DESERT CAMPAIGN
As customers rethink the balance between safety and price, will safety now win out?
Just over a year ago, price was still a potent factor.
In early December 2009, Areva was convinced it would win a landmark contract with Abu Dhabi to build four reactors — the first nuclear power plants in the Gulf Arab region. Also in the running were Westinghouse, GE Hitachi and a consortium of South Korean firms with no prior experience of selling reactors abroad.
The final offers, according to a WikiLeaks cable, were “followed by intense political lobbying by Korean, French, Japanese and U.S. officials, including French President Sarkozy”, and the Japanese and Korean prime ministers “who all repeatedly called the Crown Prince.” South Korean President Lee Myung-bak even flew to the United Arab Emirates to personally defend the Korean bid with UAE President Sheikh Khalifa bin Zayed al-Nahayan.
In the end it came down to price. The consortium led by GE Hitachi dropped its final price by “double-digit billions” according to a Wikileaks cable. But the Gulf state chose the rookie South Korean nuclear consortium, which proposed a price per kilowatt/hour that was 82 percent lower again according to a U.S. embassy cable obtained by WikiLeaks and seen by Reuters.
The winning consortium was led by state-run utility Korea Electric Power Corp (KEPCO) and included Hyundai Engineering and Construction and Samsung C&T Corp.
The Emirates Nuclear Energy Corporation (ENEC) said the value of the contract for the construction, commissioning and fuel loads for the four 1,400-MW APR1400 reactors was about US$20 billion, with a high percentage of the contract offered under a fixed-price arrangement.
In the end “the difference between the South Korean and the French reactors is a very safe reactor and an extremely safe reactor,” said James Acton at the Carnegie Endowment for International Peace.
Insiders say that it was not just price or safety considerations that drove ENEC’s decision. “Areva’s schedule slippage of over three years and cost overrun of over $3 billion on Olkiluoto did not help Areva,” an industry source told Reuters.
The French still hope that Abu Dhabi might change its mind and the market has been thick with rumours about a possible review, although industry watchers say these may have been spread by French diplomats in order to test Abu Dhabi’s resolve.
A spokesperson at Emirates nuclear corporation ENEC said that the UAE will continue to work with the South Koreans and is not looking to change partners.
CHINA – FROM CUSTOMER TO COMPETITOR
The biggest prize remains China, which is buying reactors from American, French and Russian builders while working hard on developing its own.
Beijing favoured Westinghouse’s plant over Areva’s in March 2007 when the Toshiba-owned firm signed a technology transfer agreement worth about $5.3 billion that put the AP1000 at the core of China’s plans to develop its own “localized” reactors.
Industry experts say that Areva’s failure was caused by its reluctance to give away its patents. In 2007, China ditched plans to build two EPRs in Yangjiang on the southeast coast, choosing to use its own second-generation CPR1000 designs instead after growing frustrated at the pace of negotiations.
So far, the AP1000 is on budget and on schedule in China.
But Areva has fought back and has subsequently won its own deal to build two EPRs at Taishan, also in the southeast, after finally agreeing to transfer key technology to the China Guangdong Nuclear Power Corporation.
Beijing’s impatience over third-generation plants has led to the fast-tracking of dozens of second-generation reactors, which led to charges of corner-cutting even before the Japanese quake.
In a paper published in January, scholars at the State Council Research Office said China was moving too fast and that many regions were bucking worldwide industry trends by building less reliable second-generation reactors. It recommended that apart from plants that have already been approved, all new nuclear projects should “in principle” be based on third-generation designs.
Li Ning, a nuclear expert and director of the Energy Research Center at China’s Xiamen University, told Reuters that because of the Fukushima crisis China’s focus will now shift further to third-generation technology.
That could give Westinghouse and Areva a competitive advantage, although it may not last very long. Just as Areva precursor Framatome adopted U.S. technology in the 1960s, the Chinese are learning quickly from their Western suppliers. Li expects that in the near future China will be capable of building projects abroad.
“When China localizes technology, manufacturing and construction it will be able to export to the rest of the world, sooner rather than later because the world will demand such newer technologies. China will have the advantage in manufacturing and skills and this advantage should not be restricted to the domestic market,” Li said.
U.S.-based independent nuclear consultant John Polcyn, who has worked in the nuclear industry worldwide for utilities as well as reactor vendors, expects that the Chinese will align with both Areva and Westinghouse to sell third-generation reactors abroad.
“The Chinese have publicly stated they can build nuclear power plants, including the EPR for 30 percent less than Areva. It could help Areva to be more cost-competitive,” Polcyn said.
He believes the two big Chinese firms will also market, build and operate China’s indigenous CNP1000 reactor. “The Chinese will claim the CNP1000 as a Generation III nuclear power plant, and I cannot disagree. The plants are designed to today’s latest requirements, have state-of-the-art, world-class digital control systems and use the latest materials,” he said.
He said that a number of Chinese entities are already marketing the CNP1000, notably in South Africa, Argentina and Saudi Arabia, where Chinese companies have been meeting with top officials.
The Chinese arrival on the reactor market will put pressure on the existing reactor suppliers, forcing them to take more cost and schedule risk for plant completions. Fukushima might buy the incumbents a bit more time, as China tries to incorporate the lessons learned, but not much.
“The Chinese announced their intent to begin exporting their nuclear power plant technology starting in 2013. I expect that due to the recent events in Japan there will be some delay, to 2014 or 2015. They are looking for opportunities,” Polcyn said. Even with the crisis in Japan, those opportunities aren’t likely to vanish.
(Reporting by Muriel Boselli and Geert De Clercq in Paris, Michael Kahn in Prague, Alissa de Carbonnel in Moscow, Scott DiSavino and Martin Howell in New York, Scott Malone in Boston, Eileen O’Grady in Houston, Amena Bakr in Abu Dhabi, Cho Meeyoung in Seoul, Krittivas Mukherjee in New Delhi, and David Stanway in Beijing; Writing by Geert De Clercq; Editing by Simon Robinson)
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