Weekly Reports | Feb 13 2018
As the spot uranium price fell again last week, Morgan Stanley questioned the role of nuclear power in the future global energy mix.
-Nuclear power being decommissioned globally
-Carbon reduction targets still require a nuclear contribution
-Uranium spot price falls as markets suffer a risk-off episode
By Greg Peel
As the world’s legacy nuclear plants age and the economics of renewable energy sources improve, the role of nuclear power in the future global energy mix is under question. New nuclear plant construction is highly expensive while the cost of renewables continues to fall. In key nuclear power countries, public policy has turned against nuclear energy.
Morgan Stanley assumes that by 2030, -23% of existing nuclear power will be decommissioned in key nuclear power countries.
Natural gas and renewables are already posing an issue for nuclear power. In the US, the abundance of natural gas made available through modern fracking technology means gas-fired power generation is an increasingly cheap option. As renewable technology improves and economies of scale are achieved, renewables offer another cheaper source.
In the case of renewables, carbon reduction targets have led to government subsidies. Renewables are zero carbon (once up and running). Gas-fired generation emits carbon, but far less than traditional coal-fired. Nuclear energy is also zero carbon (once up and running, but a significant emitter in the construction phase and in the mining of uranium).
Decommissioning
Morgan Stanley believes government decarbonisation policies require a nuclear contribution. Yet by 2030, 56 reactors or -40% of the current total will be shut down in Europe. Countries such as Germany and France have adopted nuclear wind-down policies, initially sparked by Japan’s Fukushima disaster, but justified by the growth of renewable energy.
South Korea’s government is of similar mindset. The US is caught between the desire to support an extensive nuclear industry and the cost thereof. Japan’s government is pro-nuclear, but reactor restarts meet with public opposition at every turn.
Morgan Stanley forecasts, assuming no new nuclear plant announcements, by 2040 Europe will have only 35% of the nuclear capacity it has today, the US 56% and South Korea 71%. Only China, in which an aggressive carbon-busting policy includes the rapid construction of new reactors, is the exception to the rule.
A lot can change between now and 2040, Morgan Stanley concedes, but a nuclear reactor will still take ten years to commission. Wind farms and solar farms can be commissioned in a fraction of the time, and gas-fired power can be switched on and off very quickly compared to coal-fired.
But to comply with agreed global carbon reduction targets, the equivalent of 40 nuclear plants would need to be commissioned or kept online in Europe and 30 in the US. Ageing plants nonetheless are at greater risk of operational disruption, and plant replacement relies on third generation technology that is five years delayed and over budget.
These two factors raise the risk of poor security of energy supply and lack of affordability for customers, warns Morgan Stanley.
Risk Off
Activity in uranium markets continues to be subdued, as participants wrestle with the unknown impact of extensive production shutdowns in Canada and Kazakhstan and US utilities wait to find out whether the government will impose “Buy American” quotas.
Last week was also a week in which the “risk off” rush in US equities split over into commodities, and uranium wasn’t spared.
Industry consultant TradeTech reports eight transactions recorded in the spot market last week totalling 800,000lbs U3O8 equivalent. TradeTech’s weekly spot price indicator has fallen -US75c to US$21.50/lb. The indicator has fallen for five straight weeks and previous lows are looming.
One small transaction was reported in term markets. TradeTech’s term price indicators remain at US$26.00/lb (mid) and US$30.00/lb (long).
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