Sunday, December 27, 2009

South Korea wins UAE $20.4 billion nuclear contract

Award is based on commercial and safety merits of the bid

The Wall Street Journal reports Dec 27 that a consortium led by South Korean companies has won a $20.4 billion contract to build four new nuclear reactors in the United Arab Emirates (UAE). The newspaper reported that the announcement was made in Abu Dhabi by UAE President Sheikh Khalifa bin Zayede al Nayan.

UAE officials told the WSJ the South Korean consortium was selected because it met “stringent requirements” in terms of commercial aspects and for safety. The UAE expects the first reactor to enter revenue service in 2017. The win is a stunning victory for South Korea and projects its nuclear rector technologies into the global market. The winning team include Korea Electric Power Corp., Samsung and Hyundai business groups, Doosan Heaving industries, and Westinghouse.

Reuters reports that the South Korean team will supply four 1,400 MW light water reactors. The design was completed in 2002 and is being used to build new power stations in South Korea. Reuters also reports that the four units to be built in the UAE are expected to have a life cycle of 60 years. The deal reportedly includes operations of the reactors, turbines, and other balance of plant facilities.

Nuclear fuel for the reactors could come from other vendors including Areva. The UAE said it is in discussions with Areva for supply chain support outside the scope of the initial contract.

In a statement, South Korean President Lee Myung-Bak, told the WSJ the deal will bolster energy security for the UAE which is facing shortages in natural gas in future years. He was president of Hyundai engineering before entering politics.

The UAE is expected to become a net exporter of electricity to other countries in the region including the Kingdom of Saudi Arabia. The New York Times reports the UAE regional transmission and distribution grid will require "substantial upgrades."

The announcement comes after much speculation that the deal would be delayed by as much as six months due to the debt crisis at Dubai with a government-owned real estate project that is seeking to re-schedule $60 billion in debt. The Abu Dhabi emirate recently set up a $10 billion line for Dubai easing international fears that the real estate project would go into default.

Why did Areva lose?

The bid by French state-owned nuclear giant Areva, which was expected by many to win the reactor portion of the deal, may have been impacted by the UAE’s review of the firm’s track record at a project in Finland. It is is significantly over budget and behind schedule.

Recent public disputes with Finnish nuclear regulatory authorities, Siemens, and subcontractors, have not helped the project’s international image. While Areva has claimed to be making progress in resolving these problems, it apparently wasn’t fast enough for the UAE.

Price may have also played a significant role. Last month EDF and Areva, along with GDF Suez, reportedly resubmitted their bids with new price information. At one time the value of the contract was said to be as high as $40 billion.

The Korean bid was reportedly considerably lower than the bid submitted by the French group according to several wire services. Operating costs over 60 years, including fuel, and which could be as much as another $20 billion, are not accounted for in the inital award. KEPCO, the South Korean utility, is expected to take an equity position in the project.

GE-Hitachi also submitted a bid, but there are no details on it in news reports today. The Wall Street Journal's assessment of the bid process Nov 17 turns out to have been on target.

Korea and Westinghouse nuclear history of collaboration

According to the World Nuclear Association (WNA), Westinghouse has a significant presence in South Korea in terms of the number of operating reactors. Nuclear energy provides 40% of the country’s electricity and there are plans to increase that figure to 56% by 2020. [Complete WNA profile of South Korea’s nuclear capabilities]

In a profile of Korea’s nuclear energy industry, WNA wrote . . .

The Advanced Pressurized Reactor-1400 draws on CE System 80+ innovations, which are evolutionary rather than radical. The System 80+ has US Nuclear Regulatory Commission design certification as a third-generation reactor.

The APR-1400 was originally known as the Korean Next-Generation Reactor when work started on the project in 1992. The basic design was completed in 1999. It offers enhanced safety with seismic design to withstand 300 Gal ground acceleration, and has a 60-year design life.

Cost is expected to be 10-20% less than previous Korean designs. The first APR-1400 units - Shin Kori 3 & 4, are under construction, and operation is expected in 2013 and 2014. A 48-month construction period is envisaged. Korea Power Engineering Company (KOPEC) is the main designer, and Doosan the main manufacturer.

