South Australia’s Nuclear Royal Commission needs to learn about AREVA’s financial and safety gloom

A negative learning curve on steroids What to make of the EPR saga? Areva is backing the wrong horse − the outcome of current political debates will result in a declining role for nuclear power in France, coupled to the growth of renewables.

A new report by ADEME, a French government agency under the Ministries of Ecology and Research, concludes that a 100% renewable electricity supply scenario is feasible in France. The report estimates that the electricity production cost would be €119 per megawatt-hour in 2050 in the 100% renewables scenario, compared with a near-identical figure of €117/MWh with a mix of 50% nuclear, 40% renewables, and 10% fossil fuels.

Areva has also backed the wrong-sized wrong horse: a giant reactor with a giant price-tag. That said, the backers of ‘small modular reactors‘ are having no more success than Areva. And Areva isn’t having much luck with its mid-sized ATMEA pressurised water reactor………

The EPR saga shows that developing modified versions of conventional reactors (in this case pressurised water reactors) can be complicated and protracted and can end in failure. How much more difficult will it be to develop radically new types of reactors? The French government’s Institute for Radiological Protection and Nuclear Safety has recently produced an important critique of Generation IV nuclear power concepts. It states that there “is still much R&D to be done to develop the Generation IV nuclear reactors” and it is sceptical about the safety claims made for Generation IV concepts.

Feeling the pressure: Bumbling nuclear’s negative learning curve Jim Green, 21 May 2015, Climate Spectator http://www.businessspectator.com.au/article/2015/5/21/energy-markets/feeling-pressure-bumbling-nuclears-negative-learning-curve

French state-owned nuclear giant Areva is offering to sell its ‘world leading’ nuclear technology to South Australia. The offer is being reported in the South Australian media without a hint of irony. A reality check is in order.

Areva has posted losses in each of the past four years including a €4.83 billion loss in 2014.Chief executive Philippe Varin said: “Areva’s paradox is that it is a world leader in its sector and a company in crisis.” Varin said the crisis was due to deficient management of big reactor projects and Areva’s failure to adapt to a weaker global market following the 2011 Fukushima disaster.

Areva’s spent nuclear fuel reprocessing operations are in trouble. A May 6 Reuters article outlines the problems. Areva’s reprocessing unit has lost nearly all of its international customers and now relies almost exclusively on domestic business. The company’s ‘back-end’ sales − reprocessing and decommissioning − have fallen from €2 billion in 2004 to €1.53 billion in 2014. Areva needs to invest something of the order of €200 million per year for the next 10 years to renew ageing equipment and boost capacity of its nuclear waste storage pools.

But Areva’s biggest problems involve its European Pressurised Reactors (EPR). These were the first Generation III reactor types to win orders, first in Finland in 2003 (Olkiluoto 3 − the first reactor order in Western Europe in 15 years), France in 2006 (Flamanville) and China in 2007 (two EPRs at Taishan).

Since then, EPRs have faced one problem after another. All three EPR construction projects have suffered cost blowouts or delays or both.

Since the contract was signed in 2003 for a new EPR in Finland, the estimated cost has risen from €3.2 billion to €8.5 billion. Areva has already made provision for a €2.7 billion writedown on the project, with further losses expected. French and Finnish utilities have been locked in legal battles over the cost overruns for several years. The project is nine years behind schedule − the start-up date has been pushed back from 2009 to 2018.

The estimated cost of the Flamanville EPR in France has increased from €3.3 billion to at least €9 billion. The first concrete was poured in 2007 and commercial operation was expected in 2012, but that timeframe has been pushed back to 2017 (with further delays likely).

The British Daily Mail in late 2013 characterised the Flamanville EPR project as one “beset by financial mismanagement with rocketing costs, the deaths of workers, an appalling inability to meet construction deadlines, industrial chaos, and huge environmental concerns”, and noted that “it continues to be plagued by delays, soaring costs, and litigation in both the criminal and civil courts.”

The two EPRs under construction in China are 13-15 months behind schedule.

Since the Fukushima disaster, a number of countries that might have considered EPRs pulled back from earlier interest in new reactors − the Netherlands, Sweden, and Switzerland, among others. In 2012, new-build tender processes in Finland and the Czech Republic rejected the EPR.

In the US, a total of seven EPRs were planned at six sites. Four EPR construction licence applications were submitted to the Nuclear Regulatory Commission (NRC) but all have been abandoned or suspended. In February 2015, Areva asked the NRC to suspend work on EPR design certification.

EPRs were considered at various sites in Canada but those plans were shelved and a generic licensing process by the Canadian Nuclear Safety Commission was terminated.

In 2009, Italian utility Enel and EDF planned to build four EPRs but that plan was scrapped after Italy’s June 2011 referendum which rejected nuclear power. In 2012, Enel pulled out of the Flamanville EPR project.

The United Arab Emirates chose South Korean reactor technology over EPRs. Reflecting on that decision, former EDF head Francois Roussely concluded that while the EPR is “one of the best” third-generation designs, the complexity of the design is a “handicap”. Likewise, Cambridge University nuclear engineer Tony Roulstone said in an October 2014 lecture that the EPR design is very safe but extraordinarily difficult to build − he described it as “unconstructable“.

According to the US NRC, EPRs have four sets of active safety systems, each capable of cooling the reactor on its own, and other safety features including a double-walled containment and a ‘core catcher’ for holding melted reactor core materials after a severe accident. But the safety of some EPR design choices has been questioned by the French government’s Institute for Radiological Protection and Nuclear Safety, and the EPR licensing process in the UK has been criticised.

