NUCLEAR INVESTMENT IS RISING

Concerns over the safety of nuclear power plants have marred the investments in the sector, but with new technology, the landscape is set to change in the next few years. **

By Atique Naqvi aka Syed Atique Hussain, Boston, United States

Total energy investment worldwide was around $1.7 trillion.

The positive outlook for the global economy is fueling investments in several sectors of the economy including energy. The public and private sector investments, international trade and favorable employment figures are boosting the overall spending in the global markets.

The investments in capital-intensive projects and usage-intensive sectors such as energy are on the upswing, and nuclear energy is not different.

The International Monetary Fund in its World Economic Outlook Report released in October 2017 says the global growth forecast for 2017 and 2018 is 3.7 percent and
3.8 percent, respectively. “Notable pickups in investment, trade, and industrial production, coupled with strengthening business and consumer confidence, are supporting the recovery.

With growth outcomes in the first half of 2017 generally stronger than expected, upward revisions to growth are broad-based, including for the euro area, Japan, China, emerging Europe, and Russia. These more than offset downward revisions for the United States, the United Kingdom, and India,” says IMF.

About the energy sector, the IMF says while energy prices are expected to increase modestly because of growing demand in emerging markets, food prices are expected to fall moderately as some supply disruptions wane.  

As most of the global markets in the positive territory, the energy investments are increasing too. In 2016, total energy investment worldwide was around $1.7 trillion, 12 percent lower than 2015 in real terms and accounting for 2.2 percent of global gross domestic product (GDP). However, energy agencies expect this figure to rise by end of 2017, and it might surpass the magical figure of $2 trillion.

The Paris-based organization International Energy Agency is of the view that a nine percent increase in spending on energy efficiency and a six percent increase in electricity networks were more than offset by a continuing drop in investment in upstream oil and gas, which fell by over a quarter, and power generation, down five percent. “Falling unit capital costs, especially in upstream oil and gas, and solar photovoltaics (PV), was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed.

“The electricity sector edged ahead of the fossil fuel supply sector to become the largest recipient of energy investment in 2016 for the first time ever.

“Oil and gas represent two- fifths of global energy investment, despite a fall of 38 percent in capital spending in that sector between 2014 and 2016. As a result, the low-carbon components, including electricity networks, grew their share of total supply-side investment by twelve percentage points to 43 percent over the same period,” says IEA.

According to IEA, global electricity investment edged down by just under one percent to $718 billion, with an increase in spending on networks partially offsetting a drop in power generation. Investment in new renewables-based power capacity, at $297 billion, remained the largest area of electricity spending, despite falling back by three percent. Renewables investment was three percent lower than five years ago, but capacity additions were 50 percent higher and expected output from this capacity about 35 percent higher, thanks to declines in unit costs and technology improvements in solar PV and wind.

HIGH NUCLEAR ENERGY INVESTMENT

On the nuclear energy front, the 10 GW of nuclear power capacity that came online in 2016 was the highest in more than 15 years, but only 3GW started construction, situated mostly in China, which was 60 percent lower than the average of the previous decade.

British Petroleum launched its 20-year energy outlook earlier in 2017 and it predicts the share of renewable energy mix will increase substantially. Launching the report, Bob Dudley, CEO of BP, said a central feature of the energy transition mapped out by this BP Outlook is the continued gradual de-carbonization of the fuel mix. Rapid improvements in the competitiveness of renewable energy mean that increases in renewables, together with nuclear and hydro energy, provide around half of the increase in global energy out to 2035. Natural gas is expected to grow faster than oil or coal, helped by the rapid growth of liquefied natural gas increasing the accessibility of gas across the globe.

One of the highlights of the BP Outlook is the expansion of fuel mix. It says the fuel mix continues to adjust, although oil and gas, together with coal, remain the dominant sources of energy. Renewables, with nuclear and hydroelectric power, provide half of the additional energy required out to 2035.

Nuclear and hydropower generation are expected to grow steadily over the Outlook (20 years), by 2.3 percent per annum and 1.8 percent p.a. respectively, broadly maintaining their combined share within the power sector.

Also, nuclear capacity in Europe declines as ageing plants are gradually decommissioned and there is little new investment: EU nuclear power generation by 2035 is 30 percent lower than in 2015, says the BP report, adding Japan is assumed to restart some of its reactors gradually over the first half of the Outlook, but does not recover to pre-Fukushima levels.

Nuclear energy industry needs an annual investment of $80 billion in order to meet climate change goals.

World’s biggest energy consumer China’s rapid nuclear expansion program (11 percent p.a., 1100 TWh) accounts for nearly three-quarters of the global increase in nuclear generation, this is roughly equivalent to China introducing a new nuclear reactor every three months for the next 20 years.

