Finnish plant demonstrates nuclear power industry's perennial problems

Tuesday, September 11, 2007

By Alan Katz, Bloomberg News, September 6, 2007

Martin Landtman hunched forward in his shirtsleeves as a June storm on Finland's Baltic coast drenched the construction site of the world's most powerful nuclear reactor. As project manager for TVO, the joint venture buying the plant, Landtman has weathered far worse annoyances than rain.

Flawed welds for the reactor's steel liner, unusable coolant pipes and suspect concrete in the foundation already have pushed back the delivery date of the Olkiluoto-3 unit by at least two years.

"Substantial delays, I think you can use that word, yes," Landtman said.

Olkiluoto-3, the first nuclear plant ordered in Western Europe since the 1986 Chernobyl disaster, is also more than 25 percent over its budget of €3 billion, or $4.1 billion.

If Finland's experience is any guide, the "nuclear renaissance" promoted by the global atomic power industry as an economically viable alternative to coal and natural gas may not offer much progress from a generation ago, when schedule and budgetary overruns for new reactors cost investors billions of dollars.

The Finnish plant is not the only nuclear project to run into delays. The commercial startup in May of China's Tianwan project came more than two years later than planned. In Taiwan, the Lungmen reactor project has fallen five years behind schedule.

Today at Olkiluoto-3, a behemoth whose excavation site covers the equivalent of 55 soccer fields, the pressure is on the group led by Areva of France that is building the reactor. At stake is much more than Areva's bottom line or the cost of electricity crackling out from the Finnish coast. As the ownership of utilities around the world has shifted from state to private hands, the delivery of new reactors on time and on budget has become critical.

Keeping construction costs in check is a vital ingredient in nuclear power's drive for economic parity with coal and natural gas generation. A new U.S. atomic plant could be 30 percent to 50 percent more expensive to build than a coal-fired plant of the same size, and the margin widens for natural gas, which is the least-expensive option.

Nuclear power's costs balloon partly because plants must be built to more exacting safety standards and stand up to more stringent oversight, leading to lost time and extra expense, said Timo Kallio, an executive for TVO. TVO's owners include the country's biggest utility, state-controlled Fortum, as well as the paper makers Stora Enso and UPM-Kymmene.

Proponents of nuclear power argue that the higher cost to build is balanced by lower fuel costs. Still, after accounting for costs from construction and fuel to maintenance, electricity from a new U.S. nuclear plant in 2015 would be 15 percent more expensive over the reactor's life than natural gas and 13 percent more than coal, according to 2007 estimates by the U.S. Energy Information Administration.

"The nuclear industry has put forward very optimistic construction cost estimates, but there is no experience that comes even close to backing them up," said Paul Joskow, director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Some investors already are treading cautiously, even amid rising demand for electricity.

"You have to go in with your eyes wide open," said Robin Kendall, director of project finance at Société Générale in Paris, which is among the banks that lent €1.95 billion to TVO for the Finland reactor. The bank is looking into providing loans for other nuclear projects in Europe and Asia.

After a 23-year career in shipyards, Landtman started overseeing the Olkiluoto-3 European pressurized water reactor, or EPR, in 2003.

The first big jolt came in October 2005, during the installation of the reactor's base slab. It was supposed to take five days to pour 12,000 cubic meters, or 424,000 cubic feet, of concrete.

"An hour after it started, our supervisors saw that something was wrong," Landtman said. "It was first too lumpy, then it was fine. It wasn't consistent." Autumn rain had soaked the crushed stone aggregate used to make the concrete. The pour had been intended for sunny May, Kallio said. Instead, the sacks sat unprotected while Areva worked to complete detailed base designs and get them approved.

The delay meant that the water content in the mixed concrete exceeded levels allowed by Finnish nuclear regulators. Areva then had to test concrete already poured to make sure it met requirements. No more was poured in the nuclear section of the plant until April 2006, Kallio said.

One Areva executive pointed to a nagging issue for reactor builders: inexperienced contractors working for an industry that has been dormant in much of Europe and the United States for 20 years.

"Local contractors did not have the breadth of operations expected or needed to carry out such a big project," said Ray Ganthner, senior vice president for new plant deployment at the U.S. headquarters of Areva NP, the company's reactor construction unit.

Landtman learned the same lesson. Still, he said, there is nothing to do but push on: "Now, we are trying to complete this as fast as possible."

It comes down to a series of seemingly mundane tasks, from pouring concrete to using a broom handle to scrape metal shavings from a coolant tube. Without perfect execution, components will fail regulators' inspections.

Areva executives said delays were to be expected for such a huge project, especially when it was the first of a kind. The company plans to have 35 of its latest reactors operating around the world in 2020.

"When you build the first in a series, there is inevitably a certain number of costs that you discover, and when you have delays, your people stay in place, so your costs go up," says Luc Oursel, chief executive of Areva NP.

Areva's investment certificates - nonvoting shares that represent about 4 percent of capital - are up 28 percent this year at €720.12 and have nearly quadrupled over the past four years. The French government and state-controlled entities own 93 percent of Areva.

Landtman's office is down the road from two boiling-water reactors built at Olkiluoto in the 1970s. A digital display showed their output at 844 and 852 megawatts. At 1,600 megawatts, Olkiluoto-3 will be almost twice as large.

The construction snags have not shaken the Finn's belief in nuclear power.

"We need this single power plant in Finland to meet Kyoto requirements," Landtman said, referring to the international treaty that limits greenhouse gas emissions. "One plant cuts the equivalent emissions of all the transport in Finland. If someone says this is minor, then I don't understand what they are talking about. To cope without nuclear? We don't think we can make it in this country."

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