Mycle Schneider, 14 April 2016

Asahi WebRonza (Japan): After the Paris‑Agreement: Corporate Meltdown in the Nuclear Industry

After the Paris-Agreement: Corporate Meltdown in the Nuclear Industry

For the Japanese version see here

Asahi WebRonza, 14 April 2016

Mycle Schneider

The international nuclear industry had great hopes in the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change. The COP21 labelled Paris event in December 2015 was thought to boost the profile as low-carbon technology of an industry in great difficulty. It did not happen. Only a few months later, some of the largest nuclear companies in the world are facing a meltdown on the stock market. In the middle of the turmoil, a decision is to be taken on the largest nuclear investment project in decades in Europe, a €24 billion French plant for Hinkley Point in the United Kingdom.Clearly, the stock market did not get the message. The claim of four climate mousquetaires, released during the final stretch of the Paris climate talks, that “nuclear energy can power whole civilisations, and produce waste streams that are trivial compared to the waste produced by fossil fuel combustion”, dissipated in space. One day after that enthusiastic statement by the illustrious quartet of climate experts, including former NASA scientist James Hansen, the share value of the largest nuclear operator in the world, the French state-controlled Électricité de France (EDF), dropped to its (then) historic low.

  On Monday, December 7, 2015, Euronext ejected EDF, “pillar of the Paris Stock Exchange”, from France’s key stock market index, known as CAC40. Three days later, the trade union representatives at the Central Enterprise Committee of EDF—unanimously and for the first time—launched an official “economic alert procedure” considering the “seriousness of the situation”. Getting into the New Year, it was hard to imagine that things could get any worse for the French nuclear jewel EDF. They did get worse. Information leaked that the national nuclear waste company ANDRA estimated the cost of the projected geological final disposal facility for high-level radioactive waste would be around €30 billion, roughly twice as high as the baseline for the funds put aside for the financing of the project. Nuclear Safety Authority ASN considers that the ANDRA estimate is by no means conservative, that certain hypotheses are “too optimistic” and therefore “not in conformity with the imperative of prudence”. In other words, the final bill might actually be a lot higher.Ecology, Sustainable Development and Energy Minister Ségolène Royal finally issued a Ministerial Order “setting” the cost of the final waste disposal site, called CIGEO, at €25 billion. The number remains entirely hypothetical and is supposed to be updated regularly. While remaining far below other estimates, the new figure exceeds EDF’s market capitalization and costs the company half a billion euros in net income in 2015. In addition, EDF’s CEO admitted that in 2015 the company lost 30% of their industrial and commercial clients to their competitors offering significantly lower prices. EDF plans to reduce its workforce by 3,500 in France alone and sell assets hoping to generate €10 billion in revenue until 2018.

  Things turning sour six months ago came as no surprise to analysts familiar with the international nuclear industry. In October 2015, investment bank Investec advised clients to sell EDF shares amid fears that its connection with the nuclear plant project at Hinkley Point in the UK could put payouts to shareholders under threat. One month later, the French and British governments announced the signature of a framework agreement on a financing package including Chinese partners for the construction of two French-built European Pressurized water Reactors (EPR) at Hinkley Point. Credit-rating agency Moody’s warned that the launch of the project “will have a credit-negative effect on the companies”. The federation of EDF employee-shareholders EAS said in a statement that the interests of their company would be “gravely threatened” by the Hinkley Point project, calling it "a financial catastrophe foretold.” EAS asked the management of EDF “to stop this risky project, whose financial risks are too big for our company and which could put EDF’s very survival at risk.” Stock market observers wondered whether there’s “panic on board?”. It increasingly looked like it as EDF’s Chief Financial Officer Thomas Piquemal resigned in early March 2016.Is EDF facing its Waterloo 200 years after Napoleon’s defeat?

   Launched as a response to the Chernobyl accident, at the brink of the 30th anniversary of the disaster in Ukraine, not a single so-called Generation-III+ EPR reactor is generating power anywhere in the world.

