The realities of nuclear fuel supply guarantees

Virtually any discussion regarding the security implications of the spread of nuclear power involves the need to build a mechanism that would ensure a guaranteed, uninterrupted supply of nuclear fuel for new nuclear power plants. The rationale behind such thinking is fairly solid: If countries that consider building these plants have guarantees of reliable access to fresh nuclear fuel, they could be convinced not to develop indigenous uranium enrichment facilities, decoupling the growth of nuclear power from the spread of uranium enrichment–a very proliferation-sensitive technology.

There are several specific proposals about how to implement this arrangement, some of which have substantial political and financial support behind them–mostly in the form of uranium or money for a nuclear fuel bank that would provide an emergency fuel supply when necessary. But it’s unclear whether these proposals will work in practice. Countries may want to develop an indigenous uranium enrichment capability for myriad reasons, and the economic cost of developing such a capability may not be high relative to the cost of a fleet of nuclear reactors, potentially making an enrichment facility a sound investment for a country that’s concerned about its fuel supply.

The inherent link with nuclear proliferation automatically shines a spotlight on almost every nuclear fuel deal, making them a convenient target for all kinds of pressure, political or otherwise.”

That said, in most cases, countries would probably find it convenient and economical to rely on external suppliers, provided there’s an industry that can deliver the necessary services. Of course, the problem is that the nuclear fuel market is quite different from other fuel markets–namely, oil or coal–because it’s more susceptible to disruption. Fuel bank arrangements might help in some circumstances, but they can be susceptible to pressure, too. For example, the trade in nuclear services, equipment, and materials is heavily regulated and subject to extensive oversight–rightfully so. More significant, however, is the inherent link with nuclear proliferation, which automatically shines a spotlight on almost every nuclear deal, making them a convenient target for all kinds of pressure, political or otherwise.

The most recent instance of political interference with the nuclear market was the U.S.-led effort to stop the construction and operation of the Bushehr nuclear power plant Russia is building in Iran. Eventually, Russia warded off Washington’s interference, promising to supply the reactor with nuclear fuel despite the serious controversy surrounding Iran’s effort to develop a capability to enrich uranium. In December, I wrote that this was a major milestone for the idea of a guaranteed fuel supply, even if it came too late to change the course of Iran’s enrichment program.

Pressure comes in other forms as well. A March dispute between Russia and Ukraine demonstrated the difficulty of reconciling a supplier’s commercial interests with the concept of a guaranteed nuclear fuel supply. Ukraine generates about 50 percent of its electricity at 15 nuclear reactors, all of which were built during the Soviet era. So it’s natural that a Russian company, TVEL, supplies the fresh fuel for these reactors. But after a 2006 energy flap between the two countries–another Russian company, Gazprom, cut natural gas exports to Ukraine in a dispute that involved a good dose of economics and politics–Kiev apparently decided to explore ways of providing a safety net for its nuclear power industry, beginning an effort to create a fuel reserve by buying fresh fuel from another supplier: U.S.-based Westinghouse.

These were solid business decisions, but as should be expected, some politics inevitably intervened, as the United States stepped in, providing money for a program that would test Westinghouse fuel assemblies in one of the Ukrainian reactors. TVEL, rightly sensing that this program could undermine its position as a monopoly fuel supplier, threatened to withdraw the warranty from its fuel elements if they were irradiated in the reactor alongside U.S. fuel. When Ukraine officially signed a fuel supply contract with Westinghouse, which almost coincided with President George W. Bush’s visit to Kiev last month, Russian pundits and politicians didn’t hide their disapproval, portraying the deal as another U.S. attempt to gain a foothold close to the Russian border.

This time the political controversy didn’t last long. TVEL eventually welcomed the new Ukrainian deal as a sign of market openness that would probably allow it to increase its prices. But the imbroglio did expose some issues that any attempt to build a workable arrangement for fuel supply guarantees will encounter. First, suppliers who maintain a monopoly in certain markets will resist their customers’ attempts to diversify, and in the highly regulated, politically charged nuclear market, large suppliers can exert significant pressure.

Then there’s the issue of reactor safety. While TVEL’s concerns about operating its fuel assemblies together with the fuel assemblies produced by Westinghouse seemed petty at the time, these concerns cannot be ignored. Nuclear fuel has to go through a fairly long testing and certification process, and unless done in advance, this fuel certification process may seriously impact the ability to quickly substitute one fuel supplier for another. Lastly, it’s clear that any workable fuel supply arrangement would have to deal with spent fuel as well. Moscow has been willing to take Ukrainian spent fuel back to Russia for reprocessing, but it’s unlikely that any other supplier would be willing to do so. Kiev was able to avoid dealing with this issue in its contract with Westinghouse, since it is building a spent fuel storage facility in Ukraine. But other countries may not have this flexibility.

Overall, Ukraine’s effort to protect its nuclear power industry from possible disruptions of its fuel supply deserves close attention. So far, the experience has been largely encouraging, demonstrating that a country concerned about the issue has many options to consider before thinking about building a uranium enrichment plant. But problems remain. It took a fair amount of political will and determination on Ukraine’s part to have all the pieces in place. If nuclear suppliers want effective guaranteed fuel supply arrangements, they will need to find a way to make their customers’ lives much easier.