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Why bigger doesn’t mean better for nuclear power

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One thing to start: John Kerry will be Joe Biden’s climate envoy.

The reaction was swift — and positive.

“To lure Kerry back to government after he was secretary of state, Biden named him Secretary of Planet,” said Kevin Book, of Clearview Energy Partners, a Washington consultancy. “His naming seems to have won support from two restive frontiers: progressives and Europeans.”

Jason Bordoff, a former White House adviser who now runs Columbia University’s Center on Global Energy Policy, said the appointment “signals [Mr Biden’s] recognition that climate is a critical foreign policy issue for the US”. 

Where does nuclear lie in Mr Biden’s climate and energy plans? Our first note talks to some in the industry who think fission’s future is brightening again.

Our second is on the UAE, which just announced a huge new oil discovery — and seems suddenly less sure that, with big output expansion plans in mind, it wants to remain in Opec.

To our US readers: Happy Thanksgiving! Energy Source will be back next Tuesday.

Thanks for reading. Please get in touch at energy.source@ft.com. You can sign up for the newsletter here. — Derek Brower

Biden’s bet on small-scale nuclear

“Nuclear energy is an important piece of the puzzle as we race against the clock to reduce carbon emissions and address climate change,” said Cory Booker, a Democratic senator, as he introduced bipartisan legislation to revitalise and expand American nuclear power last week.

Expect similar rhetoric as nuclear emerges as one of the key planks of Joe Biden’s plan to wean US power off carbon-spewing forms of generation by 2035.

As part of his decarbonisation drive, the president-elect wants to spur development of small-scale nuclear plants, or “small modular reactors” (SMRs), so that they can help balance the grid alongside surging renewable output. Here are some of the reasons for the SMR push (even if this new technology probably won’t start generating power for the better part of a decade):

  1. Simplicity: SMRs would be constructed in a factory assembly line, in theory making them more reliable and ending nuclear’s notorious cost overruns. Modules of less than 100MW could be bought as required and bolted on to ramp up generation, allowing projects to be brought online twice as fast.

  2. Safety: Mass production would allow for in-factory quality assurance. Reactors would also have an “indefinite coping period” meaning they would automatically shut down if necessary without the need for water to be pumped in to prevent meltdowns.

  3. Cost: Mass production would allow economies of scale to drive down cost. Mr Biden reckons SMRs would be around “half the construction cost of today’s reactors”. NuScale, which recently became the first company to have its SMR designs approved by the Nuclear Regulatory Commission, says its first 684MW plant will cost $3bn to build and subsequent ones will cost $2.5bn. In comparison, the 3,260MW Sizewell C facility being built in the UK will cost £20bn ($27bn).

  4. Complement renewables: SMR output could be ratcheted up or down to provide peaking power alongside intermittent renewables. Larger reactors must run at a more or less constant rate.

Line chart of Billion kilowatt hours showing Nuclear's share of US power generation has been flat in recent decades

The climate case

Small modular reactors sit among a host of other advanced technologies that the nuclear campaigners hope will revive their industry as climate change becomes more pressing.

NuScale says it should be ready to build commercially by 2027, with government support helping its first customer overcome any risks. Mr Biden’s plans bolster support for nuclear. The president-elect has proposed creating a new research agency, ARPA-C, to help develop SMRs and iron out other issues with nuclear.

For many, the associations with accidents such as Three Mile Island, Chernobyl and Fukushima still loom large.

“None of the fundamental problems with nuclear power have ever been addressed,” said John Coequyt, global climate policy director at the Sierra Club. “From transportation, to storage, to waste that remains lethal for more than 100,000 years, nuclear plants pose numerous threats”.

“There’s no reason to keep throwing good money after bad on nuclear energy when it’s clear that every dollar spent on nuclear is one less dollar spent on truly safe, affordable, and renewable energy sources like wind, solar, energy efficiency, battery storage, and smart grid technology,” Mr Coequyt said.

But the industry is confident the urgency of addressing climate will ultimately trump the stigma attached to it.

“Nuclear will always have a unique challenge because of its image in popular culture and the ties with nuclear weapons and environmental damage,” Craig Piercy, chief executive of the American Nuclear Society, told ES.

“I think the conversation is changing and it is changing because we are looking at the existential threat of climate change and how we address it,” Mr Piercy said.

© REUTERS

Nuclear versus gas

Small-scale nuclear’s biggest rival will be natural gas — which can already be ordered off the shelf and constructed quickly and cheaply.

And while SMRs would be much cheaper to build than older nuclear plants, they would still require significant up front capital investment in contrast to gas. Industry players reckon at a cost of around $5 per million British thermal units, SMR nuclear would be competitive with gas. But prices today are sub-$3/mbtu. That dynamic would change if a carbon tax were introduced.

“As people begin to do the math problem of climate they’re beginning to realise that you can’t solve the equation without nuclear in it,” said Mr Piercy.

That, the industry hopes, should lead to widespread uptake of SMRs once projects begin to get off the ground.

Within the next two decades, said Hans Gougar, manager of product engineering at X-Energy, another forerunner in SMR development, “you’ll see a substantial portion of our generating structure in smaller nuclear power”.

“It’s going to take a little while to get there. Because we’re not just building a plant, we are building and rebuilding an entire industry. That takes a long, long time,” he said.

(Myles McCormick)

Is trouble brewing in the Opec family?

The UAE has long been seen as a “core” member of the oil cartel, allying with other Gulf states such as Opec kingpin Saudi Arabia and Kuwait to co-ordinate their approach to production cuts.

But reports in the last week suggest the long-term alliance might be fraying, with officials in the UAE starting to question whether Opec membership is really in its interests.

The rumours picked up again over the weekend with the announcement of a huge new oil discovery in Abu Dhabi, giving more credence to the UAE’s plan to increase its oil-output capacity by a quarter in the next 10 years.

That would sit awkwardly with Opec, where large production cuts have been in place since the summer.

Still, an exit from Opec does not appear to be imminent. The UAE’s alliance with Saudi Arabia goes far deeper than oil, and its energy minister rushed out a statement pledging its “support” of the alliance.

Rumblings of discontent from the UAE do, however, illustrate the challenge Opec faces in a world where oil demand is increasingly seen as likely to peak within the next decade.

The UAE’s expansion plan arguably takes on greater urgency as oil demand growth becomes less assured. Better to produce what you can now before everyone starts competing over a shrinking market.

© AFP via Getty Images

The UAE’s oil production is also tied to its own domestic gas consumption, which was offered as one excuse for why the Gulf state initially shirked part of its share of production cuts this summer.

That resulted in a rare public rebuke from Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, which may have ruffled feathers with an increasingly assertive leadership in the UAE.

The Gulf state is arguably in a stronger position than some of its allies if it does decide to maximise production, though it has been far from immune to this year’s slump in prices.

Its economy is more diversified than Saudi Arabia’s, with Dubai being a hub for commerce in the Middle East. But the IMF still forecasts that it needs an oil price of almost $70 a barrel to balance its budget, not far off the near $80 a barrel required in Riyadh for fiscal break-even. Brent is unlikely to average much more than $40 a barrel this year.

But if significantly higher oil prices are going to be difficult to achieve in the coming years, as many in the industry expect (Brent contracts for 2025 are still below $50 a barrel) then prioritising production volume over price may become more attractive.

The issue for the UAE is that if they were to break away, the likelihood of other Opec members ramping production at the same time increases dramatically. Saudi Arabia already showed in March what it was prepared to do when it briefly fell out with Russia over production policy, launching an all-out price war and flooding the market with heavily discounted barrels.

A conservative Gulf state like the UAE is likely to proceed cautiously, if at all. But as peak oil demand edges closer, it’s hard not to see further strains emerging in Opec’s cohesion. (David Sheppard)

Data Drill

Markets have been buoyant since positive vaccine news surfaced this month — and the biggest beneficiary? Out-of-favour oil and gas producers. The S&P 500 energy index has risen 30 per cent, outperforming all other sectoral indices and the wider market since November 6, the last trading day before Pfizer and BioNTech announced their vaccine results. Brent oil is also up by about 16 percent, close to its pandemic high.

Line chart of Percentage change since Pfizer news showing Vaccine boosted: energy stocks are soaring

Power Points

FT Energy Transition Strategies Summit

This year’s FT Energy Transition Strategies Summit on December 1-2 has the fingers on the pulse of the disruption in the industry. Apply for a complimentary ticket here to join our distinguished panel of policymakers, industry experts and investors as they discuss net-zero goals, the future of power markets, how the pandemic has reshaped the energy transition and more.

Endnote

Oil and gas companies risk alienating younger people unless they clean up their image.

That is the key takeaway of a new survey of 1,000 people in the early stages of their energy sector careers, published this week by the Energy Institute, a global professional membership body.

According to the findings of the survey, “The Generation 2050 Manifesto”, almost 60 per cent of young people said they got into energy to tackle climate change. Most worry the world will not be able to meet the goals of the Paris climate accord and nine in 10 reckon their career puts them in a position to make a difference.

Steve Holliday, Energy Institute president, said the manifesto was a “fresh wake-up call”.

“It exposes the do-or-die conundrum facing many traditional energy companies. They will only attract the talent they need if they are responsive — and I mean with concrete actions — to the environmental and social demands of Generation 2050,” he said.

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London, and Gregory Meyer in New York.





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A carbon registry leaves polluters with nowhere left to hide

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The writer is the founder and executive chair of the Carbon Tracker Initiative, a think-tank

No one yet knows which countries will extract the last barrel of oil, therm of gas or seam of coal. But the jostling has started. Every nation has reasons to believe it has the “right” to continue fossil fuel extraction, leaving others to deal with the climate crisis.

In the Middle East, oil producers can argue that the cost of extraction is low. In Canada, they market their human rights record. Norwegians trumpet the low-carbon intensity of their operations. And in the US under Donald Trump, they touted the virtues of “freedom gas” and called exports of liquefied natural gas “molecules of freedom”.

The dilemma for governments is that if one country stops producing fossil fuels domestically, others will step in to take market share. And so the obligation to contain emissions set out in the Paris Agreement risks being undermined by special pleading.

In the UK, the furore over plans for a new coal mine in Cumbria the year that the country is hosting the UN’s climate summit is indicative of the contrary positions many countries hold. Facing one way the government says it is addressing climate change. But looking the other, it consents not just to continued extraction, but to support and subsidise the expansion of production.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

To keep warming under the Paris Agreement limit of 1.5C, countries need to decrease production of oil, gas and coal by 6 per cent a year for the next decade. Worryingly, they are instead planning increases of 2 per cent annually, the UN says. On this course, by 2030 production will be too high to keep temperature rises below 1.5C. The climate maths just doesn’t work.

One of the problems in attempting to track fossil-fuel production is the lack of transparency by both governments and corporations over how much CO2 is embedded in reserves likely to be developed. This makes it difficult to determine how to use the last of the world’s “carbon budget” before temperature thresholds such as 1.5C are exceeded.

Governments need a tool that establishes the extent to which business as usual overshoots their “allowance” of carbon. There needs to be a corrective because the cost competitiveness of renewable energy, and the risk of stranded energy assets, has not stopped governments heavily subsidising fossil fuels. During the pandemic, stimulus dollars have been dumped into the fossil-fuel sector regardless of its steady financial decline, staggering mounds of debt and falling job count. 

This is why my initiative and Global Energy Monitor, a non-profit group, are developing a global registry of fossil fuels, a publicly available database of all reserves in the ground and in production. This will allow governments, investors, researchers and civil society organisations, including the public, to assess the amount of embedded CO2 in coal, oil and gas projects globally. It will be a standalone tool and can provide a model for a potential UN-hosted registry.

With it, producer nations will have nowhere left to hide. It will help counter the absence of mechanisms in the UN’s climate change convention to restrain national beggar-thy-neighbour expansion of fossil-fuel production.

No country, community or company can go it alone. But governments can draw from the lessons of nuclear non-proliferation. First, they must stop adding to the problem; exploration and expansion into new reserves must end. This must be accompanied by “global disarmament” — using up stockpiles and ceasing production. Finally, access to renewable energy and low-carbon solutions must be developed in comprehensive and equitable transition plans.

The choice is between phasing out fossil fuels and fast-tracking low-carbon solutions, or locking-in economic, health and climate catastrophe. A fossil-fuel registry will help governments and international organisations plan for the low-carbon world ahead.

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Hasty, imperfect ESG is not the path for business

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The writer is a global economist. Her book ‘How Boards Work’ will be published in May

Good environmental, social and governance practices take a company from financial shareholder maximisation to multiple stakeholder optimisation: society, community, employees. But if done poorly, not only does ESG miss its sustainability goals, it can make things worse and let down the very stakeholders it should help.

To be sure, the ESG agenda should be pursued with determination. But there are a number of reasons why it threatens to create bad outcomes. The agenda is putting companies on the defensive. From boardrooms, I have seen organisations worry about meeting the demands of environmental and social justice activists, leading to risk aversion in allocating capital. Yet innovation is the most important tool to address many of the challenges of climate change, inequality and social discord.

Pursued by $45tn of investments, using the broadest classification, ESG is weighed down by inconsistent, blurry metrics. Investors and lobbyists use different evaluation standards and goals, which focus on varied issues such as CO2 emissions and diversity. Metrics also depend on business models.

Without a clear, unified compass, companies that measure themselves against today’s standards risk seeming off base once a more consistent regulator-led direction emerges (for example, from worker audits, the COP26 summit and the Paris Club lender nations).

ESG is not without cost and the best hope for long-term success lies with business leaders’ ability to stay attuned to its impact and unintended consequences. For example, while the case for diversity is incontrovertible, efforts at inclusion should account for the possible casualties of positive discrimination.

Furthermore, despite ESG advocates setting a strong and singular direction for governance, organisations have to maintain their operations and value while managing assets and people in a world where cultural and ethical values are far from universal. While laudable, a heightened focus on ethics (such as human rights, environmental concerns, gender and racial parity, data privacy and worker advocacy) places additional stress on global companies.

It is often asked if advocates appreciate that ESG is largely viewed from the west’s narrow and wealthy economic perspective. To be truly sustainable, ESG demands global solutions to global problems. Proposals need to be scalable, exportable and palatable to emerging countries like India and China, or no effort will truly move the needle.

Much of the agenda is too rigid, requires aggressive timelines and lacks the spirit of innovation to achieve long-term societal progress. Stakeholders’ interests differ, so ESG solutions must be nuanced, balanced and trade off speed of implementation against the breadth and depth of change.

Business leaders are aware of the need for greater focus and prioritisation of ESG. We also understand that deadlines can provide important levers for senior managers to spur their organisations into action. After all, in the face of pressure for a solution to the global pandemic, vaccines were produced in months instead of the usual 10 years.

I live at the crossroads of these tensions every day. Raised in Africa, I have lived in energy poverty, and seen how it continues to impede living standards globally. As a board member of a global energy company, I have seen much investment in the energy transition. Yet from my role with a university endowment, I have also been under pressure to divest from energy corporations. 

Business leaders must solve ESG concerns in ways that do not set corporations on a path to failure in the long term. They must have the boldness to adopt a flexible, measured and experimental agenda for lasting change. In this sense, they must push back against the politically led narrative that wants imperfect ESG changes at any cost.



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UAE’s Taqa seeks to shine with solar energy push

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From a distance, the 3.4m panels making up the United Arab Emirates’ largest solar power plant look like a massive lake.

But Noor Abu Dhabi, nestled between camel farms and rolling sand dunes, is no mirage. The 1.2 gigawatt facility — the world’s largest single-site plant — produces enough electricity for around 90,000 homes. Owned by Taqa, an Abu Dhabi state-backed utility, with Japan’s Marubeni and China’s JinkoSolar, it will celebrate its second anniversary of operations this month.

Staff constantly scan for repairs so production can be maximised during daylight hours, while every evening more than 1,400 robotic cleaners wipe the dust from the banks of solar panels to boost efficiency.

Noor and another Taqa project — an even larger 2GW solar plant under construction in Al Dhafra, nearer the capital — are emblematic of the company’s ambitions to recast itself as a force in clean energy.

It has outlined a new sustainable strategy with a goal for renewables to form 30 per cent of its energy mix, compared with 5 per cent now, and plans to boost domestic power capacity from 18GW to 30GW by 2030. It will set itself a carbon emissions target later this year.

“We want to transform Taqa into a power and water low-carbon champion in and outside the United Arab Emirates,” said Jasim Husain Thabet, chief executive of the power provider, which is majority owned by government holding company ADQ and listed on the emirate’s bourse.

Renewable sources account for a small part of the UAE’s energy supply

Taqa’s push into renewables is a key element of the UAE’s ambition to have clean energy form half of its energy mix by 2050, with 44 per cent from sources such as wind and solar and 6 per cent from nuclear power.

Last year, the oil-rich emirate had 2.3GW of renewable energy capacity, or seven per cent of the power production mix, mainly from solar power, according to Rystad Energy, a research firm. It forecasts that the UAE is on track to reach its 44 per cent target by 2050.

Although many Gulf governments have targets to boost solar and wind power, the UAE has been out in front.

The Al Dhafra plant is expected to boast the world’s most competitive solar tariff when complete. The facility, a joint venture with UAE renewable pioneer Masdar, EDF and JinkoPower, plans to power 150,000 homes when it comes online next year, reducing the country’s carbon emissions by the equivalent of taking 720,000 cars off the road.

“This is about being a good citizen,” said Thabet. “But it is also attractive for global investors keen on environmental sustainability, it fits in with our main shareholder’s priorities and brings down financing costs.”

Yet Taqa’s sustainability pitch could fall flat with investors scrutinising environmental concerns.

Taqa has committed to capping production at its overseas oil and gas assets, which span fields in Canada, the North Sea and Iraqi Kurdistan. But although it has not ruled out selling the hydrocarbons assets that it bought during a spending spree in the 2000s, divestment is not imminent.

“If the right opportunity comes we will consider it, but right now our focus is on enhancing operations and reducing emissions,” Thabet said.

The UAE, a leading oil exporter and member of Opec, is also committed to increasing its crude oil capacity in the coming years. The country is working towards reducing greenhouse gas emissions, but still has one of the highest per capita carbon footprints in the world.

But Mohammed Atif, area manager for the Middle East and Africa at DNV, a renewables advisory firm, said the UAE, like other major oil and gas producers such as Norway and the UK, are working for a more sustainable future. 

“Yes, the roots and history of the UAE are grounded in hydrocarbons, but they are aware of the challenge of climate change,” he said. “It is a transition, not a revolution, and that takes time.”

US special presidential envoy for climate John Kerry: ‘There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis’ © WAM/Handout via Reuters

John Kerry, the US special presidential envoy for climate, visited the Noor plant while attending a regional climate change dialogue in Abu Dhabi earlier this month, saying such “incredible energy projects” would “set us on the right path” to achieving the Paris Agreement goals that aim to limit global warming.

“There’s no reason why oil-producing countries cannot also be a key part of tackling the climate crisis,” he said in a tweet. 

At the same time, Taqa is eyeing opportunities to expand in renewables beyond the UAE. Last year it merged with Abu Dhabi Power Corporation, creating an integrated utility company with ADQ owning 98.6 per cent.

The government is expected to increase the free float via a share offering, Thabet said, declining to provide further details.

With exclusive rights to participate in power projects in Abu Dhabi over the next decade, the company is now mulling how to leverage that guaranteed cash flow abroad.

Thabet said the company would focus on projects and investments that burnish its sustainable credentials. It wants to build 15GW of power capacity outside the UAE. The group currently produces 5GW internationally, including 2GW in Morocco.

“We believe in solar and [photovoltaic] projects, so we will focus on that — but if there is an opportunity outside the UAE, such as onshore or offshore wind, then we will explore that,” he said. Taqa would also consider investing in international renewables platforms to reach its targets, he added.



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