Posted by George R. Jarkesy
Last week the Swiss Government Cabinet recommended “not replacing” their five nuclear power plants when they reach the “end of their life”. These plants range in age from 27 years to 42 years. Assuming a lifetime of fifty years, the Government said the oldest would go off line in 2019 and the last in 2034. The decision followed a directive to suspend new operations and review all options after the Fukushima power plant crisis in Japan. In 1990 voters approved a ten year moratorium on construction of new power plants. They also followed the biggest anti-nuclear protest in Europe in 25 years with an estimated 20,000 people participating. Although clearly a political, not scientific decision, the recommendation may create a template for other protestors to copy in pressuring Governments across Europe to adopt similar policies. NEAA Venture Research LLC Research Director, Clay Mahaffey, CFA said “The average age of nuclear power plants in Europe is 27 years. If the “fifty and out” rule is adopted, everywhere, Europe will have to replace 46% of their capacity in twenty four years. If the decommissioning is at 40 years, then 84% of current capacity will be lost.”
The immediate question is how will they replace the capacity which is about 15% of total power production in Europe?
The US Energy Information Administration projects that coal will remain a significant source of power in Europe but slowly decreasing as a percent of total power over the next twenty years. They also project growth in nuclear capacity although that assumption may now be in doubt.
The largest source of alternative energy in Europe is hydropower but the ability to expand here is low due to limits of adequate sites. The EIA believes wind power will continue to grow and push renewable sources to be the largest fuel source in the OECD by 2035. Most wind power sites are located offshore due to land costs. It is not clear what land –locked Switzerland will do to participate in this sector.
Coal is growing worldwide and primarily in India and Asia. China has become a net importer of coal. Major US producers such as Peabody (NYSE:BTU), Arch Coal (NYSE:ACI) and Walter Industries (NYSE:WLT) are all pursuing new or expanded coal export terminals in the US to supply these markets. Mahaffey said “Each of the Peabody and Arch Coal terminals planned for the US west Coast (Washington State) have met significant local opposition from environmental groups and may be deferred. Walter Industries is trying to expand a port in Mobile Alabama. Other sites in business friendly locales may also exist”.
Another option in Europe is the expansion of the French nuclear power industry. France quickly pursued nuclear power following the OPEC embargoes of the 1970’s. The country has a long scientific history going back to Madame Curie who discovered radiation in the 19th century perhaps making this option attractive. France has about 30-40% of the nuclear capacity in Europe and is a net exporter of power. Figure 2 below shows that France installed about 1/3rd of their nuclear capacity subsequent to the Chernobyl Disaster in 1986.
The natural gas option is risky due to political issues of the major pipeline bringing gas from Russia has to cross the Ukraine who have been aggressive in raising prices. The EU is considering alternative pipelines.
In summary, power supply issues in Europe appear to be in a state of flux and the outlook for nuclear has diminished. One casualty has been uranium plays such as Canadian uranium exploration company U308 Corporation (OTC PK: UTREF) which has fallen 64% in the last three months. The broader Market Vectors Uranium and Nuclear Energy ETF (NLR) is only down 17% in the same period.