Views from ...
Security of Supply: UK & EU perspectives
NucNet interview with Yves Desbazeille (FORATOM) & Tom Greatrex (Nuclear Industry Association)
The sector has been warning policymakers about the risks related to an energy supply that is based largely on renewables and natural gas. We now have a situation where power prices in Europe have increased to unsustainably high levels. How would you explain this?
Tom Greatrex: What we have been warning of for a very long time has happened in the UK and it will continue to affect us, at least for this winter and quite possibly well beyond. Over the last few months, we’ve had relatively low output from wind power. The UK has got quite a lot of wind-powered installed capacity, but its variability has really shown itself over the past few months. At the same time, a power interconnector between the UK and France caught fire and reduced the electricity imports coming from France. We have also had the impact of higher demand, or lower output, or a combination of both, for gas in Europe and this has caused prices to go up. And we haven’t yet managed to significantly break the link between traded gas prices and electricity prices in the UK, because we are overly reliant on burning fossil fuels imported into the UK for our electricity, particularly at times when the weather isn’t optimum for the delivery of wind or solar. Add to this the fact that our nuclear fleet in the UK is in the process of retiring.
Yves Desbazeille: There are many factors at play. The main reason is clearly that gas prices are high because of the lack of adequate storage in Europe coupled with demand driven by post-pandemic economic growth in many countries. To a lesser extent, market prices are also influenced by the EU Emissions Trading System [ETS] where a tonne of CO2 allowance reached record prices at over €60. This is very good news for the climate, but it adds up to the perfect storm for energy markets in Europe.
What place does nuclear generation have in this uncertain market? Large nuclear operating countries like France are being affected by high energy prices too. Critics might say nuclear is not helping?
TG: My answer to those critics is that simply we haven’t got enough nuclear. It’s pretty obvious, frankly, that we’ve got a fleet which is ageing and retiring and therefore our clean baseload capacity is going down. That means we are more vulnerable and exposed to the vagaries of both the weather and internationally traded commodities and both of them together, which is what we’re experiencing. If we did what we should have done 10 years ago and actually got on with building nuclear plants, we could well have been in a different position by now. We could have had more nuclear either delivering or about to come online to help mitigate that impact of those factors which are not within the control of any government. One can’t control the weather and no government can have a really significant impact on international trading commodities. So if energy security is as important as politicians in the UK often say it is, I think there’s been a bit of a wakeup call. It’s too late in the sense of being able to make a difference for the immediate issue, but we could be in a much better place if such a crisis comes around again.
YD: It is worth clarifying how high gas prices lead to higher electricity prices. The explanation is hidden in the specific system power markets use to trade, where prices are fixed by ‘market calls’ from different generation sources. The last value called sets the final price for all other generation sources, even if they could sell cheaper. This is how expensive gas sets the prices even for nuclear generation. This is not a new issue. There have been debates on the matter, particularly in France where a government minister said it was not fair to see electricity prices fixed by gas, when nuclear forms nearly 80% of generation. Another factor responsible for the correlation between prices for gas-fired generation and nuclear generation is market interconnectivity in Europe. Power markets are no longer national – it’s been like this for a long time. This means prices in neighbouring counties can easily influence local market conditions. We should not forget to mention that when talking about market prices we are actually referring to the so-called spot markets. Bear in mind a lot of Europe’s nuclear operating utilities sell the bulk of their electricity under mid- or long-term contracts at prices set in the past. Current market prices would not necessarily have an immediate effect on utility income margins and some industrial consumers would have hedged against sudden market increases like those we are seeing today. Of course, it is also a question of how long current market conditions will persist.