A watershed moment for US nuclear power

Say it again: energy price inflation.

With COP26 out of the way, governments are back to worrying about how to tamp down the cost of fossil fuels.

Joe Biden yesterday wrote to the Federal Trade Commission, asking for an investigation into the “mounting evidence” that oil companies were engaged in “illegal conduct” to push up petrol prices. “I believe you should [investigate] immediately,” he wrote in a letter to FTC chair Lina Khan.

You might think that governments would welcome higher prices to help curb the burning of fossil fuels. But containing inflation, evidently, is a far greater priority.

From the UK to South Africa and China, the anxieties about electricity are in overdrive too. Russian gas supplies are not yet ample — and Germany’s suspension of the certification process for the Nord Stream 2 pipeline has thrown another spanner in the works. South Africa’s Eskom is instituting rolling blackouts. Commodity trader Trafigura says the same could happen in Europe if the winter is especially cold.

Meanwhile, India — which, along with the US and China, failed to agree a fast retreat from coal at the Glasgow climate conference — has shut some coal-fired power plants around New Delhi because of intense toxic smog in the capital.

In a world that is suddenly growing so aware of the vulnerabilities of energy supply and pollution, an opportunity has arisen for a reliable, zero-carbon baseload supplier. Step forward, nuclear energy. Several countries, including France, Canada and China, believe fission is part of the decarbonised future. In our main note today, Myles McCormick takes a look at nuclear’s return to the fray in the US.

In Data Drill, Amanda Chu notes the remarkable new highs for European carbon prices. The price surge signals some market confidence that EU emissions policy will tighten. But it is painful for some members of the bloc.

Lastly, if you haven’t taken our short survey about what you want from Energy Source, please do!

I’d also love your views on nuclear. Let me know what you think at derek.brower@ft.com. Thanks for reading.

US nuclear: back in the game

Things are looking up for the US nuclear industry.

After decades out of favour — and a growing pile-up of shuttered reactors — the scramble to cut emissions has placed the world’s biggest nuclear fleet firmly back in the limelight. And with that limelight has come big money.

Joe Biden this week signed off on legislation to plough billions of dollars into propping up America’s ailing nuclear plants. In the coming days, he hopes that Congress will agree to allocate billions more to the sector.

The Biden White House envisages a carbon-free grid by 2035. And its thinking is that nuclear, which can produce zero-carbon electricity 24/7, is key to getting there. The nation’s sizeable nuclear fleet currently generates about 20 per cent of its electricity (or half of its carbon-free power).

But the problem is that many of those reactors are treading water to stay afloat. Cheaper power sources like natural gas and renewables have left many generators unable to compete. There have been 13 closures since 2013 — with New York’s Indian Point the latest to bite the dust earlier this year. If current trends continue, the consultancy Rhodium reckons that half of the US’s reactors will be out of action by the end of the decade.

If that happens, Biden’s climate goals become very difficult. So the plan, simply put, is to keep them open at all costs.

“We’re not going to be able to achieve our climate goals if our nuclear power plants shut down,” said US energy secretary Jennifer Granholm earlier this year. “We have to find ways to keep them operating.”

What does this mean for US nuclear?

In the near term, it means lots of money.

Nuclear was a big winner from the bipartisan infrastructure package, which pumps $6bn into extending the lives of reactors on the brink of closure. Plus, there is another $2.5bn for advanced nuclear research and development.

And there is more on the way. The president’s “Build Back Better” spending bill being chewed over in Congress would be even more of a win for the industry, introducing the first ever production tax credit for existing facilities.

The federal funding adds to increasing bailouts from the states to keep nuclear afloat. The latest intervention came in Illinois, which in September threw $694m at Exelon’s Byron and Dresden plants to stave off imminent closure.

The industry is excited. “There has definitely been an improvement in the outlook for the existing fleet over the course of the last year,” said Craig Piercy, chief executive of the American Nuclear Society.

