Rosatom’s Fennovoima deal reshapes new nuclear


We look to Finland to see how Rosatom could be aiming to consolidate its credentials as a safe pair of hands for new nuclear projects, not just in emerging markets, but also potentially among choosier buyers, such as EU nations, and with funding to boot.


A deal signed last December with the Finnish nuclear consortium Fennovoima could have significant implications for Russian reactor builder Rosatom’s fortunes in Europe and elsewhere.


The contract, for Rosatom to build and part-own a 1,200 MW, AES-2006 pressurised water reactor in Northern Finland, will showcase Russia’s nuclear new-build capabilities in a market where its main European competition is facing difficulty.


At Olkiluoto, 470 kilometres south of the planned Russian reactor site at Hanhikivi, the European nuclear consortium Areva-Siemens is in a legal battle with Teollisuuden Voima Oyj, a Finnish utility, over delays and cost overruns with a project that began construction in 2005.


The 1,600 MW Olkiluoto 3 European Pressurized Reactor (EPR) was supposed to have entered commercial production in 2010, with a price tag of €3bn ($4bn). Since then, costs have ballooned, topping €8.5bn ($11.7bn) by the end of 2012.


A commissioning date, last cited as 2016, has now been left open pending an updated schedule. In contrast, Rosatom is looking to have its reactor up and running by 2024, with a build cost of €6 billion (USD$8.2bn).


It remains to be seen whether the Russians can make good on this promise, but there are reasons for Fennovoima to have confidence in its choice.


First EPR

For a start, while Olkiluoto 3 was the world’s first EPR, and was therefore always potentially liable to suffer from first-of-a-kind construction glitches, the AES-2006 is based on an established Russian design, the VVER-440, which is already operational in Finland.


This is an important consideration, particularly since subsequent EPR contracts have yet to prove the design can be built easily and cheaply. Areva’s second attempt, for the French state utility Electricite de France (EDF) in Flamanville, has also suffered delays and cost overruns.


As of December 2012, the original bill of €3.3bn had escalated to €8.5bn, as at Olkiluoto. Areva has subsequently begun work on two further EPRs, in Taishan, China, for €4 billion apiece, in partnership with EDF.


Last November EDF’s chief executive, Henri Proglio, said “Taishan is progressing well” despite the start date for commercial operation already having been put back a year, to 2015. No cost overruns have yet been reported on this project.


However, the cost differential between EPRs and Russian-built reactors is evident in another project, Hinkley Point C.


There, EDF’s UK subsidiary EDF Energy is planning to build two EPRs for GBP£8 billion (€9.55 billion) each, producing energy at GBP£92.50 (USD$155/€112) per megawatt-hour (MWh). That is more than twice the cost of the energy Fennovoima is hoping to get from its Hanhikivi plant.


€50 per MWh

In an interview this year with Energy Post, a European Union (EU) power sector newsletter, Pekka Ottavainen, chairman of Voimaosakeyhtiö, which owns Fennovoima, said the price “will not be higher than €50 per MWh. If it goes higher than that, there will be no deal.”


Edward Kee, vice president of NERA Economic Consulting, points out that Rosatom has an advantage when it comes to costs because the business is effectively backed by the Russian state.


“The Fennovoima deal involves some level of Rosatom ownership and a proven VVER reactor design,” he says. “It is similar to other deals where Rosatom bundled government-to-government loans or outright ownership and long-term fuel arrangements with a power plant.


“Such deals are possible with Rosatom’s government and mandate, but would be difficult or not possible for a private nuclear power plant vendor.”


The combination of government funding and an established reactor design has helped Russia win contracts in markets such as Bangladesh, Belarus, Hungary and Vietnam, says Kee.


Groundbreaking deal

Rosatom even became the first nuclear vendor to enter Turkey thanks to a groundbreaking deal that will see the Russian company build, own and operate a plant in Akkuyu, in the south of the country.


“The Fennovoima deal is somewhat new,” Kee says, “in that it puts Rosatom into a market that is more developed than some other targets, with participation in the Nordpool electricity market when the plant is completed.”


World Nuclear Association analyst Jeremy Gordon says it may not be entirely fair to view Hanhikivi and Olkiluoto as a contest between Rosatom and Areva, since every project is a unique combination of site and design, as well as a new challenge in terms of Finland’s meticulous regulation.


Nevertheless, there is certainly a sense that Rosatom could be aiming to consolidate its credentials as a safe pair of hands for new nuclear projects, not just in emerging markets but also potentially among choosier buyers such as EU nations, and with funding to boot.


“I think the Russians would really love to build in the European Union,” Gordon says: “They have got their own technology, their own supply chain, their own research and development, and full political backing. They are able to offer finance. That’s their key selling point.”