Gabrielle Finger, Storegga, Houston, TX.
Stephanie B. Fishman, Senior Associate, Hogan Lovells, Washington, DC.
Greg Hammond, Partner, Pillsbury, London, UK.
Amy C. Roma, Partner, Hogan Lovells, Washington, DC.
Christopher Russo, Vice President, Charles River Associates, Boston, MA.
Frédéric Gilles Sourgens, James McCulloch Chair in Energy Law & Faculty Director, Tulane Energy Law & Policy Center
Nuclear energy has certainly had its stops and starts over the years. Nuclear historically has experienced a renaissance when key commodities like oil and gas go through a cycle of distinct economic or geopolitical volatility. Yet, when the energy cycle returns to normalcy, nuclear projects are frequently abandoned as their perceived need abates. Perhaps the best example of this cycle was the Western response to the oil shocks of the 1970s. Nuclear, then too, was seen as part of the answer. Yet, many nuclear projects were abandoned in the coming decade as public sentiment regarding nuclear energy shifted (in part due to Chernobyl) and cost overruns – some related to new safety measures – became the norm.
The last nuclear renaissance in North American and European markets was around fifteen years ago, between 2005-2010, when conventional wisdom was that carbon would be priced, and before the development of fracking technology (and its attendant cheap natural gas). So this begs the question – what’s different this time? After all, many of the drivers favoring nuclear energy seem to look the same as before. For example, the expansion of the Chinese nuclear fleet may well be a response to energy security concerns relating to the availability of gas. Still, the environmental concerns surrounding the nuclear industry in the West have hardly gone away since the 1980s. To the contrary, following the Fukushima Daiichi disaster additional jurisdictions have since pulled out of nuclear energy. Why then should we think that nuclear energy this time around may have more staying power than last time? Why should we think that it will be part of the solution to our energy problems? Why should international energy negotiators seriously concern themselves with nuclear?
To come straight to the point, nuclear energy has more going for it today than it has done at points past because the factors supporting its deployment have increased significantly. In the past, the main driver behind nuclear energy was energy security. Today, what is driving nuclear energy is not just energy security, but rather a more comprehensive need to address demand growth from data centers and economic activity, to facilitate greater amounts of intermittent generation, climate change concerns, and electrification of transportation and heating. Energy systems tend to work best when there is a robust energy mix supplying energy demand. With the growing global demand for reliable energy, we need to deploy more energy – thus a more diverse portfolio of energy sources should be considered. Nuclear is additive to that portfolio of energy sources.
Interestingly and often overlooked is the fact that nuclear energy is the only current technology (viable at large scale) with controllable (or “dispatchable”) output. Renewable energy, meaning wind and solar, has made significant progress over the years to become an ever-larger share of the energy mix. Such resources though, don’t provide power when the sun doesn’t shine or wind doesn’t blow, and large-scale storage technology is not here. While natural gas is often the fuel of choice for baseload generation today, nuclear is the only large technology that provides baseload power that is carbon free and can complement intermittent generation. In light of the growing baseload need, diversification to nuclear there is a reasonable alternative.
In addition, nuclear energy also provides an answer to climate mitigation concerns. Nuclear energy is critical to help decarbonize incumbent energy systems. This particularly apparent in projects that hope to remove CO2 in low concentrations from ambient air at scale. Such removal is necessary in light of the fact that the world is likely to have exceeded temperature goals set out in international climate instruments with only the greenhouse gases in the atmosphere today – these gases have an ability to increase warming over time beyond what we have experienced already. This means we must remove CO2 stock and not just flow, as well as reduce CO2 flow. This process is highly energy intensive. It will need abundant net carbon neutral energy to deploy. Nuclear energy is again ready made for the task.
Similarly, incumbent energy systems will need to decarbonize their operations in order to make the lift of emission reductions more readily bearable for industry stakeholders. Carbon capture throughout the energy value chain, doesn’t force a single point of reduction, thus making the emissions reduction process easier /simpler on the industry stakeholders. This means that the production and processing of oil and gas will also need to switch to carbon neutral generation – including critically nuclear.
