STILL THE SAME OLD SONG: COSTS OVERRUNS AND DELAYS
(December 15, 2006) French nuclear energy giant Areva will take a charge of 500 million euro this year for extra costs because work on the 1600MW Olkiluoto-3 reactor in Finland is 18 months behind schedule, Les Echos reported, without naming its source. The reactor was initially due to be operational in mid-2009. Construction began in August 2005.
(650.5768) WISE Amsterdam - Finnish energy company TVO announced early December that construction of the world's first third-generation nuclear reactor is now 18 months behind schedule. 'The difficulties met since the start of work are not surprising. It is not a bag of chips that we are constructing in Finland but a nuclear reactor, which, what's more, is the first of its kind,' according to an Areva spokesman Construction of the EPR (European pressurised water reactor) began in August 2005 and the reactor was initially due to be operational in mid-2009. 'Today's estimate is that the unit will be completed at the turn of 2010-2011,' the head of the project Martin Landtman said in a statement. "The initial calendar was perhaps too ambitious", the business daily cited an Areva spokesman as saying. "Despite the 18 months delay, construction of the Finnish EPR will not take any longer than usual nuclear sites. We tend to forget, but Chooz, the last reactor completed in France, by EDF, went into service four years later than envisaged," (well, then you should be able to take that in account by now, shouldn't you?). According to Nucleonics Week, industry sources said the contractual penalty for Areva is 0.2% per week of delay past the May 1, 2009 commercial operation target for the first 26 weeks, and 0.1% beyond that. The contract limits the penalty to 10% of the total contract value, or about Euro 300 million, these sources said.
A consortium comprising Areva and Siemens AG is building the 3.2 billion Euro reactor. Areva admitted in July that the problems at the Olkiluoto 3 site will have a major impact on the company's full year results. The company announced massive loss in their profits for the first half of 2006. Income from nuclear operations fell from 373 million Euros to 73 million Euros, due to the contract for the Finnish reactor.
In June, only one year after the start of the construction, the project ran into delays of at least a year, equating to one-month delay for every month of construction. On top of that, the Finnish regulator admitted major problems in the quality control, raising safety concerns.
"The Finnish nuclear reactor was heralded as the start of a European nuclear 'renaissance' and has swiftly become the nightmare for the nuclear industry Greenpeace predicted," Jan Vande Putte of Greenpeace International. Said in July when the Areva publicised it's loss. "The reality is that the nuclear industry is in a deep crisis." "Nuclear power is not only highly dangerous, polluting and proliferating nuclear weapons," Vande Putte said, "but it is also incapable of delivering its promises to the energy market. It is however the champion in sucking up vast financial resources, which would be better used if invested in renewable energy and energy efficiency. The climate cannot afford such nuclear adventures any more."
To add to the problems, the European Commission (EC) late October launched a formal investigation to establish whether the French government's EUR570 million (US$725 million) loan guarantee financing TVO's Olkiluoto-3 reactor complies with EU rules on state aid. The loan agreement to TVO is for the purchase of equipment from Areva. Separate complaints were filed in late 2004 by Greenpeace and the European Renewable Energies Federation (EREF). Both organizations claim the loan guarantee unfairly subsidizes the project. TVO Finance Director Lauri Piekkari said the guarantee is a normal way of financing export projects and that such financing is covered by specific OECD regulations.
There is a lot to say about the claim of the nuclear industry ("Olkiluoto-3 has proven that nuclear is cheap even without government subsidies") but not that it is the truth. The tough competition between the manufacturers lowered the price of the whole project down.
Olkiluoto-3 is a crucial deal for its constructor, Framatome ANP. It is the first EPR design ever being built and a first nuclear project in a western country in a decade. Therefore the company was ready to dump the price - after securing € 575 (other sources claim even 610 million) COFACE export credits from the French government.
The agreement to construct the reactor was made for a fixed price of 3,2 billion Euro. Even this exceeded the maximal cost estimations used during the political debate by 700 million Euro. Already in 2004 there were signs indicating that the total costs would be exceeded significantly. The constructor Framatome ANP took all the risk by agreeing on a fixed price contract, which means that there's no financial risk on TVO if the project fails. This enabled TVO to get a very cheap Euro 1,95 billion loan with only 2,6 percent interest rate. TVO is a consortium of forest industry and public energy companies. TVO produces electricity for its shareholders and doesn't sell any electricity directly. The shareholders will get electricity according to their shares for the price of the production - meaning that TVO itself as a company isn't aiming for making profit. This also means that the electricity is priced based on production costs only
Sources: AFX News Limited, 5 December 2006 / Nucleonics Week, 2 November 2006 / WNA News Briefing 06.43, 25-31 October 2006 / Greenpeace International Press release, 27 September 2006 / Greenpeace Briefing, 15 October 2006 / www.olkiluoto.info
Contact: Kaisa Kosonen, Energy campaigner at Greenpeace Finland, Aurorankatu 11 a 2, 00100 Helsinki, Finland
Tel: +358 9 43157135; Fax: +358 9 43157137