Power Dispatch: Modulate and Modernise: A New Atomic Age?

Daniel: Hello, and welcome to "The Power Dispatch," an Argus Media podcast from the European Electricity report. I'm Daniel Craig, a senior reporter here at Argus, focused on Nordic electricity. On "The Power Dispatch," we attempt to step back from the immediate day-to-day fluctuations and fundamentals, to take a longer view of the issues, ambitions, and policies shaping the market today. With that in mind, nuclear power features heavily in today's headlines and policy papers, as markets across Europe are seeking out dispatchable yet low-carbon capacity, with life extensions, new capacity, and new technologies all on discussion at the same time. Today, I'm joined by French market specialist, Rhys Talbot and market reporter, Jessamy Guest to examine how nuclear capacity, old and new, is interacting with greater renewable penetration, as well as how development is progressing across the continent. And with that in mind, we're seeing a wave of interest across markets, from the Nordics, which are what I cover, with Sweden looking at an upgraded program, Norway trying to decide whether it wants it or not. But we're also seeing it in markets that are traditionally maybe coal or lignite-dominated in the Central Europe, you know, the Czech Republic, Poland, and as far east as the Baltics. Jessamy, you're a specialist, kind of, in this area, particularly Czech and Poland. What are you observing in these markets? 

Jessamy: There's definitely new interest in kind of low-emission, homegrown sources of electricity generation. And nuclear's really entering the picture, in, definitely, Central/Eastern European energy policy, in the long term. So, kind of, at an EU level, the most recent PINC, which is the Nuclear Illustrative Programme report by the EU, has revised up expectations of Europe's nuclear generation capacity by 2050 to 109 gigawatts, from 98 gigawatts at present. So, that's an increase of 11 gigawatts. Now, just in Central Europe, the planned nuclear capacity additions in Czech Republic, Hungary, Slovenia, Slovakia, and Poland could be at least 11 gigawatts. And now they are, they might also decommission about three gigawatts of capacity, but that's still quite a significant capacity addition. 

And it's really interesting to dig into the reasons why there's so much interest in this region. I think, first of all, you can look at the amount that these countries rely on coal-fired or lignite-fired generation, compared to their targets to phase out coal-fired generation in the coming decades. So, for example, Poland relies on coal or lignite burn for about 50% of its generation capacity, which is really high. It's committed to phase out about 6 to 7 gigawatts of that capacity by 2030. So, it's not surprising that Poland, which isn't currently a country that has nuclear capacity, is planning 3.75 gigawatts of reactors by 2035, alongside plans for SMRs, or small modular reactors. 

Then you've got Czech Republic, which is relying on coal-fired generation for about a third of its capacity, and just outside of the EU, Serbia, which is almost two-thirds of its capacity is on lignite. So, given their environmental commitments to phase out fossil fuel, fossil fuel-fired generation, and especially coal, it's not surprising that they're looking for new base load capacity to fill in the gaps. I think there's also a heightened awareness of having import dependence, and relying on imports for electricity generation. So, that's really coming into focus since the energy crisis in 2022. And of course, nuclear is a low-emissions technology. So, in countries where, potentially, renewable build-out is facing challenges, be that for geography, or politically it's tricky, nuclear really seems like an attractive option. 

Daniel: You mentioned small modular reactors, SMRs. Is that the bulk of what governments are targeting to build, or are they still interested in the larger conventional reactors? 

Jessamy: No, definitely not. In terms of thinking about securing future supply in the region, it's definitely more about the traditional reactors. So, that estimate that I was talking about, 11 gigawatts of new capacity, that doesn't include SMRs at all. SMRs, as you said, small modular reactors, which are supposed to involve lower capital costs because they're smaller-capacity, so, between 300 megawatts and 500 megawatts, it's not a widespread, commercially-available technology yet. So, when governments, at least in my region, talk about SMRs, it's kind of an experimental technology, investing in technologies that in the future could bolster supply, but it's not the main strategy, shall we say. 

