The Czech government (which controls power company CEZ) has chosen South Korea’s Korea Hydro and Nuclear Power (KHNP) to build up to four new gigawatt-scale reactors at the country's two existing nuclear sites, Dukovany and Temelin. KHNP beat out competitors EDF (France) and Westinghouse (USA). This announcement was interesting for several reasons.
First, there are very few open competitions or “beauty contests” for new reactor projects of this scope. The reason is simple. The Chinese, for example, rely on their own domestic companies for nuclear engineering and construction work, as do the French, Russians, Koreans and Americans—all nations with nuclear development and export programs. As a result, there is very little real competition between nuclear designs or national vendors since the international market, apart from the nations already mentioned, is fairly limited. The Czechs entire nuclear fleet consists of two types of Russian VVERs built by Rosatom and they want to diversify vendors.
Three firms initially bid for the Czech project, France’s EDF offered a version of its EPR reactor, the Koreans an APR1000, and Westinghouse who also submitted plans for an AP1000. But Westinghouse subsequently dropped out and threatened the Koreans with what sounds like a lawsuit over KHNP’s use of Westinghouse designs. But no matter what, you have to admit it is brave of Westinghouse to even bid on this type of work after what happened the last time. (Hint: Westinghouse went bankrupt, paid Southern Company $3.5 billion in damages, and the two Vogtle reactors cost a total of $36 billion, or about $18 billion apiece.)
The South Koreans have guaranteed a fixed price of $8.6 billion for each of the first two units along with a promise to locate about 60% of the nuclear supply chain in the country, creating many new jobs. It seems pretty clear that the Czechs are hoping the Koreans can replicate their success in building new reactors relatively cheaply and on time as they did with their four-unit project at Barakah in the United Arab Emirates. We should add that the Czech government altered its tender process midway. Initially, it requested foreign bids for only one reactor but subsequently modified the process to include three more reactors, citing significant expected cost advantages.
Despite all the recent hype about small modular reactors, it’s interesting that the Czech government decided to purchase gigawatt-scale reactors. Why? Because this suggests to us two things: first the AP1000 reactor technology itself already exists and is operating successfully, and equally important, these big units are much cheaper on a price per kWh basis than SMRs. Also, the Czechs in their lengthy press release gave no indication whatsoever that small reactors were even under consideration in their nuclear acquisition plans.
For an American audience, it is important to point out that the typical buyer for a gigawatt scale nuclear plant is China, Britain, the UAE etc., that is, nation-states. The U.S. is alone in permitting its large, privately owned electric utilities to engage in new nuclear construction projects regardless of the assistance they receive from the federal government. But after the Vogtle debacle in Georgia, (which took twice as long and three times the initial cost to complete) we suspect that the prospects for new gigawatt-scale nuclear projects in the U.S. are deader than the proverbial doornail without explicit government guarantees or even outright ownership. We have already said several times with respect to domestic nuclear development that, given the extraordinary cost of these projects, only the U.S. federal government has the balance sheet capacity to permit a domestic nuclear resurgence to occur at any meaningful scale.
But there is a flip side to this notion that only nation-states can afford large nuclear power stations. The smaller, 50mw type SMRs, for example, that have been mentioned in the press recently may appeal to larger corporate buyers like technology firms that have publicly discussed ideas like colocating data centers with modular reactors. Our point here is simple. There are now two distinct markets for new nuclear power plants. The nation-state only market for gigawatt-scale units and a potentially much larger corporate and governmental market for SMRs, a technology that is still emerging.
We think it’s useful to conclude by reviewing our notion of the energy trilemma and where this action by the Czech government fits. The idea of the trilemma is that energy policymakers only have three variables they can maximize—security of energy supply, affordability, and sustainability—but they can only pick two out of three variables. For example, a nation like India which recently found itself short of electricity chose to build new coal-fired power plants since the nation has vast domestic coal reserves and the power from these new plants will be relatively cheap—that’s what maximizing security of supply plus affordability looks like. Obviously, in this context, sustainability gets the short shrift here with all the adverse environmental consequences one can imagine. Nuclear energy looks very different from other sources in terms of the trilemma paradigm. It provides security of supply (it’s relatively easy to warehouse years of nuclear fuel unlike coal or gas), it is also environmentally sustainable with no CO2, SO2, or NOX pollutants (long-term storage of nuclear waste notwithstanding), but it has not proven affordable relative to the alternatives. But for nations lacking indigenous sources of energy, or those presently importing natural gas from unreliable partners, the appeal of new nuclear power plants is obvious.
So, if the South Koreans can pull it off, building the nukes on schedule and on budget, in the European Union, this project could significantly change attitudes toward nuclear power.
By Leonard Hyman and William Tilles for Oilprice.com
