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EDF Falls on Rising Costs for Normandy Nuclear Reactor

05 Dec 2012

Electricite de France SA declined in Paris as the biggest nuclear operator raised the estimated cost of developing its EPR reactor in Normandy to 8.5 billion euros ($11 billion), more than double the initial estimate.

The utility, which retained its 2016 target for starting up the reactor, said the plant’s costs grew because of changes to its engineering and design, and lessons learned from Japan’s Fukushima nuclear disaster. The figure includes 2 billion euros of higher costs on a constant currency basis, plus an additional increase to take inflation into account, an EDF official said yesterday.

“The risks in EDF are piling up,” Ingo Becker, an analyst in Frankfurt at Kepler Capital Markets who has a reduce rating, said in a note. A 13 euro price estimate “isn’t safe at all.”

EDF dropped as much as 2.7 percent and was trading down 38 cents at 13.915 euros by 3:05 p.m. in Paris. The company has slumped 28 percent this year in part on concern about the cost of refurbishing current reactors and building new ones.

The EPR at Flamanville is a showcase for third-generation reactors that French nuclear companies want to export. State-owned EDF began building the 1,650-megawatt reactor at a current plant in December 2007 for an initial estimate of 3.3 billion euros and with plans for a 2012 startup. Costs have grown since, with EDF revising estimates each year since 2010. In July 2011, it added 1 billion euros to bring the figure to about 6 billion euros. The company also delayed operations to 2016 from 2014.

Exceeding Bears

“The costs have already exceeded even the most bearish estimates and this is with at least three more years of development ahead of us,” Sofia Savvantidou, an analyst at Citigroup, said in a note. The difficulties in France raise concerns over EDF’s plans to develop EPRs in the U.K., she said.

EDF has grappled with building and safety setbacks at the project. Safety authorities raised concerns over welding quality and shut the site over issues with cement used. In August 2010, EDF was ordered to improve the strength of a control platform.

It said costs rose partly because the plant is the first of its kind, citing the need to develop a new boiler design, meet regulatory and safety demands and carry out engineering studies.

Areva SA (AREVA), which designed the EPR and began developing one in Finland in 2005, said EDF’s new cost estimate “is not representative of the price of an EPR reactor in the series offered in the market today.”

New Orders

“The French reactor has not benefited from experience gained on the Finnish construction project for reasons of industrial organization and schedule,” the Paris-based nuclear generator builder said in a statement. Areva is aiming to get 10 new orders for EPR reactors by 2016, Chief Executive Officer Luc Oursel has said.

The Olkiluoto 3 reactor, originally scheduled to be completed in 2009 at a cost of 3 billion euros, has faced construction delays and cost overruns. Areva dismissed as“groundless” a report in Les Echos newspaper in October 2011 that costs have risen to 6.6 billion euros. The builder has booked more than 3 billion euros of provisions on the project and the operator has warned it won’t be ready for regular power production in 2014.

EDF, the operator of 58 French and 15 U.K. reactors, and Areva are also developing two EPRs in China and planning more in the U.K.

The warning about Flamanville costs comes less than a week after France began a debate on energy that the government says will set a road map for lowering its reliance on atomic power.

Plan Scrapped

French President Francois Hollande scrapped a plan by predecessor Nicolas Sarkozy to develop another EPR at Penly, also in Normandy. Hollande has also promised to shut EDF’s oldest nuclear reactor at Fessenheim at the end of 2016.

EDF has forecast spending on aging reactors will rise in the next three years because of stricter safety measures after Fukushima and a program to keep current plants running longer.

The company has a 30 percent stake in Taishan Nuclear Power Joint Venture Co. to develop and operate two 1,700-megawatt EPRs with China Guangdong Nuclear Power Group. Areva, also run by the government, is supplying components. Construction of Taishan 1 began in November 2009, while Taishan 2 started in April 2010. EDF expects the plants to begin operating in 2014 and 2015.

Construction time should be 40 percent shorter for the Chinese EPRs compared with the Finnish one, Areva said in today’s statement. The number of engineering hours was reduced by more than half and the time between pouring the first concrete and placing of the reactor dome was shortened by 23 months.