Again a core option: nuclear power wins a revival of interest amid fears about oil Uranium's surge illuminates a need to find further mines.

By Thomas Catàn, By Rebecca Bream
Published: July 13 2005 03:00 | Last updated: July 13 2005 03:00

After two decades in which nuclear power was hopelessly out of fashion, businesses in the sector are readying themselves for its revival. The cold war-era technology, which once dazzled with the promise of unlimited cheap energy, fell into disfavor after the 1986 disaster at Chernobyl. Low oil prices and the often pitiable economics of state-run nuclear facilities removed much of the remaining rationale.

Now all that has changed. Soaring oil prices and fears about the developed world's dependence on Middle Eastern oil have combined with concerns over global warming to spur a resurgence in interest in nuclear energy. Companies are counting the future contracts and jostling for position.

"In order to simply maintain 440 nuclear units operating around the globe, we believe that roughly 80 reactors would have to be planned, built and powered up within the next ten years," says Richard Gill, president of Shaw Stone & Webster Nuclear Services, the US-based engineer. But with global electricity demand set to grow rapidly, there could be "incredible" demand for additional capacity, he says.

The International Energy Agency expects global electricity consumption to double by 2030, but reserves of easily accessible oil and gas are running out. Consuming nations are having to compete for a diminishing pool of resources that are heavily concentrated in politically unstable parts of the world. By contrast, the uranium needed to fuel nuclear reactors is found in stable countries such as Canada and Australia. (See below).

New reactors are being built, mostly in countries that are new to nuclear power. A total of 25 reactors are under construction in 10 countries, according to the World Nuclear Association, an industry grouping - and another 112 are planned or proposed.

Interest is keenest among expanding Asian economies. Of the last 30 nuclear reactors to have connected to the power grid, 20 have been in Asia. India, where nuclear power accounts for 2.8 per cent of electricity production, has nine reactors under construction. It wants to boost the amount of electricity generated by nuclear plants by 100 times by the middle of the century.

China has opened six reactors since 2002 and has two more under construction. International companies are vying to build four further Chinese reactors. All told, China aims to increase its nuclear capacity fivefold by 2020, which could mean building up to 40 reactors in the next 15 years. Reactor makers such as Westinghouse, being sold by British Nuclear Fuels, and Framatome ANP, the Franco-German joint venture, are competing for the future business.

In Europe, too, there is evidence of renewed activity, albeit at a less frenzied pace. Finland is due to start building a large nuclear power station this year and France is set to start another in 2007. Countries such as Sweden, Belgium and Germany are dropping pledges to pull out of nuclear power or seem likely to do so in the near future.

In the US, President George W. Bush has also put the nuclear option back on the table. The country is already extending the lives of most of its reactors from 40 years to 60 years and has an experimental "next generation" reactor on the drawing board. Washington has made no secret of its desire for companies to begin building a new generation of nuclear plants. "A revival of nuclear energy is inevitable," said SG Cowen, the investment bank, in a report on the sector published this year, in which it forecast a global resurgence in nuclear construction by the end of the decade.

An important reason for the resurgence in interest in nuclear power is concern for the environment - the very issue that most counted against it in decades past. Some leaders of the green movement, long implacable foes of nuclear power, now say that the risks posed by global warming far outweigh those posed by radioactive waste.

Nuclear plants emit a tiny fraction of the carbon dioxide produced by burning fossil fuels such as oil, coal or gas and so are crucial if countries are to meet the emissions targets set out in the Kyoto protocol. However, many European countries are due to close their existing nuclear plants either, like Germany, because of a policy Âdecision or, like Britain, because its facilities are becoming obsolete.

Germany, which has signed up to Kyoto and pledged to exit nuclear power, is reaching the point where one of its commitments will have to be dropped. Caroline Slama, an analyst at SG Cowen, calculates that, in order for Germany to abide by both commitments, it would have to close a third of its industry. "[The impact] is also quite significant for all the other countries who want to respect Kyoto," she says.

