The near meltdown of reactors at the Fukushima nuclear power station in Japan has re-fuelled the renewables vs. nuclear debate, bringing the complex economics of low-carbon energy generation back to the fore.  We take a look at the impact of the disaster on the cost of nuclear energy generation, and question what this could mean for the renewables sector.

Nuclear power has long been considered an attractive, cost-competitive alternative to conventional methods of electricity generation.  At present, it provides roughly 18% of the UK’s electricity requirements.  While it is difficult to ascertain the true cost of a modern nuclear plant – Britain’s newest (Sizewell B) is 16 years old – it is clear that fuel costs make up only a minor proportion of their total generating costs.  The downside is that capital costs are significantly greater.

Thus, while the fuel is cheap, nuclear power plants themselves are highly expensive to build and the reward from that investment is gradual.  Added to that, long or delayed construction periods only serve to increase costs (a prime example being the Areva plant in Finland, which is more than three years behind schedule and £1.6 billion over budget).  Factored in to these initial calculations, must be decommissioning and waste disposal costs, which equate to about 9-15% of the capital cost of a nuclear power plant.

Despite these hidden costs, nuclear power is considered to be a much cheaper option than the various renewable forms of energy generation, such as wind, wave, tidal and solar power.  Indeed, nuclear energy has a base cost of just 4 pence per kWh, while onshore wind power (the least expensive form of renewable energy) costs 7 pence per kWh to generate.  http://windpower-generators.info/

In keeping with EU targets, the UK is under an obligation to increase the share of energy it generates from renewable sources to 15% by 2020.  Most of the increase in renewable energy in Britain is expected to come from electricity generation – with an anticipated rise from 5-6% renewables to 30-40% renewables in 2020.  On this basis, the higher costs associated with renewable generation in comparison with conventional and nuclear generation would increase costs by £6.8bn a year (that is, by 38 per cent). The costs involved in generating marine and solar renewable electricity are higher still.

All that might be about to change, however, as the nuclear industry counts the cost of the impending meltdown at the Fukushima nuclear reactor in Japan.  The atomic disaster has dealt a massive blow to future UK nuclear energy plans, with experts warning that the scheduled construction of new plants could be delayed by up to six months.  The position is set to deteriorate if safety issues raised by the incident increase the cost of reactors, a factor which is likely to have a knock-on effect on investment decisions.  Mark Hibbs, an atomic policy analyst at the Carnegie Endowment for International Peace in Berlin predicts that:

A further setback to nuclear energy generation has come to light in the aftermath of the disaster, as it transpires that it will be Japan’s taxpayers – rather than the nuclear industry – who will fund the cleanup operation.  This has wide-reaching implications for the future of the nuclear energy sector, with some experts predicting that governments will now seek to transfer greater financial responsibility to plant operators.

In this vein, David Robinson, a senior research fellow at the Oxford Institute for Energy Studies predicts that:

Any such “burden-sharing” could build on the (unratified) 2004 amendment to the Paris Convention, which raised nuclear operators’ liability in most European countries to 700 million euros.  This spells out very bad news for the nuclear power movement, as it greatly increases the economic burden on operators, to the detriment of energy prices as a whole.

Any increase in the cost of nuclear energy generation is however, good news for the renewables industry, which could now find itself on a more level playing field in terms of cost.  For many years, nuclear energy generation has been recognised as being more economically advantageous than renewable energy generation, but recent events look set to redress the balance.  The nuclear crisis in Japan, combined with the impact of the new “carbon price support tax” on fossil fuel generation announced in the 2011 Budget, will only serve to strengthen the case for renewable technologies as a safe, clean and cost-effective means of low-carbon energy generation.

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The United Kingdom (UK) has traditionally used landfill disposal as the main method of waste management. However, it has long been recognised that landfilling is unsustainable due to its long term harmful effects on the environment and public health.

Landfill also places a high long term risk on groundwater quality, which could threaten the availability of clean water for future generations.