Each value in the traditional energy trilemma – the need to increase energy security, affordable energy access, and energy sustainability – in principle point towards the deployment of more nuclear. That has not been the case before. This alone would provide a good reason to think that nuclear will make an important impact of global energy systems.
There is an important additional factor. Nuclear energy is also becoming more cost efficient due to the innovation in the reduced size of reactors and the growing ability to construct a supply chain of reactors, thus reducing per unit cost. A previous challenge for nuclear power was that the “learning curve” could not be realized and applied forward as each reactor was nearly a new design, bringing with it the loss of economies of scale and cost. Reactors that can be “certified as they leave the factory” promise improved prospect for the industry. Small modular reactors and micro reactors are becoming a realistic technological option that can be deployed to decarbonize any energy intensive process. This means that the technology is in principle becoming more efficient and able to better deliver energy generation at the time that generation is needed, as opposed to doing so with years of delay.
The changes in nuclear technology does more than just make reactors less expensive to produce. It also makes them safer. Many new reactor models have significant ‘passive’ safety mechanisms. These passive safety mechanisms mean that the kind of nuclear accidents seared in the public consciousness will not happen in the same way again. The Fukushima reactor ultimately required external power to run its cooling system. It was thus ultimately an active safety system. It failed when it lost power following a heavy earthquake and tsunami. New reactors – including small reactors – can rely on passive safety mechanisms (such as for example liquid sodium coolant) that do not require external power to prevent a similar disaster. This technology in principle therefore is not only less expensive to deploy, but also imminently safer. This is an important change in technology that in its own right alters the trajectory of the current moment of renewed interest in nuclear energy.
In fact, a growing number of different interest groups, from energy companies to data companies, are actively looking at nuclear deployment outside of the traditional grid-based application for nuclear energy. This suggests that a new paradigm is emerging in which there are a small number of large energy consumers (mainly tech firms) who can bear the costs and financial risks of nuclear development. Energy industry stakeholders agree that nuclear power is required to decarbonize energy systems and deliver needed and secure energy for the global energy system to function efficiently and effectively. We will need nuclear in many different scales and applications if we hope to meet tomorrow’s projected energy needs. This means we need to be ready to increase the proportion of nuclear in the global energy mix – and change our appreciation of how and where nuclear energy will be deployed.
These changes mean that energy negotiators and energy lawyers need to be ready to address one of the key remaining problems in the way of an increase in scale of deployment of nuclear energy: we must manage and assign the risk in a manner that is acceptable to the sponsors, financing institutions, and regulators involved in nuclear projects. A fundamental challenge at the nexus of nuclear power and development is often the allocation of risk between ratepayers, private capital and taxpayers. We need to understand and standardize the basic commercial structure of small modular reactor deployment to bring the benefit of modularization to the structuring of nuclear projects and not just to nuclear engineering.
The Association of International Energy Negotiators (AIEN) has stood up a taskforce to do just that. Part of the New Energies Initiative of the AIEN, the Nuclear Taskforce is examining nuclear risk mitigate through greater predictability of contractual risk assignments. The first step in this process is to understand who ultimately bears the risk of nuclear operations. The Taskforce will be publishing a White Paper on this liability question, then turning its attention to the ultimate nuclear liability risk from a regulatory perspective, and understanding and streamlining how contracting can appropriately share the risks and rewards of nuclear projects up and down the value chain. Therefore, the Task Force is constructing a contract map of all the agreements and all the stakeholders, highlighting the various relationships and liability risk points for the successful contractual development of a nuclear project.
The Taskforce is currently engaging in this contract mapping task. Its work so far suggests that such a map can be drawn with sufficient precision to assist in commercial structuring that will help to deploy the promise of nuclear energy as efficiently as possible. With this deployment comes the ability to reap the benefits of nuclear at just the right time. This in turn will help change the dynamics in nuclear’s next moment in the sun.
This paper represents the research and views of the author(s). It should not be construed as legal or investment advice. It does not necessarily represent the views of the Association of International Energy Negotiators, Charles River Associates, Hogan Lovells, Pillsbury, Storegga, or the Tulane Energy Law & Policy Center. The piece may be subject to further revision.