Rhys: They do seem to, many governments seem to approach it as a sort of optional extra to the conventional reactors, which they are definitely planning. I think they do have a really interesting potential because they're small, which has two advantages. One is you avoid some of the engineering problems, which you get with giant reactors, like the French 1.6-gigawatt EPR reactors, which have had lots of problems, in lots of the places where they've been installed. And also because they're small, you can have more of them spread across the territory, and so you can use the waste heat, because nuclear reactors tend to have quite low thermal efficiency. The other thing which is an advantage is they're modular, and so they are mostly produced in a factory, to standard designs. And the idea is one of the problems with nuclear over the last few decades has been that we've lost the ability in the West to build it cheaply. There's a couple of reasons for this. One is higher safety standards. One is a loss of knowledge. But the idea is, if you get into producing things in series, at scale, you can get efficiencies of scale, and you can bring costs down. 

Daniel: I think one of the big reasons, in Sweden in particular is, that they are supporting SMRs, is this idea that it can build the nuclear capacity it feels it needs for base load generation at a much lower cost. But the lingering issues around the cost of nuclear remain there. The government is in the process of taking a majority stake in Videberg Kraft, which is the project promoter, for a cluster of SMRs, because Vattenfall feels like it can't necessarily, or doesn't want to necessarily, finance that project on its own. So, yes, totally, we can see SMRs are bringing down the cost of, or are expected to bring down the cost of development. But we're still not quite there, and I guess that goes back to that experimental quality that we discussed earlier. Underlying all this is a sort of sense of urgency that I think a lot of markets are coming across, that the backdrop is not just "we need new base load capacity," it's that, "oh, wait, we have aging fleets here, that are gonna go offline, and if we don't move now, we're gonna lose out on a serious volume of low-carbon electricity." And one solution to that, you know, we can build more capacity, it may take a long time, is to simply extend the lifetime of an, operational lifetime of a plant. And that seems to be a move favored by some markets that you cover, Jessamy. 

Jessamy: A lot of the reactors in Central/Eastern Europe were built in, kind of, like, the 1980s, and initially had licensing for 40 years. They would be coming towards the end of their licensing period, kind of, in the next decade or so. But we've seen recently that, for example, the Czech Republic, Hungary, and Slovenia have all extended the lifespans of their active plants. I think that probably reflects more that the limiting factor for the lifespan of a nuclear plant isn't always the technology, but it's more the economic and, I guess, political decisions about the security of supply in those countries. 

Daniel: Obviously, with any plan to limit the lifespan of a reactor, there are physical limits. And I think, correct me if I'm wrong, Rhys, but in France, there are a certain swathe of its fleet that, you know, they cannot be extended anymore, and there might be potential drop-off? 

Rhys: There could be what they call a cliff edge effect at some point. So, France's fleet has the most reactors in Europe. It's about two-thirds of Europe's capacity. And the oldest ones are built in 1979. So, they're now coming upon 50 years of age. Again, similar to in Central/Eastern Europe, with an initial lifespan of 40 years. Now, there is a desire to extend them, but that can't go on forever. At some point, whether it be, you know, 60 or 70 years, they will all start to come offline at the same time. And that's because they were all built in a relatively brief span of time in the '80s. And what France is trying to do to prepare for that is to build new reactors. So, by the end of this year, they are hoping to take a final investment decision on six EPRs, which would be about 9 to 10 gigawatts of capacity. But that is quite a difficult proposition, because the bill for those six EPRs could come to something like €70 or €80 billion. 

And that is without accounting for any potential more cost overruns. Their last reactor which was built, which was Flamanville 3, which just came online in recent years, the cost overruns and delays were legendary. 

Daniel: To rival the finished reactor, OL3, which I think is sort of, like, 15 years late or something like that. 

Rhys: Similar to that. 

Daniel: Wow. And just, for anyone who's not necessarily au fait with all the nuclear lingo, what is an EPR reactor? 

Rhys: So, that is the European Pressurized Reactor. That's EDF's current flagship design. And it is the biggest nuclear reactor which exists on the planet. It's 1.6 gigawatts. Although it will be a refined version for the future one, so, EPR2, which, in theory, is even better. 

Daniel: And this €70-odd billion, and as you say, almost certainly more, when we take in the inevitable delays or overruns, is that being funded by EDF? Is that being funded by the French taxpayer? Where is that? Is there a clear arrangement there, or...? 

