The accident at Japan's Fukushima nuclear plant in the aftermath of a devastating earthquake and tsunami has led many countries to slow down or cease their nuclear energy programmes. As governments assess viable power alternatives, fossil fuels look set to be the key beneficiaries, in the short term at least.

When Luis Echávarri, director-general of the Organisation for Economic Co-operation and Development’s nuclear energy agency, visited Tokyo in late April, the long corridors of the government buildings were still in darkness and only half the lifts were in operation. “They had to save energy,” he says.

Power shortages are just one side effect of the nuclear accident at the Fukushima Daiichi nuclear plant. Subjected to the largest earthquake ever to hit Japan, an 8.9-magnitude tremor with its epicentre 400 kilometres north-east of Tokyo, the plant lost the reactors’ cooling system to the subsequent tsunami. The nuclear incident is ongoing and the 20-kilometre no-entry zone around the plant is lifted only for certain technical assessments.

The damage to the environment has yet to be assessed. The same applies to the damage to the nuclear industry as a whole.

Events at a nuclear plant in one country can have huge knock-on effects on nuclear policy in other countries in a way that no other industry experiences. Disasters quickly remind politicians and the public that, although extremely rare, accidents on the scale of Fukushima’s can happen, and that it is difficult to predict how even the latest technology will perform in extreme circumstances. “What if something totally unexpected happens? It is difficult to say which reactors would respond better than others,” says Mr Echávarri.

Worldwide caution

The impact of Fukushima on public debate about nuclear has been swift and dramatic. Several governments have disabled existing nuclear plants or put plans to build new ones on hold. In Germany – where up to April this year, nuclear power supplied 25% of the country’s energy needs – chancellor Angela Merkel took the drastic decision to shut down all nuclear plants that had been in operation since before 1980. She then went a step further and required that an end date should be fixed for all others.

The effect on public policy has rippled across Europe and the world. Italy - which has not produced nuclear energy since shutting down its reactors in 1990 following the Chernobyl accident in Ukraine – immediately cancelled plans to relaunch its nuclear programme. Fast-growing economies with rampant energy needs, such as China, are reviewing their nuclear projects. And even countries that have traditionally been more in favour of nuclear energy – such as France, where nuclear power supplies 75% of national needs – have put a foot on the brakes and revised their plans.

“Nuclear power is a truly unique operation,” says Peter Atherton, head of Citi’s European utilities research team. “There is nothing like it in the world. If you are a builder, owner and operator [of a nuclear plant] you are carrying a systemic risk for everybody else’s safety records. Germany has just rediscovered this. Fukushima had nothing to do with them, different reactor designs, completely different circumstances; however, something goes wrong in Japan, and they get told to shut down their nuclear power stations. You don’t get that in any other industry. Look at aviation, if a jumbo jet crashes in Japan, the Germans don’t ground all their jumbo jets.”

Recalculating risk

Many industry experts want to reserve judgement on the events at Fukushima until the accident is fully analysed. But all countries have begun full-scale reviews of their nuclear assets in order to better understand how they may behave in the case of low probability but high impact events previously not incorporated in their safety formulas. Some point out that incidents can be as much about management as they are about technology or natural catastrophe.

Dr Heinrich Bonnenberg, a member of the Nuclear Society of Germany, has been very outspoken about nuclear power technology and safety risks. He argues that stress tests should be more wide-ranging.

“We have had two big accidents in recent years: Chernobyl and Fukushima. They did not happen because of badly informed technicians or engineers. There were very bad decisions taken by managements and at the top of politics. In Chernobyl, there was an order to make an experiment. In Fukushima, everybody knew that a big earthquake or wave could destroy the cooling system. [Now] all risks such as terrorism or an airplane [crashing into the plant] should be reviewed. But [these are] not currently included in the European stress tests. The Germans are starting now to discuss it, to do stress tests which include those risks and others. It’s impossible that in Germany we say we need that degree of safety and others say we don’t need that.”

It is clear that increased safety is paramount, but how much more are governments and investors willing to pay for it? And at what point do these costs outweigh the benefits of nuclear energy?

