IISS Strategic Comments
Nuclear Power: Growing Role Of Emerging Nations
Emerging nations are becoming more important in the field of nuclear energy, both in building new electricity generation plants and supplying nuclear technology. The trend could have a significant effect on the industry, threatening industrialized nations’ domination of both the development of civil nuclear technologies and their regulation.
These shifts are part of a resurgence of interest in nuclear energy, the prospects for which had looked uncertain following the meltdown of reactor cores at the Fukushima Daiichi power plant in Japan in March 2011. The incident exacerbated fears about the safety of nuclear power, after earlier accidents at Three Mile Island in the United States and Chernobyl in Ukraine. However, it has since re-emerged as an important part of the energy strategies of several countries.
While some industrialized countries, such as Germany, have opted to phase out nuclear power, several developing countries are now investing in it and are driving future demand. This is particularly the case in Latin America where Brazil and Argentina have revived nuclear programs that had fallen into abeyance. Not only are emerging economies influencing demand, they are also seeking to take a much greater share of supply, as evidenced by recent cooperative agreements signed by China and Russia.
A recent report by Bloomberg New Energy Finance forecasts a 69% expansion in nuclear capacity worldwide from 345GW in 2012 to 583GW by 2030. China is projected to account for a significant portion of this growth, with four to six reactors expected to be constructed each year between now and 2020. However, there is evidence that nuclear power is being adopted more broadly, with new facilities being constructed in India, Pakistan and the United Arab Emirates. In November 2014, it was announced that Russia had agreed to build up to eight new nuclear power reactors in Iran, despite continuing concerns about Tehran’s nuclear intentions.
Nuclear energy has traditionally been the domain of industrialized states. However, this model looks set to change. The International Energy Agency says that ‘non-OECD countries are set to account for the bulk of future [nuclear] growth: of the 76GW presently under construction, more than three-quarters is in non-OECD countries.’ Moreover, newly emerging economies are increasingly challenging developed nations both in technological innovation and in devising financing mechanisms.
Nuclear Surge In Latin America
One region in which nuclear power is being adopted is Latin America, where Argentina and Brazil in particular are expanding their nuclear capabilities. Argentina, which was the first Latin American country to use nuclear energy, has renewed its interest after a period of inactivity. It has two operational nuclear reactors and another under construction. The Atucha 1 plant is a pressurized heavy water reactor (PHWR) that uses slightly enriched uranium (0.85%), while the Embalse plant, a Canadian-designed CANDU PHWR reactor, uses natural uranium. Construction of the Atucha 2 plant started in 1981 but was suspended in 1994 owing to a lack of funds. In 2006, work restarted on the facility, although it is still undergoing tests and is not yet operating at full capacity.
Brazil has followed a similar trajectory. It also pursued an ambitious nuclear program from the 1960s to the 1990s, and recently revived its interest, for both civilian and naval purposes. It has two operating nuclear plants and a third plant under construction in Angra dos Reis, near Rio de Janeiro. Brazil’s 2009 National Defense Strategy gave priority to programs to produce nuclear fuel (specifically uranium enrichment), build a nuclear-powered submarine and ensure that the country develops the potential to design and build nuclear power plants.
Numerous factors have driven the region to re-engage with nuclear technology. In the broadest sense, nuclear power has limited exposure to disruption in global fuel markets, and is therefore a reliable source of electricity. Indigenous production of fuel reduces both dependence on imports and the extent to which supply can be used to exert strategic influence. Argentina has significantly increased its attempts to establish an indigenous uranium-enrichment capability and wants to become an international supplier of nuclear fuel. This is primarily for commercial purposes but could have long-term strategic implications.
As Brazil and Argentina grapple with high construction costs and slipping timetables for nuclear plants, Russia and China are keen to offer themselves as suppliers of technology and finance. Russia has a history of establishing nuclear-cooperation agreements with Latin American states — in 2009 Rosatom, Russia’s state-owned atomic-energy corporation, signed an agreement with Ecuador, and in 2010 Russia reached a deal with Venezuela on civil nuclear cooperation. It now faces competition from China.
Following the sixth summit of the BRICS states (Brazil, Russia, India, China and South Africa), held in Fortaleza, Brazil, in July 2014, Presidents Vladimir Putin and Xi Jinping toured Latin America promoting regional ties. Although their primary aim was to solidify diplomatic relationships and boost trade, several nuclear-specific agreements were signed.
