Commodities | Thu Jan 28, 2016 4:40pm GMT
* Finland claims hold up EDF takeover of Areva unit
* French government wants resolution in a month
* Flamanville weak spots potentially bigger threat
* Hinkley Point too crucial for EDF to abandon
By Geert De Clercq and Benjamin Mallet
PARIS, Jan 28 Intractable problems at two nuclear plants under construction in France and Finland threaten more delays to EDF’s plan to build four nuclear reactors in Britain.
The state-owned French utility announced an 18 billion pound ($26 billion) project in October to build two Areva-designed European Pressurised Reactors (EPR) at Hinkley Point, southwestern England, with Chinese partner CGN.
The two companies also plan to build two more EPRs at Sizewell in eastern England.
The plan was first announced in 2013, but an investment decision has been put off repeatedly as EDF struggles to find partners and funding.
Now it is being delayed by EDF’s planned takeover of the reactor arm of Areva, which itself is being held up by EDF’s refusal to take on financial responsibility for delays and cost overruns at an EPR Areva is building in Finland.
Weak spots discovered in a second EPR being built in France could potentially cause even bigger problems, experts say.
On Wednesday, the French state came to the rescue of Areva - virtually bankrupt after four years of losses - with a five billion euro capital increase and EDF agreed on a provisional valuation of 2.5 billion euros for the reactor business.
Areva shares surged as much as 35 percent on Thursday.
But EDF also said it would not make a binding offer for Areva’s reactor arm until it is "completely immunised" against any risks related to Areva’s Olkiluoto 3 (OL3) reactor project in Finland.
OL3 is nearly a decade behind schedule and Areva and its customer TVO claim billions from one another in an arbitration suit begun in 2008.
French Economy Minister Emmanuel Macron said last week he and his Finnish colleague had given the companies a month to find an agreement.
But the Finnish government has no say over privately owned TVO, whose chairman said this week that it does not want to see Areva’s OL3 responsibilities shifted to another legal entity, as EDF wants.
A potentially even bigger problem for EDF’s British plans are the weak spots found in the reactor vessel of the second EPR, under construction in Flamanville, on France’s west coast.
Flamanville is years behind schedule and its budget has swollen from 3 billion to 10.5 billion euros. In April 2015 French nuclear regulator ASN said "very serious anomalies" had been found in its reactor vessel.
ASN said last week it would decide by the end of this year whether the vessel could remain in the plant.
A source familiar with the situation told Reuters that before finalising Areva’s reactor arm takeover, EDF wants guarantees not only for OL3, but also for Flamanville.
"EDF’s offer depends on total immunisation against the OL3 case and the Flamanville vessel," the source said.
Experts say the Flamanville risk is bigger than OL3 because if the spots cannot be fixed, EDF would have to break the vessel out of the nearly finished reactor building.
A source at the French economy ministry said the Flamanville issues would not be an issue in the EDF-Areva talks.
"Immunisation against Flamanville is not a topic, because EDF is the client," the source said.
Experts are not so sure about that.
"It is difficult to imagine that EDF would make a final engagement decision on Hinkley Point without knowing what is going to happen with Flamanville and Taishan," said Mycle Schneider, lead author of World Nuclear Industry Status Report.
The vessels of two EPRs being built in Taishan, China were manufactured by the same supplier as that of Flamanville. No problems have so far been reported with the vessels there.
In its statement on Wednesday, EDF said nothing about Flamanville, but in an internal document seen by Reuters, EDF does link the Flamanville flaws to its newbuild plans.
In a 2016-18 strategy document for its works council, EDF lays out a plan to complete 10 EPRs by 2030, including four in the UK and two "New Model" EPRs in France.
"The success of Flamanville and good progress of the Hinkley Point C project are the two necessary prerequisites" for building the New Model EPRs, the document stated.
Whether or not EDF gets guarantees for Flamanville, a worst-case scenario for it would put another dent in the balance sheet of EDF, which already needs to borrow money every year just to pay its dividend.
But industry experts say that while Hinkley Point will stretch EDF to the limit, it is unthinkable it would abandon the project, as it is essential for keeping France’s nuclear industry alive in the coming decade before EDF starts renewing its ageing French nuclear fleet.
EDF chief executive Jean-Bernard Levy said in October a final investment decision on Hinkley Point would come "soon", which he repeated in a newspaper interview on Sunday, but the company has let many earlier decision deadlines slip.
EDF’s next board meeting comes ahead of the release of its 2015 earnings on February 16. ($1 = 0.6990 pounds) (Additional reporting by Leigh Thomas; editing by Adrian Croft)