Areva's double trouble with EPRs

Delays at Olkiluoto and Flamanville hit the bottom line

Reuters reports that French nuclear giant Areva will have to take a significant charge against earnings due to increases in the cost of its EPR under construction at the Olkiluoto site in Finland. At the same time Platts reports that the new nuclear power plant under construction at Flamanville in France, also an EPR, is nine months behind schedule. (EPR image WNN)

In Finland Areva, and its prime contractor Bouygues, said they were cleared this week of charges made by Greenpeace of disregarding quality instructions for welding. Staff for the Finish nuclear safety authority (STUK) reportedly said that following its own inquiries it was confident that "the welding procedures, qualification of welders, and the welds themselves are well done."

Bloomberg wire service reported STUK also said Aug 29 the supervision and "safety culture" of welding at the Olkiluoto-3 nuclear plant did not meet all of its standards and must be improved. The agency has specified changes after inspecting the site and interviewing workers last week. However, the regulator said it found no quality problems that threaten the durability of the welds.

Overall, costs for the plant, including the price of concrete and steel, have increased by 50% and upcoming labor troubles with Polish workers may add to the project's woes.

The problems in France at Flamanville cropped up last May due to missing or misplaced steel reinforcements in the concrete foundation. Electricite de France said despite the problems, the Flamanville plant was on schedule to enter revenue service in 2012. The firm did not say what steps it will take to reduce the schedule variance.

EPR costs catch up to U.S. new build estimates

The cost of the new reactor in Finland is reported to have increased from 3 billion(euros) to 4.5 billion(euros) or $6.7 billion. The cost per kilowatt for the 1,600 MWe plant is said to have increased from $2,800/Kw to $4,200/Kw which puts it in the low range of cost estimates for new reactors planned to be built in Florida by Progress and FPL. This means that despite the headlines in the financial wire services, Areva's plants, which were started several years ago, are faced with the same construction cost realities as new plants that were announced this year. This may make the cost increases in Europe less of a barrier to Areva's planned entry into the U.S. market. More on this below.

Record profits offset cost increases

AFP reports that Areva is setting aside 1 billion (euros) or $1.46 billion as a provision to absorb the new costs. However, the Associated Press also reports that Areva also booked record profits in the first half of 2007.

The world's largest nuclear reactor builder told AP net profit more than doubled in the January to June period to 760 million (euros) ($1.12 billion), up from $295 million (euros)($432 million) year earlier. Areva also credited growth in its nuclear waste treatment business.

Areva's reactor business posted an operating loss of 258 million (euros) ($380 million) in the first half, after the company made new provisions for the Finnish reactor project.

Merger madness put on ice

Forbes reports that as a result of the troubles at the two reactor construction sites that plans for a capital increase or merger with other firms have been put on hold by the French government. The majority of Areva's shares are owned by the government.

Forbes cited a report by a German banker as the basis for the new development. German engineering firm Siemens holds a 34% stake in Areva and is also supplying the turbines for the Olkiluoto site. French turbine maker Alstom, which also wants to increase its holdings in Areva, said it could expand without a merger. Anne Lauvergeon, Areva's CEO, wants the capital expansion but is opposed to mergers with other firms.

U.S. market - separating prime rib from baloney

Areva is planning a major marketing push to sell the EPR into the U.S. nuclear reactor market. New projects with the near-term likelihood of moving forward are at Comanche Peak in Texas, Ameren in Missouri, and Calvert Cliffs in Maryland. Areva has a joint venture with Constellation to build a standardized fleet of EPRs in the U.S. Last December Areva filed for design certification of its US EPR design with the NRC. The NRC expects to complete its review in Spring 2011.

Some of its planned reactors are slated for projects which are more conjecture than reality including Amarillo Power in Texas and AEHI in Idaho. The two projects have consistently failed the world famous "baloney test" for new nuclear builds.

As a result Areva's early enthusiasm for them may give way to financial realities. The company may decide its credibility in the market makes hanging out with visionaries a risky venture. As NRC Chairman Dale Klein says, the nuclear industry is no place for people without experience in the industry or the ability to work credibly in it. As things work themselves out at Olkiluoto and Flamanville, Areva will have plenty of experience to bring to the U.S. market and will likely make it a formidable competitor to Westinghouse and GE-Hitachi.

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Prior coverage on this blog.

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