“It’s math. It’s more and more people who care about the climate doing the cold, hard math of what it’s going to require to achieve even fairly generous carbon reduction targets [and] recognising that the existing fleet is an important near-term contributor to that,” Piercy said.

And there is support for the idea that propping up the fleet may be the most cost efficient way of achieving near-term climate goals. “It’s almost always the case, if you chart a path to decarbonisation, the existing nuclear plants are one of your lowest cost ways of moving in that direction,” said John Parsons, executive director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Others caution against getting carried away. The proposed tax credit, which would effectively dole out $15 per megawatt hour for ten years to most of the nation’s reactors, has been criticised for being too much of a free-for-all.

“That proposal in our opinion is much too broad,” said Steve Clemmer, director of research and analysis at the Union of Concerned Scientists. “[It would] waste taxpayer money by giving incentives to a lot of profitable plants that don’t need it to continue operating.”

What it doesn’t mean . . .

No one is expecting a flood of new reactors anytime soon.

In the late 2000s there was talk of a “nuclear renaissance” in the US. With Three Mile Island and Chernobyl in the rear view mirror, companies queued up for licenses to build new large-scale reactors.

But as shale gas flooded the market and the global financial crisis damped electricity demand, the excitement waned. Then the meltdown at Fukushima pushed safety concerns to the fore.

Those projects that did get off the ground floundered. Plans to build new reactors at the VC Summer plant in South Carolina were abandoned in 2017 amid spiralling costs. The only project still being pursued is Plant Vogtle in Georgia, which has doubled in cost to $28bn.

While no one is keen to spend tens of billions on new mega reactors, there is real excitement about the prospects of advanced nuclear technology, including small modular reactors, which advocates say could be the future of the industry.

The infrastructure bill allocates $2.5bn to pushing forward new technology, which should bring new reactor types online by the end of the decade, according to John Kotek, vice-president of policy development at the Nuclear Energy Institute.

“We’re seeing interest in a very wide range of technology options in the advanced nuclear space, and we’re seeing a lot of innovations seeking to fill each of the potential roles,” he said.

It might not quite be a renaissance. But the industry reckons a watershed moment has been reached.

“I think the urgency of the climate challenge coupled with a growing recognition of just how constrained our toolset is really has caused people to take a hard look again at what nuclear brings to the table and they’ve come to the realisation that it can play an essential role in getting us to our decarbonisation goals,” said Kotek.

(Myles McCormick)

Data Drill

European carbon markets are at an all-time high after COP26. Carbon prices surpassed €68 per tonne yesterday, up 8 per cent from last week and more than double the price at the start of the year. Carbon prices have been rising rapidly since January, with prices in May surpassing €50 for the first time in the market’s history.

The latest jump in carbon prices signals growing confidence that strong carbon markets are a key tool to decarbonisation after COP26. The EU’s carbon market launched in 2005 and currently covers 45 per cent of all EU emissions, according to the European Commission. For years, critics have questioned whether the EU’s carbon prices were high enough to effectively curb emissions.

“In initial years, there was a lot of scepticism . . . it didn’t work, the price was too low,” said EU climate chief Frans Timmermans last week at COP26. “But I don’t think that applies any longer.” 

Earlier this year, the EU unveiled its “Fit for 55” package, with new targets and revisions to its emissions trading system. While EU carbon prices are at their highest levels ever, an OECD report found that prices will need to increase to €120 per tonne by 2030 to decarbonise by mid-century.

Not all countries in the EU will welcome this price increase. An analysis by researchers at Bertelsmann Stiftung, a German research foundation, found that when carbon prices increase by $50 or approximately €44, eastern European economies suffered the sharpest declines in GDP. (Amanda Chu)

Power Points

• Opinion: US climate envoy John Kerry says those who invest early in the energy transition will seize competitive advantage.

• The Royal Air Force completed the world’s first successful flight using only synthetic fuel.

• Pipelines, hydrogen, and faith — here are 2021’s must-read books on climate and the environment.

• A celebrity-backed green finance company isn’t so green. (ProPublica)