France caught between nuclear cliff and investment wall

Thursday, May 1, 2014

PARIS, April 30 (Reuters) - France must decide in the next few years whether it wants to continue its nuclear-driven energy policy at a cost of up to 300 billion euros ($415 billion) or if it wants to embark on an equally costly route towards using other fuels.

Most of the country's 58 nuclear reactors were built during a short period in the 1980s, and about half will reach their designed age limits of 40 in the 2020s, pushing France towards what industry calls "the nuclear cliff."

Public support in France for nuclear power has traditionally been strong but is looking shakier since the 2011 nuclear reactor meltdown at Japan's Fukushima facility following a massive earthquake and tsunami.

And French President Francois Hollande has said he wanted to cut the share of atomic energy in France's electricity mix to 50 percent from 75 percent by 2025, reduce oil and gas consumption and boost renewable energy.

A replacement of the nuclear plants run by state-controled utility EDF, or a switch towards alternative sources would cost huge amounts of money.

"There's a problem, which is decision-making. Are we going towards a new nuclear fleet or not? This needs preparation," Jacques Repussard, the head of state-funded nuclear advising institute IRSN told Reuters in an interview.

EDF has advocated an extension of the reactors' lifespan to 50 or even 60 years, arguing that they were modelled on similar reactors in the United States which have been granted 60-year licences.

But French nuclear watchdog ASN, the only authority allowed to grant this extension, has so far repeated that the utility should not take this extension for granted and would only give a first opinion next year and a final one in 2018-2019.

That may leave France with no other choice than hastily building coal or gas-fired plants to back up the expansion of renewable power, supplies of which can fluctuate depending on weather conditions and time of day.

"If there is no extension, clearly the answer to fill the gap would not be nuclear plants, it would be gas-fired plants or something like that," Dominique Miniere, head of production and engineering at EDF said.

Putting a price tag on replacing the nuclear fleet with other plants could involve a variety of calculations, depending on the mix of energy sources chosen.

The cost of electricity produced by the current nuclear fleet was put at around 50 euros per MWh in 2012 by the state auditor, compared with a cost of 62-102 euros/MWh for onshore wind and 114-547 euros for photovoltaic power. EDF said the cost of new gas- or coal-fired electricity would be between 70 and 100 euros per MWh.


With costs huge in either case, the government has so far been undecided.

On the one hand, EDF wants to cash in on its nuclear know-how through exporting its technology and services, including to Britain's nuclear investment power programme.

Yet EDF also faces a 55 billion euro upgrade of its existing reactors by 2025 and will have to decide on how to finance their ultimate replacement, at a potential cost of up to 240 billion euros, about six times EDF's existing debt pile.

"If you close down all nuclear reactors when they reach 30 or 40 however, you will need to build a huge new fleet, that would be a massive challenge not only from a financial point of view but also from a project management point of view," said Laszlo Lavro, head of the International Energy Agency's Gas, Coal and Power division.

Within the government, ministers have voiced contradicting views on nuclear energy, even though the departure of the Green party from the government has made the pro-nuclear case stronger.

An energy transition bill now slated for July has been repeatedly delayed, with Paris naming its fourth energy minister in less than two years earlier this month.

Newly appointed energy minister Segolene Royal, a powerful voice in the new government, has skirted questions on nuclear policy at a news conference earlier this week.


Decisions cannot be delayed indefinitely as building new energy infrastructure, especially nuclear power plants, takes time.

Construction of France's pilot new generation reactor in Flamanville, which started in 2007, has seen repeated delays and cost overruns and is currently expected to be finished in 2016.

Building thermal power capacity instead may be cheaper in terms of investment and also faster, but it is also problematic because they are dirtier and many are also uncompetitive due to high fuel costs.

Natural gas prices have been high as a result of production outages in North Africa and because of booming Asian demand for liquefied natural gas (LNG) shipments.

Burning more coal, which is relatively cheap as a result of global mining oversupply, would run against France's commitments to cut emissions, seen as responsible for climate change.

IRSN's Repussard said that meant a French nuclear lifespan extension beyond 40 years was therefore likely under certain conditions.


Extending the lifespan by 10 or 20 years would give France more time to think whether it needs to build safer but more costly new reactors such as Areva's newest models currently under construction in France, Finland and China.

Operating the old reactors, which have been fully paid off, for longer would also bring some much-needed funds to debt-laden EDF to scale what experts call the "investment wall" it faces in the coming decades.

EDF's Miniere said each running 900-megawatt (MW) reactor brings 200 million euros in earnings before interest, taxes, depreciation and amortisation (EBITDA) per year.

Prolonging the lifespan of the existing fleet would also require expensive work. EDF says upgrading the fleet would require 55 billion euros of work by 2025. Post-Fukushima work required by the ASN would cost another 10 billion euros, upping EDF's total nuclear investment programme to over 300 billion euros, more than three times the amount spent in the 80s and 90s to build the whole existing fleet.

"I think this cost bump that was made public has curbed the enthusiasm of many, it seems like a gigantic investment," said Denis Baupin, a Green MP who heads a parliamentary committee to investigate the cost of nuclear energy.

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