[Contribution] Three requirements for Korea to embrace nuclear power for a more sustainable future

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Jae Jung, Partner of McKinsey & Company (left) and Will Kwon, Associate Partner of McKinsey & Company (right)

The global energy industry is experiencing unprecedented turbulence triggered by supply shocks, inflation and geopolitical issues. Unlike where we were a few years ago with big sustainability issues including electrification and decarbonization – dominating the CEO agenda – we have now focused on diversifying the security of the industry. ‘supply. Many announcements have been made to accelerate the energy transition in order to strengthen energy security. For example, highly developed countries such as Germany and Australia have announced plans to increase coal-fired power plants to compensate for Russia’s reduced gas supply.

In this context, nuclear energy has emerged and is widely discussed as a potential alternative. While many countries pledged to phase out nuclear power due to safety concerns after the Fukushima accident, its benefits of being carbon-free and highly efficient have not diminished. Additionally, the fact that nuclear power is much more stable than wind and solar power which are weather dependent, has prompted many to actively consider nuclear as a viable option to achieve zero emissions goals in the world. framework of the Paris Agreement. To this end, the United States and the EU have categorized nuclear power as “green” or “clean” energy to meet decarbonization goals; Korea is actively following the same trend as the new government has embarked on a journey to pivot the country’s energy policy towards pro-nuclear.

This includes, but is not limited to, the resumption of construction of two nuclear power plants (Shin-Hanul No. 3 and 4) which was canceled by the previous government, the extension of the life of existing nuclear power plants, the development of small power plants Nuclear reactor technology and active promotion of overseas nuclear power plant related exports.

Given Korea’s technological and commercial leadership in the field of nuclear energy, there is no doubt that the country can gain a foothold in the world market by taking a leading position. Nevertheless, three requirements will have to be explicitly considered to help Korea find a solid and successful path in a longer-term perspective.

The first is to re-establish a strong ecosystem of materials, parts and equipment. This ecosystem was previously supported by small and medium-sized businesses, but has been significantly weakened due to bankruptcy and downsizing, which resulted from years of a nuclear phase-out policy that reduced the use of nuclear power plants and leads to early retirement.

The revitalization of the ecosystem is essential to support the construction of new power plants both domestically and through exports, as these materials, parts and equipment have been optimized around Korean-style nuclear reactors. The nuclear power plant is a meticulous collection of hundreds of thousands of smaller components and having everything in close synchronization is essential for performance and reliability. For example, a study showed how imported parts in Korean nuclear power plants caused frequent breakdowns, leading to millions of dollars in losses. Having solid materials, parts and equipment is also the basis for generating successful overseas sales, as customers see it as proof of long-term reliability. It is widely reported that many Korean SMEs in the nuclear sector are on the verge of bankruptcy due to lack of orders and the resulting liquidity problems. Immediate relief packages must be rolled out, as was the case for the United States which announced a $6 billion bailout package in April this year to quickly rescue companies in financial difficulty.

Second, you have to develop in the upstream part of the value chain to gain secure access to uranium. Korea is entirely dependent on the foreign source of enriched uranium, which makes the country particularly vulnerable in times of supply constraints. The country imports enriched uranium from Russia, Australia and Canada, paying $250 million each year (of which Russia accounted for 33.8% of the supply last year). The price of uranium has recently skyrocketed (to around $60 a pound from $30 in the summer of 2021) and with Russia holding a significant share of the world’s uranium enrichment capacity, a new supply instability and further price increases could be on the horizon. Countries like Japan and France have taken more proactive approaches in this context. For example, Japan created a government-affiliated entity dedicated to securing the supply of important minerals, including uranium (Japan Oil, Gas and Metals National Corp.) and aligned the entity’s activities with the government development assistance and other diplomatic programs. As a result, Japan currently holds minority stakes in several Canadian and Australian mines. Similarly, France owns the Orano Group, a state-owned uranium development and supply company that has joint ventures and other investments in Kazakhstan, Uzbekistan, Niger and Canada.

Third, advancing safety-related technologies, including the treatment of radioactive waste. Considering that Korea ranks among the top five when it comes to producing the most nuclear energy in the world, finding a sustainable solution to dispose of nuclear waste is a must given the future ambition from the country. At present, Korea has no safe and permanent place to store nuclear waste, and all of it is temporarily stored in nuclear power plants. This nuclear waste requires a continuous supply of electricity for cooling and care to avoid radioactive leaks in nuclear power plants – which have caused enormous damage in Fukushima and Chernobyl. According to industry experts, much of the temporary storage space in Korea’s nuclear power plants will be full by the early 2030s, and that timeline could be accelerated if Korea ramps up nuclear power generation based on of the new government’s plan. Although there is not yet a complete solution for the treatment of nuclear waste, countries such as France and Finland have led the way by developing dedicated facilities for reprocessing and permanent storage. The two countries have discussed the topic publicly for decades to reach agreement and build public acceptance. The United States is conducting research on pyroprocessing, a technology for recycling nuclear waste that could also help alleviate nuclear waste problems. Nuclear energy is truly ‘green’ and ‘clean’ when there are viable solutions to the hazardous waste it generates.

President Yoon Suk-yeol is briefed on the APR1400, an advanced pressurized water nuclear reactor, during his visit to Doosn Enerbillity's nuclear workshop in Changwon, South Gyeongsang Province, last month.  The store stores equipment and materials that were to be delivered to Shin-hanul Nuclear Power Plant Units 3 and 4 which had been shut down under the previous government's nuclear phase-out plan.  (Yonhap)

President Yoon Suk-yeol is briefed on the APR1400, an advanced pressurized water nuclear reactor, during his visit to Doosn Enerbillity’s nuclear workshop in Changwon, South Gyeongsang Province, last month. The store stores equipment and materials that were to be delivered to Shin-hanul Nuclear Power Plant Units 3 and 4 which had been shut down under the previous government’s nuclear phase-out plan. (Yonhap)

The value of nuclear power is becoming increasingly pronounced for countries facing the twin goals of decarbonization and energy security. It has many advantages for Korea given the country’s limited renewable energy generation potential and high energy consumption. It is essential to consider the above requirements from the outset to fully capture the benefits while making them economically, socially and environmentally sustainable in the longer term.

By Jae Jung and Will Kwon

Jae Jung is a partner and Will Kwon is an associate partner at McKinsey & Co. The opinions expressed in the article are their own. — Ed.


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