Not so long ago, nuclear power was seen as “the new energy” that would drown the world in cheap electricity. It didn’t turn out that way. Now the same promise is made for renewables. Andreas de Vries looks at went wrong in the nuclear case and warns that the renewables sector could be in for a disappointment if it does not avoid making the same mistakes.
The general opinion regarding the possibility of a Third Great Energy Revolution, from fossil fuels to renewable energy sources, has clearly shifted. Just two years ago, when I began writing on the subject, many were highly skeptical and doubted there even was such a possibility. Today the main question seems to have become not if it will happen, but rather when.
Two trends lie at the heart of this change in perspective. The first is the continuing growth of renewable energy, which is accelerating as costs are falling. The second is the shift of the auto industry to electric, autonomous and shared vehicles, which is also happening at accelerating speed. Together, these two trends have created an expectation that future transportation will be fully electric and charged from renewable sources, rather than internal combustion based and powered by oil derivatives.
Nuclear in the 1950s and 1960s was a classic bubble where emotion reigned
This has led investors to line up for opportunities in new energy, the battery industry in particular. The reality of today is, namely, that battery technology does not yet support a transition to the envisioned “New Energy Future”. Battery technology improvements will be needed to overcome renewable energy’s intermittency problem and the current cost disadvantage of electric vehicles, which means that whoever is able to solve these challenges first is destined to make a fortune.
Too cheap to meter
Because battery technology for both electricity storage and electric drive trains has improved substantially over recent years, the general expectation is that these improvements are imminent. Amidst all this investor excitement it is worthwhile to bring back into memory the excitement that surrounded nuclear energy back in the 1950s and 1960s.
Back then, nuclear technology was seen as on the verge of delivering improvements that would enable the production of electricity that would be “too cheap to meter”, and thereby enable the nuclear industry to take over the power generation industry comprehensively, globally. Clearly, nuclear has failed to deliver on this expectation. As it turned out, the expected technological breakthroughs were not been delivered. And instead of down costs have actually gone up, leaving many investors to pay a heavy price.
What could new energy investors learn from nuclear’s experience?
Another reason why nuclear technology failed to deliver the expected improvements was that as the industry grew, its focus turned to scale rather than cost
The reasons for nuclear technology failure to deliver the improvements that would drive nuclear energy’s cost down have been extensively studied.
One of the most important reasons is the fact that expectations were inflated. To a large extent, the excitement surrounding nuclear was built by government research papers that cited industry projections regarding efficiency improvements and cost reductions, which, in turn, cited other government research papers that cited industry projections. This spiral of the most optimistic citing the most optimistic led to expectations that were, we now know, unrealistic.
In other words, nuclear in the 1950s and 1960s was a classic bubble where emotion reigned, causing facts that supported the expectation to be given prominence while facts that went against established wisdom were ignored. The same can of course happen in renewable energy. Some are concerned that it already has as far as battery technology is concerned.
Bigger is better
Another reason why nuclear technology failed to deliver the expected improvements was that as the industry grew, its focus turned to scale rather than cost. As every new nuclear reactor project was bigger than its predecessors, so was its complexity, greatly adding to the cost (on a per MW basis) to build, operate and maintain the plant.
If the battery industry becomes overly focused on “range anxiety” and its energy storage equivalent, a similar “bigger is better” attitude would end up prevailing (“we can deliver a 1,500 mile radius and 90 days’ worth of storage!”). The cost competiveness of electric vehicles and a renewable energy based energy infrastructure could in this case also end up suffering.
The nuclear industry ended up suffering greatly from a supply chain that was too narrow and tight
The third factor that deflated nuclear industry’s hopes is that the sector failed to translate its lessons learned into cost reductions. It primarily applied new knowledge to deliver “better” reactors, which were more complex, and the costs associated with this added complexity cancelled out most of the cost reductions achieved by economies of scale. Something similar could transpire in the battery industry if it becomes overly focused on things such as charging time.
Fourthly, the nuclear industry ended up suffering greatly from a supply chain that was too narrow and tight. Due to a lack of standardization in reactor design, customized materials were used for which there were too few vendors, leading to massive cost escalation once demand for nuclear energy went up.
A renewable energy future will similarly lead to increased demand for numerous materials, amongst them lithium, cobalt, graphite and the rare earths, which if not handled properly could cause supply shortages and price increases that would cancel out the cost reductions made by technology improvements.
Andreas de Vries is a Strategy Consultant in the energy industry.