
Energy Transition — High Gas Prices Strengthen Case for Nuclear
- Article
The September spike in European gas prices (to six times April’s level) has caused shockwaves throughout the energy sector. Over a dozen UK utilities have already gone bankrupt (e.g. Avro Energy, People’s Energy) with more expected, and consumer and industrial electricity prices are rapidly rising. Beyond energy, the security of the food supply and home heating have all been affected.
Global prices have similarly been rising across major APAC and US hubs, driven by both the energy transition and gas-specific factors. The broader energy transition is increasing demand for gas in the short term, driven by:
Gas-specific issues have compounded this, including:
Governments are trying to implement a range of short-term policies to blunt the impact of volatility, but this spike has elevated longer-term questions regarding the resilience and sustainability of transitioning electricity networks that are almost entirely reliant on gas for balancing renewable supply.
Increasing renewable penetration will help diversify many countries’ sources of electricity, combat climate change and provide low-cost electricity (excluding storage and grid stabilisation costs). However, in isolation, renewables cannot substitute for gas in the grid:
As a result, renewables impose a cost of uncertainty on the grid at a system level and cannot directly substitute for gas.
Of the three options, only nuclear can meet both the requirement to manage (longer-term) intermittency and deliver clean electricity.
Deploying the right set of generation technologies (rather than just renewables) to support the transition to net zero materially reduces the required level of capacity buildout (and hence cost) whilst scaling up the ability to manage intermittent renewables. Over the medium term, nuclear will be essentially the only clean, dispatchable generation technology that minimises the cost of the transition.
The development of SMRs uses a fundamentally proven technology and addresses the long-standing problems with traditional large nuclear reactors: bespoke construction projects that usually experience enormous cost and schedule overruns. SMRs create a clear set of benefits for the utilities that manage the grid. Specifically, SMRs should:
SMRs also have an important role to play off grid where there is substantial demand for dispatchable power; for example:
Obviously, the successful development and deployment of SMRs is not without risk and requires significant funding. The recent announcements by Rolls-Royce and the UK government are very welcome and encouraging in accelerating the development of this critical technology. Now is the time for new countries and companies to capture a significant economic prize.
This article was written by John Goddard, Senior Partner in L.E.K.’s Industrial practice and Vice-Chair of Sustainability, having founded the L.E.K. Sustainability Centre of Excellence, with Philip Meier, Senior Principal, and Luke Samuel, Manager in L.E.K.’s Industrial practice.