The below picture does not show a nuclear power plant.
The Korean victory in the UAE bidding process came as a huge surprise to Areva, the French nuclear conglomerate. They had the EPR design ready to be rolled out. President Sarkozy had pulled out all the stops. France had a military base in the country and was training Emirati troops. The President had visited Abu Dhabi. Areva could offer a long-term fuel contract, delivering fresh uranium from its mines in Niger (enriched, of course, in France). Moreover, Areva could accept used fuel and reprocess for reuse it at its plants in La Hague and Mercoule. France meant nuclear. It had to happen.
Yet suddenly the South Koreans came out of nowhere. Huh?
I’d been wondering that myself. So I asked some fellows I know in the Abu Dhabi government. They gave me a simple answer. The Koreans offered a cheaper price, guaranteed that price, and offered a long-term service contract. The Korean price came to $3.64 million per megawatt for a 1400 MW reactor. The French offered something similar, but they refused to take on the risk of cost overruns. When pushed to offer a fixed-price turnkey project, they came back with a price of $5.45 million per megawatt for the 1650 MW EPR design. Now, Areva’s ability to guarantee fuel for a decade or two is a big advantage ... but Areva will sign such contracts with anyone. No need to buy one of their reactors. In fact, the Koreans already have a 10% stake in Areva’s new mine in Niger, which guarantees supplies to their domestic plants under long-term contracts.
Does the deal make sense for the UAE? The UAE government takes a rather long-term view, so a 5% discount rate seems reasonable. (For comparison, EDF uses an implicit discount rate of 13% in its investment decisions.) Assuming that the reactors manage to reach the 89% capacity utilization reached in the United States, the Korean price implies a capital cost around $23 per megawatt-hour. Fuel costs about $4. Operation and maintenance costs are harder to know, but the word is that the Koreans offered to run the plants for their useful lifetime (presumably 40 years) for roughly $5 billion each. That implies a cost around $11 per megawatt-hour, which is in line with the $8 estimated by the OECD for South Korean reactors. Total cost, $39 per megawatt-hour, assuming that Kepco absorbs the inevitable cost overruns.
What about the other options? At those prices and discount rates, nuclear is competitive with coal. Coal costs quite a bit in peripheral areas — $19 in Finland, for example, and $20 in Japan (per megawatt-hour of electricity produced) — and in a world where the United States has begun exporting the stuff to China via the Panama Canal those costs are unlikely to decrease. The capital costs of your typical coal plant come to about $11 per MWh, but political pressures would almost certainly drive the UAE to purchase the most advanced “clean coal” technology, which would push the cost up to $20. (No, it isn’t that clean, but it emits less carbon by dint of burning the stuff at higher temperatures.) Adding in the O&M costs from the Japanese coal plants (which use high-temperature furnaces) drive total coal costs up to $50 per megawatt-hour.
The rub is gas. Gas is cheap. Capital costs are tiny; less than a quarter of nuclear. Fuel costs are relatively high in most of the world, except the UAE, where Qatar stands poised to export endless amounts of the stuff via the Dolphin pipeline.
Why choose nuclear over gas? Abu Dhabi is making a strategic calculation, not an economic one, at least not in the short term. Perhaps they think that the local price of gas will rise, either due to increasing demand or because the cost of making LNG for export will fall. Perhaps they are making some sort of inexplicable calculation about foreign exchange. Perhaps they are taking a long-term bet on nuclear power. Or they might simply think that Qatar will be unable to supply them with the quantities they will eventually need for electricity generation at any price, considering that the UAE isn’t their only GCC customer.
I honestly don’t know, although I am trying to find out. What I do know is that they aren’t making a political calculation ... otherwise they would have gone with the French.
Should I add some graphs and charts?