A significant political event of the last two months was the election of Emmanuel Macron as the President of France in May. This event brings the future of nuclear power in Europe more into focus, as Macron has pledged to maintain the goal set out in the 2015 Energy Transition Law to reduce nuclear to 50% of French power generation by 2025, down from around 75% now. With Macron’s first term extending to 2022, the energy transition in France now appears set to begin.
Under the Energy Transition Law, a net 17-22 GW of nuclear capacity, as a minimum, must close by 2025. This could effectively mean the shuttering of those older reactors that turn 40 years old first. A net closure of 21 GW would reduce French nuclear generation by some 165 TWh/y and would be highly supportive of power, gas and coal prices in the EU.
While those reductions are large, a look through the rest of the EU suggests that nuclear capacity reductions across the bloc will be around 23 GW by 2025, driven by particularly big losses in Germany (10.7 GW), Spain (7.1 GW), and Belgium (5.9 GW). The losses in the latter two, where extending the lifespans of reactors seems politically difficult, are in line with the expiry of current operating licences.
Overall, nuclear closures are likely to lead to the loss of 43 GW of low-carbon generation capacity, or 321 TWh of generation in the EU by 2025. To replace that with a mix of wind and solar would require 170-200 GW of new capacity, depending on type and location of the facility. While this sounds a lot, the lower end of that range it is only around 19 GW a year, which is what was added in 2016, and this was the lowest annual level of capacity addition in the bloc since 2009.
If the generation gap is filled by gas, then the impact would be to increase annual gas demand by around 45 bcm by 2021 and some 60 bcm by 2025. In terms of LNG demand, a 45 bcm/y uptick in European demand would require some 33 Mtpa of incremental LNG—just two-thirds of the capacity of the US export terminals currently under construction. In addition, Nord Stream 2 is expected to add up to 55 bcm of additional gas transportation capacity by 2019.
The picture we see emerging is one where renewables will, on an annual basis, largely replace generation from nuclear power plants. The need for gas in the power markets will still increase, as gas will be needed to fill the gaps caused by the loss of coal-fired generation from the new BREF rules and fossil fuels will also need to play a reserve role. With most of that happening post-2020, we expect this to drive much higher baseload use of gas from around the 2021 period. This will be good for global gas, helping to keep the arbs between US LNG and the European hubs open and helping keep Asian prices higher.