Global Economics

In Europe, New Life for Nuclear


Britain leads the EU's bid to reconsider an energy source that can reduce oil-dependence and emissions—but comes with baggage of its own

In its search for ways of reducing carbon emissions, Britain is leaving no stone unturned. For the heavily polluting energy sector, that means taking another look at nuclear power, which will get a boost on Jan. 10 when the government is expected to greenlight the construction of Britain's first nuclear power plants in almost 15 years.

London isn't the only capital rethinking nuclear power. With its low carbon dioxide output and resistance to rising oil and gas prices, nuclear power generation meets many requirements of European countries looking to meet stringent European Union targets for greenhouse gas reductions and to reduce energy dependence on oil and gas imports from Russia and the Middle East.

According to a report by consultants PricewaterhouseCoopers, European utilities, including France's EDF (EDF.PA) and Germany's E.ON (EONG.DE), rank nuclear as the most likely technology to reduce greenhouse gas emissions within the sector by 2017. At present, more than 30% of power generation companies are actively considering investment in nuclear generation to meet their commitments under the EU's Emission Trading Scheme, which charges companies for emitting carbon dioxide.

"Nuclear deals both with the climate change question and the issue of security of supply," says Mark Hughes, PricewaterhouseCoopers' European utilities leader. "On the global stage, nuclear is really finding its feet."

New Plants Scheduled

It's no surprise, then, that Britain is poised to return to nuclear as a core component of its future energy mix. Currently 16 reactors produce just over 18% of the country's electricity, although a quarter of the plants are set for decommissioning by 2010, according to the World Nuclear Assn., an industry body. Across Europe, nuclear constitutes 30% of total energy generation.

If, as is expected, the British government approves a new round of nuclear plant construction, industry analysts believe two facilities—costing into the billions of dollars each—could be under construction within the next five years. A further three to five plants could get the go-ahead by 2015. Each plant can take up to 10 years to complete. "For energy companies, nuclear generation is certainly an attractive prospect if they have government backing," says Michael Tamvakis, professor of commodities, economics, and finance at City University's Cass Business School in London.

European utilities and construction firms are chomping at the bit to exploit the expected change in British regulation. British Energy (BGY.L), Spain's Iberdrola (IDRO.BE), and Germany's E.ON and RWE (RWEG.DE) all have expressed interest in operating nuclear facilities in Britain. Companies that build nuclear plants, such as France's Areva (CEPFI.PA) and Japan's Hitachi (HIT), already have filed for construction permits.

Uranium Pricey, Engineers Scarce

This scenario is being repeated across the continent, particularly in Central Europe and Scandinavia where 13 plants are under construction, according to the Brussels-based European Nuclear Society. Finland got the ball rolling in 2005 when construction on a 1600-megawatt plant—the first new facility in Western Europe for 15 years—began. France broke ground on a new 1650 mw plant in September, 2007, while Bulgaria and the Ukraine are each working on two new plants.

Such demand has put a strain on the nuclear industry, which had spent several decades in slow decline as governments, utilities, and the public turned to other sources of energy. With nuclear power now back in vogue around the world, the price of uranium—the main ingredient needed for nuclear generation—has risen four-fold since 2004. Similarly, the need for nuclear engineers has never been higher, with many analysts predicting a shortage of highly trained staff if new employees aren't recruited into the industry.

Despite these problems, Luís Echávarri, director of the OECD's Nuclear Energy Agency in Paris, is unconcerned. "In spite of the rise in uranium costs, it still remains small, representing only 5% of the total cost of energy production," he says.

The Question of Hazardous Waste

Echávarri also reckons there's time to attract new nuclear engineers before projects start to suffer. "Any new plant will take up to 10 years to complete, so governments and companies have sufficient time [to recruit staff], but they must start to act now," he says.

Another concern for the nuclear industry is the decommissioning of plants and disposal of hazardous waste. Critics say these costs likely will be born by national governments because nuclear waste, which is typically buried deep underground, remains poisonous for thousands of years. To combat the burdensome environmental issues, the British government says it will require firms to pay the full cost of decommissioning and waste storage. Most European energy companies already pay for disposal of the toxic nuclear substances.

Despite moves by Britain and other countries back into the nuclear energy camp, some European countries, particularly Germany and Spain, have pledged to phase out nuclear energy because of ecological concerns. Yet as the clamor to reduce carbon emissions and increase energy independence grows, it may not be long before hold-outs have to reconsider their positions.

Scott is a reporter in BusinessWeek's London bureau .

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