Wednesday, March 16, 2011

The future of nuclear

Stocks for wind and solar energy producers jump as investors speculate that demand for renewable power will surge in response to the unfolding Japanese nuclear situation. The German solar-panel maker, Solarworld, leads the way advancing 32 percent.

The “nuclear renaissance” may taper off as a result of events in Japan but it is clear that nuclear energy will continue to be an extremely important energy source for baseload generation. Wind and solar are intermittent technologies and require continuous generation to fill gaps in supply when wind or sun is not available. The current options for baseload generation are coal, natural gas or nuclear and nuclear is the only source which does not generate greenhouse gas emissions and has a relatively abundant fuel source, uranium.

The Olkiluoto nuclear project in Finland had numerous problems most of which were related to alleged unreasonable and overly onerous safety requirements. The Finnish regulators insisted that Areva and its construction subcontractors meet (and in some cases exceed) Finnish safety standards. This caused problems because Olkiluoto was a turnkey contract with rigid payment provisions and project milestones. In hindsight, the hard-nosed and uncompromising approach of the Finnish regulator was the right approach even if the project ended up in arbitration over payments.

I anticipate that the situation in Japan will stabilize and countries like China, India and South Korea will quietly continue with their planned nuclear expansions albeit with an increased emphasis on safety. Developers of nuclear projects will have to adjust to an environment where the regulator exercises complete and unchallenged authority in all matters, including safety, throughout the project and developers will have no other option than to comply with whatever the demands of the regulator may be. This will be a change from the past few years where demand for nuclear energy was so great, developers had some scope to negotiate prices, timelines and other project details. In any case, I cannot envision a situation in the near future, particularly in countries like China and India, where nuclear was not a critical pillar of development of the country even in light of the safety risks and the unfolding situation in Japan.

1 comment:

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