Berlin is expected to reverse its decision to close all of its nuclear plants if the centre-right CDU forms the next government, as many expect. But, because of the age of its nuclear installations, Britain would have to go further, actively encouraging the construction of new reactors. Of Britain's 14 nuclear power stations, 13 are due for closure by 2023. And yet the UK government has estimated that, without nuclear generation, emissions of carbon dioxide would have been up to 14 per cent higher in 1999.

The World Energy Council believes that the only way the world will reach the targets set out under the Kyoto protocol is to triple nuclear capacity by 2050. Others in the green movement - still the great majority - remain staunchly opposed to nuclear power. Greenpeace says any attempt to expand the nuclear industry is likely to prove an "expensive, dangerous and inefficient method of addressing the climate crisis" and that governments should focus on renewable energy sources.

In recent years, European governments have looked to the ability of new technology to harness the power of the wind, waves or sun, providing subsidies. But SG Cowen calculates that, to replace a single nuclear power station in France, you would need to install one wind turbine every 100 metres along the French coast. France has 59 nuclear plants in total. "It is futile to pit renewable energies against nuclear power, as they are complementary and much smaller-scale," the SG Cowen report argues. "No credible alternative [to nuclear] currently exists."

Maybe so. But the issues that have dogged the nuclear power industry from birth have not gone away. Before the world embarks on any new round of nuclear construction, many countries have to work out how to deal with the costly and dangerous legacy of their existing nuclear installations.

Countries such as the US and Britain are wrestling with the gargantuan task of decommissioning their existing civil nuclear facilities. In Britain - a small job compared with that of the US - this is expected to cost nearly £50bn ($89bn) and take 100 years to complete.

The UK is holding its radioactive waste - enough to fill London's Albert Hall five times over - in temporary storage after a proposal to bury it deep underground was shelved in the early 1990s amid public opposition. An independent panel is to recommend next year what should be done with it.

The US went through that process in the 1980s and settled on a plan to bury its radioactive waste under Yucca Mountain in the Nevada desert. Following years of challenges, Mr. Bush pushed it through Congress in 2002, despite furious local objections. But a series of legal setbacks has placed the programme's fate in doubt.

Backers of nuclear power are pinning their hopes on technology. Sir David King, the UK government's top scientific adviser and head of its Office of Science and Technology, said this year that any new plants would increase the current volume of waste by no more than a tenth over a 60-year period. "The issue of nuclear waste from modern reactors might therefore be seen as a smaller barrier to positive decisions on new power stations than currently perceived," reported the OST.

Proponents of nuclear energy also face another pressing problem: how to pay for any new construction. "The key issue is financability," says Dipesh Shah, chief executive of the UK Atomic Energy Authority. "The City will have a very major role to play."

Governments took the lead during the first burst of enthusiasm for building nuclear power stations in the 1960s. But in most cases private industry would be today be expected to undertake the construction.

In Britain, the precedents are not good. In the late 1980s, Margaret Thatcher's government was forced to remove the nuclear plants from its privatisation plans after it became clear that they were far more expensive to run than plants burning fossil fuels. This was partly due to the open-ended cost of decommissioning old plants as well as uncertainties over how much it would cost to build a planned new fleet of power stations.

It was not until 1996 that Britain was able to privatise its nuclear power stations. However, the company, British Energy, had to be bailed out in 2003 from financial near-collapse. Although nuclear industry operators say British Energy's problems were complex and do not demonstrate that nuclear power is uneconomic, the episode unsettled investors. Countries such as Japan, which is reliant on imports of expensive liquefied natural gas, have long considered nuclear to be cost-competitive. Finland found nuclear to be an economic option but investors in the US, for example, have yet to bite. Rising oil and gas prices are making nuclear more competitive worldwide and new reactor designs are far cheaper to build than previous designs.

"Nuclear power generation has made great strides," Lord Broers, president of Britain's Royal Academy of Engineering, said this year. "After a period when it was believed to be hopelessly uneconomic, it is now close to competing in real economic terms with gas-powered generation. And even after making allowance for decommissioning costs, nuclear is significantly cheaper than wind or wave power."

Proponent’s also say nuclear energy justifies a premium because it does not generate greenhouse gases. Britain and many other countries are prepared to give companies incentives to build renewable energy sources to offset the fact that it is uncompetitive compared with fossil fuel generation.

