Learning to love the nukes, the sequel

| December 26th, 2021

Guest piece by Giovanni Ponzetto

This is a sequel to “ LEARNING TO LOVE THE BOMB

On December 21, we were able to mark the calendar for a significant event: Finnish Olkiluoto 3 Nuclear power plant reached first criticality. This is significant since its close relative in Flamanville has been pushed to 2024 . Hence…. odds are the Finns will be the ONLY country fielding a new operational nuclear reactor west of the Elbe for the rest of the decade.

But my intention was not to praise the Finns, always a pleasure for me, but to point out what is transpiring in the nuclear arena in old Europe and how it relates to the energy policy landscape. So let’s start with the obvious: the inchoate words in favour of Nuclear uttered by, amongst others, Ursula Von Der Leyen were complete balderdash. They were sprung upon her by energy price increases, true, but the big events were not at Glasgow’s COP26, but in France: Macron is not as popular  as much as his EU allies would like, and as such, he must receive help, …. for a time. Recalling that the Jilets Jaunes movement arose from fuel increases, the EU needs to reassure the French electorate that the Nuclear Power price advantage France receives will remain. Hence, the temporary pro nuclear vibes… but there is indeed a “but”, or two.

The first is outside France: Germany WILL disable three of its remaining six nuclear plants according to Frau Merkel’s schedule, that is… before year end. And that in the face of an almost ten fold increase in natural gas spot prices during a lull where innocents are still thinking that Nuclear might make a comeback. The Netherlands pitched in too, with a plan to invest in Nuclear power generation, which given the lead times (no operational plant anticipated before 2030 at the earliest) is not worth the paper it’s written on, for reason number two.

And reason number two is… I have reasons to doubt that Nuclear, as hinted over and over, will enter the EU Taxonomy, and I am convinced that at the very least it won’t before the end of 2022. Allow me to explain why I think that.

Dismantling an otherwise serviceable nuclear plant can be seen this way: Suppose that Frau Merkel had been a Hogwarts alumna. When she decided to get rid of Nuclear, out comes the wand, and lo and behold all plants are disabled or simply disappear. Now, in comes Hagrid and offers a spell that for a short while, and for free, provides all the net output. Of course, he sets a price to it: in exchange for the spell he wants all the resulting carbon emission credits, in order to sell them to Gringott’s. The problem is, if Merkel accepts, all the explanations that made the others accept the assumption that “Nuclear energy was uneconomical from the start and characterised by incalculable risks.” get thrown out of the window (problem one), since the plants would generate MOST of Germany’s  available emission credits. Tighten the noose far enough, and those three plants would morph into “CO2 permit company with a side jig selling electricity”.

Also, today’s energy price surge, as is normal in all complex systems, is having side effects that were not anticipated at the time of the Grand Plan. Companies with long term energy contracts, for one, would in some cases gross more money shutting down operation and reselling that energy on the futures market. Gee, when did I remember a country going bonkers over an ever increasing price of something?

But back to Taxonomy: there is an inherent contradiction between having BOTH a market for emission trading AND a Taxonomy. After all, if you set up a market mechanism, it is up to the markets to find the most efficient use for the available Carbon Emission credits, irrespective of what any individual company or sector the company is involved in. Bear in mind that “Taxonomy” introduces an additional problem: ALL activities deprecated under it remain legal, which means that a regulatory mechanism takes the place of the dos and don’ts of law (sound familiar, Finance guys?). So why have both?

Many explanations are possible, but it does bug me that one further explanation remains possible: that Taxonomy has been specially established ONLY to keep Nuclear power generation OUT of the Carbon emission mechanism, therefore making it appear “uneconomical” in relation to revealed preferences. And we will see very soon if that’s the case, because If my suspicion is at all likely, those three plants have to go before any welcome modification is made to the Taxonomy, followed by the three remaining German Nuclear Plants, which will also have to be dismantled before that happens. Since closing down a Nuclear plant and adjusting the grid functioning is not something that can be done at the flick of a switch, that’s where my prediction of “NO nuclear in the taxonomy before 2023” comes in.

Should it happen for example, on January 2nd, the then three remaining plants would in their last planned year make more money they ever were predicted to, and enough to REVERSE the outcome of the spreadsheets painstakingly built by the glitterati: Yes, Virginia, Nuclear is the CHEAPEST option. Enough for them to fund the prototype of ADDITIONAL Nuclear Plant designs which would use Spent fuel from legacy reactors as fuel, therefore turning a cost into revenue (I personally know of two companies with advanced concepts, but there may be others). Can’t have that, old boy.

So, what could change this depressing outlook (insert your Jeremy Clarkson “and on this terrible disappointment” meme here)? One of two things:

  1. a radical turn towards fact based analysis by the whole political class. This is impractical, since through ESG the whole government financial complex would see its already dented reputation in tatters;
  2. OR… Putin being ten thumbed in his Nordstream 2 shenanigans therefore causing a cascading failure in the European electricity grid.

As Alber Marko once told me, “civilization is nine skipped meals away from chaos”, but even two February nights with no lights or heating would do a fair bit. Of course, neither of the above is more than an outlier, but we’ve seen very peculiar trades in forward spot electricity prices, so. stock up on woollen sweaters and battery packs.