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Largest Nuclear Power Producer Faces Issues

Wednesday, November 6, 2019

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Engineers have recently been tasked with fixing eight faulty welds at Normandy, France-based Flamanville nuclear power plant, which is intended to showcase the country's aptitude for nuclear power.

Electricite de France—the owner of the plant—claims the issue is the latest setback for the project. Already, Flamanville is reported to be a decade behind schedule and roughly four times over budget.

“We hear every year that there’s a new problem,” Finance Minister Bruno Le Maire said on Monday. “It is not acceptable that one of the most prestigious and strategic sectors for our country is facing so many difficulties.”

Flamanville Issues

Earlier this year, in June, the Autorité de Sûreté Nucléaire (ASN) requested that the EDF repair eight containment penetration welds located in hard-to-access areas of the reactor, causing quality deviation.

Upon receiving this information, the EDF assessed three repair scenarios for the welds. While the preferred scenario involves the use of remote-operated robots that are designed to conduct high-precision operations, fallback options involve extraction and realignment works in the Safeguard Auxiliary Buildings.

All told, the weld repairs are slated to cost EDF 1.5 billion euros ($1.7 billion), while also raising the overall price of the project to 12.4 billion euros.

Based on the strategies submitted, EDF’s board of directors approved the continued construction of Flamanville, a project that started back in December 2007. According to reports, the plant’s reactor was originally slated to begin commercial operations in 2013.

After adjusting the schedule and estimated cost to conduct the fix—assuming it will be approved by ASN as well—the EDF predicts that fuel can loaded into the core of the reactor by the end of 2022.

As a result of the issue-ridden timeline for the Flamanville plant project, Le Maire has given the EDF one month to produce an action plan to restore industry knowledge. This step must be met before France can ultimately decide to build any future nuclear plants.

Other EDF Challenges

In addition to its most recent problems at the Flamanville nuclear plant, the EDF is also struggling with delays on two other reactors located in the United Kingdom. The problems at the unnamed location are estimated to cost 2.8 billion pounds ($3.6 billion), raising the project’s total cost to 22.5 billion pounds.

The EDF is also responsible for 58 domestic nuclear power plants that are responsible for 70% of France’s power. It costs the company roughly 15 billion euros a year to conduct proper maintenance, build new atomic and renewable projects, upgrade its electricity network and roll out smart meters.

Bloomberg adds that the company struggles to cover the money necessary for these annual expenses, even after cutting 1.1 billion euros in cost cuts in the past four years. Additionally, the company is also reported to have sold 10 billion euros of assets in the past four years and is planning another possible 3 billion euros in extra divestment by the end of 2020 to prevent growth in its 37.4 billion euros in net financial debt.

If that wasn’t enough, the company’s stock has reportedly dropped 34% due to its loss in market shares among rivaling French corporate and residential clients. The decrease has pushed the EDF to be the second worst-performing utility within the Stoxx 600 Utilities Index of European companies.

“Investors are staying away because of current uncertainties following the strongly negative news flow on the reputation of the nuclear industry,” said Auguste Deryckx, an analyst at AlphaValue. “The CEO’s stubbornness in pursuing nuclear, which is limiting potential growth in renewables that are better valued by the market, remains a black spot.”

Just one year ago, the EDF was labeled as the biggest utility by market value. Now however, its market capitalization stands at 28 billion euros which falls behind Italy’s Enel SpA, German’s RWE AG and even Danish offshore wind company Ørsted (whose revenue is about a sixth of EDF’s).

Currently, a quarter of EDF’s nuclear output can be bought for 42 euros per megawatt-hour, about 10 euros below current wholesale prices. The price has remained unchanged since 2012 and the EDF is considering boosting it as safety issues, decommissioning plans and nuclear waste treatments continue to negatively affect the company.

As for long-term plans for the EDF, the French government is considering ring-fencing its nuclear operations and listing a minority stake in its distribution and renewable business.

“EDF’s investment case is in our view one of political support,” Vincent Ayral, an analyst at JPMorgan Chase & Co, wrote in a note this month. “A potential larger restructuring of EDF and a re-regulation of the French nuclear activity (which may be separated) could unlock some of the deep value we see embedded in the stock.”

However, the government will first have to convince the European competition regulator that nuclear utilities need a more profitable framework—a task that could take several months or more.

“A reform of the (price) regulation is essential, and without it, no change in the group’s organization is justified,” Chief Executive Officer Jean-Bernard Levy wrote to EDF managers. “That’s simply because reorganization without better regulation won’t be enough to give EDF the financial means” to invest in newer energy sources.

Considering the future, the EDF reports that it plans to almost double its hydro, wind and solar power capacities by 2030. However, the EDF might also see a decrease in that share as well, as the EU has requested new entrants in the market.

   

Tagged categories: Business conditions; Business management; Business operations; Energy efficiency; EU; Europe; Nuclear Power Plants; Power; Power; Power Plants; Program/Project Management; Project Management; Rehabilitation/Repair; Robotics; Solar energy; Welding

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