Flawed financing is a drawback to effective decarbonization

26 November 2019

Come 2021, the European Investment Bank will cease funding fossil fuel projects, including the use of natural gas. Under the new policy of the Luxembourg-based lending arm of the European Union, gas projects will need to employ “new technologies,” such as carbon capture and storage, to be eligible for funding. The aim is to coax operators into reducing carbon emissions from energy generation in Europe.

Traditional gas-burning power plants, which still account for a bulk of electricity generated on the continent, will no longer be funded by the bank, the planet’s largest multilateral financial institution with more than $500 billion in outstanding loans. The EIB’s decision is – rightfully – widely seen as another important step in global climate change mitigation efforts because it will help shift the EU’s economy towards cleaner sources energy.

“Climate is the top issue on the political agenda of our time,” EIB President Werner Hoyer said in a statement. “The EU bank has been Europe’s climate bank for many years. Today it has decided to make a quantum leap in its ambition.”

The prices of solar and wind power technology have been falling and renewable energy markets have matured across Europe, which appears to bode well for a continent-wide transition to low-carbon energy. Global investment in renewable energy has been on the decline since it peaked at $326.3 billion in 2017. Last year global investment in renewables fell by 11.5% to $288.9 billion and in the first half of this year it fell by 14% compared to the same period last year.

However, despite falling rates of investment worldwide, the rate of newly installed renewable capacity has remained steady over the past two years. The reason is that lower prices for solar and wind technology means that less investment can guarantee the same level of newly installed capacity.

That said, experts are raising concerns over the prospects of new low-carbon energy plans for a simple reason: nuclear power is being largely exempted from them. Leading international financial institutions have decided not to fund nuclear power. The World Bank, for instance, has only ever funded one new nuclear power plant, which was back in 1959 in Italy. The European Bank for Reconstruction and Development only provides funds for Chernobyl and safety installations.

Solar and wind are low-carbon but also intermittent power sources, dependent as they are on the vagaries of the weather. Several countries in Europe are hoping to restructure their energy markets around these renewables, but some of these plans, as in the case of Germany, are seen by energy experts as risky gambits. Given the pressure to decarbonize and fast, it might be reasonable to assume that Europe’s governments and financial institutions would make investment in nuclear a similar priority, seeing as nuclear is an abundant, clean and reliable source of energy.

Many financial institutions are reluctant to do so, however, because of persisting negative stereotypes about nuclear power. Yet without long-term investment, nuclear energy’s prospects remain in doubt across much of Europe. “[A]ll nuclear budgets require some kind of government support. I don’t know any project in the world which was implemented without any government support,” stresses Chris Levesque, president and CEO of TerraPower, a nuclear reactor design company in the United States. “International development agencies like the World Bank and the European Bank of Development simply don’t have that mandate to support nuclear projects. This is a real problem,” the energy expert adds.

The result is that the viability of large-scale decarbonization efforts hangs in the balance, Levesque warns. “Most projects with renewables are implemented with some of that kind of government support. Everybody considers it normal,” he explains. “But when we start discussing possible support for nuclear projects, the situation is totally different and I believe that we should create and provide a level playing field for all types of low-carbon energy projects. It will be the right and fair solution.”

A lack of foresight among decision-makers and investors on the potentials of modern nuclear technologies has handicapped nuclear energy. For all its promise as a potent tool for effective decarbonization, nuclear energy remains woefully under-utilized in several energy markets. And this is despite the fact that many experts stress that large-scale decarbonization is not feasible without increasing the share of nuclear energy to supplement intermittent renewables.

“Even if tomorrow we have more and more renewables, more wind, more solar, there will be periods of time during which you have no wind blowing or sun shining, which means that nuclear as a zero-carbon energy source has a significant role to play (in filling this gap),” explains Bernard Salha, director of Électricité de France, a French electricity company.

“The question is one of stability. Nuclear plants produce a lot of stable energy,” Salha stresses. “We must not oppose either renewable energy or nuclear energy. We have to make sure to match them with one another.”

Mixing renewables and nuclear to achieve decarbonization are not mutually exclusive – on the contrary, they’re complementary parts of the same equation. As soon as this is realized, decarbonization can be achieved in earnest.

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