Rhys: So, EDF has agreed with the French government to get a subsidized loan, so, a zero interest rate loan. So, part of that will be on the balance sheet of the French state. Ultimately, EDF is 100% state-owned, so, if something is on one balance sheet or the other, it is either the taxpayer or the bill payer who will pick it up. 

Daniel: And any time a state is picking up that much of the bill, the EU likes to make sure that it's not falling foul of any competition rules, and that's why there's sort of an ongoing state aid investigation. Given the EU's clear enthusiasm with, Ursula von der Leyen herself coming out in favor of nuclear policy, it stands to reason that they'll probably be, to some extent, waved through. But it does speak to this debate that some within the power market have, that, should we be using all this sort of state funding to subsidize nuclear, when, in their view, it doesn't play necessarily all that well with renewables, and that those renewables should be the focus of the transition to a low-carbon system. And I think France, given its huge dominance of nuclear power within its fleet, but yet success growing its renewables market, is a good kind of test case for us to investigate how are these two technologies interacting. And in, Rhys, in your time covering France, what have you been able to observe about how these two technologies play together? 

Rhys: Yeah. So, it's really interesting the way that France's nuclear fleet operates differently to more or less any other fleet in the world. Because they have so much capacity, nuclear provides between two-thirds and three-quarters of their electricity, there's obviously moments when demand drops, and the capacity of the fleet is higher than total demand. Now, there are interconnectors, and hydro storage, which can soak up some of that, but they do have to turn down their reactors, and have them produce less than their technical capacity, at some point. And that's something which is fairly unusual in the world. In some other European countries, they do a bit of price-based modulation, but not to the same extent as in France. The big difference, though, as well, is that France has been doing that for years, even before the current growth of intermittent renewables in the last few years, because they've had this giant fleet for all that time. But obviously, if you're adding more renewables, and you're having more periods when there is gonna be a large amount of solar or wind on the system, and so your residual demand, as opposed to just your demand, is gonna be even lower at some points. So, up until fairly recently, EDF seemed quite confident that modulation wasn't an issue in itself. The head of the nuclear division said that it didn't pose any problem on an industrial level in 2024, but that has changed slightly. The CEO of EDF, Bernard Fontana, last year said that modulation raises questions. And the company put out a report earlier this year, on the effect of modulation on their fleet. They talked about the extra costs that modulation poses, because it increases wear and tear on machines. And they gave some figures, roughly €300 million a year in extra costs, in maintenance, because of the modulation that they do, as well as some potential big-ticket items, like replacing turbines, which, they put a number on it in the billions, but it's not entirely clear over what time frame or how often that can be necessary. 

Daniel: But, we have also seen some advantages. Rhys, you've noticed that capture rates perhaps are a little different in France compared to other nuclear markets, partly because of this modulation, or for another reason? 

Rhys: Exactly. So, the capture rate of a given technology is how much of the average market price it's sold at. And, for example, for solar, the capture rate is quite low, because it's very concentrated in low-price hours. Now, for most nuclear fleets in Europe, the capture rate tends to be around 100%, because the units produce in baseload, so they're just producing at the same average price as the rest of the market. For France, because they are reducing production in low-cost hours, and concentrating it in high-price hours, they can capture rates a little bit higher. In some months, there's maybe 101%, 102%. It can also be up to about 110%. So, they are eking out a little margin there, which is to be placed on the balance sheet, in opposition to the increased costs from wear and tear. 

Daniel: And where that balance falls out, in terms of whether to modulate or not to modulate, to what extent to modulate, to what extent not to modulate. And it's interesting, because, in certain recent hours or recent days, we've seen prices go very negative in France, and perhaps we haven't seen the corresponding level of modulation we would have expected with that sort of price signal on its way. 

Rhys: Last Sunday, from our recording, prices in lots of Europe went down extremely low in the middle of the day. In France, they got down to about minus €480, which was similar to some neighbors. And obviously, the driving force behind this is there is a lot of solar, which is not reactive to price signals, and which keeps producing. But in theory, in France, you have this large nuclear fleet, which can modulate. So, it suggests that, at some moments, we are reaching the limits of modulation. There are circumstances when every individual nuclear plant can modulate, but not throughout the whole length of the fuel cycle. So, once they've used up about 90% of their fuel, they can no longer modulate, and there can be other reasons why they can't. They can be kept online for grid constraint reasons. So, it does seem like, at that moment on Sunday, we reached the limits of modulation. And if we continue adding more and more intermittent renewable capacity, that could happen more and more often. 

