Areva - Reference Document 2016

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BUSINESS OVERVIEW

6.1 Markets for nuclear power and renewable energies

p In 2013, Kazakhstan also initiated an emissions trading system. Ukraine is contemplating an emissions trading system, as is Russia. In Turkey, the power sector could be subject to quotas. p Federal laws in the United States, such as the Energy Independence and Security Act, the Energy Improvement and Extension Act, and the American Recovery and Reinvestment Act, provide financial support to companies which invest in the carbon-free energy sector or local sources of energy with high added value. Three voluntary carbon emissions trading exchanges – the Regional Greenhouse Gas Initiative in 2009, the Midwestern Greenhouse Gas Accord in 2007 and the Western Climate Initiative in 2007 – have been established in 38 states and provinces of the United States, Mexico and Canada. In 2008, Quebec joined the Western Climate Initiative and is collaborating with California. p In Latin America, Brazil is considering various market tools, and two initiatives in São Paulo and Rio de Janeiro are pending. Mexico andChile are also considering an emissions trading system. p In China, a trial phase began in 2013-2014 with the launch of seven pilot projects in five cities (Chongqing, Beijing, Shanghai, Shenzen and Tianjin) and two provinces (Guangdong and Hubei). On December 10, 2014, the National Commission for Development and Reform of China (NDRC) published the first legal fundamentals for a national carbon quota exchange system, which should be launched in 2017. Once in operation, this market will be the largest in the world. p In Japan, a new energy plan is under discussion to curtail the growth of carbon- emitting energies, and there are already two local initiatives. In South Korea, an emissions trading systemwas launched in January 2015. However, the volumes traded are very low. p A similar program has also existed in New Zealand since 2008. Australia had initiated an emissions trading system but abolished it 2014. The price of carbon has always been relatively low in these markets (less than 30 euros per metric ton of CO 2 ) and did not have a significant impact on greenhouse gas reductions. In Europe, prices for the European Union Allowance (EUA) have stagnated since 2013 at around 4-9 euros per metric ton of CO 2 , due to a quota surplus. Other factors may have played a part in observed emissions reductions, such as the impact of policies which support renewable energies, the economic situation, and energy efficiency. In the European Union, a reform of the CO 2 emissions market is under study. Several tools are being considered to give carbon real value, including cancellations of quotas or the creation of a large reserve to limit the quantity put on the market. It is necessary to plan for the depletion of fossil energy resources The global availability of energy resources will not dampen the growth in energy demand by 2040 and beyond. However, a large amount of capital funding is required to exploit these energy resources and many factors will determine the rate at which this occurs, such as the uncertainty of the economic outlook, the investment climate and the availability of financing, geopolitical factors, climate change policies, technology advances, and changes in legal, tax and regulatory frameworks. In the absence of a strong climate policy, the gradual depletion of hydrocarbon resources is amajor threat to global energy supply. The price of oil has gone through several changes since the 1970s. The price fell after prices for all fossil fuels peaked widely in 2008, then climbed in 2010 to approximately 100 US dollars per barrel. Since the end of 2014, surplus production, particularly in the United States, led to a decrease in the price per barrel to 50 US dollars. According to the IEA’s New Policies Scenario, the average world price would reach 124 US dollars in 2040. In this scenario, the difficulty of finding oil substitutes for transportation and industry means increased consumption.

For the medium to long term, it is difficult to forecast changes in the availability of fossil fuel resources (oil and natural gas). Uncertainties about reserves, production costs and environmental standards (shale gas, bituminous sands, deep offshore oil and arctic resources) may prove very restrictive for production. In addition, oil and gas resources are unevenly distributed around the globe. To take an example, three countries – Iran, Russia and Qatar – hold more than half of the world’s natural gas reserves. Consequently, relying on the massive use of fossil resources to meet demand for energy would be the source of serious problems in terms of security of supply, with uncertainties as to volumes available and prices, in addition to the geopolitical risks. Oil is usedmainly for transportation, while natural gas and coal are used for industry, power generation and heat production. China is a big consumer of coal, which accounts for a substantial share of its energy mix. The need for investment and a change in the global power generation mix Massive capital spending in the electricity sector and a radical change in the power generation mix are required for the reasons outlined above: rising demand for electricity, urgent efforts to prevent climate change, and declining fossil resources. In theWEO2016NewPolicies Scenario, the contribution of low-carbon technologies to electricity production rises from about 33% in 2014 to 48% in 2040. That increase is due to the inroads made by renewable energies, but also to the greater contribution of hydropower. Nuclear power’s contribution increases only slightly. In reality, nuclear power production would climb by approximately 79% to around 4,532 terawatt-hours (TWh) by 2040, when a significant share of the existing reactor fleet would have to be replaced. Wind energy would increase more than fivefold by 2040.

GLOBAL ELECTRICITY MIX IN THE IEA’S NEW POLICIES SCENARIO

TWh

40,000

35,000

Other renewables Wind Bioenergy Hydro Nuclear

30,000

25,000

Gas

20,000

Oil Coal

15,000

10,000

5,000

0

2014

2020

2030

2040

Source:AIE,WEO 2016.

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2016 AREVA REFERENCE DOCUMENT