Pressure vessel problems

On 7 April 2015, the French Nuclear Safety Authority (ASN) announced that fabrication defects had been found in the reactor pressure vessel of the Flamanville EPR. Tests revealed areas with high carbon concentration resulting in “lower than expected mechanical toughness values”.

Pierre-Franck Chevet, head of ASN, said: “It is a serious fault, even a very serious fault, because it involves a crucial part of the nuclear reactor.”

The results of further tests are expected by October 2015. In one scenario, ASN will not require any remedial action and there will be minimal consequences for Areva. But if remedial action is required, it could be extremely expensive and problematic for Areva, all the more so because the pressure vessel has already been installed in the Flamanville EPR. Asked what would happen if tests were negative, Chevet said: “Either EDF abandons the project or it takes out the vessel and starts building a new one … this would be a very heavy operation in terms of cost and delay.”

In a worst-case scenario for Areva, the pressure vessel problem would kill the Flamanville reactor project. A former senior nuclear safety official told Le Parisien: “If the weakness of the steel is proved, I don’t hold out much hope for the survival of the [Flamanville] EPR project.”

French environmental minister Ségolène Royal congratulated ASN on its speedy reaction to the pressure vessel problem. Others are asking why the problem was not discovered before the vessel was installed. It is believed the problem involved aninaccurate material inspection device used between 2009 and 2014.

ASN’s Pierre-Franck Chevet acknowledged that “mistakes had been made”.

He said: “It is more than 15 years since the last nuclear power stations were constructed in France. The expertise in some trades has not been sufficiently passed on from one generation to the next.”

Chevet said the two planned EPRs planned for Hinkley Point in the UK could be affected as identical safety casings have already been manufactured for those reactors using the same manufacturing techniques.

The two EPRs under construction in China might also be affected since the pressure vessels for those reactors were forged by Areva subsidiary Creusot Forge, as was the Flamanville vessel. China will not load fuel at the Taishan EPRs until safety issues have been resolved, China’s environment ministry said.

A senior manager of a Chinese nuclear company, speaking anonymously to the South China Morning Post, said: “The people responsible for this need to be sacked. It shouldn’t have happened. All materials must be checked thoroughly before use − that’s a basic requirement. The urgent task is to launch a quality inspection in Taishan as soon as possible. Each batch of materials varies slightly. We will cross our fingers and pray for the best.”

A future for EPRs?

An immediate priority for Areva is to keep the UK Hinkley Point EPR project moving ahead. That project faces a legal challenge under EU regulations against the massive subsidies being offered by the UK government. Areva also has to sort out unresolved issues with its Chinese project partners. And it needs to find additional partners to cover capital costs.

Ironically, Areva itself may not have the resources for its expected 10% stake in Hinkley Point. Chief executive Philippe Knoche recently declined to commit to the 10% figure, and the head of Areva’s reactors and services division said: “Our current financial situation obviously will make things more difficult.”

Bloomberg noted in an April 16 article that Areva’s EPR export ambitions are now in “tatters”. Bloomberg quoted former World Nuclear Association executive Steve Kidd, who said “everyone was laughing” at Areva’s projections for EPR sales.

According to trade union sources, Philippe Knoche said in February that the utility was likely to sell only about a dozen EPRs in the years up to 2030, down from 25 predicted previously.

If Areva is to secure a dozen orders by 2030, it will need further orders from China − which seems increasingly unlikely. Steve Thomas from Greenwich University says reactors built by Areva and Westinghouse “are just too expensive for the Chinese.” The two EPRs under construction at Taishan will likely be completed (unless the pressure vessel problem becomes a major obstacle). It is doubtful whether two additional EPRs planned for the same site will proceed, and still more doubtful that EPRs will be built at other sites.

An agreement (but not a binding contract) to build two EPRs at India’s Jaitapur site was signed in 2010. The project has moved at snail’s pace. Construction was to start in 2013 but unresolved issues (including financial arrangements) continue to delay the project.

Perhaps Areva will secure further orders in France. That will depend in part on debates over future reliance on nuclear power and other electricity sources, and a debate over permitted lifetimes for the current fleet of reactors.

A negative learning curve on steroids

What to make of the EPR saga? Areva is backing the wrong horse − the outcome of current political debates will result in a declining role for nuclear power in France, coupled to the growth of renewables.

Areva has backed the wrong-sized wrong horse at the wrong time − the Global Financial Crisis and its aftermath, stagnant energy demand, the liberalisation of energy markets, the political fallout from the Fukushima disaster and other factors have dampened demand for new reactors and made it more difficult to secure finance (or government subsidies) for huge projects.

The EPR saga undermines the rhetoric of standardised, simplified reactors designs ushering in a new era of nuclear growth.

The EPR saga shows that even countries with extensive nuclear expertise and experience can mess things up.

The EPR might have demonstrated the potential for mass production to drive down costs − but in reality it is demonstrating the opposite. Even before the EPR fiasco, the large-scale, standardised French nuclear power program was subject to a negative economic learning curve − costs were increasing over time. The EPR represents a negative learning curve on steroids. That point is emphasised by construction cost estimates of £16-24.5 billion for two planned EPRs (with a combined capacity of 3.2gigawatts) in the UK.

In the mid- to late-2000s, the estimated construction cost for an EPR in the UK was £2 billion. Current estimates are four to six times higher.

Dr Jim Green is the national nuclear campaigner with Friends of the Earth Australia and editor of the Nuclear Monitor.