Nuclear Power, a Low-Carbon Energy Source, Is Shunned by the West

Source: By David Hodari, Wall Street Journal • Posted: Tuesday, December 10, 2019

A failure to invest in new nuclear plants could mean a more carbon-intensive future, some experts say

As countries and companies push to counter climate change, nuclear-power firms—key providers of low-carbon energy—are struggling to survive.

Shares of Électricité de France SA —the world’s largest nuclear-power producer—have shed nearly a third of their value this year. EDF, which operates 73 nuclear reactors around the globe, is wrestling with heavy debt and spiraling upkeep costs, and has recently delayed new projects.

In the U.S., nuclear-reactor designer Westinghouse Electric Co. and utilities company FirstEnergy Solutions Corp. have emerged from chapter 11 status over the past year, after struggling with plant construction and battling to compete with declining natural-gas and renewable-energy prices, respectively. Canada’s Brookfield Asset Management bought Westinghouse from ToshibaCorp. early last year.

Deadly accidents such as the ones at Chernobyl and Fukushima remain etched in the public memory, provoking fears of future disaster.

“Those accidents all had consequences but they were by far not the worst case scenario,” said Sean Burnie, senior nuclear specialist at Greenpeace Germany. “You don’t have the risk of destroying human society with wind or solar and if the economics don’t add up why would you take that risk?”

Advocates for nuclear power argue that almost all nuclear facilities emit negligible amounts of the greenhouse gases that contribute to climate change, and some experts say nuclear power should play a larger role in any changeover away from fossil fuels.

The heart of nuclear power’s problem “is a mix: It’s capital intensive but that doesn’t explain everything,” said Patrick Fragman, chief executive of Westinghouse Electric. “The other side of the coin is the uncertainty.” Fickle power prices and unpredictable political enthusiasm make for a less attractive investment pitch, he said.

The annual amount of electricity generated by nuclear energy in developed countries declined 13% between 2000 and 2017, according to the International Energy Agency. China, the world’s second-largest economy, accounted for more than two-thirds of new nuclear power in the period.

The developed world’s failure to invest in new nuclear plants could mean a more carbon-intensive energy transition—and could add 4 billion tons of CO2 to global emissions by 2040 and increase decarbonization costs for advanced economies by $80 billion, the IEA said in a May report.

In addition to public worries, the expense and construction time of new nuclear plants has become more unpredictable. Nuclear projects require relatively high upfront capital expenditure and a long construction time, factors that have deterred private companies in places where governments previously footed the bill.

The ensuing drop in demand for new plants has sapped institutional memory, meaning construction is less straightforward and new projects often act as individual prototypes.

“The lesson of the past 20 years is that new nuclear power stations are, as an asset class, very difficult projects to finance through the equity market,” said Emmanuel Turpin, utilities analyst at Société Générale.

Investors have hammered companies such as EDF in recent months, with debt levels spiraling partly thanks to cost overruns on nuclear projects.

EDF’s U.K. project at Hinkley Point C, originally scheduled to be operational by late 2025, has been riddled with delays and is almost $2 billion over budget. Flamanville 3 in France is expected to be commissioned a decade late and at more than triple the initial estimated cost.

Historically, the heavy capital expenditure required for nuclear projects has been justified by dependable revenues, often from fixed electricity prices. The rise of cheap natural gas and an accelerating energy transition—lowering the price of renewables—has changed the equation.

Gas—with prices down 21% this year—has been one of 2019’s worst-performing commodities.

“What we need is stability in political will and decisions around energy,” said Xavier Ursat, senior executive vice president in charge of new nuclear projects at EDF. “If we have stability, and if we can give comfort to investors on the fact that the models we’re developing are the first of their kind and bring them value for money, then we can finance our projects with private money.”

U.S. companies have faced similar problems. FirstEnergy Solutions received a billion-dollar bailout from the Ohio state legislature in late July, after the company said its nuclear plants weren’t profitable enough to continue operating.

Credit-ratings firm Fitch Group downgraded Westinghouse in June, citing “little demand for new nuclear power plants due to environmental risks, political/regulatory resistance, and lower priced natural gas.”

The company filed for bankruptcy in 2017 after it incurred billions of dollars in cost overruns related to four nuclear reactors it was building in the southeastern U.S. Westinghouse was sold by Toshiba to Brookfield Business Partners before it emerged from chapter 11 in August 2018.

Write to David Hodari at