Electricity companies, divided over the future of nuclear energy in Spain

Nuclear energy in SpainGarona Spanish nuclear station

Spain’s Nuclear Security Council’s decision in February to allow the re-opening of the nuclear power plant in Garoña for another 20 years has demonstrated that nuclear energy doesn’t just spark doubts amongst ecologists, but also amongst the electricity companies themselves. Faced with the possibility of the re-opening of the plant, inoperative since 2012, Iberdrola has said it has no interest in Garoña starting operations again. The company shares 50% of Nuclenor, which owns Garoña, with peer Endesa, and its argument is that the plant is not profitable and making it operative again would be ruinous.

Garoña, founded in 1971, is one of the oldest nuclear plants in Spain, where the technology is fairly out of date and it not very efficient. Furthermore, its re-opening is not really essential for Spain’s electricity system. Garoña is a very small plant, with a capacity of 466 Mw, which produces not quite 6% of the nuclear-based electricity and 1.6% of all the electric energy generated in Spain.

And as if this wasn’t enough, it’s re-opening would require millions of euros of investment, something like 200-300 million euros. On the other hand. the dismantling of the plant –  the most likely outcome given Iberdrola’s opposition is that it won’t re-open – would cost 345 million euros. This would be paid by Enresa, the state-owned nuclear waste firm.

It’s also worth adding that Iberdrola, with Ignacio Sánchez Galan at the helm, has created a global brand of ‘green’ electricity (and has a place amongst the ‘ethical’ companies and in the sustainability índices). Its renewables division has had unparalleled development across the world and Iberdrola doesn’t have much interest in managing an obsolete plant.

So what’s behind Endesa’s desire to re-open the central?  It’s possible that Endesa – which hasn’t offered much in the way of explanations for its stance – is interested in increasing its generation capacity. Furthermore, it’s not as sensitive to environmental issues as Iberdrola, nor is it so exposed to renewables despite having its own division for this kind of energy.

Another reason is that Endesa, headed up by Borja Prado, is hoping to renegotiate the current tax framework for nuclear energy with the government and so make Garoña profitable. Without forgetting Endesa’s conviction that nuclear energy will still be necessary and precedents should not be set with the possible closure of Garoña.

For the time being, the struggle, which is being played out on Nuclenor’s board, is at a dead end. The government has until June to make an announcement on the issue. It’s more than likely that given Iberdrola’s rejection, it will wash its hands of the matter or leave the decision up to the two companies involved. Iberdrola cannot be forced to take on the costs of an investment it doesn’t want to make.

Contrary to what various analysts have said, the issue of Garoña is to some extent marginal in terms of any considerations which can be made about the sector as a whole. But what is true is that the Nuclear Security Council has revealed the existence of Iberdrola and Endesa’s sensitivity about the subject. This is normal and doesn’t just happen in Spain.

Since Fukushima, there has been a lot of discussion about the future of the industry, at least in Europe and the US. While China has plans to build dozens of nuclear plants, in Europe and the US you can count them on one hand. There are two projects in the US, one in France and one in Finland. And not much else. Furthermore, Germany, which is focusing on renewables, is going to close all its nuclear plants from now until 2022.

The quid of the question is that nuclear energy – which effectively is not contaminating – is not well regarded in Europe and the US. People’s fears and reservations have increased since the disaster in Japan.

Another issue which is contributing to putting the brakes on the construction of new plants is that precisely because of new security regulations, which are much more demanding, the new plants generate such high costs that it will be difficult to make them profitable. In the US, Westinghouse has had to file for bankruptcy due to the cost overruns at the two plants it is building in the country. The same has happened in Finland.

These doubts are increasing because renewables are becoming more and more competitive. Some solar and wind energy plants now operate at market costs and prices, without any state subsidies. In the US, the low price of gas has resulted in a loss of interest in nuclear energy. While over there there are only two nuclear projects in operation, there are dozens of combined cycle plants in project or under construction, with 59.000 Mw of capacity.

That’s all very well, but it doesn’t look as if the time has arrived yet to close the door definitively on nuclear energy: at least in Europe, which doesn’t have cheap gas like the US. Of course, as we all know, renewable energy generation depends on there being sun and wind. So for questions of security, it’s vital to have 100% trustworthy electricity production. And that’s down to thermal (coal and fuel), natural gas (combined cycles) and nuclear.

The problem with thermal energy is its high CO2 emissions, while gas natural is effected by price volatility and the hegemony of some suppliers (Russia in northern Europe) and Algeria in Spain, which creates dependency. Also worth noting that in Spain, nuclear accounts for 27.5% of electricity production. Wind energy just 21%.

So the country is not in any condition to get rid of its five nuclear plants (seven reactors). This conviction is clearly behind Endesa’s move to back the re-opening of Garoña. Endesa has said that “unnecessarily anticipating the closure of the nuclear plants would not just create supply problems but also price problems.” According to the company’s estimates, the cost would rise by 10 euros per megawatt/hour.

All that explains why the government is willing to extend the operational life of the plants from 40 to 60 years. And also why Iberdrola, despite its opposition to the re-opening of Garoña, is going to request, along with its partners in Almaraz, the lengthening of the life of this plant. Let’s not forget it produces the X% of electricity in Spain. And of the other plants, for sure. Like Gas Natural Fenosa.

Let’s remember that this plant in Extremadura is the biggest and produces 30% of the nuclear energy in Spain, as well as 10% of the total kilowatts which pass through our network and reach our homes. Closing it down doesn’t occur to anyone.

The current uncertainty over what will happen with the development of technologies in renewables and the possible mix of electricity production also explains why Iberdrola has asked the government to reduce the deadline for asking for the extension of the life of nuclear plants from three years to one year. Three years is a long time to be sure that the correct decision is made, given the way things happen in the electricity sector.

About the Author

Fernando Barciela
Fernando Barciela has been a regular collaborator for Spain's leading daily El Pais' business section since 1994. He is also a regular collaborator on foreign policy. For Grupo Consejeros he interviews the top executives of Spain's listed companies. He was a correspondent with Diario de Noticias, Portugal's leading daily newspaper, in 1987-2004. He has a degree in Business Science and Journalism from the Complutense University.