The cost of safety

Safer plants mean more expensive plants, say experts. The new third-generation reactors resolve some safety issues, but require larger structures and larger investments. The need to recover higher construction costs will ultimately have an impact on electricity prices.

“Even the new water reactor of the French government – the so-called core catcher, which gives a solution to solve the core melting problem – creates a much higher price for electricity because the power plant is more expensive,” says Mr Bonnenberg. “Depending on the size of the plant, let’s say that electricity would be about 20% more expensive.”

The ‘core catcher’ is the latest reactor to be produced by French energy group Areva. Named EPR, it is currently being built in Finland, France and China, and the UK is considering it for its new nuclear programme.

Westinghouse is the other manufacturer of a third-generation reactor, AP1000. As with EPR, AP1000 is a pressurised water reactor. The majority of nuclear plants, including those at Fukushima, use light water reactors, which function at high-density power. Pressurised water reactors have a lower density power, which is considered safer, but require much larger structures. “The problem with EPR is that it’s just so expensive,” says Mr Atherton. “They come in big units and they are very expensive to build.”

Further, these new reactors would generate between 1000 megawatts and 1700 megawatts of energy, while the maximum grid connection from an electricity plant in the UK, for example, is 1320 megawatts. Significant grid improvements are therefore likely to be required, adding to the cost of nuclear power generation in future.

The Fukushima incident has also forced nuclear power equity investors to reconsider their risk analysis. The most likely outcome is a much higher cost of capital.

“When you have 20 years between nuclear accidents, everybody becomes very complacent about the cost of capital on these things,” says Mr Atherton. “Fukushima has reawakened people's views on the assessment of risk. With the cost of the clean-up operations, the nuclear operator in theory has limited liability for the impact outside of the station site, but as we see now with Tepco [Tokyo Electric Power Company, the operator of Fukushima’s plant, which is crumbling under compensation claims] those limitations are not worth the paper they’re written on.

“The cost of operating existing nuclear plants will rise and the cost of building new nuclear plants will rise. Those are two things you can be 100% certain of.”

Who's liable?

Even before Fukushima, the UK government’s intentions of shifting cost and risk completely onto the private sector for its new nuclear programme found resistance from the market, which did not see these terms as commercially viable and had to be softened by some sort of subsidy in the form of long-term energy supply contracts.

“Fukushima shows that when something goes wrong, private companies can’t afford to clean it up and the state must step in,” says Mark Lewis, managing director of commodities research at Deutsche Bank. “I have always been sceptical about new nuclear builds anyway and I am more so after Fukushima. There might be one or two new nuclear stations built in the UK, but not as quickly as previously expected, so my view is that most of the nuclear plants that close in the UK over the next decade will be replaced by gas.”

Jesse Jenkins, head of California-based Breakthrough Institute's energy and climate programme, agrees that countries where energy needs do not grow at significant rates might look to alternatives. Recently perfected techniques to extract shale gas, vastly abundant in the US, will continue to focus the country’s attention on that energy source. The large quantity of coal present in Germany will likely receive similar treatment.

“I think the bulk of demand [for energy] is going to be filled by gas and coal,” he says. “In the US it’s going to be gas, in Germany it’s going to be coal, given that that’s a natural resource there and they are reluctant to import more gas from Russia.” Of course, for countries that are not blessed with natural resources, saying no to nuclear power will mean lower energy security and greater dependence on other countries.

Priced out

Ultimately, it may be cost, rather than public aversion, that kills nuclear energy. And, at least in the short term, it looks as if environmental aims will suffer. While 'clean' renewables, such as wind and solar power, offer an alternative, these would be unable to replace the amounts of energy currently produced by nuclear – 17% of the world total – and cannot always guarantee substantial and continued flows of electricity. They also still require some form of subsidy to be commercially viable. On the other hand, coal, for example – albeit the dirtiest fuel – can provide the required volumes of energy with regularity.

Although energy-hungry markets such as China and India may not be able to turn their backs on nuclear, countries where energy consumption is not growing so fast, such as those in western Europe, or to a certain extent the US, might be inclined to turn back to gas and coal.

Mr Atherton says the question for politicians and the public is an easy one. “You need to ask the population, what are you more scared of, carbon emissions or nuclear power?”

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