With questions being raised about the cost of wind power, and growing objections to wind farms from conservationists, the stock value of nuclear as a proven generation technology may soon be on the increase.

The nuclear industry has remained commendably quiet during the recent discussions on emission reduction and the introduction of the EU Emissions Trading Scheme (ETS) scheduled for January 2005. Privately, however, it must be cheered by the ongoing debate on the need for emission reduction in the generation sector as nuclear is a zero-emitter. And with questions being raised about the cost of wind power, and growing objections to wind farms from conservationists, the stock value of nuclear as a proven generation technology may soon be on the increase.

As if by coincidence a number of papers have been published in the past month, which directly or indirectly reference the value of nuclear energy within the fuel mix. Prominent amongst these is a paper by Scottish economist Professor David Simpson – Tilting at windmills: an economic assessment of wind power, which asserts wind power to be more expensive than other generation sources and calls on the UK government to reconsider nuclear power.

While the UK is undecided on the nuclear option – last year’s Energy White Paper made no commitment either way on nuclear generation – other EU member states have been more forthright on nuclear generation, which currently contributes 35% of Europe’s capacity. Belgium, Germany and Sweden have all legislated for the phase out of nuclear power while the socialist government in Spain is expected to pass similar legislation. But with the possible exception of Sweden these countries would face significant investment costs in replacing their nuclear capacity and remaining in compliance with their emission reduction targets. Equally, if wind power is deemed to be uneconomic, or objections to wind farms limit its development, there are no other proven alternative renewable technologies to fill the gap.

Re-addressing the value proposition of nuclear power now may prove timely. The peak European power prices of last summer are causing market jitters as summer once again approaches, while the ETS National Allocation Plans (NAP) submitted by some EU Member States, in particular Italy, have used security of supply concerns to justify additional emission allowances to cover additional coal plant use. Indeed the value of nuclear plant was even addressed by Italy in its NAP, even though it has no nuclear capacity. In its NAP submission Italy notes that if it had nuclear power equivalent to the average world nuclear production of 17% its emissions would reduce by 21 Mt, equivalent to 8% of its 2000 emissions of 256.6 Mt and would reduce its proposed 2005 emission allowances to just 0.9 Mt above its 2000 emissions.

Somewhat ironically those EU governments that have announced a phase-out of nuclear power have largely acted because of public opinion, fuelled by proactive campaigns by environmental pressure groups. Yet these same governments seem unable to garner similar support for renewable energy programmes such as wind power. Indeed recent surveys have indicated a general lack of awareness in emission reduction policies. Part of the problem with this awareness is the apparent disconnect between nuclear power and its zero-emission quality, with awareness campaigns tending to focus on the perceived safety problems of nuclear power and concerns over waste management.

Arguably EU governments have two principal considerations to assess when determining energy policy on supply security and emissions reduction. Addressing security, accepted wisdom is that supply security is best achieved through supply diversity, with the current policies tending to replace nuclear capacity with increased gas capacity and new renewable technologies. The problem with such a policy is that renewable supply security is uncertain. A draft European Commission report, which assesses Member States’ performance on the 2001 renewable energy directive, concludes the EU will not meet its target of 22% of electricity being generated by renewable sources by 2010.

Such a confirmation argues against the early phase out of nuclear power and may provide the nuclear lobby with another angle to present as part of its case for continued nuclear investment. But until the hardened public opinion against nuclear power recedes it is difficult to see EU governments altering their stance.

While there are reports of a shift in public opinion in Sweden (the first EU member state to announce a phase out of nuclear power) following peak power prices last summer, public opinion may be harder to sway in the UK where the financial problems of British Energy have successfully been used to argue against nuclear investment. But even in the UK the tide of opinion may soon start to turn, particularly if the recent improvements in the company’s share price – now trading comfortably above 10 pence – continue, which in turn is increasing investor confidence.

Working in an oil economy

Another factor that could make a positive contribution to the nuclear debate is the recent escalation in crude oil prices, which broke through the psychologically important $40/bl threshold on the New York Mercantile Exchange this month, with the euro value of Brent blend crude trading well above u30/bl.

Gas, which is becoming the main generation fuel in most western economies, is strongly influenced by oil price movement with a large number of countries indexing the gas price directly to oil. As such, oil can be viewed as a proxy market for both gas and electricity and, as the price of oil increases the value of this proxy market similarly increases.

While there is not necessarily uniform agreement on the rationale for high oil prices – some argue it is fundamentally driven, while others believe the market is being ramped by speculative (ie non-commercial) players on the back of Middle East tension – there is a general consensus that the market will endure a high oil price scenario throughout 2004. Nuclear energy is independent of the vagaries of oil prices and unlike renewable energy its technology is a proven source of firm generation.

In a global market which increasingly cites supply security as its major concern, which is becoming more aware of climate change issues and the need to reduce emissions, and which wants cheap reliable fuel the credentials of nuclear energy are looking increasingly persuasive.