Why the Gulf is going nuclear - the case for atomic energy

16 December 2008

Is nuclear power the best way to satisfy the region’s growing demand for energy?

As French President Nicolas Sarkozy’s tour of the Gulf drew to an end in mid-January, one thing was clear: France had cemented its position as the leading supplier of nuclear energy expertise to the region.

His promises of nuclear co-operation with the governments of Saudi Arabia, Qatar and the UAE should not come as a surprise. The GCC has been talking about developing nuclear power since November 2006, and Paris has already signed pacts with Algeria, Libya and Morocco. Expanding French influence into the Gulf is the next logical step.

Despite the stand-off between Tehran and the US over Iran’s nuclear programme, there are undoubtedly arguments in favour of developing civilian nuclear technology in the region. Whether they are convincing enough to allay fears over environmental costs and the potential for weapons proliferation remains to be seen.

The UAE received the most concrete proposition during Sarkozy’s visit, with three French companies - Total, Areva and Suez - developing a nuclear scheme for Abu Dhabi. If it receives government approval, the firms will build two 1,600MW nuclear power plants.

Driving development

The proponents of civilian nuclear power argue that such schemes make economic sense. “The reason the region is now interested in nuclear power is exactly the same reason other regions are facing a nuclear renaissance,” says Charles Hufnagel, spokesman for Areva. “The cost of production is competitive and stable in the long term.”

The initial capital costs of a nuclear power plant are high, ranging from $4bn for a 1,200MW reactor to $5bn for a 1,600MW plant. But once it is up and running, the cost of operating a plant is relatively low.

Although the price of uranium has been volatile in recent months, the cost of nuclear feedstock accounts for only 5 per cent of the cost of production. According to UK energy consultant PB Power, a 10 per cent increase in uranium prices results in only a 0.2 per cent rise in the cost of electricity generation. By comparison, 75 per cent of the cost of electricity generation in a gas-fired power plant is determined by the cost of the gas feedstock.

Once the differing fuel prices and initial capital costs are taken into consideration, the price of electricity generation for nuclear, coal and gas-fired plants is similar.

“The costs are all about the same if no carbon tax is imposed,” says Alistair Smith, director of nuclear services at PB Power. He says that in the UK, which has all three types of plant, production costs vary between £0.03 and £0.035 ($0.06-0.07) a kilowatt hour.

The high start-up costs of a nuclear plant makes securing financing more difficult than for other technologies. It is unclear how the UAE’s nuclear plants will be financed, but it is likely to be a combination of private investors and public funding.

Significant decommissioning costs will also be incurred at the end of a nuclear plant’s life. “If you put aside $25m a year, it will accrue to $2bn over the life of a plant and can be used to pay for decommissioning and waste management,” says Smith.

One cost-cutting solution, while a plant is running, is for several countries to manage waste jointly, something the UAE could take advantage of if other GCC states opt for nuclear plants. “If you only have a small number of reactors, you could have a combined nuclear waste facility,” says Smith. “A central storage facility would make it more economic.”

Beyond cost, one of the key drivers behind developing nuclear power in the Middle East is its potential as a long-term alternative to fossil fuels.

Nuclear power could also reduce the dependence of countries such as Morocco, Oman and Dubai on importing gas and electricity to meet rising domestic demand.

“Most countries are looking at it anew, because it gives a diverse way of generation, not because it is cheaper,” says Smith. “It is stable and more predictable.”

For now, Gulf countries are selling feedstock to their utility firms at subsidised prices, which keeps the cost of electricity artificially low. “They are much closer to the gas, so they can take the transport of gas out of the cost equation,” says Ulrik Stridbaek, senior policy adviser on electricity markets at the Paris-based International Energy Agency (IEA). “This helps the competitiveness of gas-fired generation. But the reference should be the world market price of gas.”

Calculating costs

Selling fossil fuels at below market price to domestic customers means countries are not making the most of their natural resources. Diverting more to export markets would make greater economic sense.

