Consolidation after WW2
Jan Osička
Changes introduced by/throughout the war
What were they?
Changes introduced by/throughout the war
Regimes, institutions and economy
• War economy – nationalization of resources and supply chains (US/UK)
• US turns net energy importer – further pressure on relations with producing countries
• Emergence of „operations research“
Technological advancement
• ICT – radar, remote control, guiding systems, electrical computation, network
communication
• Transportation – ICS-based mobility, jet engine-based aviation
• Rocket science – space program
• Chemical engineering – plastics (substitutes for rubber and glass)
• Piping/welding – oil and gas transfers
• Nuclear energy
Consolidating energy industries (region-specific)
Established industries
• Coal, oil, electricity
Emerging industries
• Nuclear energy, natural gas
Consolidating energy industries
Centralized approach
• Vertically integrated national monopolies
• Stable, secure, affordable supply of energy to the national economy
Market-based approach
• Market competition (or fragmentation)
• Energy supply as a by-product of a profit-seeking behavior
Lecture outline
Case studies illustrating the two approaches:
• Nuclear industry in the U. S. (mixed approach)
• Regulated utilities – costs recovered in bills paid by customers
• Deregulated utilities – costs paid directly by the utilities
• Natural gas industry in Europe (centralized approach)
Consolidating the power industry: the business model
Year Rated power (MW) Thermal efficiency (%) Price (USD1992/kWh)
1892 2.5 4.00
1907 12 1.56
1927 110 20 0.55
1947 0.19
1967 1,000 40 0.09
The “Grow and build“ strategy
(technological progress + cost/price decline)
• Promote electricity usage
• Build bigger and more efficient plants
• Bring down the costs and sell more electricity
• Promote further electricity usage
• …
The consolidation of nuclear industry in the U. S.
“The energy produced by breaking down the atom is a very poor kind of thing. Anyone who expects a
source of power from the transformations of these atoms is talking moonshine.”
Lord Ernest Rutherford, 1933.
“It is not too much to expect that our children will enjoy in their homes [nuclear generated] electrical
energy too cheap to meter.”
Lewis Strauss, Chairman, US Atomic Energy Commission, 1954.
„The failure of the U.S. nuclear power program ranks as the largest managerial disaster in business
history, a disaster on a monumental scale … only the blind, or the biased, can now think that the
money has been well spent. It is a defeat for the U.S. consumer and for the competitiveness of U.S.
industry, for the utilities that undertook the program and for the private enterprise system that made
it possible.“
Forbes cover story “Nuclear Follies“, February 11, 1985
The origins
The Manhattan project (1942-1946)
The experimental breeder reactor (1951)
Atoms for Peace (1953)
Atomic Energy Act of 1954
• Regulatory oversight over nuclear
energy assigned to the Atomic Energy
Commission (AEC)
Commercialization of nuclear energy
• AEC‘s role: „To ensure public health and safety from the hazards of
nuclear power without imposing excessive requirements that would
inhibit the growth of the industry“ (NRC 2017)
• Insufficiently rigorous regulations in several important areas, including
radiation protection standards, reactor safety, plant siting, and
environmental protection
Commercialization of nuclear energy
• Rapid increase in power output
• 1953-1962: below 300 MW
• 1965: average 660 MW
• 1970: average above 1,000 MW
• Upscaling perhaps too fast to facilitate learning
• Multiple manufacturers (Westinghouse, Argonne National Laboratory,
General Electrics, BWXT,…) => multiple reactor designs and sub-designs
(each unit a prototype)
=> Economy of scale has not been achieved
1970s: industry in crisis
• Electricity demand increases
with a slower pace
• Costs of nuclear power
increase
• Political and local opposition
towards nuclear
Shoreham NPP (Long Island, USA)
• Announced in 1965 by Long Island Light Company
• Expected to come on line by 1973 at $65 - $75 million
• 1968 LILCO decides to increase the unit‘s size from 540 to 820 MW
• Cost overrun
• Construction delay => more time for anti-nuclear movement to spread across Long Island
• 1979 Public opposition intensifies after the Three Mile Island accident => 1983 the county legislature does not
approve the plant‘s evacuation plans
• Costs reach $2 bn (low productivity and design changes ordered by federal regulators)
• 1984 The plant is completed, but does not receive operation license due to the unapproved evacuation plans
• 1994: The plant is fully decommissioned, the total costs reach $6 billion (covered by the LI consumers)
The consolidation of gas industry in Europe
The consolidation of gas industry in Europe
• 1920s – 1930s: first experiments with natural gas as a
substitute for manufactured gas in Europe
• WW II: scarce oil, coal locally unavailable (Romania, Austria, N.
Italy, SW. France, E. Poland)
• 1960s: before Dutch, Algerian, Ukrainian, Siberian, Central
Asian discoveries the markets were scattered and localized.
• 1970s: rapid growth in gas use and network development
• 1965: EU consumption of 39 bcm
• 1975: EU consumption of 216 bcm
• wider portfolio of customers (fuel, feedstock)
The formative years of transnational links
• 1966: Groningen – Germany,
• 1967: Groningen – Belgium, Ukraine – Czechoslovakia
• Gas interaction between policaly similar countries
• Netherlands ,W. Germany, Belgium, France (NATO, ECSC, EURATOM)
• SU, Czechoslovakia, Poland (COMECON)
The formative years of transnational links
Late 1960s: gas emerges as an „European issue“
• Competition between Dutch, Libyan and Algerian gas
• Two pan-European pipelines planned
• Algeria – Spain – France – Britain
• Algeria – Italy
• First LNG projects on stream (Britain, France, Italy, Yugoslavia,
Spain)
• The Soviet Union steps in…
Soviet gas in Western Europe
• Initiator: Austria
• No coal
• A forerunner of European gas industry
• ÖMV struggling to meet demand
• The Brotherhood ppl passing just 16 km away from Austrian network
• Established cooperation with CS over joint development of bordersituated
large gas field
• The SU lacks spare export capacity
Soviet gas in Western Europe
• 1965: Italian ENI starts negotiations over development of
recently discovered W. Siberian fields
• Italy/ENI
• Best relations with the SU among the W. European companies
• Oil importer and exporter of oil industry equipment to the
communist block
• Strong Italian CP seeking stronger relations with the SU
• Trans-European Pipeline project (SU-Hungary-Yugoslavia-Italy)
Soviet gas in Western Europe
Austrian reaction: new series of negotiation with the SU.
• Austrian steel company VÖEST will provide the SU with largediameter
steel pipes in exchange for re-routing the pipeline
• Germany (the supplier of the pipes) decided not to back up
the plan, despite strong Bavarian support
• The Soviets finally agree after Austria getting closer to EEC.
Soviet gas in Western Europe
The results
• 1968: Soviet supplies to Austria come on stream
• 1970: agreements with Italy and Germany (Ost Politik)
• 1973: First Soviet deliveries to Germany, GDR also linked to the
system
• 1974: First Soviet deliveries to France
• All through the same pipeline
Summary
• The post-war growth of energy demand facilitated source diversification and
triggered development of new technologies.
• The case of nuclear power development in the U.S. highlights the
importance of regulation.
• The formative years of the European gas market show the importance of
both domestic and international political setting.
• New path-dependencies
• Heterogeneous reactor design prevents the nuclear industry from achieving economy
of scale
• Natural gas relations in Europe are strongly (geo)politically laden