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Nuclear power is in decline in the West and growing in developing countries – BRINK – Conversations and Insights on Global Business

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In the face of rising gas and energy prices, nuclear power could provide an important solution to both decarbonisation and security of supply concerns. Yet capacity is shrinking in the United States and Europe, while China has ambitious plans for nuclear expansion.

In light of the escalating energy prices following Russia’s invasion of Ukraine — and the resulting EU commitment to reduce its dependence on Russian gas as part of its EU REPower Plan — Europe is placing increasing emphasis on security of energy supply.

In some countries, this pressure could lead to increased support for nuclear energy. Indeed, earlier this year, the European Parliament endorsed the labeling of nuclear as green as part of its European taxonomy, underlining its value as a carbon-free energy source.

Yet we expect nuclear power generation in Europe and the United States to decline. By 2035, the share of nuclear generation in the EU and US is expected to drop from nearly 20% to 15%, according to S&P Global Commodity Insights.

Conversely, China plans to ramp up its next generation over the next decade, aiming to double the share of nuclear power in its energy mix to nearly 10% by 2035, even as its demand for ectricity continues to grow faster than in the United States and Europe. Thus, over the next two decades, the current 60/40 split of nuclear generation between developed and developing countries is likely to reverse.

Security and pricing present headwinds

Despite its advantages as a reliable, carbon-free energy source, nuclear projects face significant headwinds in the West. In addition to the social concerns related to safety and the management of nuclear waste, the construction and operation of a nuclear power plant entails significant credit risks: the construction costs are high, and without visibility via fixed price mechanisms long-term risks or regulations, new buildings are exposed to increasingly volatile long-term risks. long-term electricity market prices, high construction costs and rising interest rates.

According to forecasts from S&P Global Commodity Insights, as renewable energy capacity increases, low marginal costs of generation are likely to undermine long-term electricity prices in Western Europe. This means that the direct involvement of the state, or at least financial and political support, will be a determining factor for nuclear projects, alongside the willingness or otherwise of investors and operators to assume the construction risks associated with new nuclear constructions.

Nuclear faces near-term decline in developed countries

In Europe, the actions of several countries mean that in the short term, nuclear electricity production is set to decline. In France, technical problems saw decrease in nuclear availability, while Germany plans to phase out nuclear power by the end of this year. Belgium will also close all but two of its reactors in the near future, and the UK will close most of its existing fleet by the end of the decade.

However, after 2025, S&P Global Commodity Insights expects some stabilization in nuclear power generation in Western Europe. This is in light of Belgium’s recent plans to extend the operation of two of its reactors until 2035 and France’s announcement that it will keep most of its remaining plants online over the next decade.

In addition, France and the United Kingdom have announced new construction projects, and in both countries nuclear generation enjoys government support. In the UK, the potential additional Sizewell C project is expected to benefit from a credit-friendly regulated asset base framework with regulated income during construction, as well as significant risk transfer mechanisms. And, while official policy in France has yet to be confirmed, its nuclear capacity of just over 60 gigawatts (GW) is expected to remain stable until 2030. We understand that France also plans to commission new nuclear reactors by 2035 to compensate for the closure of plants.

In the United States, nuclear generation is on the decline, although various states have considered incentives to extend the life of nuclear plants to support the reliability of the electric grid. Indeed, recent power outages due to extreme weather conditions have demonstrated the importance of a firm power supply and a diversified energy mix.

China leads nuclear adoption among developing countries

In contrast, nuclear energy will play a key role in China’s plans to decarbonize its economy, especially in its coastal provinces.

Thus, by 2035, China’s nuclear capacity is expected to reach 105 GW, surpassing both the United States (92 GW by 2030) and the EU (76 GW by 2030). China’s expanding fleet is largely driven by state-owned companies, which provide access to cheap financing, integrated supply chains and indigenous technology. As a result, new construction costs in China are estimated to be around $2,500 per kilowatt (/kW) of installed capacity, compared to investment costs as high as $10,000/kW in other countries.

Overall, nuclear plays an important role in China’s energy transition as a low-cost, zero-carbon energy source.

Moreover, the Chinese nuclear fleet is much newer than those of most developed countries, with an average of only nine years, and thanks to local expertise and local technology developed over the past three decades, they have also improved operational efficiency. The industry is in a new stage of development compared to Europe and the United States, and stable development is expected to continue.

India and South Korea are also growing

Indeed, the nuclear policy has remained consistent to ensure sufficient return on the capital invested by the three public nuclear electricity production companies. This, in turn, helps foster new construction at a rate that may ultimately outpace demand growth. Overall, nuclear plays an important role in China’s energy transition as a low-cost, zero-carbon energy source.

India also plans to expand its nuclear capability, but from a smaller base. Facing similar challenges to its European counterparts – including technological problems, cost increases and huge up-front investments – nuclear power has become a less attractive option than cheaper solar and wind power. Thus, in 2021, the Indian government reduced its nuclear capacity targets to 22.5 GW by 2031 against an initial target of 60 GW by 2032 set 12 years earlier.

The current South Korean president aims to maintain the share of nuclear at more than 30% of the country’s energy mix, which is a reversal compared to his predecessor. This can only be achieved by restarting construction and extending the service life by 2030.

As renewable energy generation increases to represent a larger share of the global energy mix, nuclear power can provide a baseload energy source to balance the intermittent capacity of renewables. In the context of the current crisis, it also offers significant advantages in terms of energy security. However, since power plants often lack flexibility and may not operate consistently near full design capacity, nuclear power may not be suitable as a mainstream solution to fill the energy gap.

Going forward, nuclear is likely to continue its stable development trajectory in China given its role as an essential, low-cost solution to decarbonizing the economy. In Europe, however, if further development projects are to be considered in the future, strong government support in the form of funding and a strong regulatory framework will be crucial.

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