Nuclear and Renewables-hydrogen Projects to Pick Up Speed
The authors are analysts of NH Investment & Securities. They can be reached at minjae.lee@nhqv.com and ys.jung@nhqv.com, respectively. -- Ed.
Wholesale electricity prices soaring; needs growing to achieve carbon neutrality and to lessen dependency upon Russian natural gas
Since Russia’s invasion of Ukraine, wholesale baseload electricity has been trading at over US$300/MWh in Germany in line with a steep rise in Russian natural gas import prices. Given the ongoing sanctions of Europe and the US against Russia, natural gas prices are inevitably to continue rising, a development that is to push up wholesale electricity prices across Europe. Under the circumstances, EU countries need to achieve carbon neutrality while at the same time also reducing their dependency upon Russian natural gas. To accomplish such, Germany, Italy and Spain need to expand renewable energy faster and/or resume operations of their nuclear power plants. In the case of the Czech Republic and Poland, their coal-fired power generation portion far exceeds the average for western European countries. As building wind turbines or renewable energy infrastructure is not a feasible option for them due to their geographic location, they need to expand their numbers of nuclear power plants.
To reduce reliance on Russian energy, even if it is cheap
As of 2021, Russia, Norway, the US, and Qatar accounted for 37%, 24%, 5%, and 4%, respectively, of EU countries’ natural gas imports. But, the EU has announced its REPowerEU plans (a joint European action for more affordable, secure and sustainable energy), aiming to reduce its Russian natural gas imports to 100bnm3 (or around 67mn tons) by end-2022. Currently, the Dutch TTF is more than twice as expensive as Japan’s long-term contract prices. If the Russia-Ukraine war ends in the relatively near future, Europe’s natural gas prices would likely in turn slide. But, placing priority on achieving energy independence from Russia, EU countries going forward are to be reluctant to import natural gas from Russia, regardless of price appeal.
Another Chernobyl disaster, or means to secure energy independence?
In Europe, pro-nuclear voices have been gaining stronger ground of late, as the ongoing Russia’s invasion of Ukraine is presenting the risk of disrupted natural gas supply for Europe, which is highly dependent on Russia for its natural gas. At the same time, however, the anti-nuclear power plant camp has been raising their voices as well, pointing out the heightened risk of radiation leakage following both Russia’s occupation of Chernobyl power plant and its attack against the Zaporizhia nuclear plant. Many eastern European countries plan for new nuclear power construction including Poland (6 units, 6,000MW), Czech (4 units, 4,800MW), Bulgaria (3 units, 3,000MW), Hungary (2 units, 2,400MW), and Romania (2 units, 2,160MW). Currently, Russia is the leading exporter of nuclear power plant, constructing 15 nuclear power plants across the world. That said, we believe the ongoing Russia-Ukraine war has turned the global nuclear market landscape more favorable for the US, France, and South Korea.
Green is cheaper than grey
After having ruled the global energy landscape over the past 100 years (based upon its price competitiveness against other energy sources), grey energy is no longer able to enjoy its main competitive advantage (cheap price) in the market. While the cost of generation for green energy has been declining as planned, that for grey energy has been on the rise due to an increasing environmental cost burden. Renewable energy technologies have been fast evolving since the 2010s. Renewables-hydrogen projects should help countries achieve the twin objectives of realizing carbon neutrality and phasing out Russian energy use. A number of countries are pushing ahead with renewables-hydrogen projects, recognizing their significance. For instance, Germany is now predicted to reach its target of 100% renewable power earlier than previously expected, and the UK and Spain are planning to place orders for sizable offshore wind power projects. Accordingly, renewables-hydrogen projects, along with nuclear power projects, are to pick up speed.