KHNP decided not to renew its reactor technology licence agreement with Westinghouse in 2007 but to embark upon a business cooperation agreement instead, whereby KHNP would join with Westinghouse in marketing jointly-developed technology while KHNP completes the development of its own components to replace those, eg in the AP-1400, dependent on the licensing.

This will lead into a KHNP $200 million program to develop an exportable AP+ large reactor design by 2015.

UAE and the US 123 agreement

The UAE deal is the first new commercial nuclear reactor project in the MIddle East. The UAE signed a “1-2-3 agreement” with the U.S. in which is promises not to build its own uranium enrichment capabilities nor reprocess spent nuclear fuel. The agreement is promoted as a model by the U.S. in terms of meeting nonproliferation objectives while advancing the use of carbon emission free nuclear energy to combat global warming. The agreement allows US firms, which includes Westinghouse, to sell nuclear reactor technologies, including fuel, to the UAE.

The UAE will use electricity from the nuclear reactors for three purposes. The first is for water desalinzation. Second, the UAE will move its aluminum industry up the value chain with electricity to forge ingots and finished goods. Third, the country needs to get off its supply of natural gas which is not able to meet its growth needs. See my coverage at the Energy Collective from March 2009 for details.

Updates

Blog - The Capacity Factor 27 Dec 2009


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6 comments:

uvdiv said...

At one time the value of the contract was said to be as high as $40 billion. The award of a $20.4 billion contract to the South Korean consortium is half that amount.

I think this is confusion by the journalists. Many sources including the Korea Times and BBC are currently reporting that this contract is worth $40 billion. Others are saying $20 billion. I think Al Jazeera knows what's going on:

While the contract to build the reactors is worth about $20bn, the consortium expects to earn another $20bn by jointly operating the plants for 60 years.

http://english.aljazeera.net/news/middleeast/2009/12/20091227134925905562.html

So you must be very careful comparing the "value of contract" figures - they mean different things.

The article also quotes insiders saying this was $16 billion less than the EdF bid, which obviously explains why they lost.

djysrv said...

I have these details in my report. Thanks for the additional clarification.

SteveK9 said...

One could read this as another sign of the rise of Asia and (relative?) decline of the West. Why can they do this for so much less money? Are they throwing safety to the wind, or have we become so willfully stupid, that we simply can't get it done anymore?

Anonymous said...

I think that this is more of an example of Korea having a real nuclear supply chain and able to control costs and schedule. They never stopped building reactors and it shows in the strength of their manufacturing and contruction project management. They won because they can deliver with more certainty than the EPR or ABWR.

Neurovore said...

Many Asian countries are investing heavily in other areas of research and engineering as well such as in the fields of biology and chemistry. If I may speculate, I think it has something to do with the fact that much of the already existing developed countries have gotten into the habit of resting on their laurels after "winning" the cold war and having no real challengers when it comes to science or technology. As many countries in Asia such as China, Korea, Singapore, etc. see Europe and the US as being economic and technological rivals, this has given them the motivation to try and catch up to or even surpass Europe and North America in these areas. Plus, I think that the cultures of many Asian countries are less obsessed with the precautionary principle which seems to be endemic to both the US and Europe. In any case, this should be a wake up call to the Western world as we are already in danger of being left far behind when it comes to energy technology.

Mattdaddy said...

Does anyone here really believe that it only costs $20B to design, procure and construct four nuclear plants, even by the Koreans? Come on really people wake up! The truth is that Kepco bought(stole) that contract from Areva and HGNE not becuase they were any better than them, but because they were cheaper and in the long run will loose money on this contract. This Contract included 4 plants, + initial core load and second reload and operational staff up to COD, which is presumably around 5 years time. You smart guys know that nuclear fuel is not cheap and neither is operational staffing, so subtract what the cost of this is and you are left with around $15B for 4 plants, $3.75B each. You and I both know that nobody in the world can construct 4 plants for $3.75B each. Truth is they are no better than the competition, they just bought the job. In the end they will loose money, but their goverment will recoup their losses. That certainly would not have happend for the GE team, but maybe AREVA could have gotten some money from France. By the way their nuclear platform is only 15 years old, so to say they never stopped, in reality they only just got started.

In so far as technology, their reactor is based upon the old US80 Westinghouse design, nothing new there.