Britain's nuclear industry says it does not need handouts from government, but rather protection for investors against unlimited liabilities from regulatory costs. These could include delays in building or starting up expensive new plants. "There has got to be a move by government to provide a lower risk on return on investment," says Bob Churchill, who heads the nuclear business at Amec, the project management company. "The UK government needs to be sending out clear, positive signals about this."

Finally, governments will have to persuade the public that nuclear power is safe. Backers of nuclear energy say that, Chernobyl notwithstanding, the industry has one of the best safety records in the business. New reactors, like Westinghouse's AP-1000, are designed to be 100 times safer than existing reactors. An incident of the type that caused Chernobyl is technically impossible in the new reactors.

Still, a steady stream of mishaps at power plants in Japan and a serious incident at Britain's Thorp reprocessing plant this year have done nothing to allay public fears of another catastrophic accident. In the wake of the terrorist attacks in London, the security of nuclear installations will be a public concern.

In the US and UK, the government no longer builds the nuclear power stations but will have to work vigorously to create both the proper regulatory environment and the public acceptance that are needed if the sector is to thrive. "Endorsing new nuclear is, to an extent, a potentially courageous 60-year bet on fuel prices, discount rates and promised efficiency gains," says UBS, the investment bank, in a research note. "Given the risks, Âpoliticians hold the key."

The attention again being given to nuclear power is boosting the market for uranium, the radioactive metal used as fuel for reactors. It comes as a windfall for the small group of companies that dominate uranium mining, which plan expanded production to benefit from the boom.

Having languished at around $10 per pound since the late 1980s, uranium prices have nearly tripled since the start of 2004 and many analysts think the metal will end this year at around $35/lb.

"Part of it is rising expectations," says Alan McDonald of the International Atomic Energy Agency. "People are saying if the Indians and the Chinese really build all these things, and the French replace old nuclear with new nuclear and you get a couple in the US - which some people think will start a wave - if all that stuff happens then it's going to be valuable to have uranium."

The change in market conditions reflects worries that there may not be enough uranium to fuel all the new nuclear power stations being mooted. While prices for the metal were depressed, several uranium mines were mothballed and mining companies' plans to explore for further deposits were shelved. The ensuing shortfalls have forced nuclear power plants to use reprocessed uranium and uranium from decommissioned nuclear weapons. But these stockpiles are running low.

According to Cameco of Canada, the world's largest uranium miner, only 105m lb of uranium oxide was mined worldwide last year - far less than the 180m lb used annually in nuclear power generation.

"As inventories run out, you will need new uranium mines to fill the gap," Cameco says. The group is increasing the amount it spends on exploration, to C$23m (US$19m, EUR16m, £11m) this year from C$17m in 2004, and plans to expand its existing mines. Cameco produced 20.5m lb of uranium oxide in 2004, mainly from its bountiful mines in northern Saskatchewan, Canada. This is likely to rise to 21.2m lb this year and reach 30m lb by 2010 following the opening of new mines in 2007 at Cigar Lake in Canada and Inkai in Kazakhstan.

The other main uranium producers are UK- and Australia-listed Rio Tinto, Cogema of France and WMC of Australia, which was recently taken over by BHP Billiton. WMC's jewel is Olympic Dam in South Australia, a mine sitting on more than one-third of the world's uranium reserves. BHP Billiton is expected to proceed with plans made by WMC to expand uranium production there. Rio Tinto controls the Ranger uranium mine in Australia and the Rossing mine in Namibia, while Cogema mines its uranium in Canada and Niger, having closed its last mine in France in 2001, when reserves ran out.

One reflection of the renewed interest in uranium is a scramble for exploration projects by mining sector entrepreneurs. Galahad Gold, listed on Aim, London's junior market, last month acquired a stake in Uranco, a South African uranium exploration company. Vane Minerals, another gold explorer listed on Aim, performed a similar shift in March when it bought a handful of uranium projects in Arizona. Another sign of an industry in vogue is the presence of commodity speculators. Cameco said last month that 5m-6m lb of uranium oxide had been bought by speculators in the last two years.

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