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.
Blog - The Capacity Factor 27 Dec 2009
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