Bullish on Renewables in Light of Japanese Nuclear Meltdown

Amid the carnage on the Japanese stock market caused by the combined impacts of the earthquake, the tsunami and the nuclear crisis, one stock shone bright green in a sea of red. The share price of Japan Wind Development Co Ltd jumped sharply as the overall market slumped more than 15%. HSBC believes the EU will have to rethink its 2050 energy roadmap to include more renewables and gas, and less nuclear. But the key to unlocking the potential of renewables will likely come from massive investment in grid infrastructure. Giles Parkinson in Climate Spectator.

Giles Parkinson in Climate Spectator (21 March 2011):

Amid the carnage on the Japanese stock market caused by the combined impacts of the earthquake, the tsunami and the nuclear crisis, one stock shone bright green in a sea of red.

The share price of Japan Wind Development Co Ltd – a small, loss making wind farm operator – jumped sharply from ¥31,500 on  March 11 to ¥47,000 three trading days later, as the overall market slumped more than 15 per cent.

The contribution of Japan’s wind sector (274MW) to the country’s electricity grid is paltry, but at least it emerged unscathed from the natural disasters, while 10GW of nuclear and 8GW of coal-fired power were disabled. And as we noted on Friday, global green stocks have been well supported by investors in the past week, mostly on the belief that governments will turn increasingly to renewables (and energy efficiency) as their clean energy option.

In reality, it is still too early to say how the crisis at Fukushima will play out, beyond the immediate reactions of government, but given the experience post Chernobyl and Three Mile Island, and the indelible images of exploding reactors in Japan that will be left in the public and political mind, it seems fair to assume that the rollout of nuclear facilities will be stalled and downgraded, at least for the next decade, and there will be a renewed focus on renewables and energy efficiency.

To what extent – and how renewables and energy efficiency can fill the void – is the question being posed by markets, analysts and energy companies across the globe.

It is interesting to note that the rollout of nuclear, even with the dawn of its much-touted renaissance, was likely to be dwarfed by the investment in renewables in the coming decade. In a report released over the weekend, analysts at HSBC forecast the nuclear rollout – even before the Fuskushima incident – would be around 16GW a year over the next decade. That’s considerably more than has been installed over the past decade, but it pales in comparison with the 92GW of renewables that HSBC estimates will be installed each year over the same period.

HSBC says it is too early to change these forecasts, but the risk is clearly on the downside for nuclear, and on the upside for renewables. It also expects energy efficiency to get a renewed focus and energy sources such as gas to benefit, particularly in the short- to medium-term if, as expected, lifetime extensions for ageing reactors in Germany, the US and UK are restricted or declined; or, as is likely in Germany, older plants are shut down immediately.

As this site also noted last week, the most predictable impact of Fukushima will be on nuclear costs, as extra layers of safety are nevitably added to new and current reactors. HSBC says this could add a 25 per cent uplift on capital costs for nuclear, lifting its estimates for the levelised cost of energy for nuclear to more than €60 per MWh of electricity produced, not including decommissioning costs.

This compares, says HSBC, to an LCOE of €56-83/MHw for traditional fossil fuel technologies (an average of €68/MWh) and and €58-70/MHw for wind.  “We estimate nuclear decommissioning costs of around €45/MWh, giving a total LCOE for nuclear at €106/MWh, which is considerably more expensive than wind,” it says.

Nuclear, in some countries, will become less economic – or uneconomic – and renewables will be the obvious beneficiary from a rise in gas prices and nuclear capital costs. “It is not unreasonable to expect the focus to switch towards safe, proven, secure and low-carbon forms of energy generation – renewables and gas – as well as measures to reduce demand through building regulations and transport efficiency standards,” HSBC says.  “In the much longer term, given gas’ continuing emission profile, there may be very few other competing technologies for renewables.”

Even China, which is expected to account for nearly half the new nuclear capacity over the coming decade, has suspended the approval of new nuclear projects and plans to conduct ‘rigorous’ safety inspections in all nuclear power plants under construction. The review of safety standards could add costs, both in the construction of new reactors as well as in the operation of active ones, but given the country’s rising energy consumption, pollution issues, lower seismic risk and rigorous central planning focus, HSBC says this is likely to be only a short-term delay for nuclear.

Still, nothing is certain. As noted in the Financial Times late last week, “nuclear radiation” was the most searched phrase on the Chinese internet this past week, and blogs were full of sceptical comments about the technology’s safety. And supermarkets reportedly ran out of salt because many Chinese believed the iodine contained in them would help ward off the effects of any radiation poisoning.

HSBC believes the EU will have to rethink its 2050 energy roadmap, less than a month after it was released, to include more renewables and gas, and less nuclear. But the key to unlocking the potential of renewables will likely come from massive investment in grid infrastructure – so that the wind contribution from a country like Spain can be fully exploited, as could the hydro contribution from Scandinavia, and the solar contribution from southern Europe and north Africa.

Much of the impetus will come from Germany, which is highly likely to dump plans to defer the phase of its nuclear stock. Chancellor Angela Merkel has made it clear that she sees nuclear as a “transition fuel” at best, and while she is reluctant to close down Germany’s own nuclear plants simply to import nuclear from elsewhere, Germany is looking at numerous measures to bridge the gap, including increased investment and tariffs for offshore wind, energy efficiency measures, and a significant investment in its domestic and pan-European grid infrastructure.

This includes the Desertec proposal, backed by leading German companies Siemens, Deutche Bank and Munich Re, among others, which seeks to source solar energy from northern Africa – the first solar plant has already begun construction in Morocco – and accelerating plans for a European “super grid”, and to invest in its own grid infrastructure.

Matters of perception

The image problems besetting the nuclear industry should not be underestimated. Chernobyl and Three Mile Island set back the development of nuclear by several decades. As we noted last week, Nuclear is unique in its dependence on public trust and its ability to secure it.

The mixed signals coming out of the Japanese crisis – where experts insisted there was no danger beyond 20kms, the US suggested the exclusion zone by 80kms, and the government of nuclear dependent France – among others – recommended its citizens either leave the country or drive south from Tokyo, simply underline that point.

The nuclear industry insists that generation 2 and generation 3 reactors will not encounter the same problems at Japan, but that is exactly what they said a week ago about generation 1 reactors, before events spiralled beyond their control. The public will continue to wonder what mixture of natural catastrophe, bad planning, human failure and bad luck might cause future problems.

This concern is reflected in the HSBC report which said that the current new generation of nuclear reactors (eg Areva’s EPR technology) already have apparent safety concerns, which will only be magnified by Fukushima. “We note that the build-out of new nuclear facilities in most nuclear countries is contingent on some form of subsidy/loan guarantee/ financing from governments and as such are deeply political issues with an increasingly sceptical public,” it wrote. “Hence safety is likely to be the latest black mark to be put against the nuclear industry, on a list that includes water intensity (versus expected future water scarcity), slow build times, cost overruns, waste disposal and proliferation.”

But some pro-nuclear activists are insistent, even to the point of arguing that excessive amounts of radiation is actually good for you, as the prominent Fox News columnist Ann Coulter did late last week. “With the terrible earthquake and resulting tsunami that have devastated Japan, the only good news is that anyone exposed to excess radiation from the nuclear power plants is now probably much less likely to get cancer,” she wrote.

Source: www.climatespectator.com.au