Areva updates nuclear energy bloggers 

The monthly conference call yields multiple items of interest

One would think, on reflex, that a giant, state-owned and vertically integrated nuclear energy conglomerate in France would have little interest in nuclear bloggers in the U.S. That's not the case. In fact, Areva's team, based in Bethesda, MD, has been holding monthly conference calls with nuclear bloggers for about two years. 

One of the values Areva has emphasized is transparency. The firm backs it up with unscripted interviews with its key executives including CEO Jacques Besnainou. This week Areva put Mark Marano, VP for New Plants, on the wire. As always, there was an interested group of nuclear bloggers on the line with a wide variety of viewpoints about the future of the nuclear industry.

Marano started by confidently asserting that the withdrawal of Constellation Energy Group (NYSE:CEG) from the Calvert Cliffs III reactor project will not impair the Department of Energy loan guarantee for it. Areva's interest is to supply the first US EPR reactor which is rated at 1,600 MW. The reactor is currently in the design certification process at the NRC. The Calvert Cliffs project is the reference design for the US EPR.

Where things stand now is that the loan guarantee application was submitted by Unistar which is now partnered with EDF. Marano said Constellation's withdrawal from the project has not resulted in the remaining partners pulling the $8 billion application.

"We're waiting for Congress to act, Marano said, "The House has $7 billion in its bill and the Senate has $8 billion."

Marano said that if Congress passes new loan guarantee authority along these lines, that there will be enough to cover Calvert Cliffs III as well as two other projects. The two remaining projects on the Department of Energy's short list are NRG's South Texas Project and Scana's V.C. Summer Station.

 Eagle Rock update

Areva gained a $2 billion loan guarantee last May for its Eagle Rock Enrichment Facility. The 3 million SWU plant is expected to get its NRC license in mid-2011 at which time it will break ground at the green field site 18 miles west of Idaho Falls, ID.

Jarret Adams, a spokesman for Areva, joked, "Now we'll have to get the cows off the pasture."

Areva held a "supplier day" in Idaho Falls recently which attracted over 200 firms that want to do business with the company as it builds the $2.4 billion facility.

Piketon, Ohio, update

In June 2009 AREVA, Duke Energy, UniStar Nuclear Energy announced the start of negotiations to develop an EPR reactor for America's first Clean Energy Park.

AREVA will be coordinating the technical analyses needed to prepare the plant construction permit and licensing application which will be examined by the Nuclear Regulatory Commission.

Duke will manage the project, provide project oversight and serve as the applicant for any NRC licensing applications.

Unistar will provide its services and expertise for the pre-certification process of the EPR™. It has also expressed interest in having a stake in the future nuclear power plant.

The 3700-acre Clean Energy Park in which the plant could be built is located on a Department of Energy site in Piketon, Ohio. Duke Energy, AREVA, UniStar Nuclear Energy, USEC Inc. and the Southern Ohio Diversification Initiative today announced that they have formed an alliance to pursue its development.

The latest action is that the project team will move forward to file for an Early Site Permit (ESP) for the reactor. The ESP doesn't commit them to build, but it does clear out a lot of environmental issues for a specific site.

Also, like its supplier days in Maryland and Idaho, Areva held one in Ohio. Jarret Adams, a spokesman for Areva, told the bloggers that "one of the lessons learned from our work in Finland is the necessity of having the supply chain developed early in the project."

He added that "90% of the components for an EPR built in Maryland or Ohio will be made in the U.S."

According to wire service reports, the supplier day for the Duke project was a huge success.

“AREVA came to Ohio to look for partners to manufacture and supply the thousands of components and to build U.S. EPR™ nuclear plants that are truly ‘Made in America,’ and further realize our vision of revitalizing America’s energy infrastructure,” said Mike Rencheck, President and CEO of AREVA NP Inc. “We have been overwhelmed by the strong response to our call for partners.”

A new U.S. EPR project would create up to 11,000 direct and indirect jobs during component manufacturing and plant construction. Additionally, it would create more than 400 permanent jobs and spur billions of dollars of investment into the regional economy. Such a project would require hundreds of qualified suppliers and subcontractors.

Areva seeks cash for global growth

 To develop its U.S. and international projects, Areva needs to raise capital. There have been several key developments along these lines.

