Most people thinking about energy policy in Europe tend to focus on the renewable power the continent generates. While it is certainly true that many European countries have made enormous strides in renewable energy generation, there is another fuel source that is unusually important in many European countries compared to the rest of the world; nuclear power.
Sweden is a prime example of this. The country generates almost 35 percent of its electricity from nuclear power – just shy of the amount that it generates from all renewable sources combined. It was big news and more than a little surprising then when Swedish utility company Vattenfall announced earlier this year it was closing its Ringhals 1 and 2 nuclear reactors.
Combined, the Ringhals reactors generated 9.8 terawatts-hours of electricity in 2014 versus 11.6 terawatt-hours produced by all of the wind turbines in Sweden combined. The shut-down is a big deal in the Nordic country and led long term whole power futures to rise by roughly 4 percent. Related: Could The ‘Fusion Engine’ Become a Reality Before 2020?
The company shut down the reactors in response to a combination of relatively low wholesale power prices and the announcement by the Swedish government that taxes on nuclear power would increase starting in August. Nuclear power is in fact one of the cleanest power sources on earth, and given the production costs required to make enough solar panels or wind turbines to offset the loss of a single nuclear plant, one could make a credible argument that nuclear power is a greener technology than conventional renewables.
The shutdown of nuclear reactors can even lead to more carbon emissions and of course higher electricity prices as supply of wholesale electricity declines and remaining conventional fossil fuel plants find that it is more profitable to ramp up output. Related: Why Today’s Oil Bust Is Not Like The 1980s
That issue aside though, Vattenhall’s decision highlights an under-the-radar industry disruption taking place around the world. Sweden has been a bit dubious of nuclear power for decades, but the current shutdown is an economic decision as much as a political one. As governments around the world have opted to subsidize renewable power while taxing other forms of power, renewable supplies have increased. This supply increase in turn has pushed down wholesale power prices, which has led to lower profits for conventional utility companies. Then as renewable use has expanded, production costs have fallen dramatically leading to still more investment in renewables, greater supply of wholesale electricity, and even more pain for utility companies.
The result has been wholesale electrical prices that have actually briefly gone negative – power plants have had to pay the market to take power off their hands, albeit for brief periods. Utilities lost a staggering half a trillion euros in market cap value between 2008 and 2013, and for anyone who is paying attention, it is clear that the utility business model is changing radically. Related: How To Profit From Crashing Oil Markets
Utilities have massive upfront costs in infrastructure to develop their power plants. These plants and the thousands of jobs they support in every city around the globe are a critical part of the economic puzzle. But what happens if those plants are no longer profitable to operate? What happens if a work force that has spent decades training to do a specific type of work suddenly finds those skills obsolete? These are important questions society has to answer, and the world might want to look at a Sweden as a canary in the coal mine for answers and lessons.
By Michael McDonald of Oilprice.com
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