The looming nordic energy crisis (Rauli Partanen, euanmearns dot com)

Link: http://euanmearns.com/the-looming-nordic-energy-crisis/#more-12970

The looming Nordic energy crisis

by Rauli Partanen March 21, 2016 Guest Post by Rauli Partanen who is an independent author and communicator on energy and its role in the environment and modern society. Originally written in Finnish for Energia. English translation first published on Energy Post.

Nuclear power in Sweden has become uneconomical. Wholesale prices of electricity in Sweden have been much lower than the breakeven price for nuclear generation. Electricity has been sold at a record low price of €20 per megawatt hour (MWh), while the cost of generating nuclear power has been in the same ballpark, or even slightly higher. In addition, the Swedish government has set a tax on nuclear power, which has been steadily rising. After the latest hike, it amounts to about a third of the wholesale price, roughly €7 per MWh. The publicly owned utility Vattenfall, which owns and operates seven reactors in Sweden, announced recently that if the government does not remove the nuclear tax, it would close down all of its reactors by 2020. This, in addition to the earlier announcements by the German utility Uniper (the company was created when E.On split its business; Uniper got the nuclear and fossil fuels part) to close down two of its three reactors prematurely, would mean a massive loss of generating capacity in Sweden and in the common Nordic electricity market. The ramifications would be huge.

How did this situation arise? To put it frankly, Swedish energy policy has been messy when it comes to nuclear power. After the oil crises in the 1970s Sweden moved away from fossil-based electricity production with record speed. In addition to its existing hydropower fleet, the country built twelve nuclear reactors, commissioned between 1972 and 1985. Their total capacity was over ten gigawatts, but three plants have since been closed: Barsebäck 1 (600 MW) in 1999, Barsebäck 2 (600 MW) in 2005 and Oskarshamn 2 (638 MW) in 2015. The current operational capacity is around 9000 MW. Nuclear power has produced between 40 and 50 percent of Sweden’s electricity.

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This combination gave Sweden one of the cleanest, most affordable and secure electricity grids in any industrialized country. The average carbon emissions per kWh of electricity produced have been roughly 20 grams. The nuclear power plants produce at around 5 gCO2/kWh. If the world’s energy would be produced as cleanly as Swedish electricity, the climate change problem would be well on its way to be solved. Consider for example that the carbon balance of electricity in Germany, which arguably has the most ambitious and radical energy and climate policy today, is many times higher at roughly 500 gCO2/kWh. Possibly the Swedes have been taking their clean and affordable electricity system for granted. Even before the last reactors were started up and connected to the grid, Swedish nuclear energy policy made a U-turn. After the Three Mile Island nuclear accident happened in the United States in 1979, the Swedes decided they needed to close down their nuclear fleet by 2010. This killed the future prospects of nuclear power in Sweden, although little was actually done to replace the nuclear fleet with anything.

With all four older reactors announced for closing by 2020, more than 2,500 MW of capacity will be lost. That is roughly equal to the total capacity of the Finnish nuclear fleet.

Then, when it came to the crunch in 2010, Sweden made another U-turn, allowing nuclear power to be maintained after 2010 and even making it legal to build new nuclear reactors, as long as they replaced the existing aging reactors. But a lot of damage had been done by this time. The fact that the political order had declared nuclear power “obsolete in a few decades”, darkened the prospects of the sector considerably.

Insidious problem In the 1990s, the Swedish government passed a tax on nuclear power, in anticipation of the shutdown. It was roughly €3 per MWh in the beginning, but after numerous hikes it is now over €7, accounting for roughly a quarter of the production costs of nuclear energy. The government collects around half a billion euros from the tax annually. The combination of this tax and record-low prices of electricity have seen to it that no new reactors have been seriously proposed in recent years. Even the planned upgrades to existing reactors have been largely forgotten, since the reactors are likely to be shut down way before their licences expire.

The tax is only a part of the problem. The deeper and more insidious problem are crashing electricity prices throughout Sweden, the Nordic market and even much of the Western Europe. There are several reasons for this, of which the most prominent ones include:

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The economic slowdown since 2008 and the accompanying European-wide reduction in demand for electricity.  The increase of especially wind power in the Nordic market, made possible by pricepremiums and tariffs.  The continuing trend of industry moving out of Europe’s shrinking markets to other countries with cheaper labour, growing markets and laxer environmental regulation.  The low carbon prices in the European emission trading scheme (ETS), partly a result of the three other factors.

As a result, electricity spot prices in Sweden have been around €20 per MWh for some time. Even without the nuclear tax, this is lower than the total production costs of nuclear. 

Shutdown The Swedish utilities face another challenges in addition to low prices and taxes. The Swedish law on nuclear safety requires reactors to be fitted with what is called an independent core cooler to improve their safety in the event of a Fukushima-style accident. These improvements need to be in place by 2020. This means investment decisions have to be made soon, during 2016 in most cases. Since the planned operating life of some of the older reactors ends in the early 2020s, it is not worth investing in new safety measures unless they obtain extensions to their planned lifetime.