Under the European Union (EU) Landfill Directive, and starting in 2006, member nations were required to divert biodegradable municipal waste (BMW) from landfills. The UK has also committed to the EU Renewable Energy Directive, which binds it to sourcing at least 15% of its energy mix from renewables by 2020.

Through the last decade the emphasis was on recycling, and this is still the case, but recycling will only achieve waste diversion up to a point. Therefore, to meet these targets, the UK is developing alternative waste management options as well as planning to achieve considerable deployment of renewables.

Throughout 2009 a number of aspects of UK waste management policy that have been in place for some time came together so that for the first time a genuine shift in the industry could be detected. Investors began to see the wisdom of those that have already anticipated this new vision and have committed to investment in the waste technologies, as many of the smaller more nimbly operators have begun to make profits. Where profit is to be made others will now follow to secure waste contracts for the resource that collected material provides them.

If asked what the single biggest influence on this was during 2009, I would say it as the government’s Landfill Tax escalator policy which meant that for most waste disposers, for the first time, landfill disposal actually became more expensive than recycling. You can argue around the detail here, but I had not before the summer of 2009 witnessed recycling companies able to say they could offer price competitive disposal prices when head to head with the traditional landfill operators.

Another major driving force in UK waste management which is powering the evolution from a disposal problem to a resource optimisation opportunity are the high targets for waste diversion from landfill, and 20 year or longer integrated waste management contracts. These are public/private partnership projects which the UK government is pushing ahead with now in order to achieve those targets.

Here to, we saw a major milestone achieved while the recession was biting the hardest early in 2009. This was the successful planning application, and award of contract, for the £4 billion Greater Manchester Waste PFI Contract, the largest of its kind in Europe, and all built upon stakeholder involvement. However, the Greater Manchester PFI Contract is only the most high profile example of a procurement revolution which probably reached its peak of activity during 2009, and saw similar contracts either largely in place or planned throughout the nation.

The year also saw a number of these projects hit the headlines, and some Energy from Waste schemes being pushed back at planning (Cornwall and Edinburgh for example).

However, the trend continued and accelerated so that for all waste streams and/or locations where re-use or recycling of waste is not viable, energy recovery is being reinforced as the preferred option, with disposal used only as a last resort.

For a long while the major Energy from Waste producer has been from landfills, and it has been landfill gas (LFG) utilisation. However, the relative importance to LFG utilisation as a proportion of total energy from waste production will now be expected to decline.

Each month in the years to come we will see the rollout of new energy from waste (EfW) projects coming on-stream. However, while the adoption of new waste technologies is being supported in the UK by government departments, the perceived high risk for the PFI partnerships, has remained high. 2009 was not good for implementing the more innovative of these.

The increased cautiousness of the banks funding the private element of these projects has come at a very unfortunate time, as it has in my view severely detracted against the bankability of schemes using these new technologies. In fact, 2009 saw the shelving of quite a number of the more adventurous new waste technology options in favour of more traditional incineration technology.

During the year events also reinforced the wisdom of encouraging the use of EfW and other home grown renewable energy source, within the global scene. Most will remember that early in 2009 we saw the deep rationing of natural gas supplies to some European nations which were themselves unconnected with a producer country dispute. This held up supplies during the coldest weather and in a completely arbitrary fashion.

Most now strongly support the benefits of renewable energy for its improved energy supply security, ability to provide climate change mitigation when combined with stiff recycling targets and the highest possible waste diversion, and not least its resource efficiency.

However, good though that may be for waste as an opportunity, the main event of the year was the new found security to the recyclers which came with the attainment of the economic tipping point, whereby landfilling has become more expensive than most forms of main stream recycling activity. From now on the markets in recyclates will operate on a progressively more stable and normal economic basis.

Recycling has always made sense for the environment, but from now on it will also become a natural economically favourable option as well We can also look forward to the future knowing that the landfill tax will rise again in April 2010, taking us further into the new UK era of waste as a resource of opportunity.