Market Analysis

Market Analysis May2021 - Nuclear Power - No Thanks!

This somewhat time-worn slogan from the 1970s and 1980s is well known even outside Germany, but you hardly ever see or hear it anymore - least of all in Germany after the government decided to phase out nuclear power in the wake of the disaster at the Fukushima Daiichi nuclear reactor in Japan in 2011. This incident also brought the global expansion of nuclear power to a virtual standstill. Yet, despite all the latest developments and talk about climate protection in Germany and abroad, there is reason to be concerned that the use of nuclear fission as a low-carbon energy source may not be over yet. The successful constitutional complaint against the German government's short-sighted climate protection efforts has forced policy makers to make rapid improvements to their plans in recent weeks. This has occurred at a speed no one had previously thought possible. All that is lacking are concepts for concrete implementation and to flesh out the concepts already on the table. There is a fear that in the years ahead some politicians in Germany and elsewhere will lack the creativity to present anything other than good old nuclear energy as the best, or only, solution that can be implemented in enough time to make a difference.

"Renewable energy sources are too unreliable because they depend on the weather; existing storage technologies are too expensive; public subsidies for them are a drag on the national economy." This is the eternal refrain that we constantly hear from conservatives. Meanwhile, the use of solar energy is demonstrably the most economical form of energy generation, and storage technologies are getting less and less expensive. Yet, we have to put this statement into perspective against the backdrop of the present state of affairs. Unfortunately, we are still struggling with a shortage of materials across the board, starting with polysilicon for solar cell production, extending to various precious metals and extending all the way to glass and aluminum for module production. Added to this is a shortage of components for inverters, steel for substructures and copper for solar cables. To make matters worse, freight rates from China are rising on an almost daily basis. All of these factors are currently causing module prices and the overall cost of PV systems to skyrocket. So, are the doubters right? Is solar energy too expensive?

Well, we are clearly dealing with the aftermath of the global pandemic. On the one hand production was ramped down, at least for a short time due to Covid-19 and international shipping traffic was reduced and in some cases stopped altogether. On the other hand, however, environmental awareness among the population has increased and with it the demand for photovoltaics, especially in the small-scale sector. The negative effects of the pandemic will be short-lived, however. By the new year, the situation should be back to normal. With a very turbulent year-and-a-half behind us, no one wants to make any real predictions for the future but a turnaround by the spring of 2022 at the latest is a realistic possibility. Until then, it will be a matter of persevering and fighting for availability and supply volumes, renegotiating with customers, and building projects where the price does not depend on the last cent.

What exactly has happened that is causing concern?

Following a constitutional complaint by climate activists, including those from the Fridays For Future movement, the Federal Constitutional Court declared parts of the Climate Protection Act, which had only recently been passed by the German government, to be unconstitutional for its failure to provide sufficient emission reductions from 2031 onwards to achieve climate neutrality. According to the ruling, future generations must not be left with a situation that restricts their freedoms and fundamental rights, but rather, burdens must be distributed fairly. The response by the government parties was swift, probably with a view to the upcoming election campaign. Instead of achieving climate neutrality by 2050, Germany is now set to be climate-neutral by 2045, and the target for greenhouse gas reduction by 2030 has been bumped up from 55 to 65 percent. Climate experts warn that these targets are still not enough to limit global warming to 1.5 degrees Celsius, yet some industry representatives are already saying that all this will be far too expensive and will deal a mortal blow to Germany as a commercial location - same old song.

In connection with the gradual decommissioning of all Germany's nuclear power plants, there has been repeated talk of an expected "electricity gap" that cannot be filled with renewables, but only with natural gas. Will German Minister of Economics Peter Altmaier now abandon his natural gas strategy after the Karlsruhe ruling? In any case, all reduction scenarios include some mention of greenhouse gas sequestration and storage; that is, technical or natural processes to remove CO2 from the atmosphere and permanently store it. After all, the climate law uses the misleading term "climate neutrality" and not "zero emissions" or "100% renewable energy generation." But we are being led to believe that there are offsetting options which on closer inspection prove to be unrealistic. Climate change is already killing off forests faster than they can be planted and grown. And the technical removal of carbon from the air with subsequent storage in underground reservoirs, so-called CO2 sequestration, is neither safe nor energetically feasible.

The success of the German climate movement in demanding more ambitious climate targets will probably inspire imitators around the world to file similar lawsuits in their countries, which in principle is a positive thing. In my opinion, however, there is a great danger that nuclear power will be presented to us as a stopgap solution. But it is conceivable and likely that a constitutional appeal will also be filed if nuclear expansion plans are revived, since the radioactive nuclear waste that will inevitably be produced also represents a burden that cannot be imposed on future generations without further consideration. In this respect, the court ruling points the way forward in many respects.

Are we nevertheless threatened with a renaissance of nuclear power?

First of all, it should be said that even with the latest technology, nuclear reactors are never a hundred percent safe, as the accident at the Fukushima nuclear power plant clearly demonstrates. Even the Russian reactor in Chernobyl, which was built just two years before the disaster, was the most modern reactor available in the 1980s. However, the technicians on site could not control it and allowed a test, which was harmless in itself, to go off the rails. Thus, human error caused a disaster of unimaginable proportions. Such a destroyed power plant must be heavily secured and guarded for many hundreds of thousands of years. But even now these two destroyed reactors are threatening to cause problems again. From Chernobyl, worrying incidents in the bowels of the containment structure created around the plant are being reported, and in Fukushima, too, the release of massive quantities of contaminated cooling water into the sea threatens to unleash another environmental catastrophe. Is there any justification at all for risking another such incident? The immediate benefit of nuclear power is out of all proportion to the damage caused by a single accident.

On the other hand, sun and wind have been used to generate energy for more than 30 years without any major incidents. When these power plants are decommissioned, only valuable raw materials remain, which can be recycled increasingly well. It is true that there are sometimes protests from local residents who feel inconvenienced primarily by the close proximity of wind farms. Compared to nuclear power, however, these are comparatively new technologies. Continuous refinements will probably make them so efficient and inconspicuous in the next 10 to 20 years that no one will be bothered by their appearance.

Thus, if we want to take the wind out of the sails of those calling for a revival of nuclear power, which is already presumed dead, we must accelerate the expansion of renewables at twice the current speed at a minimum. This can be done by removing many of the hurdles to doing so – in particular, obstacles to the construction of onshore wind farms – and by creating new incentives for private expansion. This need not, however, result in an increase in the REA feed-in tariff, which would only justify higher wind turbine prices and allow some manufacturers to maximize their profits. Rather, more intelligent support measures should be brought into play, such as tax breaks, doing away with levies for operators, and genuine industry support for the establishment of local manufacturers. If materials no longer have to be transported halfway around the world, a lot of CO2 can be saved – and the products can be offered more cheaply to boot.

Overview of the price points by technology in May 2021 including the changes over the previous month (as of May 17, 2021):

pvXchange Solar Price Index May 2021