MAC: Mines and Communities

French Nuclear Giant Areva Says Future Is Uncertain, Prompting a Sell-Off

Published by MAC on 2014-11-22
Source: New York Times

Areva is the world's leading nuclear power provider, and has been mired in scandal for the past two-three years over various uranium deals.

If its own future is "uncertain", as well as that for its comrade corporte in arms, EDF, then so is that of nuclear energy itself - at least in the western world.

French Nuclear Giant Areva Says Future Is Uncertain, Prompting a Sell-Off

By David Jolly and Stanley Reed

New York Times

19 November 2014

PARIS — Areva, the French nuclear technology giant, has warned of an uncertain outlook for its business amid delays to important projects and sluggishness in the global atomic energy sector, sending its stock tumbling on Wednesday.

The company, which is about 87 percent state-owned, said late Tuesday that it was “suspending” its financial outlook for 2015 and 2016.

Areva cited cash flow problems related to its long-delayed nuclear plant project in Finland, on Olkiluoto Island, as well as Japan’s reluctance to restart reactors after the 2011 Fukushima disaster. The company noted “the still lackluster market” for providing services to existing nuclear plants, including in its crucial home market, which draws about three-quarters of its electricity from atomic power, the highest in the world.

The project at Olkiluoto, in the Baltic Sea, was begun in 2005 with an expected start-up date of 2009. However, Areva and its partner in the project, Siemens, are mired in a multibillion-dollar legal battle over cost overruns and construction delays with the Finnish utility TVO, which commissioned the reactor. The current schedule shows 2018 as the soonest the plant could begin operating, but even that is in doubt.

Pierre Boucheny, an analyst at Kepler Cheuvreux, said that it was clear that Areva had been struggling but that it now “looks more difficult than expected.”

Areva’s business plans were based on the assumption that it would be providing a full range of services, including the supply of nuclear fuel, to the owners of the new plants. But with its most important projects running behind schedule, “everything is delayed,” Mr. Boucheny said.

The company will burn through more than 400 million euros, or about $500 million, of cash this year, he said, and might need to raise as much as €2 billion in new capital to shore up its finances. Its share price fell about 16 percent on Wednesday. Compounding the shock was the fact that the company had reaffirmed its full-year profit and sales outlook on Oct. 31, even as it said revenue for the first nine months of 2014 fell more than 14 percent from a year earlier, to €5.6 billion.

In a related announcement late Tuesday, EDF, the French power utility that regularly teams up with Areva, said its Flamanville 3 nuclear project in northern France would be delayed by another year because of Areva’s difficulties in delivering essential components. Started in 2007, the Flamanville plant was supposed to have been generating electricity for the French grid in 2012.

The problems at Flamanville and Olkiluoto raise further questions about the future of the EPR reactor design that Areva and EDF are marketing around the world. All of the EPRs under construction including those being built at Taishan in China have run into delays. The giant power stations, for which the designs date to the early 1990s, were supposed to be safer and simpler than earlier nuclear plants, but they are proving fiendishly complex and expensive to build.

“The EPR is a rotten design that they should have given up on a long time ago,” said Steve Thomas, a professor at the University of Greenwich in Britain who studies energy policy and the economics of nuclear power.

Mr. Thomas said the problems with the other EPRs around the world also raised doubts about whether two reactors of this type would be built at Hinkley Point in southwest England, as EDF planned. The European Union recently gave its approval to the project, which will cost at least 16 billion pounds, or $25.1 billion, but EDF still needs to put together an international consortium to finance and build it.

EDF sought on Tuesday to reassure customers that it remained committed to carrying through with its planned reactors in France, China and Britain. Two EPR projects are underway in China, in addition to the Finnish and French plants.

Areva’s problems mean that France, which has long identified its nuclear industry as a national champion, is now in danger of losing its edge as a leading supplier of reactors.

In its recently published World Energy Outlook 2014, the International Energy Agency estimated that nearly half of the world’s new nuclear generating capacity over the next quarter-century may be built in China. Major growth is also likely in India, Russia and South Korea, said the agency, based in Paris.

If most nuclear plants are built in China and elsewhere in Asia, then Western suppliers may gradually cede market share to suppliers from countries buying the new nuclear plants. “The growth of the nuclear industry in China may well mean that Chinese technology may compete with American, Japanese, French and German technology,” Fatih Birol, the agency's chief economist, said in an interview last week.

With the state and strategic investors holding the vast majority of Areva’s shares, only about 4 percent of the stock is traded on the market. Shares of EDF, which is about 84 percent owned by the state, fell 0.6 percent on Wednesday.

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