Costly delays upset Fukushima nuclear reactor renaissance

Bloomberg

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 US 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 US. 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 US shale boom, meanwhile, slashed prices for gas, coal and oil and undercut rising costs to develop nuclear energy.
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.
Following the purchase, Westinghouse was sued by CB&I over a $2 billion accounting dispute related to cost overruns at four reactors in the US 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.