Following the Paris climate conference at the end of last year, the energy sector is facing its biggest challenge ever. Countries around the world are searching for pathways to reduce greenhouse gas emissions. They are looking for the right balance to the trilemma of security of supply, sustainability and competitiveness. Nordic countries can offer some useful lessons, writes Lauri Virkkunen.
There is a widespread myth that nuclear and renewables are somehow mutually exclusive options. This is far from reality. While the Nordic countries (especially Sweden and Norway) are blessed with an abundance of hydropower resources, they have had to rely on other energy sources when it became apparent that hydropower alone couldn't satisfy the region’s growing electricity needs. Finland and Sweden decided to meet growing demand with nuclear power while Denmark became a global pioneer in wind power.
Today, almost 90% of the electricity produced in the Nordics (including Estonia) comes from CO2-free sources. Moreover, in order to optimize their different production and demand profiles the countries formed one the world's first supranational wholesale marketplace for electricity. While there are still bottlenecks in the marketplace, the wholesale price is usually the same over the whole area.
In terms of consumer prices, Nordic industries and households and enjoy some of the cheapest electricity prices in Europe (according to Eurostat). The only exception is Denmark, with its relatively high consumption taxes and subsidy costs. Security of supply is also very high in the region, due to large share of reliable domestic production and extensive transmission network.
In terms of the energy trilemma, the system performs very well.
The Nordic way with nuclear
It's all well and good to find a strategy that works well on paper. Admittedly, nuclear power can be a tough sell to the wider public. People tend to have fears about the safety of the plants themselves as well as the management of used fuel. In this respect, the Nordic countries might have something to give to the rest of the world.
The starting point for any country that wants to include nuclear energy in its generation mix is to require a political and 'social' operating licence for utilities running nuclear plants and facilities.
Political licence means stringent but transparent policies and technical frameworks that guarantee the whole sector operates with the utmost respect for nuclear safety.
When safety is the number one priority for the plant operator it tends to lead to higher performance from a business perspective, as safety becomes an integrated part of plant operations. The strength of this approach is evident from the historical capacity factor of the Finnish nuclear fleet which is one of the highest in the world - over 90%.
Reliable operation and continuous engagement with the public are reflected in the figures that measure the general public's attitudes towards nuclear energy. In 2015 a survey by Finnish Energy, a trade association, found that 50% of respondents considered Finland as having a good experiences of nuclear power compared to 20% who considered their experience to be negative.
Another reason behind the 'social operating licence' of nuclear power is the fact that the local population is included in the decision-making process. In a nutshell, local municipalities have a veto over the siting of new nuclear projects - including new units as well as final waste repositories.
Managing nuclear waste
Globally, the appropriate handling of nuclear waste is considered to be a major drawback of nuclear energy. Here, the Nordic countries are also an exception. Finnish and Swedish nuclear companies have been researching the safe disposal of used fuel for decades.
The concept that both countries have now adopted is called deep geological disposal. In Finland, used fuel management is currently handled by Posiva, a company mutually owned by the operators of the existing nuclear units. SKB, its Swedish counterpart, is organized under the same principles.
In terms of the geological disposal, the Nordic countries enjoy a natural advantage. The bedrock consists largely of granite, is over 1.8 billion years old and one the most stable places on Earth.
Finland is set to be the first country in the world to have a final disposal facility in operation when Posiva starts disposing of the used fuel in the 2020s.
In addition to the lesson about how to technically manage used fuel, it is important to note the technical solution has to go hand in hand with social aspects that are best guaranteed with the same guiding principle of safety as well as transparency and clear political will. Finland is now in fact looking to export its experience in used fuel management - an offshoot company of the project, Posiva Solutions, started operations this year.
The future outlook of the nuclear sector isn't as clear however. Admittedly, construction of the new EPR unit in Olkiluoto hasn't gone exactly as planned. However, I am confident that, once finished, the plant will be one of the safest and most sophisticated nuclear unit in the world.
The Nordic market environment is similar to the rest of Europe - wholesale prices are at almost historical lows due to a major drop in demand in recent years, as well as to the flooding of the market with excess electricity from subsidized renewables sources. In order to get back on track with decarbonisation of the electricity sector in a manageable way, policymakers across the EU will have to address this market failure by turning the focus from subsidies back to the emissions trading system.
Another impediment to construction of new nuclear plants in Europe is the fact they have become increasingly expensive. The industry itself has to improve its performance by driving down costs, but this alone is not enough.
Nuclear regulation across the continent is a patchwork of legal frameworks that have led to over-customization of plants and safety related equipment. Europe and the nuclear sector would greatly benefit form an approach that aimed to harmonize and standardize the legal requirements set for the sector and its suppliers. For example, a piece of equipment that has been approved by safety regulators in one country shouldn’t have to run the same legal gauntlet in a country with similar standards.
Work is of course being done to improve these issues already, but more effort is needed and I am looking forward to discussing them at the forthcoming World Energy Congress in Istanbul.
Pragmatism is the key
The human psyche always seems to crave silver bullet answers to the world's calamities. Societal expectations set for the energy sector are no different. Proponents of different energy sources often make wildly exaggerated claims about the unparalleled capabilities of their favourite technologies while conveniently forgetting their disadvantages.
If the Nordic approach to the energy trilemma were to be described with one word it would be pragmatism. I understand this approach isn’t as flashy and awe-inspiring as others out there, but at least we know it works. And that is what counts from the perspective of business as well as the climate.
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Lauri Virkkunen is the CEO of Pohjolan Voima Oy. He will be speaking at the 23rd World Energy Congress, which is taking place in Istanbul from 9 to 13 October.