FRANCE‘S NUCLEAR EXPERTISE
From the desk of MD
The Chief Executive of Areva, the French government-owned company, believed a future existed in nuclear power well before anyone else accepted the benefits of the industry. Areva is now building the first nuclear reactors to be constructed in Western Europe for almost two decades.
In 1974, France decided to go nuclear on the basis that choice was running out. Today, about 80% of France’s electricity is generated by 59 nuclear plants that extend across the country. Despite France’s development of nuclear infrastructure during and prior to the 1980s, it too fell victim to cynicism and pessimism with nuclear power: it stopped building new reactors at the end of the 80s and, in 2002, a government report suggested that the industry was a “monster without a future”.
Nuclear power is back in favour in France largely due to fears over oil supplies, energy security and the pressures that countries are facing in meeting with the EU’s climate change targets. The French seem poised in developing its expertise within the nuclear industry into a significant export. Nicholas Sarkozy, its president, considers the sale of nuclear energy central to his diplomacy. France has reaffirmed its status as a global industrial power following tours of countries from China to Libya, immediately after his election to office 18 months ago, in touting France’s nuclear expertise abroad. His political diplomacy and astuteness amounted to several deals being signed that have opened the way for French firms to sell reactors.
France has two distinctive competitive advantages within the nuclear field. Evidently, it has the most recent and extensive experience of any country in building and operating nuclear power plants. That has given Areva’s “third generation” reactor design (know as the EPR) an edge over its two main rivals: Westinghouse (now part of the Japanese Toshiba Group) and GE Hitachi (a newly formed joint-venture). Secondly, French engineers have developed innovative and novel reprocessing techniques in that the nuclear energy it is able to generate produces less waste than in comparison to other countries.
Areva’s EPRs are now known to be under construction at Flamanville in Normandy, Olkiluoto in Finland and Taishan in China. The state-owned company forecasts that demand for nuclear energy could result in orders for 60 reactors, or one-third of the total market, by the year 2020. Each would come with a price tag of around $6.3 billion. Westinghouse has already taken orders from China for four of its new AP1000 reactors, and GE Hitachi’s ESBWR design is being considered for adoption by several American utility companies.
IN THE MIDST of a global credit crisis, the high costs involved of building new sites and the uncertainty over the cost of generating nuclear energy relative to other sources, could delay the nuclear renaissance. Fortuitous, for vendors, is that governments are intent on tackling climate change and how best energy supplies might be secured. Because of competing resources and in securing the best available technical support and expertise governments are likely to offer substantial subsidies.
The UK, for instance, has already given its blessing to France’s nuclear ambitions: in September, Electricité de France (EDF), a state-owned energy conglomerate which owns and operates France’s plants, purchased British Energy, an ailing utility company in which the British Government held a large stake. British Energy intends to build four new reactors in Britain and seems certain to choose Areva’s EPR (EDF is closely intertwined with Areva). South Africa will shortly say, too, whether it will proceed with plans in building up to 12 new reactors and whether it will use the services of Areva or Westinghouse.
In some markets, the French are may lose out to local rivals. Last week EDF launched a $4.5 billion defensive bid for half of the nuclear business of Constellation, an American utility. EDF had envisaged using Constellation as a platform to expand in America and, in February of this year, UniStar – the two firms’ joint venture – agreed to propose Areva’s EPR plans for construction in America. In September, Constellation agreed to be acquired by MidAmerican, hence the defensive bid by EDF.
Competitors of Areva must be encouraged that its showcase reactors have run into trouble. At Olkiluoto, for example, Areva’s EPR is at least three years behind schedule and an estimated 1.5 billion Euros over its initial budget of 3 billion Euros. The French say the main reason Areva has had difficulties was due to its fierce bidding to keep GE out. At Flamanville, construction difficulties remain. After such a long hiatus in building plants any firm would have had protracted problems: such delays may also reflect a shortage of nuclear skills that is not unique to France.
France will likely find it easier to sell nuclear power within emerging markets. France can probably count on selling several reactors to countries such as Brazil, China and India.
Mr. Sarkozy’s tour of the Arab world did raise concern among non-proliferation specialists but, pragmatically, only a fraction of those projects announced will lead to the building of nuclear power stations. The country most likely to end up signing a contract is the United Arab Emirates.
In helping Areva to expand abroad, the intention is to localise the firm in its most important markets. The capital-intensive nature of nuclear power means that the cost of labour is relatively an unimportant factor, so Areva can afford to employ expensive workers in rich countries. In Britain, Areva plans to revive nuclear-related manufacturing. The company believes that it will be helped in the future by Barack Obama and Gordon Brown, as well as continued efforts from its own president, Nicolas Sarkozy.
The big question for the future of French nuclear power is whether Areva will break free from the French state. In several markets, such as those in America, it would be far simpler if the company was able to operate as a private firm, like its rivals. Areva has since fought against government plans in creating a three-headed national merger with Alstom, an engineering firm rescued from bankruptcy by the state in 2004, and Bouygues, an industrial conglomerate. Areva prefers its customers to be free to choose in how it buys components, from whomever they like, rather than having to buy everything from a combined consortium.
Such a merger would mean ending a successful partnership that Areva has had with Siemens, a large German engineering firm which owns 34% of Areva NP, Areva’s nuclear-reactor subsidiary. That would hit Areva’s prospects in Germany.
© Mark Dowe 2008: all rights protected
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Outstanding political and current affairs coverage.
Reference & attribution:
- Adapted from an Economist article entitled, “Power struggle”, dated December 4, 2008.
Filed under: Economic, Environment, European Union, United Nations, World Affairs, climate change, energy
