Au revoir, Areva?

The giant French nuclear reactor manufacturer Areva is in serious trouble. According to several reports published today (here’s one from New York Times,  here’s one from Reuters), publicly-traded shares in Areva dropped 15% yesterday. That plunge doesn’t in itself affect Areva as much as it would other companies, since only a small portion of Areva’s shares are publicly-traded–the French government owns 87% of the entity.

But that doesn’t make Areva’s troubles any less real. The company, which recently lost its CEO to health issues, warned yesterday that its outlook is uncertain and suspended its financial projections for both 2015 and 2016. That doesn’t bode well.

Areva’s problems are legion, but two huge missteps over the past decade continue to haunt the company.

The first was agreeing back in the early 2000’s to build its first new design reactor, the EPR, in Finland on a fixed price contract of 3.2 Billion Euros. The cost of that reactor, which was supposed to begin operation in 2009, has nearly tripled and its most recent projected date of operation is 2018–which few expect to be met.

The reverberations from that fiasco have followed Areva to Flamanville, France, where it is supplying (or currently unable to supply, according to EDF) Electricite de France with its only new reactor project in the country. That one is also well over budget and behind schedule (yesterday EDF announced that because of Areva’s problems, the operation date has been pushed back a year to 2017).

Areva’s second big misstep was believing in the nuclear “renaissance” and positioning itself to become a major nuclear reactor exporter. The Finnish reactor project was the first effort and the fixed-price contract was meant to assure utilities elsewhere that Areva had great confidence that its reactors could be built cost-effectively.

So Areva tried to enter the U.S. market, with plans to build four reactors here–in Maryland, New York, Missouri and Pennsylvania. But even before the collapse of the Calvert Cliffs-3 project in Maryland–the pacesetter for the other Areva projects–became official, the estimated cost of the EPR became astonishing. The Bell Bend project in Pennsylvania, for example, posted on its website years ago an estimated cost of $13-15 Billion for a single reactor. Bell Bend, by the way, has not been officially cancelled.

Similarly, an effort to sell the EPR in Canada fell apart when cost estimates there came out to be nearly twice the estimates of other reactor designs.

Areva did manage to sell a couple EPRs to China, which are under construction, but reports from that opaque country indicate that costs there too are far exceeding estimates and the odds that Areva will get to sell any more to perhaps the only remaining significant nuclear market in the world are slim.

That leaves Areva with the hotly controversial Hinkley Point project in the United Kingdom, which, if actually built, would be the most expensive power plant project in history. Even before any work has been done on the project, the cost for its two reactors is estimated at 24.5 Billion pounds–or $38.5 Billion dollars.

To make the deal work–since it would never work on normal economic terms–the British government is guaranteeing that EDF, which will operate the reactors, will receive a price for its electricity more than double the current going rate for electricity in the country. The government threw in a $10 Billion pound loan guarantee for good measure.

Still, there is no such guarantee that the reactors will actually be completed. EDF needs more investors and is relying heavily on some Chinese companies, who apparently want more say in who will provide parts for the reactor than EDF and Areva are comfortable with. That recently has led to negotiations with some Saudi investors to take on a portion of the project. But none of those potential investments are yet signed on paper, much less stone.

And the concept of a guaranteed price for electricity–especially one twice as high as current prices–smacks to some other European nations as akin to a subsidy, which is expressly forbidden by European Union rules. While the project has received initial approval from the EU, Austria plans to challenge that ruling in court, and may be joined by other countries and entities.

For an excellent recap of the Hinkley Point project, go to Europe’s Energy Post here.

Even a return to the French marketplace will no longer be a last resort for Areva, as the government moves ahead in its plan to reduce nuclear power and increase renewables–a plan as ambitious–at least in terms of megawatts–as Germany’s plan to get out of nuclear entirely.

Areva remains a huge entity of course, and it seems unlikely the French government will let it fail entirely. But its future is difficult to discern. The government apparently wants to install the current head of the French automaker Peugeot as the new CEO of Areva. He may well be a good businessman; it’s unlikely he’s a nuclear reactor expert. And when it comes to exports? Well, let’s just ask how many Peugeots do you see clogging U.S. streets?

Given France’s new energy intentions, and Areva’s inability to compete in the dwindling nuclear business, could we see Areva drop its nuclear division entirely and re-fashion itself as a renewable energy giant? Don’t laugh: Areva’s original partner in designing the EPR was the German energy giant Siemens, which is now in the process of doing just that.

Michael Mariotte

November 19, 2014

Permalink: https://www.nirs.org/2014/11/19/au-revoir-areva/

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