European Infrastructure Finance Yearbook - Investing In Bonds ...

UTILITIES
38 ■ NOVEMBER 2007
Evolving political climate suggests long-term
potential for increased nuclear generation
The long-term outlook for significant nuclear
construction is better today than it has been for
many years. If the industry can overcome its
unique problems of safety, decommissioning, and
waste storage, and if political and social
acceptance increases, a new generation of power
plants could be built in the U.K. New build is
currently being undertaken in France and Finland,
with potential for new plants in the Baltic region
and across a number of the Eastern European
member states. The German nuclear consensus,
which caps the lifetime of nuclear plants at 32
years and requires them to be phased out, could
possibly be revisited, although the policies of
Germany’s main political parties differ sharply on
the question of nuclear power.
Nuclear has a competitive advantage in terms
of CO2 emissions and security-of-supply risk
mitigation, and longer term visibility on the price
of CO2 and the level of allowances that will be
provided to fossil-fuel generators, for example,
could have a strong impact on the profitability of
new nuclear generation.
Clean Coal And CCS Could Allow
Coal-Heavy Economies To Meet
Reduction Targets
GHG reduction targets could present mediumterm
credit risk to companies that are heavily
exposed to coal-fired generation such as Drax
Power Ltd. (BBB-/Stable/--). Larger, more
diversified companies like CEZ a.s. (A-/Stable/--),
Vattenfall, and RWE that also generate power
using coal face increasing risk that the relative
economics and social acceptance of coal-fired
generation may deteriorate.
Although liberalization and climate change
policies favor gas-fired over coal-fired generation,
the latter reduces fuel supply risk and dependence
on fuel imports from Russia, the Middle East, and
Africa. Recognizing this and the economic and
social dependence of several EU countries on coal,
the European Council has urged member states
and the Commission to work toward
strengthening R&D and developing the necessary
technical, economic, and regulatory frameworks
to deploy environmentally safe CCS through new
fossil-fuelled power plants--if possible, by 2020.
According to the EU, “coal can continue to make
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its valuable contribution to the security of energy
supply and the economy of both the EU and the
world as a whole only with technologies allowing
for drastic reduction of the carbon footprint of
its combustion.”
Policymakers and certain generators are
therefore researching ways of making coal more
efficient and environmentally friendly, primarily
through “clean coal” technologies and CCS. RWE
has made it clear that it will continue to build
coal plants, but with the help of clean-coal
technologies it will achieve CO2 reduction
requirements. Vattenfall has similar plans.
Cleaner coal is possible, but there are drawbacks
The two leading clean-coal technologies are
integrated gasification combined-cycle technology
(IGCT) and supercritical technology. IGCT turns
coal into gas (usually hydrogen and other byproducts)
and then burns this gas in a traditional
gas-fired combined-cycle unit (with some
modification to accommodate the burning of
hydrogen). Supercritical technology works on the
principle that the fuel efficiency of a traditional
steam coal plant can be raised if it operates at a
higher temperature and pressure. Both approaches
have drawbacks, however. Supercritical
technology, although no more expensive than
traditional techniques, does not reduce CO2
emissions to anywhere near the levels of other
fuels. And IGCT’s effectiveness comes at a cost,
threatening the relative economics of coal
production and reducing the incentive for
companies to invest in new coal plants.
CCS could enhance competitive position of coalfired
generation, despite costs
CCS involves capturing carbon and piping it
underground before it reaches the atmosphere.
The technology could significantly enhance the
competitive position of coal-fired generation by
alleviating its environmental impact, which would
enable coal to maintain a role in the EU
generation mix and would also mitigate securityof-supply
risk. CCS has a number of
disadvantages, however: Its use would increase
costs, and its technical effectiveness and
scalability is still unproven. Nevertheless,
decarbonizing economies and industrial and
generation processes clearly will not happen
without cost and investment, and the EU and a