CAN NUCLEAR ENERGY OVERSHADOW SOLAR?

FINANCIAL MARKET ANALYSIS

The solar energy sector has stabilised, up +3.7% since the beginning of the year after two years of high volatility, i.e. +233% in 2020 and -25% in 2021 for the Invesco Solar ETF (TAN US).

Will solar energy, in all its forms, be able to meet energy needs?

Solar energy is emerging as the big winner in the energy transition and innovation promises many and varied developments. Photovoltaic (PV) solar panels are beginning to appear in various formats, such as windows in office or residential buildings, tiles for houses, as a source of shade for car parks or on greenhouses to protect crops.

In Europe, solar energy, along with wind power, appears to be one of the cheapest energies due to the rising price of CO2 (see Fig. 2).

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However, photovoltaic (PV) technology is still in its infancy. While it has made great strides since the first solar panels invented by the American Charles Fritts in 1883, which converted only 1% of the sun's energy into electricity, today the conversion is approaching 20%. The biggest problem with solar panels is the need to build large collectors to capture and convert the sun's rays into electricity. These large surfaces require a huge amount of materials: glass, heavy metals and rare earths (see Chart of the Week).

One of the alternatives being considered to counteract weather and day/night problems would be to put solar panels in space and send the energy to earth by microwave. This technology is also called SBSP for Space-Based-Solar-Power. It is Solaris' crazy project sponsored by the European Space Agency (ESA) to create a solar farm in space that would send power back to earth. The wireless power transmission demonstration took place on November 9th at the Airbus X-Works factory in Munich. The energy produced was transmitted in the form of a microwave beam over a distance of 36 meters... The satellites in orbit would have to be very large, measuring several kilometers in diameter, to produce the equivalent power of a nuclear power station. The same would be true for "collector antennas" on earth. The Solaris project, which will be proposed to EU space ministers later this month, aims to study these technologies so that member states can make an informed decision about their future implementation, which could help Europe reach net zero carbon emissions by mid-century.

As a result, solar projects continue to grow, driven mainly by Chinese companies including the PV manufacturers LONGi Solar, Trina Solar, JA Solar and Jinko Solar. In the US, the industry leaders are SunPower (SPWR US), Enphase Energy (ENPH US), First Solar (FSLR US) and SolarEdge (SEDG US).

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Nuclear power could rise like the Phoenix from the ashes

Against the backdrop of rising global energy prices and climate change, nuclear power is back in vogue. Nuclear power is experiencing something of a renaissance. According to the International Energy Agency (IEA), global nuclear power capacity, which stood at 393 GW at the end of 2021, will have to almost double to meet the organisation's 2050 net zero emissions target. Nuclear power is one of the lowest CO2 emitting energy sources for energy production (see Fig. 3). Nuclear power is powerful: a uranium fuel pellet is about the size of a gummy bear, i.e. 7 grams in 1 cm length by 8 millimeters in diameter. The fission of all the uranium 235 nuclei contained in one gram releases as much energy as the combustion of 3 tonnes of coal, or 2 tonnes of oil, or 1.7 tonnes of natural gas.

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Unlike solar power, nuclear power requires very few raw materials (see chart of the week) to operate and relatively little space. Moreover, nuclear power is very competitive with other forms of electricity generation. Fuel costs for nuclear power plants represent only a small proportion of total generation costs, although capital costs are higher than for coal-fired plants and much higher than for gas-fired plants. In assessing the economics of nuclear power, decommissioning and waste disposal costs are fully taken into account.

As an investment, a nuclear power plant is not fundamentally different from any other major infrastructure project. The initial investment costs are high and construction takes more than five years. The technical complexity presents relatively high risks of delays and cost overruns during the construction phase. Political and regulatory risks also weigh on the cost of the project: long, costly and changing authorisation and licensing regimes.

Once in operation, the high capital costs of nuclear construction are offset by low and stable variable costs, but the need to finance the initial construction costs is a challenge.

Uranium is only a small part of the cost of electricity generation. Uranium is a natural element. Traces of it are found almost everywhere on earth. It is more abundant than gold, silver or mercury, about as abundant as tin and slightly less abundant than cobalt, lead or molybdenum. About ten mines produce more than 50% of the world's uranium production (see Fig. 4). It is almost entirely used to produce electricity, but a small part is used for the production of medical isotopes or for naval propulsion.

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France took the gamble on nuclear power very early on. Between 1963 and 1971, EDF (Electricité de France) commissioned six reactors. Thanks to this political choice, France became one of the largest exporters of electricity in the world and benefits from cheaper electricity than most of its European neighbours. EDF and its subsidiaries (e.g. Framatome) have become world leaders in nuclear power. France now has 56 nuclear reactors, of which 34 are currently operational, and President Macron has just relaunched the country's nuclear expansion with the promise to build 6 new EPR (European Pressurised Reactor) reactors. Siemens or Mitsubishi Heavy Industries are also present in the nuclear ecosystem. Thus, even though Siemens committed to getting out of nuclear power in 2011, the company still supplies some parts that are essential for the production of electricity in nuclear power plants (e.g. excitation systems and start-up frequency converters). In the US, Mitsubishi Nuclear Energy System (MNES), a subsidiary of Mitsubishi Heavy Industries, is involved in the construction of the US-APWR nuclear reactor and offers a variety of nuclear services in parallel. These include the replacement of reactor vessel closure heads, steam generators and robotic technologies. So the nuclear industry is still alive and well and seems to be rising like a phoenix from the ashes.

Energy independence also means freeing ourselves from Chinese dependence...

The US Inflation Reduction Act should encourage investment in clean energy and manufacturing technologies such as solar panels, batteries for storage and for electric vehicles, wind turbines, etc. However, all these technologies have in common a huge need for minerals such as lithium, cobalt, copper etc. About 90% of the processing industry for these minerals is located in China. The largest manufacturers of photovoltaic (PV) modules are also predominantly Chineses (see Fig. 5 and 6).

The US and Europe will try to catch up in this area, but it may take years. To stand out, they will have to innovate in niche sectors such as space-based-solar-power (SBSP) or develop technologies around alternative fuels such as hydrogen and storage solutions. For Europe, it is necessary to free itself from its dependence on both Russia and China and to avoid increasing its dependence on costly and CO2-generating American LNG.

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Conclusion

Any energy that will reduce our carbon footprint is welcome. However, investments are often costly and the decision-making process should not ignore more cost-effective alternatives. As with building a good investment portfolio, politicians and investors who support them need to make the right choices, with a long term horizon. This includes ensuring that supply sources are diversified and that costs are not likely to rise under the threat of conflicts or climatic events.

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