Areva considers producing cheaper reactors

Friday, January 15, 2010

Areva is weighing whether to bring out cheaper, less sophisticated nuclear reactors after its flagship EPR lost out to a low-cost South Korean rival in one of the biggest civil tenders last year.

Top management at the French group last week launched a review of its product range to determine whether Areva should reintroduce the simpler second-generation CPR1,000 reactors - which it stopped building 20 years ago - for client countries that are new to nuclear power.

The review was sparked by the decision last month by authorities in Abu Dhabi to take an older-generation reactor in a hotly contested $20.4bn tender for four power stations.

Though Areva initially appeared in the lead with its third-generation EPR, in the end Abu Dhabi opted for an update of a cheaper second-generation reactor offered by a South Korean consortium led by Korea Electric Power CorporationKepco

"We are targeting one-third of the market for new reactors and we had thought that market would be for reactors of the safety standard of the EPR. The question that Abu Dhabi poses is that perhaps that is not the case," a senior Areva executive said.

The decision was widely regarded as a serious setback to France's ambitions to dominate the global market for nuclear power plants. But Areva remains confident that there will continue to be strong demand for third-generation reactors.

"Safety standards in the US and Europe would not allow a second-generation reactor to be built," the executive said.

Areva estimates that just 20 per cent of the global market could be open to second-generation reactors.

But the Abu Dhabi setback could also raise questions about the valuation of Areva at the very moment that its French government shareholder is negotiating the price of a sale of 15 per cent of its capital to outside investors, including sovereign wealth funds from the Middle East and the group's Japanese partner, Mitsubishi Heavy Industries.

Patrice Lambert de Diesbach of CM CIC Securities said the outlook for the nuclear market was no longer the same. "Yesterday we all thought the market was for third-generation reactors. Now we know this is no longer the case and that changes Areva's valuation. Now all the others who were once considered the gypsies - makers of the second-generation reactors - can enter the game."

Areva's EPR has been marketed as an advance in safety technology. The reactor updates existing technology with extra features, such as a double shell reinforced to withstand an airline crash, and a secure chamber to contain waste from a core meltdown.

The high costs of building an EPR with this sophisticated technology appear to have been one of the main reasons Abu Dhabi opted for the South Korean offer.

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