New CEO says it is too soon to assess the full consequences of the Fukushima disaster on its long term strategy
Areva, the French and mostly state-owned global nuclear giant, is sailing in uncharted waters as its new CEO seeks to get a grip on the firm’s strategic direction.
The uncertainty has affected the firm’s publicaly traded shares and reduced investor confidence in the organization’s future. Some of these assessments may be premature since most of the rest of the global nuclear energy industry is in the same boat.
Since March 11, the firm’s shares fell by 30% to {e}24.80. That price is actually an improvement over an early July traded price of {e}17/share.
The firm’s financial statement [press release with links to 1st half reports] doesn’t tell the whole story. The firm’s new CEO Luc Oursel, told financial analysts July 27, “The full long-term impacts of Fukushima remain extremely difficult to assess at this time.”
Oursel promised to publish a strategic plan by the end of 2011. He also delayed releasing new financial targets. However, in the interim, he tried to reassure investors who include some of the financial community’s largest institutional investors. He said, “The fundamentals underpinning the development of the nuclear market are strong.”
Market size?
The Bloomberg wire service reported July 28 that Areva expects global new construction of nuclear reactors, in addition to the current fleet, to represent an added 304 Gwe of power by 2030. The current global fleet is 440 reactors providing 377 GWe of power.
This would yield a total of 681 GWe, but does not account for decommissioning of Germany’s 17 reactors and closing reactors elsewhere.
Areva estimates total global nuclear power generation by 2030 will be 584 GWe down from a previous estimate of 659 GWe. This produces a net gain of 207 Gwe or the equivalent of about 170 new 1,200 MW reactors.
On the other hand, there may be new market opportunities to carry out decommissioning of nearly 100 future closures. That isn’t a market Areva is in right now so it may need partners who know the business.
Oursel said key market drivers for new reactors are strong electricity demand growth, the need to build carbon emission free base load generation capacity to address climate change, and the need for nations to have energy security.
Market uncertainties equal market opportunities?
Uncertainties have been created by Germany’s retreat from nuclear power and the confusion unleashed by “personal comments” made by Japanese Prime Minister Naoto Kan, who called for his country to lower its dependence on nuclear energy. Paradoxically, Areva does not have any of its reactors in either nation.
CEO Luc Oursel (right) thinks the current dent in market demand will be fixed in the future. He told financial wire services that so-called “stress tests” of operating reactors may delay the construction of new reactors, but that the market for safety upgrades could be a new source of revenue for the firm. He said the firm estimates the average costs will be in the range of {e}100-200 million for each plant.
New build opportunities
Areva has plans to sell new reactors in China, India, and the U.S. The firm is building two in China and is negotiating to build the first two of six in India. Prospects in the U.S. now hinge on the ability of its partner EDF to find a U.S. investor for the Calvert Cliffs project in Maryland.
In China the current suspension of new projects may be lifted, Oursel told Bloomberg on July 28. According to the wire service, Oursel told financial analysts China is not giving up on its plan to push for a large nuclear fleet of reactors to provide power to develop its economy.
Areva’s challenge will be how much market share it can capture in a smaller future new build. It will be competing with Russian and Japanese nuclear firms which have their business plans looking at the same market factors and prospects.
Areva and EDF now partners
EDF and Areva appear to have buried the hatchet with the departure of former CEO Anne Lauvergeon. On July 25 the two firms joined hands in a public display of affection presided over by French Industry Minister Eric Besson.
Areva CEO Luc Oursel told EDF CEO Heri Prolio (right) the agreement is “new momentum for the French nuclear industry.”
He’ll need it because the joint effort is facing still competition. Another reason for the new level of cooperation is that EDF is no longer pushing to increase its stake in Areva which now former CEO Lauvergeon strongly opposed and which was a source of contention.
One of the immediate benefits of the new found agreement between the two firms is that Areva announced it is in discussions to supply up to six more 1,600 MW EPR reactors in the U.K. beyond those it is is already committed to provide to EDF.
Potential customers include Horizon, owned by a consortium of German utilities, and NuGeneration, which is composed of Span’s Iberdrola and France’s GDF Suez. To succeed, Areva will have to convince them the 1,600 MW EPR is technically uperior and has a better business case than the 1,100 MW Westinghouse AP1000.
Finland and Flamaville projects haunted by first-of-a-kind challenges
There have been some setbacks. The most recent is a delay of two years in completion of the EPR under construction in Flamanville, France. Adding to an atmosphere is doubt and uncertainty are the high profile schedule delays and cost overruns at a similar EPR under construction in Finland.
Work at the Flamanville site was slowed down for almost two months as a result of two fatal accidents at the site. In addition other “first-of-kind” difficulties have slowed the schedule for the reactor to now enter revenue service in 2016 instead of 2014 and to cost {e}6 billion instead of {e}5 billion.
At July 2011 currency conversion rates, the new cost of of the 1,650 MW reactor at $8.64 billion puts the cost at $5,200/Kw which is way above competitive costs for other reactor projects globally.
To compete in the market, Areva will have to convince potential customers that it can deliver a reactor on time and within budget at competitive prices. It lost the coveted UAE contract for new reactors to South Korea because it could not do so.
The causes were reported at the time to be a combination of price issues and a proposal effort hampered by the difficulties that then existed between Areva and EDF.
What about uranium?
Areva said in its comments to analysts it might revise the value of some of its African uranium properties, but did not highlight any planned changes in its Canadian uranium holdings, which are among the richest ores in the world.
Another question is whether it might delay its planned start of construction of the Eagle Rock Enrichment Facility in Idaho. The $2.4 billion plant is expected to get its NRC license later this year. Areva has set ground breaking for 2012 once the harsh Idaho winter lets go of the land. The firm reiterated at a July hearing held by the NRC in Idaho Falls that it plans to proceed with the project.
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2 comments:
The delay at Flamanville really hurts EDF. You can't keep arguing first-of-a-kind for more than one reactor --- that is Olkiluoto. I suppose if the build continues on-time and on-budget in China, then they could argue that the construction in France was incompetent (is that a good thing?). It would certainly look odd if the Chinese finish their first EPR ahead of Flamanville.
Lousy concrete quality is not a FOAK experience. I encourage anyone who wants to know the truth about Finland to read the STUK report, focusing particular attention on comments AREVA made regarding their intention to continue to award European safety-related work to subs without spelling out the quality requirements in the RFQs. AREVA's method of assuring a robust supply chain is to tell their subs about the quality expectations AFTER they let the contracts.
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