French state-owned nuclear giant Areva announced that Kuwait will take a 4.8% stake in the firm worth $795 million. French Finance Minister Christine Lagarde made the announcement in Paris. At the same time, Lagarde also said the French government would invest an additional $396 million in the firm. Finally, Areva will raise cash from the sale of subsidiary in the electronics industry.

The capital increase “automatically gives rise to an issue of preferred shares without voting rights” reserved for investment certificate holders, the company announcement said. The Kuwaiti group has committed to retain its stake in the company for 18 months, during which time AREVA has pledged not to dilute the value of the stake through share sales below the group’s subscription price.

Areva has been working to raise up to $4 billion to pay for the firm’s expansion in Europe, China, and India; and for new uranium mines. Talks have been underway with the sovereign wealth fund of Qatar and with Mitsubishi in Japan. Overall, if the firm’s long-term financial goals are achieved, these new investments will account for a 15% share in the firm.

How much cash is needed and when?

The question is how soon will Areva need more capital? According to CEO Anne Lauvergeon, "It is clear today we have no liquidity problems."

Does this mean Areva is holding at $900 million when it really needs $4 billion? If so, why? The problem for the vertically integrated nuclear firm is that there are only so many prospects who have this kind of money. Some of them attach a steep price for their financial support.

For instance, given China's voracious appetite for fuel, Qatar wants its stake in Areva to be in uranium mines rather than reactors. Areva needs the cash to build new 1,600 MW EPRs and to finish two it already has under construction. Both of them are behind schedule and over budget. If you were managing Qatar's sovereign wealth fund, where would you place your bet?

Internal French politics may also play a role. Alstom, the French power generation equipment manufacturer, is opposed to having Mitsubishi take a stake in Areva since they're a direct competitor.

Also, EDF, which owns a 2.4% stake in Areva, may want to increase it to gain a voting seat on the board. The two firms do not get along so Areva is expected to try to block this move.

Financial alternatives might help

So what's a nuclear giant to do? Well, for one thing Areva can play an ace in the hole and go to its customers for investment capital. For another, it can count on delays for some of its projects to spell relief for raising new capital.

For instance, an Areva executive in the U.S. told a meeting of government officials in Washington, DC, last week the firm would not have been able to commit to building its Eagle Rock Enrichment Facility in Idaho if it had not received a $2 billion Department of Energy loan guarantee.

Now that the loan guarantee for the Eagle Rock plant is in hand, and the NRC license seems to be on track for 2011, Areva could be out raising capital by soliciting U.S. utilities to take equity stakes in the Idaho plant. Areva is already doing this with some of its Asian customers for George Besse II. Both plants operate with the same kind of technology, so a business case seems within reach for Idaho.

However, when asked about the prospect of selling equity shares in the Idaho plant, Areva spokesman Jarret Adams said there are no plans for now to do so.

Areva just inked a deal for two new 1,600 MW reactors for India's Nuclear Power Corporation. A key factor in that deal is "local content" for plant components. Areva's procurement commitments for the reactors ought to be bankable for the Indian suppliers to raise their own capital for expansion thus relieving Paris of having to tap its investors for new manufacturing capabilities.

Project delays may push back some needs for cash

Finally, Areva may not need capital for several more years for two U.S. projects. A planned ground breaking date of 2012 for the first Areva U.S. EPR seems very unlikely. The U.S. government's bean counters ran the loan guarantee for the project off a cliff earlier this year. EDF and Unistar now need a new U.S. partner. They may get one, but getting the project back on track could take another year.

Also, Areva has postponed work on its $360 million nuclear component manufacturing facility in Newport News, VA. The factory will now start operations in 2013 assuming the U.S. nuclear renaissance gets going again.

There is one bright spot. Elsewhere, Areva is doing business with Mitsubishi anyway. The two firms announced a 50-50 joint venture to produce and sell fuel to U.S. nuclear utilities that will build Mitsubishi's 1,700 MW APWR .

They are Luminant's Comanche Peak and Dominion's North Annna site . The fuel fabrication facility will be built at Areva's Richland, WA, fuel fabrication plant. With new federal loan guarantee authority likely to be passed in the lame duck session of Congress, both reactor projects might be able to grab a piece of it.

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