by Kevin McKern
April 3, 2006


Aussie uranium stocks rocketed into bubble territory this week, driven by the Uranium sale agreement between Australia and China. For example, the leader in the sector, Paladin Resources is now trading at $5.19, a big move up from the low of $0.05. Incidentally, the Paladin CEO reported on the weekend that Uranium was so out of favour in the late nineties that the mining rights to the Namibia deposit were purchased for a mere fifteen thousand dollars; the company has a current capitalisation of 2 billion.

China has spent big in Australia on energy; an agreement to buy liquid natural gas from the Gorgon project in Western Australia, which was signed last year, was the biggest commercial deal ever signed and contracts Australia to supply China with a billion dollars worth of gas a year for the next twenty five years.

In all, during 2005, Australian exports to China jumped by more than 20 percent, and with the 72 percent increase in the value of coking coal exports, China displaced the United States as Australia's number two trading partner.

At 385,000 MW (megawatts), the current electric grid of China is second only to the United States. To keep up with demand, China will double its electric-generating capacity every decade until 2020 while it moves away from dependence on Coal.

Apart from the environmental and human costs, simple logistics rule out the use of coal to meet new energy demands. Half of China's railroad capacity is already occupied hauling the one billion tons of coal per year used to produce two thirds of China electricity.

China is building a world class Photovoltaic industry and the current wind energy target calls for six gigawatts of power by 2010 and 30 gigawatts by 2020, a boost that would give China twice the installed capacity of the current world leader in wind, Germany.

Nuclear Power

China is also planning to become the world leader in nuclear energy. In the immediate future, China will choose one reactor design for its next group of nuclear plants so as to slowly standardize its nuclear operations. Short listed are Westinghouse Electric Co, France's Areva and a Russian supplier.

The contract will go to the vendor who agrees to transfer the most technology to China and "Forbes" reported last week that Westinghouse was best placed to win the four reactor order, good news for Toshiba, who last month bid $US 5.4 billion for the nuclear engineering business currently owned by BNF.

The Chinese goal is a sixfold increase in nuclear capacity, up to 40,000 MW by 2020, from 8,700 MW today. The program requires that at least three new reactors come online each year for the next 14 years. By 2050, China plans to have 180,000 MW of nuclear capacity, equivalent to 150 large nuclear power plants.

In the long run, China will use the Pebble Bed technology I covered in a prior article.

Researchers at the Institute of Nuclear and New Energy Technology (INET) at Tsinghua University first fired up the 10-megawatt High-Temperature Reactor in 2000 and the experiment-sized pebble bed reactor has been steadily churning out power ever since. On three occasions, with observers present, the team tested the reactor's safety by pulling out the control rods and shutting down the helium flow. This produced the expected short-lived rise in temperature before "Doppler broadening" slowed the rate of fission.

The Chinese are already working on a more advanced reactor, the MHTGR, the "high-temperature gas-cooled reactor-pebble bed module"(HTR-PM), which is based on the technology and experience of the HTR-10 and currently in conceptual phase. High temperatures can support chemistry; for example, water and methane can be formed into hydrogen and carbon monoxide. The CSIRO are building a solar tower that will support this chemical reaction and produce what they call "solar gas".

The HTR-PM demonstration reactor is planned to be finished by 2012 and the four main elements of the design philosophy have been defined as: (1) safety, (2) standardization, (3) economy, and (4) proven technology.

South Africa is working on a 170-MW Pebble Bed Modular Reactor (PBMR) and General Atomics, a US company, have a similar design.

The South African reactor is the work of British Nuclear Fuels, the South African electrical power utility Eskom, and the state owned Industrial Development Corp of South Africa. This helium-cooled, graphite-moderated, high-temperature reactor will use uranium pebbles encased in graphite that weigh 210 grams each and contain 9 grams of uranium.

Based on a German research reactor, the South African PBMR will use a steel pressure vessel with the control rods in the reflector instead of the core and more efficient turbine technology.

No substitute for sound public policy

In many power markets today, nuclear electricity is the cheapest you can buy. Entergy nuclear plants produced 13% of its revenues but a quarter of its profits last year.

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It costs German utilities 1.5 cents per kW-hour to make nuclear electricity, according to Vincent Gilles of investment bank UBS, which they sell for three times that amount once credits from Europe's carbon-trading scheme are included. In contrast, it costs 3.1-3.8 cents to produce power from natural gas in Germany and 3.8-4.4 cents to produce it from coal.

Nuclear energy, despite relatively high capital costs and the need to fund waste disposal and decommissioning costs is getting cheaper all the time.

With the health and environmental costs of fossil fuels taken into account nuclear is a good option.

In America, where there is no mandatory carbon regulation (and hence no penalty on fossil fuels), nuclear power has much less of an edge: coal power costs about 2 cents per kW-hour on average today, gas-fired power costs about 5.7 cents, while those US nuclear plants who's capital cost has long since been amortised are producing electricity for 1.7KH cents or so. The Kyoto agreement has a "carbon trading" framework that provides the incentives that have made alternate energy viable elsewhere. It is the lack of a carbon tax or other government incentives for renewable and nuclear technologies that is inhibiting development in the US. By pursuing a policy of cheap energy today, both Australia and the US are handing the future of low emission energy technology to those nations with the foresight to trade higher prices today for energy security in the future.

A World of Opportunity

Through better design and new technologies, higher energy prices actually represent a vast business opportunity in the business of heat recovery and materials recycling.

The U.S. economy is not even 10% as energy efficient as the laws of physics allow. The energy wasted by heat loss in U.S. power stations equals the total energy use of Japan. Materials efficiency is even worse: only about 2% of all the materials mobilized to serve America are actually made into products that are still in use six months after sale. As pointing out by Amory Lovins and others, there are tremendous opportunities for reducing the amount of resources that go into production processes, the steps required to run that process, and the amount of pollution generated and by-products discarded at the end that represent avoidable costs, and hence, big profits to be won.

By the time oil shortages bite and energy inefficient economies are undercut by a chronic lack of competitiveness any clearly necessary changes will need to be made in an environment of rising costs and shortages so severe they could threaten the social order.

A clear policy framework that supports the energy technologies of the future will open up a world of opportunity where citizens can use their creativity, disciplined by the scientific process, to respond to the many challenges of peak oil and climate change with decentralised and appropriate solutions.

Business as usual is the recipe for disaster.