Profitable today, competitive tomorrow

14 September 2011

Nuclear and gas will compete to provide future baseload power generation in Europe, as standard coal-fired power plants will no longer be profitable, the latest study by the OECD's Nuclear Energy Agency (NEA) on electricity prices concludes.


In its new report, Carbon Pricing, Power Markets and the Competitiveness of Nuclear Power, the NEA analysed daily data from European power and carbon markets between 2005 and 2010 to find the most profitable baseload power generation technology within liberalized markets.


During this five-year period, existing nuclear power plants in Europe proved to be highly profitable, and are likely to be even more so after 2012, when coal and gas electricity generators will no longer be allocated free carbon emission permits under the European Union (EU) Emissions Trading System (ETS).


Regarding new nuclear plants, these will also be competitive, although under some scenarios new nuclear might be less attractive to an investor than gas – but coal continues to be uncompetitive in all likely scenarios.


Speaking at the report's launch event, held in London alongside the Annual Symposium of the World Nuclear Association, Jan Horst Keppler, principal economist in the NEA Nuclear Development Division, said that new nuclear plants are competitive with natural gas for baseload power generation as soon as one of three parameters acts in favour of nuclear. These parameters are: the investment costs of nuclear, which decrease with the number of plants that are built; prices for coal, gas, and electricity, all of which favour nuclear when high; and the extent of carbon capture and storage (CCS) deployment.


"If two out of these three are competitive, then nuclear will dominate the competition," said Keppler, adding that gas will be more competitive than nuclear only where all these factors are not favourable towards nuclear.


The NEA says that the issue of financing new nuclear construction is one of the most important obstacles facing new nuclear build. Though the report refers to nuclear's large upfront costs as "an inconvenience rather than a decisive competitive handicap," it acknowledges that investors may opt for fossil-fuel-fired power generation instead of nuclear "even in cases where nuclear energy would be the least-cost option."


Commenting on this at the launch, Ron Cameron, head of NEA's Nuclear Development Division, said: "Financing remains key for many countries, given the decrease in risk appetite of investors."
Researched and written
by World Nuclear News