Next-generation nuclear reactors stalled by costly delays

Costly delays, growing complexity and new safety requirements in the wake of the triple meltdown at Fukushima are conspiring to thwart a new age of nuclear reactor construction.

So-called generation III+ reactors were supposed to have simpler designs and safety features to avoid the kind of disaster seen in Japan almost six years ago. With their development, the industry heralded the dawn of a new era of cheaper, easier-to-build atomic plants.

Instead, the new reactors are running afoul of tighter regulations and unfamiliar designs, delaying completions and raising questions on whether the breakthroughs are too complex and expensive to be realized without state aid. The developments have left the industry’s pioneers, including Areva SA and Westinghouse Electric Co., struggling to complete long-delayed projects while construction elsewhere gains pace.

“The cost overrun situation is driven by a near-perfect storm of societal risk aversion to nuclear causing ultra-restrictive regulatory requirements, construction complexity, and lack of nuclear construction experience by the industry,” said Lake Barrett, a former official at the U.S. Nuclear Regulatory Commission.

Toshiba Corp., Japan’s biggest maker of nuclear power plants, is the latest to join a list of companies facing impairments in the pursuit of cutting-edge reactors.

Tokyo-based Toshiba said in December it may have to write down billions on an acquisition by its Westinghouse unit due in part to cost overruns at two nuclear plants it’s building in the U.S. The company aims to announce the details of the impairments on Feb. 14, which Bank of America Merrill Lynch expects to be 551 billion yen ($4.9 billion), while SMBC Nikko Securities Inc. forecasts 500 billion yen.

“We are reviewing the future of our nuclear power business outside Japan, but nothing has been decided at this time, including future development,” spokeswoman Yuu Takase said by e-mail in response to questions about the size of the writedown.

The March 2011 Fukushima meltdown that shuttered Japan’s industry sent ripples around the world, forcing companies and regulators to seek safer designs. The U.S. shale boom, meanwhile, slashed prices for gas, coal and oil and undercut rising costs to develop nuclear energy.

Ballooning Costs

In 2015, the investment cost to develop a new nuclear plant was $5,828 per kilowatt, up from $2,065 in 1998, according to a World Nuclear Association report. In Europe, construction of a new nuclear facility in France seen costing $7,202 per kilowatt, compared with $2,280.

Toshiba isn’t alone. France’s Areva SA is seeking a 4.5 billion-euro bailout from the French government after running into delays and escalating costs at its next-generation EPR reactor at Olkiluoto in Finland, which is almost a decade late. It’s also selling its nuclear reactor construction business to Electricite de France. An Areva spokeswoman declined to comment Wednesday.

Two EPRs at Hinkley Point in southwest England to be built by EDF are expected to run 18 billion pounds ($22.5 billion). The cost of an EPR being built by the company at Flamanville in France has tripled since construction started in 2007. The project is six years behind schedule. A spokesman Wednesday said the issues can be attributed to an industry, which has lost skills due to a building lull, struggling with a cutting-edge design.

Toshiba, one of Japan’s three biggest reactor suppliers, first made a bet on the future of atomic power in 2006, when it purchased a controlling stake in Westinghouse for $5.4 billion.

As recently as March, nuclear power business was seen as a growth driver, accounting for almost a fifth of net sales by fiscal year 2018, according to a company presentation at the time. The business comprised 13 percent of net sales in the latest fiscal year.

Westinghouse boasted that its generation III+ AP1000 reactor was the safest on the market, employing a simpler, modular design that could be rolled out in record time. In 2015, Westinghouse took over construction of two nuclear projects in Georgia and South Carolina when it bought contractor CB&I Inc.’s nuclear business for $229 million. The purchase also resulted in a settlement between Westinghouse, CB&I and the utilities that owned the plants over delays and cost overruns.

U.S. Overruns

Following the purchase, Westinghouse was sued by CB&I over a $2 billion accounting dispute related to cost overruns at four reactors in the U.S. While the case was dismissed, CB&I is appealing the decision and moved forward on a process with an independent auditor to decide who bears the charge.

The projects, split over two sites and overseen by utilities Southern Co. and Scana Corp., incorporate the AP1000. Cost overruns have ballooned, with Southern’s share at about $1.3 billion and Scana’s at least $831 million.

“I don’t know of any recent examples of new, large, complex technological construction projects that have come in on time and on budget,” Allison Macfarlane, a former chairman of the U.S. Nuclear Regulatory Commission, said by e-mail.

The industry has no agreed-upon definition for generation III+. Broadly, the reactors are expected to withstand an airplane strike and the cooling systems should operate for at least three days without electricity.

‘Get Up To Speed’

While the industry works through the challenges of the technology in Europe and the U.S., competitors in Asia are moving forward. South Korea started its first APR-1400 last year, and the U.A.E. picked the design for its first batch of reactors. China says its homegrown Hualong One, which it’s building at home and aims to sell overseas, uses third-generation nuclear technology.

Hualong One is part of China’s state-backed nuclear program that plans to boost capacity more than 70 percent by 2020. The world’s second-biggest economy will almost triple capacity to nearly 100 gigawatts by 2026, making it the biggest market globally, according to BMI Research.

And in Hungary, Russia has agreed to finance 80 percent of an estimated $12 billion to build two Rosatom VVER-1200 reactors. Russia is ready to raise that to 100 percent by “tweaking” the deal, President Vladimir Putin said at a joint briefing with Hungarian Prime Minister Viktor Orban on Thursday.

One fundamental problem facing developers is the slowed pace of construction since a nuclear building boom in the 1970s and 1980s, according to Mark Hibbs, a senior fellow at the Carnegie Endowment for International Peace’s Nuclear Policy Program.

“You get better at building reactors when you can keep at it,” Hibbs said by e-mail. “At some point Areva and Westinghouse may get to the point of doing that with generation three, but they would have to get up to speed first.”

About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us