S&P sees limited role for nuclear in EU energy transition
Speaking to reporters on 16 November, ahead of the rating agency’s annual Infrastructure & Utilities Conference, Pierre Georges, senior director of EMEA Utilities, said the share of nuclear power capacity in the bloc's energy mix is expected to decline by 32 GW by 2030 compared with the 2018 level. This is S&P's net figure for the EU plus the UK that includes new plant commissioning. Germany, Spain and Belgium - which all have nuclear phaseout plans - represented, respectively, 9.5 GW, 7.1 GW and 5.8 GW of nuclear capacity at the end of 2018.
The 32 GW figure is a slightly faster decline in capacity than that projected in the Lower Scenario of World Nuclear Association's Nuclear Fuel Report.
Asked about the future of new nuclear build in Europe, Georges told World Nuclear News: "Aside from developments in new technologies, question marks have been hanging over the prospects for the nuclear sector in Europe since before the pandemic and these persist." The ageing reactor fleet across Europe is reaching its 40th year in many countries, he said, and decommissioning of these plants is "inevitable". New build projects in the UK, the Czech Republic, Hungary and Poland will not bring new capacity online before 2030, he added.
The lack of new units "goes beyond" the matter of public acceptance of nuclear, he said, to supply chain problems. "The know-how and expertise is slowly but surely fading away so you really need to kick start a new industry again to make it happen in the coming decades." The prospects for small modular reactors might be better than for large-scale plants, he said, and these could eventually become part of the hydrogen production sector.
Technology choices
Growth in renewables has been unaffected by the pandemic owing to a strengthening in national and EU policy signals, he said. Policy drivers this year include the European Commission's EUR750 billion (USD889 billion) recovery fund; the EU target for a 55% (or more) cut in emissions by 2030 and carbon neutrality by 2050; EU green hydrogen targets - 6 GW electrolyser capacity by 2024 and 40 GW by 2030; Germany increasing its offshore wind targets to 20 GW by 2030 and 40 GW by 2040; and the UK increasing its 2030 offshore wind target from 30 GW to 40 GW.
But government ambitions for net zero are taking place in a "fragile" macro-economic environment, he said, and new investment models will need to be defined.
There is a question around making the "right choice" of technology, he said, since "fast-tracking one technology in particular can be lethal, but going too slowly will not allow us to reach the targets".
"The EU energy transition leaves a number of legacy technologies on the side, which will imply more drastic adaptation. That's the case for fossil fuel players - coal, oil and gas - and to some extent nuclear."
Georges was asked whether there was disconnect between projections by the International Energy Agency (IEA) and other organisations that nuclear must be included in the clean energy transition if the world is to meet carbon reduction targets, and the fact that the EU taxonomy on sustainable finance overlooks the role of nuclear energy.
He said: "Nuclear is of course a close to zero-carbon technology that could have a role to play. The questions being asked today are that you need to find the right [financing] model. France, which is the most exposed country when it comes to nuclear is delaying any answer on new nuclear until the next presidential mandate and you can see that it is a highly politically sensitive subject. But it is also very rational, given the inability so far to complete the existing projects, be it in Finland with Olkiluoto-3 or Flamanville in France. Look at those two projects and ask: Can we effectively build a new investment cycle for nuclear while it's quite obvious that there are some technical/expertise weaknesses today in the industry?"
IEA forecasts have a global outlook and thus take into account the nuclear supply chains in Russia and in China, where investment pipelines are more certain and expertise in nuclear "never died".
The path to a net-zero economy presents utilities with a number of technological challenges to the extent that the electricity sector is "still in the R&D phase to make decarbonisation happen", he said.
These challenges include development of hydrogen and carbon capture technologies and incorporation of digitalisation. Another challenge, not only in the utilities sector but also in oil & gas, is taking a strategic approach to environmental, social and corporate governance in line with the clean energy transition. A further challenge is moving the emphasis in regulation from concerns about affordability to incentivising network operators and infrastructure developers to make the required investments.
Life after COVID
The road to recovery from the coronavirus pandemic "remains bumpy" but the rebound of economies in EU Member States after the first wave of lockdowns has been stronger than expected, Georges said.
According to S&P, the GDP of the Eurozone as a whole declined this year by 7.4% from its 2019 level, but is expected to rise by 6.1% in 2021. For comparison, changes to the GDPs of the USA and China were, respectively, -4% and +2.1% this year and are forecast to increase by 3.9% and 6.9% next year.
"The favourable situation is likely to remain and, what's more, the financial world is also pushing very hard for a greener economy aimed at building a more sustainable loan portfolio and innovation in green financing. Investors looking at Europe are increasingly integrating energy factors in their analysis and investment choices," he said. "This is gradually changing company strategies which are increasingly incorporating an energy framework into them."
On what the COVID-19 pandemic means for the energy transition, Georges said that energy infrastructure is entering a decade of "super-cycle investment".
"That's great, but what happens to the supply chain and the customer base, which do not benefit the same in their core business, and are maybe a bit weak to accommodate this growth? The utilities sector still has a pretty tight balance sheet and you need to balance that with the high investment opportunities. This is really what we will need in order to fully grasp the upcoming strategy updates stemming from the energy sector to make sure that this combination of high growth and constrained balance sheets can work together."
The new situation created by the pandemic has led to "contrasting messages" on infrastructure, he said. "We see on one side that COVID-19 is affecting certain sectors in the infrastructure world, like airports and transportation more generally. On the other hand, environmental considerations, the fight against climate change and loosening budget restriction give a huge boost to infrastructure needs, paving the way for a decade of investment super-cycle from green infrastructure at a time of historically low cost of capital."
S&P anticipates that investment in renewables will "massively increase" around the world, and that there will be "four times more solar, three times more onshore wind and three times more offshore wind" by 2030. In the EU plus the UK, this will cause a paradigm shift, Georges said, with the installed capacity of renewable energy increasing by 50% by 2025 on 2018 levels.
"We believe power networks will grow the most to connect and integrate renewables, while gas networks have more uncertainties in a decarbonised economy, and we see their long-term prospects depending on the rise of hydrogen. Integration of digitalisation will need upgrading of the existing infrastructure base, which will require massive investments," he said.
"The challenges include the fact that this energy transition is a political economy as opposed to the market economy that we know well. It will stem from energy efficiencies as well as decarbonisation and electrification of the economy. These challenges will be costly and will require government consensus."
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