Foratom Boss / We Cannot See A Serious Solution For The Future Of Energy Supply with 100% Renewables

NucNet: Foratom has been warning policymakers in Brussels about the risks related to an energy supply that is based largely on renewables and natural gas. We now have a situation where power prices in Europe have increased to unsustainably high levels. How would you explain this?

Yves Desbazeille: There are many factors at play. The main reason is clearly that gas prices are high because of the lack of adequate storage in Europe coupled with demand driven by post-pandemic economic growth in many countries. To a lesser extent, market prices are also influenced by the EU Emissions Trading System [ETS] where a tonne of CO2 allowance reached record prices at over €60. This is very good news for the climate, but it adds up to the perfect storm for energy markets in Europe.

NucNet: What place does nuclear power have in this uncertain market? Large nuclear operating countries like France and the UK are also being hit by rising prices.

YD: It is worth clarifying how high gas prices lead to higher electricity prices. The explanation is hidden in the specific system power markets use to trade, where prices are fixed by ‘market calls’ from different generation sources. The last value called sets the final price for all other generation sources, even if they could sell cheaper. This is how expensive gas sets the prices even for nuclear generation. This is not a new issue. There have been debates on the matter, particularly in France where a government minister said it was not fair to see electricity prices fixed by gas, when nuclear forms nearly 80% of generation.

Another factor responsible for the correlation between prices for gas-fired generation and nuclear generation is market interconnectivity in Europe. Power markets are no longer national – it’s been like this for a long time. This means prices in neighbouring counties can easily influence local market conditions.

We should not forget to mention that when talking about market prices we are actually referring to the so-called spot markets. Bear in mind a lot of Europe’s nuclear operating utilities sell the bulk of their electricity under mid- or long-term contracts at prices set in the past. Current market prices would not necessarily have an immediate effect on utility income margins and some industrial consumers would have hedged against sudden market increases like those we are seeing today. Of course, it is also a question of how long current market conditions will persist.

NucNet: Let’s come back to security of supply. Some would say the current price crisis indicates serious problems for Europe’s energy transition policies, that it is happening too fast. Others blame it on a ‘perfect storm’ of coinciding factors. The EU climate commissioner Frans Timmermans recently called for a faster transition and more renewables as a solution. What is your comment?

YD: The position of Mr Timmermans is perhaps to do with a misunderstanding of the benefits which nuclear can bring to the system compared to other low-carbon sources. This is clear for us, and it is proof of what we’ve been saying for a long time. For instance, in the European commission’s Fit for 55 green policy package, this question of security supply has simply not been properly addressed.

The reason is that for many years policymakers have been taking security of supply for granted. We have lived in an era of oversupply. In Germany, for example, they have simply duplicated sources of generation instead of replacing one source with another. This was done to preserve fallback baseload generation in the system. With only nuclear coming off the grid because of reactor retirements associated with the government’s phaseout policy, the rest of Germany’s baseload capacity has remained almost unchanged, but was accompanied by a huge expansion of renewables. This meant that over the last decade and more there was more capacity installed than actually needed.

Governments and policymakers thought the markets would solve the security of supply issue. They thought markets would trigger investments to address this issue in the long run because of the perceived scarcity effect – that scarcity would trigger investments in new capacity. However, the reality is that power markets do not reflect scarcity in the long run. They reflect scarcity on a daily basis because we do not know what’s going to happen in 24 months or 36 months. Electricity is not a tangible good, unlike retail goods, governed by traditional market mechanics. Adjusting its generation and availability is more difficult.

NucNet: Do you think that there will be a wakeup call for policymakers as regards to their attitude to nuclear power?

YD: I’m not sure. Mr Timmermans’ comments show the European commission wants to see more of the same, which is not really the right answer. Renewables, which do not generate electricity if weather conditions are unsuitable, mean that conventional generation is needed to make up for the loss. There are people in the Brussels debate who say we just need build more battery storage, but where is it? More energy efficiency? Okay, but it takes time. There is no way the European economy can survive a four-week period without wind, even if we expand wind generation capacity. I think there is no will to see the full picture in the European debate at this moment.

There is perhaps a belief that Europe is going to shift to another sort of economy where there will be less demand for energy, where consumers would learn to use less energy and change their way of living. Those are nice ideas on paper. But politicians, when they face situations for which they have to answer to their own people – on issues like the cost of energy – they simply have one decision to make, which is to provide energy whatever the consequences might be.

NucNet: What steps need to be taken to make sure an energy crisis doesn’t happen again?

YD: For me, there is a very clear conclusion that should be drawn from the current situation. And it’s something we’ve been saying for years. We cannot see a serious solution for the future of energy supply with 100% renewables. Let’s put it bluntly, there are many, many reasons for that, and security of supply is paramount among those.

Another clear conclusion is that we need nuclear power because it is a part of the solution. I’m not saying that this is the only solution, because it’s not, but it’s a big part of it. And you need nuclear to help energy systems survive a situation when renewables show their intermittency. And also because there are a lot of discussions going on about decarbonising other sectors beyond power generation.

For the production of green hydrogen, for example, nuclear will be needed because electrolysers have to run 24/7, not only when renewable generation is available. Electrolysers are not flexibly operated facilities They depend on baseload power. Where is this stable decarbonised power going to come from, especially when coupled with the retirement of fossil-fired plants? For me, with hydrogen, the nuclear case is even stronger.

And let’s not forget that the costs of generating nuclear power are a very stable and do not depend on gas prices or commodity prices that much. Uranium has only a marginal effect, just about 5% of production costs.

NucNet: What policies would the nuclear industry like to see introduced in the really short term?

YD: We would like nuclear to be part of the EU’s sustainable finance taxonomy, something that the commission promised, but has not yet delivered. We must make sure green capital will be able to reach nuclear investments in Europe.

At the same time, it is of primary importance that Europe’s nuclear reactor fleet is allowed the investment for long-term operation [LTO]. This is a crucial topic to put back in the conversation because we are certain that LTO is a ‘no regret’ option that should be highlighted as such in the energy debate. It is something which is totally ignored in the debate today; it feels like the elephant in the room.

To illustrate, the EU has very high ambitions in terms of hydrogen development. Plans have been published for up to 40 GW installed capacity of electrolysers in 2030. And if we keep the nuclear fleet running in Europe, 85% of this new ambition could be attained, only by LTO. This shows how powerful nuclear can be. If nuclear is phased out, how much more difficult will it be for Europe to reach its objective?

NucNet: Do you think the energy crisis could force large energy-intensive industries to increase their interest in nuclear?

YD: A lot of business are at risk from the current energy prices. Unfortunately, there is no clear position in Brussels by large consumers with regards to nuclear. The topic remains a bit of a taboo. Let’s not forget the largest heavy industry sector Europe is in Germany and many companies would never acknowledge the role of nuclear for ideological and image reasons. At local member-state level, there are industrial groups that speak up for nuclear, but this does not really replicate at the Brussels level.