The closures already decided upon – 2,500 MW in total – would mean Sweden would not be a net exporter anymore. Sweden could become a net importer.

Both Vattenfall and OKG, which is majority owned by German Uniper and minority owned by Finnish Fortum, announced in 2015 that they will close down the older reactors before 2020. These include Ringhals 1 and 2 (Vattenfall) and Oskarshamn 1 and 2 (OKG). The planned 50 year operating lives of these reactors will end by mid2020. Until recently the owners were planning extensive maintenance projects and upgrades to extend the lives to 60 years.

Now the situation has turned completely on its head. Oskarshamn-2 was already undergoing significant repairs and maintenance aimed at extending its operation to 60 years and having spent roughly €1 billion on them, when the operations were stopped in mid-2015, with a later decision to never start up the reactor again. Fortum, the minority-owner, was firmly against this, but Uniper did not budge. With all four older reactors announced for closing by 2020, more than 2,500 MW of capacity will be lost.

That is roughly equal to the total capacity of the Finnish nuclear fleet currently.

And it did not end there. In early 2016, Vattenfall announced that if the Swedish government does not remove the nuclear tax, it will prematurely close down its remaining five reactors as well. These include Ringhals 3 and 4 and Forsmark 1, 2 and 3. page 3

All of these reactors currently have 60 year planned operating lives extending to the early 2040s. They would, however, also need the independent core coolers to be installed by 2020. Closing these reactors down would remove roughly 5,000 MW of capacity.

Subsequently, Uniper recently announced that it is considering closing down the last remaining, biggest and most modern (along with its twin-unit Forsmark 3) nuclear reactor in Sweden, Oskarshamn-3, if the situation does not change. This would bring the closures to around 9,000 MW. This is almost equal to Finland’s average electricity consumption, and equal to twice the electricity Denmark uses, 34 TWh, in a year.

Capacity void So what would be the result of a Swedish nuclear shutdown in terms of grid balance?

Sweden is a net exporter of electricity. Depending on available hydropower, Sweden exports between 10-20 TWh of electricity annually. This corresponds to roughly 1,2002,500 MW of constant power being exported. Most of this ends up in Finland. The closures already decided upon – 2,500 MW in total – would mean Sweden would not be a net exporter anymore, and Finland would have to find its imports from somewhere else. It could even mean Sweden would become a net-importer, depending on the spare, largely unused capacity Sweden currently has.

Imports could be increased from Poland, the Baltic countries, Germany, Russia through Finland and a few other places. Most of these countries have dirty or very dirty electricity mixes.

If the other reactors – 5,000MW – are also shut down, there would be a huge capacity void in the Nordic power market, and Sweden would become a big electricity importer in a very short time. Especially during low wind productivity and during cold spells in winter, Sweden would need to import large amounts of electricity. During these times, however, Sweden’s neighbours would also need a lot of electricity. The likely sources for these additional imports would be mainland Europe.

Finland would have to rely on its eastern neighbours for maximum imports (interconnection capacity to the east is 1,400 MW). During higher demand, even these imports might not be enough.

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What could be done to replace the nuclear capacity at risk? There will be one nuclear reactor – Olkiluoto 3 in Finland – coming online before 2020 at a capacity of 1,600 MW. In addition, Finland will likely build another 1,300 MW of wind power, with perhaps similar additions from Sweden. Sweden and Norway have had a common electricity certificate program, which has a goal of building 20 TWh worth of wind power. This equals to about a third of what the nuclear fleet now produces.

Sweden’s lobbying organization for wind power has written that it thinks Swedish nuclear can be replaced by building many times more wind power than Sweden has now, and by dealing with peak hours and low winds by building gas turbines. This amount of wind would be hugely uneconomical to build. The gas turbines could also cost billions of euros, and they would be running only a few hours during the year, making them monumentally bad investments. At current market conditions, nobody would build either of these without very generous subsidies from the government.

The current supposedly market based system mixed with government subsidies and arbitrary taxes is proving to be a failure.

Since the grid needs dispatchable power, the role of wind power will be limited unless similar increases in energy storage can be realised. The most realistic replacements for nuclear in addition to wind power are hydropower (mainly upgrading current plants) and burning wood, peat, natural gas and coal. It should be remarked, however, that none of these energy sources will be economical to build on their own in the current situation. Finland has already made a decision to give up coal in the 2020s. At the same time, Sweden is talking of dismantling some of its hydro power to restore river biodiversity.

