Obstacles hinder region’s nuclear push

14 November 2012

With young, growing populations and an increasing demand for power, Middle East states have looked to nuclear energy as a solution. But political and financial hurdles stand in their way

Nuclear power has emerged as a partial solution to the Middle East’s looming energy crunch. Faced with rising domestic demand for electricity, driven by expanding populations and the growth of energy-intensive industries such as aluminium and steel, countries including the UAE, Saudi Arabia and Jordan have forged ahead with plans to develop atomic power.

For the oil-rich Middle East, the benefits of nuclear energy are clear. At present, states such as Saudi Arabia and Kuwait are forced to burn hydrocarbons to meet fuel demand, reducing supplies available for export. Nuclear power would not only increase power generation and bolster export revenues, but would also go some way towards addressing carbon emissions.

Burgeoning demand

“The Middle East has a young, growing population and it is power-hungry,” says Richard Lobley, a director and nuclear engineer at UK firm PricewaterhouseCoopers. “The demand for electricity, for everything from air-conditioning to water desalination, is growing fast.

“Countries recognise their obligations to reduce carbon emissions and while solar power is attractive and the region wants to attract next-generation research in this field, the potential for the other major renewable energy technology, wind power, is limited. Nuclear power is an obvious low-carbon, non-fossil fuel generation option.”

Translating these atomic ambitions into reality, however, has proved difficult. Obstacles including financing, technical difficulties and political sensitivities have slowed the pace of nuclear development in the region.

Abu Dhabi leads the pack, having awarded the contract for the first four of its planned reactors in 2009 to a South Korean consortium. Since then, the estimated cost of the contract has jumped from $20bn to $30bn. The first unit will come online by 2017 and the rest by 2020.

Saudi Arabia’s plans are equally ambitious. The kingdom is planning a 17GW nuclear power programme by 2032, with sources suggesting the scheme could span 16 nuclear reactors costing $7bn each. In September, Riyadh appointed an advisory group to support the project, which included the US’ Oliver Wyman, France’s BNP Paribas and Riyad Bank.

Rather than building reactors themselves, some countries could choose to import nuclear power

Tony Ward, Ernst & Young

While Abu Dhabi and Riyadh have huge reserves to fund costly atomic projects, other Arab countries are less solvent. “If you are a cash-rich country, nuclear generation makes sense from the start,” says a UK-based energy analyst. “But financing is difficult if you are not cash-rich, such as with Jordan. Banks only want to get involved after the construction phase.”

Tony Ward, partner in energy and utilities at the UK’s Ernst & Young, says countries planning multiple reactors will be more likely to attract commercial attention and drive their schemes forward. “Reactor vendors are more likely to be interested in multiple projects,” he says. “Building just one reactor will be hard. Jordan’s plan to build a single reactor may not be compelling to outside partners.”

However, he warns against assuming that oil-rich countries will have an open chequebook when it comes to pressing ahead with their civil nuclear power plans. “[Some] Middle Eastern countries clearly have cash but they also have other plans to deploy it, both to build domestic infrastructure and internationally,” he says. “They will not just write a cheque to build nuclear reactors but will seek to work with equity and debt finance partners.”

Countries must also grapple with the fractious politics associated with nuclear investment, which has been compounded by Iran’s disputed atomic programme. Tensions surrounding Tehran’s atomic plans are high, meaning foreign powers are inherently suspicious of regional nuclear efforts.

“In terms of proliferation, if you want to build a whole nuclear lifecycle it is difficult,” says Lobley. “There are international concerns about enrichment at the front end and dealing with spent nuclear fuel at the other end.”

Importing fuel

To bypass this, the UAE has agreed to forgo domestic enrichment and reprocessing of nuclear fuel, instead inking a deal to buy it in from foreign sources. If echoed across the region, this model opens the door to UN-approved states such as China, France, Russia, the US and the UK pairing with Middle Eastern states to provide and dispose of nuclear fuel.

Foreign expertise will be required to tackle the difficulties of building nuclear power plants in the desert, a first for the industry. “There are issues around welding and concrete-pouring in hot conditions and the effects of fine dust but this shouldn’t be a problem if the construction and maintenance process is carefully controlled,” says Lobley. “Nuclear power stations in the region will naturally be built away from conurbations and there are issues regarding transport of labour and materials to remote, probably coastal, locations.”

Arab nations will also need to draw skilled manpower from more mature markets, adds Lobley. “Experienced people are needed, but new nuclear development hasn’t been kicking off in the US and Europe as was expected a decade ago and skilled workers might be available.”

Funding issues

Beyond the GCC, Egypt and Jordan also have the potential to be early nuclear movers if they can tackle the challenges of financing. Analysts suggest the use of small or medium-sized reactors could help address the funding gap, as they require lower upfront investment.

Smaller 300MW nuclear units at varied locations could serve as an alternative to larger centralised facilities, which bring bigger financing and maintenance challenges. “For specific purposes such as powering desalination, small, sealed units built on a ‘buy-and-forget’ basis could be the answer,” says Lobley.

Ward believes the growth of a regional nuclear industry goes beyond the creation of baseload electricity to meet the demands of a growing population. “Large-scale generation capacity is partly a response to demand growth and partly to protect export dollars,” he says. “But it might also be driven by a desire to create new skills and jobs and a nuclear supply chain.”

The former would require a more cost-reflective pricing structure for electricity, which is heavily subsidised in the GCC and other Arab states. The latter will require a new market structure for power that will have to be developed incrementally over the next decade.

“Countries in the region need to create market structures so that investors can recover their capital and return their costs,” says Ward. “A cost-reflective market structure has to be created sensibly over time, not in a way that creates sudden increases in the price of utilities.”

Intra-regional trade

The creation of a healthy regional market along European lines, where electricity is sold at prices that reflect the cost of generating it, could also open the door to intra-regional trading. Rather than building reactors themselves, some countries could choose to import nuclear power, says Ward. “The evolution of effective market structures, the development of skills and the establishment of a quality-controlled supply chain will all be enablers of civil nuclear development in the region.”

Arab states are in need of non-fossil fuel
generated electricity, and are priming nuclear power to become a central baseload generation technology. The development of a culture and market structure able to accommodate atomic power and cater to investors, is a challenge the region must address to progress its nuclear ambitions.

Key fact

The estimated cost of Abu Dhabi’s nuclear contract has jumped from $20bn to $30bn

Source: MEED

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