Daniel: Now that we've sort of discovered this boundary of modulation, is that slowing down renewables development? Or is France still planning to go full-bore on both, and see what happens? 

Rhys: There has been a bit of a shift in the landscape over the last year. France's energy policy was sort of laid out in 2022, by the president, Emmanuel Macron, in a speech called the "Belfort Speech," which is very often referred to when talking about energy policy. And in it, he said, we need to go full speed with both, we need to go ahead with new nuclear, but, given that nuclear takes time to build, even if we build them as fast as possible, they wouldn't be online until mid to late 2030s at the earliest. Before then, we need renewables, which are obviously quicker to build. So, France did have this policy of going full steam ahead on both. However, I think partly because of some of the effects of renewables, which we've been seeing, the more frequent negative prices, there has been a bit of a pulling back, and, for instance, support for new solar installations has fallen a lot. The government is trying to slow down the rate of solar build-out, which was going extremely fast over the last few years. 

Daniel: Jessamy, obviously, we've discussed already the enthusiasm for nuclear in your markets. Is there a similar enthusiasm for going full-bore on both renewables and nuclear, or renewables running into some headwinds? 

Jessamy: For the most part, renewables are definitely being built in Central/Eastern Europe. But there is potentially a case for the fact that some countries, especially landlocked countries, or countries with hilly terrain, for example, have less potential for renewable build-out. So, there was a study released a few years ago, that sort of centered on the Czech Republic, which is quite densely-populated, relatively, in the EU. And it's also hilly and landlocked, so that's posing challenges for building, for example, offshore wind, or, it's adding costs to building turbines, for example, in the terrain. So, that would strengthen the case for building more nuclear. But, on the other hand, there are other factors that are restricting renewable build-out, which aren't necessarily to do with just geographical limitations. So, for example, I think, recently, the Czech government was passing the, or was proposing renewable acceleration zones, which are areas where permitting is fast-tracked for building renewables. And it reduced the area on which they were gonna have these renewable acceleration zones, by 82%, compared with a previous proposal. So, there's definitely political opposition as well. It's not completely the luck of the draw. 

Daniel: And that's the thing with nuclear too. I mean, political opposition is so at the bedrock of all of this, you know, France being the vanguard of leading this charge of new nuclear, whereas markets like Germany maybe are more traditionally opposed nuclear expansion. Even between Sweden and Norway, you've got diverging political consensus on new nuclear, with Sweden obviously being gung-ho, and advocating it for new nuclear, and Norway taking a more conservative approach, thinking, you know, we won't start a comprehensive program that means that we will go through the atomic agencies' steps to becoming a nuclear country, although there are still private firms interested in it. But one thing, you know, I think Norway did also say is that it needs to be in a position to have a nuclear industry. That's something we've observed in Serbia too, with the president there hoping for a new generation of nuclear engineers. So, whilst there remains this sort of split on whether we need new nuclear capacity or whether we should have new nuclear capacity, there seems to be a consensus that there is a nuclear economy of the future, that will be important, whether it's being able to staff that nuclear economy, or, I believe, in France, EDF are looking to build SMRs for export. Is that right? 

Rhys: So, EDF is really keen to export its Nuward SMRs. They're definitely looking at other places in Europe where they could export them to, and they're hoping to finalize the design by the end of this year. So, that could be something we see coming in the next few years. 

Daniel: Over the next few years is sort of the defining characteristic of this nuclear conversation. A lot of this is the 2030s and the 2040s. But what is different now, I think, than maybe even five years ago, maybe even two years ago, is that level of enthusiasm from politicians in the market, that might, you know, that seems to be overcoming this lingering concerns over nuclear safety and the environmental cost. So, it is a case of watch this space. 

Thank you both for joining me, and thank you to you for joining us as a listener on "The Power Dispatch." We'll hopefully be back in future with further episodes. But in the meantime, please look out for the range of podcasts available on argusmedia.com.