solar 13 energy, 1.0 by onshore wind power and 0.4 offshore.

15 Possible market solutions 1. Abandon nuclear and go for massive increase in renewables e.g. Energiewende, but expensive, higher CO 2 emissions and needs storage or integrated grid with other countries. 2. Support low carbon dispatchable baseload as part of an appropriate energy mix. Since nuclear new build cannot happen in the current designs of liberalised markets, governments must intervene to set the conditions for investing in the long term. This was the UK decision between 2003 white paper and 2006 and is being implemented today. 3. Reform the market to introduce dedicated capacity mechanisms, price guarantees, long-term contracts, generalised feed-in tariffs, CFDs or other means to ensure long-term electricity price security. 4. Recognise full system cost of each technology and require both supply obligations and demand side management through integrated system management with an increased role for transmission system operators. 5. Recognise the role that nuclear plays in grid stability, frequency control and resilience (e.g. US hurricanes) and GHG reductions e.g. through a coherent and robust carbon policy 14 providing a clear long-term signal to investors. 14

16 Source: AREVA 15

17 16

18 17 Financing new nuclear 1. Financing new nuclear requires both long term certainty on prices and ways to encourage investors to put up construction funds. The UK situation has shown that the former does not ensure the latter. 2. Debt financing is no longer an option, so some form of equity support (Hinkley Point C) or efficient debt/equity financing (Wylfa) is needed. 3. Outside of Asia and Russia, recent large nuclear build has been a catastrophe for the industry e.g. Olkiluoto, Flamanville, VC Summer etc. Project management skills for such large projects are severely lacking and are likely to deter investors. 4. Innovative financing schemes, such as the Finnish Mankala model are needed. Other options such as BOO are possible for some countries but only Russia and China offer such possibilities. Thus, for Australia, large nuclear looks unlikely in foreseeable scenarios. 5. Outside the US, nuclear in operation provides long term stability, low operating costs, no GHG emissions and is resilient to shocks. However, it is not efficient outside a baseload mode. 6. It may be time to grasp the mettle of smaller more adaptable nuclear.

19 Financing Models 1. Balance sheet financing hardly used 2. State equity EDF/CGN/CNNC 3. Equity-debt financing Horizon/Nugen/Vogtle/Barakah 4. BOO - Akkuyu 5. Mankala - Okiluoto 18 18

20 Baseload LCOE costs between 2010 and 2015 studies by IEA/NEA Non-baseload LCOE costs between 2010 and 2015 studies by IEA/NEA 19 19

21 System Effects System costs are the total costs above plant-level costs to supply electricity at a given load and given level of security of supply. Plant-level costs Grid-level system effects (technical externalities) o Grid connection o Grid-extension and reinforcement o Short-term balancing costs o Long-term costs for maintaining adequate back-up capacity Total system costs o Take into account not only the costs but also the benefits of integrating new capacity (variable costs and fixed costs of new capacity that could be displaced) o Other externalities (environmental, security of supply, cost of accidents, ) Dynamic effects (pecuniary externalities) o Reduced prices and load factors of conventional plants in the short-run o Re-configuration of the electricity system in the long-run 20

22 USA UK Germany Total Costs of Electricity Supply for Different Renewables Scenarios Comparing total annual supply costs of a reference scenario with only dispatchable technologies with six renewable scenarios (wind on, wind off, solar at 10% and 30%) o Takes into account also fixed and variable cost savings of displaced conventional PPs Total cost of electricity supply [USD/MWh] Ref. Conv. Mix 10% penetration level 30% penetration level Wind onshore Wind offshore Solar Wind onshore Wind offshore Total cost of electricity supply Increase in plant-level cost Grid-level system costs Cost increase Total cost of electricity supply Increase in plant-level cost Grid-level system costs Cost increase Total cost of electricity supply Increase in plant-level cost Grid-level system costs Cost increase Solar Total costs of renewables scenarios are large, especially at 30% penetration levels: o o Plant-level cost of renewables still significantly higher than that of dispatchable technologies. Grid-level system costs alone are large, representing about ⅓ of the increase in unit electricity costs. 21

23 Conclusions and Lessons Learned 1. The current structure of liberalised markets effectively exclude funding for large nuclear build. Even in regulated markets financing is a key issue 2. Hence there cannot be large nuclear build without significant government support either directly (China, Korea, Russia, UAE etc) or indirectly (UK, US). This is no different to the situation with other new technologies. 3. That support should look at market incentives for reliability (a high reliability premium), supply obligations on all generators, supporting all low carbon technologies equally, removing the ideological prohibition on nuclear (in Australia) and recognising the full system costs of the electricity mix. 4. While LCOE costs for nuclear remain highly competitive, financing is a formidable hurdle that is still not resolved, including in the UK. 5. It is, therefore, difficult to see large nuclear in Australia under foreseeable market structures. The lack of long term policies, bi-partisan support or Federal-State agreements makes it even less likely. 6. SMRs represent the best way forward for nuclear in Australia and many other countries. However, they are not immediately available beyond FOAK. 22