Areva in Crisis.....new nukes at Shepperdine by 2025??..

The EPR in Crisis

Professor Steve Thomas,

University of Greenwich, London

My paper, ‘The EPR in Crisis’ concludes that the French Evolutionary Power Reactor (EPR) offered by the French state-controlled vendor, Areva NP and the French state-controlled utility, Electricité de France (EDF) is in crisis:

• Construction has gone dramatically wrong at the two sites in Europe where it is being built;
• The prices it is being offered at are so high that all contests where the EPR has been bid have either been abandoned (South Africa and Canada) or the contract has gone to a much lower bid from a competitor (UAE);
• Potential markets such as USA, UK and Italy all look problematic and reactor orders, if placed at all, will be much fewer and later than expected;
• The process of obtaining safety approval in France, UK and USA is incomplete and, even if successful, the features needed to achieve regulatory approval may add significantly to costs.
From a business point of view, the right course for EDF and Areva seems clear. They must cut their losses and abandon the EPR now. In the short-term this will require some painful write-offs, for example, of investments in the UK and the USA, but in the long-term, the losses will be much greater if they continue to try to make the EPR work. Areva’s main business is its reactor servicing and fuel activities and these would be little affected by the abandonment of the EPR. EDF already has too much nuclear generating capacity in France, so not ordering more reactors there will save it from unnecessary capital expenditure at a time when it acknowledges its debts are too high.

EPR was expected to be the first of a new generation of nuclear designs, so-called Generation III+, designed with all the lessons from the accidents at Browns Ferry, Three Mile Island and Chernobyl already known. The US Department of Energy in 2003 when it launched the Nuclear Power 2010 programme claimed:

‘New Generation III+ designs ... have the advantage of combining technology familiar to operators of current plants with vastly improved safety features and significant simplification is expected to result in lower and more predictable construction and operating costs.’

While this had some intuitive sense, it is now clear that the promises that we could have greater safety, simpler designs, all for a substantially lower cost than existing reactors was an illusion graphically illustrated by the issues EPR faces.

Olkiluoto in Finland was the first EPR to be ordered, in 2004. Construction has gone badly wrong. First power was expected within 4 years of start of construction but after 4 years, the plant was 4 years late and 90% over budget. The ‘turnkey’ or fixed price contract that seemed to symbolise the confidence of Areva in its new design was in tatters with responsibility for the more than US$3bn in cost over-run still to be settled in court.

Areva blamed problems with the Finnish utility and the Finnish authorities for the delays and there was an expectation that the problems with Olkiluoto would not be repeated when EPR was built on French soil. EDF, with its 58 large operating reactors, has vastly more nuclear experience than any other utility in the world. However, after 2 years of construction, the plant was 2 years late and more than 50% over budget. A further delay of a year was reported last week in Le Figaro, although this has been denied by EDF.

The expectation that the EPR and other Gen III+ designs would easily satisfy regulatory requirements has also been proved wrong. The French and Finnish safety authorities allowed construction to start before a full generic design assessment had been completed and major design details are still being resolved at both sites. In the UK and USA, the process of getting generic design approval is proving lengthy and difficult. In the USA, the process, expected to take about 3 years will now take at least 5 years till mid 2012 at the earliest. The comparable process in the UK is also running late and when it is scheduled to close in mid-2011, there are expected to be unresolved design issues sufficiently serious to preclude construction start. Resolving these design issues may well increase the cost of the EPR.

The prize for the EPR would be a large stake in ‘Renaissance’ markets like USA and the UK, where a decade ago, new nuclear orders seemed out of the question. In both countries, EDF has bought major stakes in existing nuclear power plants as its ‘entry ticket’ to build EPRs there. In the UK, EDF bought our existing nuclear generation facilities, a company called British Energy, for about US$20bn in 2008 despite the fact the company only emerged from bankruptcy in 2005. In the USA, EDF bought a 49.99% stake in Constellation’s nuclear plants for US$4.5bn but last summer it wrote of US$1.5bn of these investments.

The UK government has claimed it would offer no subsidies for new nuclear plants but as the economics of new nuclear reactors gets worse, it is clear that without subsidies no nuclear plants will be built. Without new build, EDF’s investment in British Energy would be an embarrassing waste of money, but without subsidies, the risks to it from building a new plant would be hard to justify. While the British government seems to be weakening on its ‘no-subsidies’ line, the cost to the public purse while the economy is still in poor condition would be hard to justify.

In the USA, a limited programme of subsidies launched in 2002 aimed at re-starting nuclear ordering has escalated dramatically so that tens of billions of dollars are now being requested in loan guarantees. The second in line for loan guarantees was the Calvert Cliffs project in Maryland for an EPR where loan guarantees worth about US$7.7bn were sought. However, the fee for this of 11.6% was too high for EDF’s partner, Constellation to swallow and it has withdrawn leaving EDF seeking a new partner. The Department of Energy sought to reduce the risk on the Federal government and thus the fee, by passing it to Constellation’s consumers by forcing them to buy Calvert Cliffs’ output.

 

For the governments of the USA and the UK, which have invested little political capital in the French nuclear dream, the sensible course is clear: stop all further investment of public money in the doomed EPR technology.