The nuclear energy option

© David Rooney

How will the financial crisis affect nuclear energy?

The financial crisis is having an impact on all sectors of economic activity, including energy supply and demand. Some short-term impacts on ongoing or planned nuclear projects are already apparent in the form of delays in starting the construction of a plant and/or postponement of decisions to build new units. But in the long term, the development of nuclear energy will be driven by growth in energy and electricity demand and by the relative competitiveness of alternative supply sources, such as coal and gas, for base-load electricity generation.

Energy demand will inevitably rise in the medium and long term, which means the need for additional generation capacity will remain. Even with zero growth in electricity demand, which is not likely given the increasing world population and ongoing industrialisation, new power plants will need to be built to replace ageing units in service today.

All the scenarios envisaged recently by the OECD Nuclear Energy Agency and the International Energy Agency point to generation capacity increasing significantly in the coming decades. The growth of nuclear electricity generation is even higher in NEA and IEA scenarios that assume governments will adopt policy measures to reduce greenhouse gas emissions and to protect the environment from local and regional pollution than in businessas- usual scenarios.

Environmental issues remain high on the agenda for policymakers, partly because the crisis has highlighted the danger of unsustainable development. In this context, nuclear energy, which is nearly carbon free, has become a very attractive option. In fact, its competitiveness is reinforced by policy measures placing a price on carbon emissions.* The need for clean air and natural resource preservation will favour the development of nuclear energy for base-load electricity generation, and renewable sources for distributed generation and peak-load supply. Security of supply is also a key consideration, not least in periods of financial uncertainty. Conventional uranium resources currently available can fuel nuclear power plants for many decades, even in scenarios projecting a significant increase in nuclear electricity generation. In addition, the geopolitical diversity of countries supplying uranium, covering all continents, practically guarantees cost and supply stability, a factor which risk-averse investors will find attractive.

The crisis means financing power projects might prove more difficult, although there is money available for building infrastructure. In the power sector, most projects are capitalintensive and nuclear is not unique in this regard. In order to support sustainable development, many governments have announced decisions to invest in infrastructures and to assist domestic industries through guaranteed loans, favourable tax regimes and so on. These and other measures can enable governments to support cost-effective investments in the nuclear sector without jeopardising market competition.

Institutional investors will be attracted to projects such as nuclear power plants, given that they offer predictable returns, provided that the political context of the country guarantees stable energy policy goals and measures. Pension funds and insurance companies that have traditionally funded large investments in infrastructure projects are likely to focus even more on this type of investment. But the nuclear industry must also demonstrate its ability to manage projects efficiently, and to keep to schedules and budgets.

Nuclear energy remains, however, highly capital-intensive with some 60% of the generation cost attributable to construction, which constitutes a challenge for investment finance. The sharp increase in the price of raw materials that occurred before the crisis affected the costs of all types of power plants. However, the reverse is also true, and slower economic growth will likely reduce construction costs of nuclear power plants, as well as labour costs.

In conclusion, the impact of the financial crisis on the nuclear sector is likely to be limited and an expansion of the sector is still very feasible in the long run. However, governments and the industry should co-operate further to ensure the robustness of financing schemes and the cost-effectiveness of each project.

*The NEA and the IEA are updating their study on projected costs of electricity generation. The  publication, expected by January 2010, will provide insights into the changes in relative competitiveness of nuclear energy, fossil fuels and renewables.

 Visit www.nea.fr

©OECD Observer No 273 June 2009

 




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016