The way you sell nuclear power is changing. Whereas historically technology vendors and independent power producers (IPPs) tended to be closely tied to their national energy regulators and grid operators, the stagnation of many established nuclear markets means they now have to look abroad.
And playing away is very different from the home game.
For a start, emerging markets such as those in the Middle East tend not to have a history of nuclear power and so are much more dependent on their suppliers for operational know-how. Witness the case of Rosatom in Turkey.
There, the Russian contractor is not only building a plant, but also effectively providing all the expertise to run it, since nobody else in the world has any experience of the technology involved.
Also, gone is the concept of a blank cheque to cover cost over-runs: in Finland, for example, the European Pressurised Reactor maker Areva had to agree to a €3bn all-in turnkey cost for building the Olkiluoto 3 reactor. It is currently disputing a €1.9bn over-run.
Sweetening deals
In fact, these days the companies charged with building and running reactors are just as likely to be asked to put their hands in their pockets and contribute to the cost, or at least help find export credit agency (ECA) funding to sweeten the deal.
Here again, the Rosatom sale in Turkey has set a precedent: it includes a significant level of financial risk sharing.
Edward Kee, vice president of Marsh & McLennan’s National Economic Research Associates Economic Consulting arm, says: “Increasingly vendors are being asked to bring a minimum of ECA financing from their own country. They may even be asked to be a strategic investor.”
At the extreme, IPPs could choose to build a nuclear plant using the same model as for any other form of generation, shouldering most of the risk in the expectation of a given rate of return.
To date only two power producers, NRG in the US and EDF in the UK, have attempted to go down this ‘merchant nuclear operator’ route. Both were looking to exploit established markets and both have run into trouble as the cost of new gas has plummeted compared to new nuclear.
The signs are that any attempt to emulate this model could be even more challenging in emerging markets. For a start, countries such as those in the Middle East and North Africa need to sign the Non-Proliferation Treaty and the Convention on Nuclear Safety.
Nuclear cooperation
Then they need to put in place bilateral nuclear cooperation agreements and create a national regulatory body such as the Federal Authority for Nuclear Regulation in the United Arab Emirates.
All this is a process that can take many years, during which a prospective supplier would need to be working hard to build up partnerships and a reputation in the target market.
Furthermore, for a pure-play IPP or private sector technology vendor there is always the likelihood that these years of hard work could be laid to waste by a state-backed competitor toting sovereign reserves.
The reasons why the Russians are doing the project in Turkey have a lot to do with nuclear issues and geopolitical issues, and really not much to do with independent power producer issues, says Kee.
“IPP developers are primarily profit-driven, finding opportunities to build a power plant and negotiating and arranging contracts in a way that makes money for them, whereas these kinds of deals are more about nuclear-industrial strategies.
“What I see is a move towards the state-owned nuclear power companies using increasingly aggressive financing, offering things beyond the sale of equipment as a way to facilitate the transaction and to keep their home industry busy, and also to capture market share.”
Selection committee
It is undoubtedly true that in poorer countries any vendor that has money to pay for a plant, as well as building and operating it, is likely to shine in the eyes of a selection committee.
That does not necessarily mean IPPs should give up altogether on the idea of targeting emerging markets, however. After all, not all of these markets are strapped for cash.
Several Middle Eastern nations, for example, are rich enough to be motivated by a desire to select the best technology rather than just getting the best deal.
“The question is: is it likely these projects will go ahead and is it worth investing five or six years of spade work to stand a chance of winning them?” confides a Middle East programme manager from a large energy agency.
“Given the immediate energy demand in these countries, they are not going to meet the demand in 10 years’ time, and will be tempted to go down the nuclear route. That is keeping people in the game; even Jordan will be a good credit risk 10 years ahead,” said the programme manager.
Source: Nuclear Energy Insider