Imports could be increased from Poland, the Baltic countries, Germany, Russia through Finland and a few other places. Most of these countries have dirty or very dirty electricity mixes, and increasing imports from them will mean that this extra power will be produced at marginal cost, most likely by burning coal. So while the imported page 5

electricity would in theory have the “average” grid carbon content of the exporting country, in reality the addition would come from burning coal with a carbon balance of 800-1,000 gCO2/kWh. As this will happen outside Sweden, these emissions might be ignored in the Swedish discussion. Out of sight, out of mind.

Rising emissions Let’s look in more detail at what the implications might be of a Swedish nuclear phaseout for greenhouse gas emissions The Swedish nuclear fleet would produce more than 900 TWh of clean electricity during its current, licensed lifetime with a carbon burden of roughly 20 gCO2/kWh. Here are three simplified scenarios of what could happen if the nuclear energy is replaced with various energy mixes.

Scenario 1 – Mostly clean at 200 gCO2/kWh In the most optimistic scenario, most of the alternative energy would be low-carbon, with very little imports from Poland or the Baltic countries. The electricity in Finland has a carbon balance of around 100 gCO2/kWh on average. Replacing Swedish nuclear with a mix that has 200 gCO2/kWh (only slightly lower than the median carbon balance of biomass, 230 gCO2/kWh, according to the IPCC) would increase the carbon burden manifold. Over 180 million tons of extra carbon dioxide would be released into the atmosphere during the remaining lifetime of the nuclear reactors that were shut down.

This equals to three years of Finland’s total emissions, from all sectors.

Scenario 2 – Clean power and something else If roughly one half of the production would be replaced with other clean production, like wind and hydro, and the other half with natural gas, biomass and some coal-fired imports, we get an average carbon balance of roughly 350 gCO2/kWh. This is over ten times higher than Sweden’s current electricity has, and it would increase the average carbon balance for the grid many times over. It would result in 330 million tons of added emissions, which equals to almost six years of Finland’s total emissions.

Scenario 3 – Natural gas equivalent If the alternative energy would have a similar carbon balance as the German grid, 500 gCO2/kWh, equal to the emissions of gas-fired power, it would increase the carbon balance of the grid by more than ten times. This would be a likely result if much of the power would need to be imported (although imports would not show in Sweden’s carbon balance). It would result in over 450 million tons of added emissions, equalling 7.5 years of total Finnish emissions.

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Rising prices Losing a large amount of low-cost baseload capacity will also lead to higher prices and more frequent price spikes. Imports would increase, and some old thermal power plants would be restarted, with possible investments needed to increase the maximum power of current generation capacity. The timeframe of five years is rather short for any big investments. If production can’t meet normal demand, plants that provide reserve power will be started up. These have a very limited total capacity however, and the costs are high.

Affordable electricity has been one of the important factors in the competitiveness of Nordic industry. In this new situation, those affordable prices could disappear too fast for industry to be able to accommodate.

In the longer run, new capacity will get built. The options for clean energy production are limited, so most capacity would tend to be thermal power or imports. This could bring average electricity prices much closer to the prices of near ₏100/MWh during the recent cold spell in January, when Finland had to import a lot of electricity from Estonia’s dirty power plants.

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If the shutdowns are realized fully, grid operators may need to require some industry to shut down during peak demand hours. This would carry a high price in two ways. First, the high price of electricity that would precede this situation would in itself strike a blow to both industry and domestic electricity users. When factories need to be paid to shut down production and send workers home, the situation has become serious indeed. This would be done mainly in order to keep the grid stable. Secondly, the productivity of national industry would be impacted.

Affordable electricity has been one of the important factors in the competitiveness of Nordic industry. In this new situation, those affordable prices could disappear too fast for industry to be able to accommodate. At the same time, household energy bills would go up, reducing their spending elsewhere.

Is there something we could do?

What could be done to avoid this outcome? The utilities in Sweden want to get rid of the nuclear tax. Political decisions would need to be made quickly, preferably during first half of 2016. There may be other possible solutions, but the schedule is quite tight for any major market reforms. Those reforms are, however, also direly needed. The current supposedly market based system mixed with government subsidies and arbitrary taxes is proving to be a failure.

Sweden has just announced that it aims to be world leader in decarbonization, and wants its energy sector to be carbon-neutral by 2050 or even earlier. Shutting down thousands of megawatts of low-carbon power will cost Sweden decades of hard work in this decarbonization project. Both the energy companies as well as the politicians involved need to weigh the situation carefully and negotiate with care and cool heads.

Editor’s Note Rauli Partanen (@kaikenhuippu, @Climate_Gamble, raulipartanen@gmail.com) is an independent author and communicator on energy and its role in the environment and modern society. He is the main author of Climate Gamble – Is Anti-Nuclear Activism Endangering Our Future? (with co-author Janne M. Korhonen, published in 2015) and The World After Cheap Oil (with co-authors Harri Paloheimo and Heikki Waris, published by Routledge in 2015). He is also co-founder and vice chair of Ecomodernist Society of Finland, a new environmental NGO.

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