But such arguments are only valid while oil and gas prices remain high. Falling prices would weaken the nuclear case. “That is the tough calculation to be made,” says Stridbaek. “It must be a project-by-project calculation.”

If an Arab country were to give the go-ahead to a nuclear power plant today, it could take up to two decades to bring on line. According to the IEA, countries with nuclear facilities in place can expect a lead time of seven to 15 years from an investment decision to commercial operation. It will take countries without nuclear experience even longer.

Assistance from France means that the region will not have to go it alone, and will receive guidance on everything from setting up a regulatory framework to operating a plant. A degree of knowledge and technology transfer will be necessary, but the Gulf will delegate most of the hard work to the French.

“They will not have a very big programme so it is not reasonable to have huge investment in the nuclear fuel cycle,” says Hufnagel.

There are other difficulties. Even a small programme will rely on large plants, which can pose a threat to the stability of the electricity system. “The disadvantage is that nuclear plants are very big,” says Smith. “If you have a 1,600MW plant and it goes down, you lose a lot of generation from the system.”

“To fit a reactor into the grid, you must have a sizeable grid,” says Luis Echavarri, director general of the Nuclear Energy Agency at the Organisation for Economic Co-operation and Development (OECD). “One unit cannot be bigger than 10-15 per cent of the total grid.”

Economic and technical feasibility aside, no argument for or against nuclear power would be complete without an assessment of its impact on the environment. Unlike coal and gas-fired plants, nuclear power generation does not emit any carbon dioxide (CO2). The IEA estimates that replacing 1,000MW of coal-fired generation with nuclear power cuts CO2 emissions by 5-6 million tonnes a year.

Another alternative, renewable energy, is not seen as viable because technologies such as solar energy do not deliver consistent levels of power. “Nuclear is not competing with renewables,” says Echavarri. “The discussion on renewables is very welcome, especially because of CO2 emissions, but renewables are not for base-load electricity generation.”

Despite improvements to the safety and design of plants, there is a lingering fear that things can go wrong. Any accident at a nuclear plant would be far more damaging than its equivalent at a conventional power station.

There are also concerns over decommissioning plants and spent fuel. “It may be possible to fully decommission in 20-25 years, but nobody has tried it yet,” says Smith. “New reactors are designed to be decommissioned completely. If you are going to contaminate a surface, you coat it with easily disposable material. For most plants before 1990, this was never even considered.”

Perhaps the more serious question is what will happen to spent fuel. Once removed from the reactor, the radioactive material is either stored or reprocessed. Reprocessing yields more energy, but it can also be used to produce weapons-grade plutonium.

Third-party enrichment is one way of reducing the risk of proliferation. Urenco, a UK, German and Dutch company, is an example of how spent uranium can be enriched on a multi-lateral basis. “If you have people looking over your shoulders, you are less likely to be cheating,” says a spokesman for the International Atomic Energy Agency, the UN’s nuclear body.

Nuclear power appears to be a realistic long-term option for the Middle East. But it will not help countries struggling to match power supply with increasing demand today. A spokesman for the IAEA, which has assessed the region’s nuclear ambitions, says: “It will be a slow process no matter what.”

Nuclear plans

  • Algeria: Signed co-operation agreement with France

  • Egypt: Preparing to issue tender for consultancy work; upgrading seismic equipment at El-Dabaa site

  • Iran: Developing 1,000MW nuclear plant at Bushehr in co-operation with Russia

  • Jordan: Signed co-operation agreement with US; offered nuclear assistance by France

  • Libya: Signed memorandum of understanding with France

  • Morocco: Signed draft agreement with France’s Areva to extract uranium from phosphate acid

  • Qatar: Signed protocol agreement with Electric de France on energy co-operation, including nuclear

  • Saudi Arabia: Offered nuclear co-operation by France

  • UAE: France’s Total, Suez and Areva to propose two nuclear plants to Abu Dhabi

  • Yemen: Cancelled plans in 2007 to develop up to five nuclear plants

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