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EU: Energy Deregulation May Be Bad News For Nuclear Power

The European Union is moving quickly toward deregulating and privatizing electrical utilities. The move will allow power companies to sell electricity throughout the Union and will give consumers more choice about where they get their power and how much they pay for it. But RFE/RL's Tony Wesolowsky reports the move is just one more piece of bad news for the nuclear power industry, already in decline. Does nuclear energy, with its relatively high costs and risks, have a future if private companies -- not governments -- are paying the bill?

Prague, 1 November 2000 (RFE/RL) -- Imagine picking and choosing an electricity company in much the same way as you buy any other product. It's not as far-fetched as it sounds.

The European Union's Executive Commission estimates that by 2003 third-party utilities will be responsible for about one-third of EU electricity sales. That means, electricity produced in one country could theoretically end up anywhere in the EU.

For EU consumers to have their choice of electricity sources, the Union's markets will have to be liberalized -- that is, opened up to competition. When they are, the days when one state utility dominates its home market will likely be over.

The groundwork for this change has already been laid. In February 1999, all EU states had to implement a Directive on Rules for the Internal Market in Electricity -- the blueprint for energy-market liberalization.

In this newly evolving European energy equation, the nuclear energy lobby is nervously asking where it fits in. The nuclear-power industry is already in decline. In 1996, there were 421 commercial nuclear power plants in operation worldwide, that's 10 fewer than there were at the industry's peak in 1988.

In Europe, 10 countries have built nuclear power plants. But Austria and Italy closed theirs after referenda turned them down. Spain abandoned work on several unfinished reactors in the 1980s. Sweden and Germany are now committed to phasing out nuclear power. The Netherlands and Switzerland are likely to follow suit. Only France and Finland seem eager to pursue nuclear energy.

Most of the nuclear nay-saying nations opted out after Ukraine's Chornobyl nuclear accident in 1986 and a minor accident in 1979 at a reactor -- Three Mile Island -- in the U.S. state of Pennsylvania, which raised safety and environmental concerns among the public.

There were also financial doubts about nuclear power -- specifically, that it's expensive. Costs of building a reactor average about $2 billion. There are other large costs involving nuclear waste storage and decommissioning a plant. Last year, the French state auditor estimated it would cost some $115 billion to decommission the country's 54 nuclear reactors. Add market liberalization to this expensive mix, and the prospects for nuclear energy look even more bleak.

Steve Thomas is a nuclear researcher at England's Sussex University. He says:

"I think the overwhelming reason that nuclear power plants don't do well in liberalized markets has to do simply with economics. In a monopoly situation, the traditional situation in the past, an electricity utility is guaranteed to have its costs covered. Whatever costs it incurs it can pass on to its final customers. So while in general they probably weren't looking for the lowest cost solution, if they didn't get it, it didn't really matter to them because they knew in the long run they'd get their money back, and they wouldn't have to compete with anybody else."

Thomas explains that opening up the market introduces a whole new set of rules.

"If you move into a competitive situation, then the companies no longer have the guarantee they can get their money back from consumers if their plant breaks down. Or, if it's late being built, then the market will go to one of their competitors, and if they're not the cheapest supplier of electricity in the market, they'll lose their market share. So from being a very safe business, at least as far as the owners of the utilities were concerned, the electric utility business becomes a very risk business."

In the early 1990s, the nuclear industry viewed the former East bloc as a potential market for new reactor construction. Today, however, those hopes remain largely unfulfilled. Outside of the Temelin nuclear reactor in the Czech Republic -- recently put online -- and perhaps two new reactors in Ukraine, there are no plans now to build or complete any further reactors in the region.

David Kyd is a spokesman for the UN-affiliated nuclear monitor, the International Atomic Energy Agency, or IAEA. He says one of the reasons for the failure of nuclear industry in Central and Eastern Europe can be chalked up to the new economics being ushered in by energy market liberalization.

"Economics, largely. Economics today in liberalizing electricity markets or in countries that are hungry for electricity fast and at the lowest possible price --- they are going for gas, they are going for more coal burning, they are going for something that gives a quick return. The fact of life in nuclear [energy] is that you need something of the order of seven years between a decision [to build a plant] and the electricity being available, and that's a long time. You also need up front as much as $2 billion per unit and that is very, very challenging to any country -- whereas for a gas plant, within two years you're up and running and it costs a fraction of that."

British analyst Thomas notes Central and Eastern European countries wishing to join the EU will have to abide by the 1999 directive on energy market liberalization, which makes nuclear energy an even less attractive option.

"Now we're seeing countries, particularly in Eastern Europe, looking to become members of the European Union, and one of the conditions for them to join the European Union will be that they will comply with the Union's electricity directive, which requires them to liberalize their markets for electricity -- mainly by privatizing -- by opening up markets in general to competition. So we have the same problems that have hit the nuclear industry in the West beginning to apply to Eastern Europe and there will be strong disincentives to choose nuclear technology over much cheaper and much less risky technologies such as gas technologies."

Thomas and Kyd agree that gas could come to play an even greater role in meeting future energy needs. In Paris on Monday (Oct 30), at an EU-Russia summit, President Vladimir Putin discussed with the Union's 15 leaders increasing energy supplies from Russia, especially natural gas. Russia holds the world's biggest gas deposits.

But for the moment, don't count out nuclear energy either in Eastern or Western Europe. Thomas admits governments won't rush to decommission nuclear power plants now operating because they are worried that energy replacements will mean greater immediate use of fossil-fuels, and that will make it hard to meet Kyoto environmental targets on lowering emissions of carbon dioxide gases.

In addition, for countries in Central Europe -- especially Ukraine, Lithuania, Slovakia, Romania, and the Czech Republic -- emerging liberalized energy markets may turn their existing nuclear plants into lucrative enterprises. That will make it harder to close them down, at least in the short term.

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    Tony Wesolowsky

    Tony Wesolowsky is a senior correspondent for RFE/RL in Prague, covering Belarus, Ukraine, Russia, and Central Europe, as well as energy issues. His work has also appeared in The Philadelphia Inquirer, the Christian Science Monitor, and the Bulletin Of The Atomic Scientists.