“The Renaissance of Nuclear Power: Geopolitical, Energy, and Climate Crises Drive Growth”

Nuclear power has experienced a renaissance over the past year. This has been determined by geopolitics, energy and climate crises, as well as the development of new nuclear technologies.

China and Russia have accounted for 87% of the new nuclear power plants built or commissioned since 2017. China is the world leader in solar, wind and electric car technologies. China plans to build 150 new nuclear power plants in the next 10-15 years, thus becoming a world leader also in the field of nuclear energy technology and construction. The US is following suit by passing new legislation to support nuclear power. The Department of Energy recently stated that the United States should build 200 new nuclear power plants by 2050. Eastern Europe is in a difficult situation, because it is no longer possible to rely on Russian gas and the use of coal is limited by EU emission regulations. Renewables are an option, but nuclear is a proven bet. For example, Sweden is considering the possibility of building new nuclear power plants, but polls in Norway show majority support for nuclear power.

Natural gas and coal prices in the EU have decreased by 40% since the beginning of the year. From the 3rd quarter of 2022, the drop is 80% and 60% respectively. However, their prices are twice as high as in 2018 and 2019. The EU’s dependence on global liquefied natural gas (LNG) and OPEC+’s increasing control over the oil and coal markets means that resource price dynamics will be determined by China. Today’s EU natural gas price EUR 40-50 per MWh, coal price USD 130-140 per ton and Brent crude oil price USD 80-90 could be the new reference levels. However, the main problem will be energy supply security and environmental issues.

EU gas stocks are close to their highest figures for this time of year. The demand for natural gas remains depressed even after the big drop in prices. The EU needs large LNG imports. Currently, competition with Asia for LNG cargoes is not particularly fierce, possibly due to the weak global economy. The EU has enough time and opportunity to prepare for the coming winter and fill the stocks up to 90% of the capacity by November. The real question is more about what the price will be. This will largely depend on economic activity in Asia.

In the second half of 2022, Russia’s natural gas supply restrictions shook Europe, which threatened widespread economic problems. Since the middle of the third quarter of 2022, Russian natural gas exports have remained low – fluctuating from 10%-20% of the historical norm. Due to the drop in demand and strong LNG imports, the price continued to fall. Thus, the EU has managed the energy crisis brilliantly, despite the loss of more than 1000 TWh of Russian natural gas.

Last winter in Europe was warmer than normal, which mattered. However, it accounted for only 15% of the impact. 85% of the effect was caused by a decrease in consumption due to high prices in Europe and North East Asia due to high global LNG prices. The reduced consumption in Asia freed up a huge amount of LNG cargoes, which reached the European market and made it possible to compensate for the lost gas from Russian pipelines.

Currently, Russia has the capacity to deliver 215 TWh per year to China, 466 TWh per year to Turkey and 1238 TWh per year to Europe (excluding the Nord Stream infrastructure). A slight increase in capacity is possible to China, which could be the earliest in 2026/2027. year. On the other hand, the much-discussed Power of Siberia (489 TWh/year) could start work at the earliest in 2030. In the short term, most of the lost Russian gas will either remain underground or be transported by sea through the country’s 4 liquefaction terminals (366 TWh/year). Consequently, the importance of Russia in the European gas market is disappearing.

America’s LNG exports have become Europe’s savior. Historically, the EU and the UK imported about 840 TWh of LNG per year, compared to the current 1,600 TWh (EU+UK gas consumption is about 5,000 TWh/year). LNG is a commodity with a global reach and the highest bidder gets the cargo. Thus, the EU price will have to be kept high to attract enough freight to meet demand.

The US has an abundance of cheap natural gas, limited domestic demand and weak pipeline infrastructure with neighboring countries. Therefore, US prices will remain low until 2025, when new infrastructure projects begin work. Natural gas still accounts for the marginal cost of energy in the EU. The price of carbon emissions is another layer that makes up the wholesale price of electricity in the EU. In contrast, the wholesale price of US electricity does not include any costs associated with carbon emissions, which form the business terms for natural gas exports from the US to the EU. The EU RePower plan came into effect on March 1. It aims to obtain 20 billion euros from emission auctions to support diversification from Russian energy by 2030.

Solar and wind energy supplies are highly volatile. This is not a bad thing, as long as the installed capacity is below the total demand and there are other energy sources that can flexibly adapt to the changing supply of renewables. However, electricity prices for certain hours will start to drop sharply if the supply of renewable energy resources becomes particularly high. Although this development dynamic has not reached critical levels, the risk is becoming more and more visible. At first it may happen gradually, then suddenly, as in Germany in April 2020. Large investments are needed so that price swings do not harm renewable energy sources and investments. These issues can be addressed by major investments in supergrids, batteries and complex regulatory systems. One of the biggest risks is that such investments will not be made to the required extent. If so, a collapse in electricity prices under the weight of a renewable energy glut is possible. In other words, when renewables produce a lot of energy and would normally make a profit, they will get nothing. If these risks materialize on a large scale, market forces will accelerate investment in batteries, transmission and regulation systems. But further investment in solar and wind power could stall until these issues are resolved.