   In the meantime, the self-proclaimed “global leader in nuclear energy,” the French state-controlled AREVA, went bankrupt. After a cumulate loss of €10 billion ($11.4 billion) over the past five years, significantly exceeding its peak annual turnover, and a debt load of €6 billion ($6.8 billion), the company will be taken apart. AREVA is already deep in “junk” territory, when it comes to its credit-rating. Its share value has eroded by 95 percent over the past eight years—a plunge exceeding TEPCO’s fall after the Fukushima crisis hit the company and prior to its de-facto nationalization—hitting a new historic low on February 19, 2016. The government’s rescue strategy—injecting €5 billion and forcing EDF to absorb AREVA’s reactor business—is in-turn increasing the risk for EDF. Uncertainty remains whether the European Commission will not consider illegal state aid the generous subsidy under EU competition rules. Another significant barrier for the conclusion of the rescue deal remains the multibillion-euro liability of the Hinkley Point predecessor projects in Olkiluoto, Finland, and Flamanville, France. The EPR construction in Finland started over ten years ago. The plant was to begin generating carbon-free electricity by 2009 and was part of the country’s greenhouse gas abatement strategy under the Kyoto Protocol. Now, the plant is scheduled to produce power in “late 2018.”

   The sister plant in France is not doing any better—on the contrary. Construction started in 2007 with completion planned for 2012. Officially, the target date currently is the same as for the Finnish project. The investment-cost estimate since construction start, exploded by more than a factor of three to €10.5 billion ($12 billion). This is not counting in a serious material flaw in the machine’s center piece, the reactor pressure vessel. The fabrication defect that also hits the two EPRs under construction in China, could jeopardize the entire projects. It will take at least until the end of the year until the French safety authorities make up their mind whether they consider the safty levels acceptable. In addition, EDF struggles with a €37.4 billion ($42.6 billion) debt burden, rapidly increasing production costs in its aging nuclear fleet, significant post-Fukushima and other investment needs, and a shrinking client base with stagnating or declining consumption levels over the past five years in a row.

      The international outlook is not any rosier. There have been 40 reactors connected to the world’s power grids in ten years after an average construction time of close to 10 years. Compare this with the four climate heros’ “illustrative scenario” of 115 startups per year to 2050. Too little renewal to avoid the continuous aging of the world nuclear fleet whose average age is now standing at around 30 years. Some 60 units under construction have been in the building stage for an average of around eight years; at least three-quarters are delayed, four have been listed as “under construction” for over 30 years. The Organisation for Economic Co-operation and Development’s International Energy Agency projects in its “New Policy Scenario” a net addition of 222 nuclear gigawatts (GW) over the coming 25 years. This compares with the net nuclear addition of 22 GW over the past 25 years—another illustration of the level of wishful thinking in current international projections.

    On the other side, the renewable energy sector is booming and the worldwide investment levels increased by 4% to reach a new record level in 2015 with an estimated $329 billion. The numbers are all the more remarkable as fossil fuel prices were low and renewable energy system costs continued to fall, leading to a 30% increase of installed capacity in wind (+64 GW) and solar (+57 GW), sixteen times the quite exceptional net nuclear addition (+6.7 GW). Even with three to eight times lower power generation per installed GW, renewable electricity production is growing much faster than nuclear. At least eight countries, one quarter of the nuclear nations, including three of the four largest economies in the world (China, Germany, Japan) are already generating more power from renewables than from nuclear.

  You can spend a euro, a dollar or a yen only once. The investment in new nuclear reactors leads de facto to an increase in greenhouse gas emissions as other options—notably intelligent energy services (like daylighting or entire passive house designs) that don’t depend on active systems, end-use and production efficiency, and now renewables—are not only considerably cheaper, they are much faster to implement.

   The traditional utility model, nuclear or not, is in deep trouble. Power companies need to learn to sell something other than kilowatt-hours or they will not survive the ongoing energy revolution. And the reactor-building industry might want to turn to a safe haven: decommissioning. A Business trade journal recently wondered: “Is dismantling reactors the future of Westinghouse?” The Toshiba subsidiary, source of much of the current troubles of the industrial giant, might need to acknowledge that building these machines turned out to be too expensive and too slow. Indeed, Masayoshi Hirata, Toshiba’s senior Vice-President, told analysts in November 2015: “We believe there will be a more global demand for the nuclear decommissioning”. JP Morgan Securities Japan responded by issuing a research note entitled “First Step Toward Change”.

Mycle Schneider is an Independent International Analyst on Energy and Nuclear Policy, based in Paris, France. He is Convening Lead Author and Publisher of the World Nuclear Industry Status Report. He is a Member of the Princeton University-based International Panel on Fissile Materials (IPFM) and Spokesperson of the International Energy Advisory Council (IEAC).

Photo by Serge Ollivier.