On energy domination, the report says speeding up the transition would have a marked impact on fuel shares. “In the ‘faster transition’ case renewables, with nuclear and hydroelectric power, overtake oil by 2035; and in the ‘even faster’ case exceed oil and coal combined. That said, in both cases, oil and gas still provide around half of the world’s energy in 2035.”

However, countries and private players need to upgrade their game when it comes to nuclear power plants. Aging nuclear reactors in Europe and Americas and Japan’s 2011 nuclear accident at Fukushima plant following an earthquake and tsunami have raised public safety concerns. The climate change goals of Paris Agreement beg for a range of new renewable energy outlets, and according to a media report the International Atomic Energy Agency has said in 2017 that the nuclear energy industry needs an annual investment of $80 billion in order to meet climate change goals.

Between 10 and 20 reactors will need to be built every year through 2030, if the global temperature rise is to be held within two degrees, said Dohee Hahn, director of IAEA, address media in Paris.

The agency estimates that total global nuclear capacity needs to reach 862 gigawatts by 2040, up from 376 gigawatts in 2014, in order to meet the goals set in the Paris agreement.

URANIUM OVERSUPPLY

Nuclear industry reports suggest falling prices of uranium futures, the key ingredient used in nuclear power generation process, is due to oversupply.

Uranium prices have been severely depressed since the most recent nuclear reactor disaster in March 2011, when Fukushima No.1 Daiichi Nuclear Power Plant failed to cool itself following the Tōhoku earthquake/tsunami event. More than six years later, uranium prices are still below their cost of production, reaching a low of about $18 per pound in November 2016.

If one studies the uranium prices for the last 10 years, the per pound price of uranium was highest at $92 in November 2007. The prices have slightly recovered in June 2017 to $19 per pound.

Smith Weekly International says in its Nuclear Energy investment report that mine production in 2015 fell behind the demand of the existing reactors in operation according to the World Nuclear Association (WNA).

The WNA forecasts usage of approximately 165 million pounds (mlbs) of U3O8 uranium resource by existing worldwide reactors in 2016. In 2015, only 157mlbs was produced. Further, near 90 percent of the worldwide demand came from uranium mines. In 2015, 89 percent of mine production came from 11 companies. Of the 11, only a small portion of these majors are publically traded today. 

According to some estimates, over 80 percent of reactor fuel needs will be uncovered by 2025.

The decline in prices since Fukushima has allowed a traditional washout of the sector’s mistakes says the Smith Weekly Report. “Poorly conceived projects have been scrapped, most of the fake uranium companies have disappeared, production has declined, supply has dried up, costs have been cut, and the sector has gone from big and fat to lean and starving. In short, the majority of the pain has been realized and the bulk of the bear market in uranium is over.”

With the latest research resulting in new technologies and Generation IV reactors, the nuclear power generation will continue to be adopted by countries around the world. Unlike fossil fuel, the price of uranium is likely to increase slightly in the coming years even if the demand will rise sharply owing to the abundance of uranium in countries such as Canada, Kazakhstan, Australia, and Niger, among others.

THE NEW EMERGING ECONOMIES EQUATION

Emerging countries will lead the global nuclear capacity increase through 2040, says United States’ Department of Energy. Huge investments in the sector are likely to be made in countries such as China and India, which will offset the slowdown in the United States, Japan, and Europe.

The countries in the African continent will also drive the nuclear energy sector. South Africa is the only country in the continent that generates power through nuclear. With the significant economic growth in some of the African countries in the past, there is a strong positive feeling toward nuclear.

Most countries in Africa are unable to meet the rising energy demand that comes naturally with economic progress, and nuclear energy is the cost-effective and sustainable solution. More than 10 African countries are looking to invest in nuclear power generation in the near-term, says a media report quoting IAEA.

For now, the focus is on Chinese and Indian nuclear markets. The US Department of Energy says China currently has 38 operating nuclear reactors with a total capacity of 33 gigawatts (GW), including 2 GW of new capacity added in 2017 with the completion of the Fuqing-4 and Yangjiang-4 reactors. “An additional 19 reactors, with a total capacity of 19.9 gigawatts (GW), are currently under construction, accounting for more than a third of all nuclear projects under construction worldwide.

“In total, China plans to install 58 GW of new nuclear capacity, which EIA expects to be completed by 2024. By 2032, China is expected to surpass the United States as the country with the most nuclear electricity generating capacity.

“India has the world’s second-largest population, behind China, and the highest projected electricity demand growth. India currently has 22 nuclear reactors with a total of 5.3 GW of capacity, and 6 additional reactors with a combined capacity of 3.9 GW are currently under construction. India recently entered into an agreement with Russia to build two more reactors at India’s Kudankulam plant,” says the US Department of Energy.

** This article first appeared in Unisol magazine (Essel Group Middle East) published by Mediaquest Corp, Dubai, UAE.