To ensure the future of its nuclear power industry, the U.K. is relying on an unproven reactor design plagued by delays and billions in budget overruns.
The government’s deal yesterday with Electricite de France SA to build a $26 billion plant at Hinkley Point in England involves two European Pressurized Reactors. The first EPR project in Finland, led by Areva SA (AREVA), the French company that designed the technology, is seven years behind schedule and won’t be completed until 2016. The second, an EDF project at Flamanville in northwest France will cost more than twice as much as expected.
EDF says the lessons learned mean Hinkley Point will go more smoothly and that both the budget and time frame set out yesterday are realistic. History suggests the plan for the U.K., which needs to replace aging reactors built in the 1970s, isn’t ironclad, said Roland Vetter, head of research at CF Partners (UK) LLP, which runs a fund that invests in utilities.
“Nuclear is the biggest gamble in power generation,” said Ingo Becker, an analyst at Kepler Cheuvreux in Frankfurt. “At 16 billion pounds ($26 billion) for two EPRs, they have probably taken into account possible cost overruns.”
Billed as safe enough to withstand an airplane crash, the EPR reactor is at the heart of EDF and Areva’s hopes for a revival in nuclear power as a French export industry. The U.K. has remained committed to nuclear even after the Fukushima disaster in Japan turned others off atomic generation, including Germany, which decided to shut all its reactors.
“There is a series effect since we learned lessons from Flamanville and Taishan,” Thomas Piquemal, EDF’s head of finance, said on a conference call yesterday. Developing another EPR at Flamanville would shave 2 billion pounds from the costs of the first one, he said.
Although work at Taishan in China has also fallen behind schedule, it’s progressing faster than the European projects. Key milestones were reached two years faster than in Finland, according to Areva, which will take a 10 percent stake in the Hinkley Point project.
“The EPR meets all expectations of the U.K.,” said Charles Hufnagel, Areva’s head of communications. “The highest level of safety, competitiveness of low carbon generation, and certainty for the project thanks to the U.K. licensing and lessons learnt from four EPRs under construction in the world.”
In the event development of the U.K. reactors follows the European trend rather than the one in China, the U.K. may have to take steps to prevent generation shortages.
“Any delays could hurt energy planning in the U.K,” said CF Partner’s Vetter, who helps manage a fund that invests in European utilities. “The U.K. would have to make sure there are alternative power sources.”