More Trouble at Olkiluoto Nuclear Plant

I-SIS March 6, 2014

0 5 minutes read

Finnish nuclear plant already vastly over budget and overdue has slowed almost to a halt, embroiled in dispute and with no end in sight; it augurs badly for UK’s bloated nuclear ambition.

by Prof. Peter Saunders

Olkiluoto Nuclear Power Plant in Eurajoki, Finland.

The nuclear renaissance that never was

When the Finnish government agreed in 2005 to the construction of a new reactor on the Olkiluoto site in the far north of the country, this was the first nuclear power plant to be ordered in Western Europe for 15 years. Supporters of nuclear energy greeted it as the start of a ‘nuclear renaissance’. But things have not worked out as hoped. Olkuiluoto 3 was supposed to cost €3.2 bn and is now expected to cost almost three times as much. It was supposed to be in operation by 2009 but the date keeps being put forward. And relations between the Finnish power consortium Teollisuuden Voima (TVO) and the French construction firm Areva have been described by Areva’s Chief Operating Officer as one of the biggest conflicts in the history of the construction sector [1].

From bad to worse

Things now seem to be going from bad to worse. According to Kauppalehti, the largest financial newspaper in Finland, far from activity on the site being pressed forward so as to get the job done, it is actually being run down [2]. There are fewer workers on the site than before, and the contracts of the foremen, which are typically for a year at a time and should be renewed by the end of March, are being allowed to lapse. Some of the less technically demanding work can continue without them, but most of the construction will have to stop and expert staff that leave and get other jobs will be hard to replace. One worker on the site, who preferred to remain anonymous, estimated that every month lost at this stage will add three months to the time to completion. Areva, in charge of building the plant, has not issued a new timetable, so we do not know when they now expect to complete their work. It seems certain that Olkiluoto 3 will not be operational before 2016, and sometime between 2018 and 2020 is probably a better guess.

Nuclear plants are very expensive to build, and until they are producing electricity, the interest charges continue to accumulate with no income stream to pay for them. This makes any delay very costly, and ever since it became clear that Olkiluoto 3 was going to be late coming on stream, TVO and Areva have been in dispute about who is to pick up the tab. TVO is demanding €1.8 bn compensation for the revenue it has lost. Areva counters that TVO has failed to cooperate adequately in keeping the project moving, and is claiming €2.7 bn in compensation for its losses [3].

TVO and Areva signed a fixed-price turnkey contract, which on the face of it puts the responsibility for any delays or cost overruns onto Areva. But turnkey contracts generally include clauses that allow the builder to charge for extras such as changes to the agreed specification or delays that are caused by the customer, so there is always room for dispute. The two sides seem to have been claiming and counter-claiming ever since it first became clear that Olkiluoto 3 was falling seriously behind schedule. They have been seeking arbitration from the International Chamber of Commerce since 2008, and they are still nowhere near a settlement.

Whoever is responsible for the delay, you would expect that at this stage both sides would be anxious to see the plant completed as soon as possible. Yet this latest action (or lack of it) is bound to push the handover date even further into the future and add even more to the cost. This suggests that both sides are taking into account the possibility that Olkiluoto 3 will be abandoned altogether and that it is important to put themselves into the strongest possible legal position in case that happens. That would explain why Areva seems willing to slow construction down even further but neither Areva nor TVO is talking about stopping it altogether. It would not be an unprecedented event; to date there have been 24 nuclear reactors on which work has begun and then been abandoned without the reactor ever reaching criticality [4].

UK’s nuclear reactor a colossal blunder at the taxpayer’s expense

This continuing saga does not augur well for the new UK reactor to be built at Hinkley Point by Electricité de France, in cooperation with Areva. It is to be a European Pressurised Water Reactor (EPR), similar to those still under construction at Olkiluoto and Flamanville, both of which are very late and over budget. The UK government has agreed a strike price of £92.50/MWh, which most commentators consider too high (UK Government’s Great Nuclear Blunder [5].) But the bill that gives the go-ahead to the project also authorises the energy secretary to keep details of the contract secret on the grounds of commercial confidentiality [6]. The Department of Energy and Climate Change (DECC) insists that it is still “committed to transparency over the terms of any contract agreed for new nuclear projects,” and that the bill only permits information to be withheld “in narrow circumstances,” but history tells us that information that might be embarrassing for the government tends never to see the light of day.

Despite the generous strike price, there are likely to be circumstances in which EDF might come back to the government for more, as Areva clearly can with TVO. That does not, of course, include the costs of decommissioning and of taking on the liability for a major accident, which are already covered. It is therefore ominous that Luc Oursel, the Chief Executive of Areva, complained that [1] “TVO is a client which is no doubt a bit too much influenced by its lawyers about how to handle this project. It is holding to an extremely strict contractual framework.”

In other words, if the cost of building a reactor rises above the agreed contract price, even for such a generous deal as was agreed at Hinkley Point, the customer – here the UK taxpayer or electricity consumer – should not be so unreasonable as to insist on sticking to the terms of the contract.

What the energy bill does is make it possible for the government not only to increase the subsidy for the construction of Hinkley C, but to do this without telling Parliament or anyone else that it has done this.

The government’s agreement with EDF for a new nuclear plant at Hinkley Point was always a bad deal. The more we hear about the progress (if it can be called that) at Olkiluoto and Flamanville, the worse it looks.

Further reading:

References: