The world has begun to digest the lessons learned from the nuclear disaster at Japan's Fukushima nuclear power plant. Some countries have given pause, while others have moved on.
Japan is understandably concerned about continuing to use nuclear power and will likely debate its viability for some time.
The U.S. and China are continuing with plans to construct new reactors. Since Fukushima, the U.S. Nuclear Regulatory Commission and Energy Department have assessed the designs of new and existing facilities and approved Westinghouse's AP1000 Generation III reactor, will soon approve General Electric's (GE) Advanced Boiling Water Reactor, and will approve federal loan guarantees for nuclear plant construction. Southern Company's (SO) expansion of its Vogtle facility in Georgia is expected to get construction Nuclear Regulatory Commission permits, as will SCANA's (SCG) V.C. Summer expansion in South Carolina. The Tennessee Valley Authority continues constructing its Generation II reactor, and recently announced plans to complete a new Generation II project.
China suspended its nuclear power program while assessing the lessons to be learned from Fukushima. Construction has resumed, but with adjustments.
Middle Eastern and South American countries recently announced ambitious programs to construct new nuclear power facilities to power their growing economies. Since Fukushima, they have not backed off.
Germany is the only country that decided to retire all of its nuclear power plants. Other European countries announced plans to cancel new nuclear units. EnergyBiz Insider reports that France is rethinking its nuclear power position, and domestic nuclear power has become an issue in upcoming presidential elections.
Nevertheless, I believe Japan and Germany will return to nuclear power as an important energy source. I understand my view is counterintuitive, but I believe economics and environmental concerns will drive them to this decision.
It may take years, and some nuclear plants may remain idle for some time, but these countries will ultimately conclude that all practical alternatives are unreliable, too costly or unacceptably dirty. For example, solar and wind power will not be adequate to sustain a large industrial base. When constituents realize that these technologies have been oversold and represent false hope, they will be forced to look at alternatives.
But there aren't many alternatives. It would be difficult to choose coal. While coal has been used on a limited basis, it is perceived as an unacceptable pollutant and too costly. As China is learning, importing coal is very expensive; importing cleaner coal is even more expensive. China's solution was to limit coal imports. Japan and Germany will reach the same conclusion.
This leaves oil and natural gas. Choosing to tie a country's economy to the international crude oil market is akin to making a sovereign decision to commit economic suicide. From an industrial standpoint, an oil-based economy is uncompetitive and economically unsustainable.
For Germany and Japan, natural gas is not much better. Germany has access to pipeline gas, but it is expensive and somewhat unreliable.
Japan has limited access to natural gas and no access to pipeline gas. All of Japan's imported gas is delivered in the form of liquefied natural gas (LNG). In Pacific markets, LNG prices are indexed against crude oil. Current LNG prices are around $13 per million British Thermal Units (MMBtu). By comparison, U.S. prices are currently around $3 per MMBtu.
The Japanese people are resilient, practical and principled. They endured the world's only nuclear attack and later decided to use nuclear power as a major source of energy. In addition, they seek to be a competitive supplier of manufactured goods, including nuclear components. Emerging economic challenges will force the Japanese to consider practical solutions. One very practical solution is to avoid additional investments and use what they already have.
As Daniel Yergin writes in The Quest: Energy, Security, and the Remaking of the Modern World, the Japanese are practitioners of mottainai -- which means too precious to waste. I believe they will ultimately see their current investment in nuclear power facilities as just that, too precious to waste. They will also conclude that nuclear power remains the best of a bad lot.
The Germans will likely reach the same conclusion. The numbers and economic challenges are similar. The difference is that earthquakes and tsunamis are not common occurrences in Germany, so the risk profile is much different.
The numbers for nuclear power are understood; nuclear power plants are expensive to build, but their production costs are the best in class. A nuclear power plant is cheaper to operate than most coal plants. As an added benefit, nuclear power produces no carbon or greenhouse gases.
The Japanese and Germans have already sunk significant costs into their existing nuclear power programs. Going forward, the marginal cost to produce power from those assets is incredibly attractive, which is a huge competitive advantage that will be difficult for them to ignore.