Rosatom will help Argentina to design and operate two new nuclear power plants and to decommission old facilities. Russian Minister of Energy Alexander Novak said Moscow was ready ‘to provide comfortable financial conditions’ for such deals, which would be likely to cover design, construction, operation and decommissioning of nuclear power plants and research reactors, and support of nuclear fuel-cycle developments more broadly. Rosatom had submitted a technical and commercial proposal for its participation in the construction of Argentina’s fourth nuclear plant alongside Atucha 1 and 2 near Buenos Aires, Novak said.
Brazil also signed up for Russian nuclear assistance following the BRICS summit. A memorandum of understanding between Rosatom and Camargo Corrêa, a large Brazilian private-sector company, will likely generate an expansion of bilateral cooperation in nuclear power. Potential projects include the construction of nuclear reactors and installation of a spent-fuel storage facility.
Meanwhile, China National Nuclear Corporation (CNNC) agreed a deal with Argentina’s nuclear utility, Nucleoeléctrica Argentina, under which Argentina will design, build and operate a new reactor, with technical support, logistics, long-term servicing and financing provided by CNNC in a US$2 billion investment package. Another bilateral accord could see Argentina act as a trading platform, from which it would supply third countries with nuclear technology co-developed with China.
Such agreements underline the new dynamic in the nuclear industry: a rising appetite for nuclear energy is being driven by emerging economies; and their need for technological expertise and finance is increasingly being met by emerging and newly industrialized states. Traditional Western suppliers such as the US, France and Japan are being usurped by Russian and Chinese companies.
Both economic and geopolitical factors are contributing to this shift. Argentina’s fiscal woes and repeated debt defaults have made it difficult to attract the levels of investment required for large infrastructure projects. Tensions with Washington regarding debt repayments have exacerbated smouldering anti-Western sentiment. At the same time, Moscow needs new international partners as the West imposes sanctions because of its actions in Ukraine. Bilateral nuclear deals are, therefore, in the interests of both parties.
The resulting relationships are likely to last a long time: nuclear plants will increasingly be built using Russian- or Chinese-specific designs and expertise, and will require support both in operation and servicing, thereby tying customers into exclusive long-term contracts. Moscow and Beijing are offering reduced up-front costs in exchange for continuing cooperation and collaboration on nuclear-energy technology. Both will also be keen to demonstrate the benefits of their indigenous technologies and to benchmark them as international standards. Moreover, by providing generous financial terms, suppliers will aim to gain broader influence in recipient states.
These evolving relationships between suppliers and recipients are likely to have important implications for nuclear governance. The industry, traditionally controlled by technologically more advanced states such as the US and Japan, is in the process of change. Many Western nuclear power plants will soon be decommissioned: the International Energy Agency predicts that almost half of the reactors currently in operation globally will be retired by 2040. In Japan, where all nuclear reactors were shut down after the Fukushima disaster, a few units are expected to come back online next year pending safety checks, but concerns still linger. Meanwhile, Western suppliers appear unable to compete with the terms being offered by Russia and China. For example, the French nuclear supplier Areva was recently forced to downgrade projected financial targets because of low sales figures.
As nuclear programs have become more technologically advanced, the safety and security of facilities and fissile materials have remained a central priority for Western governments. Leadership in these fields has generally been the role of the industrialized states, channeled via the International Atomic Energy Agency. The US has traditionally been closely involved in shaping nuclear governance structures, such as the non-proliferation regime. But as the nuclear export market continues to evolve and an increasing number of states develop a greater stake, Washington’s dominance may be contested.
The 2014 BRICS summit culminated in the Fortaleza Declaration, which stated that the emerging powers ‘are an important force for incremental change and reform of current institutions towards more representative and equitable governance’. They view the present nuclear regulatory regime as skewed in favor of the more industrialized states. However, pressure to alter this perceived imbalance will raise concerns in the West about proliferation. Civil nuclear technology is expected to spread to states with limited experience of regulation or operation of such facilities, including Saudi Arabia, Turkey and Vietnam. Meanwhile, Argentina and Brazil are developing sensitive technologies, such as uranium enrichment, which can be used to make weapons-grade material and have been at the center of the negotiations between Iran and the five permanent UN Security Council members plus Germany over Tehran’s nuclear program.
In addition, the development of advanced technologies for reprocessing spent fuel offers a potential pathway to acquiring materials that could be used in nuclear weapons. Countries could pursue hedging strategies under which they develop the necessary technical know-how and components to develop nuclear weapons at short notice.
Western governments will see it as important for the nuclear exporters of the future to balance the opportunities in new markets with a strong sense of governance and oversight.
Volume 20, Comment 42 – November 2014