Tuesday, August 30, 2005

Europe's New Nuclear Standoff

WSJ.com - Europe's New Nuclear Standoff

As Public Hostility Slows Atomic Energy
In the West, It's Embraced in the East
June 29, 2005

As much of Western Europe dithers over atomic energy, its Eastern neighbors are building a new generation of nuclear stations to meet rising domestic demand and explore export opportunities.

Nuclear energy has several advantages in Eastern Europe: labor is relatively inexpensive, half-developed sites from the Soviet era already exist, governments have provided sovereign guarantees on new plants, and there is a determination to reduce dependence on Russia, which supplies as much as 90% of natural gas in some countries.

"Nuclear power is actually a point of national pride [for Eastern Europe]. Sometimes countries are defiant because they don't want to be told what to do," says Joseph Pospisil, a nuclear-industry expert at Fitch Ratings in London. The Czech Republic, Slovakia, Romania and Bulgaria plan to build new plants. Slovenia and Croatia are considering pooling their funds to expand the nuclear station they currently share.

Nuclear energy also seems like Eastern Europe's best hope of exporting energy.

"Coal is difficult to extract and increasing natural-gas consumption has to be carefully evaluated from the point of view of the security of supply policy," said Teodor Chirica, director general of Romania's state-owned utility Societatea Nationala Nuclearelectrica.

"Nuclear represents the optimum mix for Romania. And while new nuclear plants will focus on internal demand, yes, there is some room for export," Mr. Chirica said.

The confidence contrasts with most Western governments' wariness of public hostility to nuclear power as well as the subsidies needed to underwrite funding for replacement plants or upgrades to existing units. As nuclear-power stations are built in Finland and France, governments elsewhere -- especially in Germany, the U.K. and Italy -- have struggled to decide on the right mix of power sources.

This has led to some cross-border squabbles. The antinuclear Austrian government tried to stop the Czech Republic's publicly traded utility CEZ AS from upgrading its Temelin nuclear plant, which sits 60 kilometers from the Austrian border. CEZ nevertheless plans to add two new turbines to the plant later in the decade, the company said.

The European Union also made the closing of Bulgaria's Kozloduy nuclear plant a condition for the country's entry into the EU, saying that "it cannot reasonably achieve a high level of nuclear safety." According to the International Atomic Energy Authority, the United Nations body charged with evaluating the safety of the world's nuclear-power plants, Kozloduy was among the most profitable plants in Europe and met the IAEA's safety standards.

Bulgaria closed the plant but said it will build a new nuclear-power station at a half-finished site in Belene, 200 kilometers north of the capital Sofia.

The Bulgarian government is likely to hand over the half-built site at Belene free of charge, valued at €1 billion ($1.2 billion) according to some estimates, and take a 51% equity stake in the plant itself.

"The case of Bulgaria is partly political, partly ambition and to some extent a reaction to the closure of four units of Kozloduy which the EU requested as a condition for entry," said Yanko Yanev, head of the IAEA's Nuclear Knowledge Management Unit in Vienna.

Eastern Europe also is looking to nuclear power as a way to exploit the demand for power in its western neighbors. By 2010, 60% of Europe's aging power plants will have to be retired, in part because of stringent emissions requirements. Germany's coalition government is also committed to making Germany a nuclear-free state by 2021, which would mean closing 19 nuclear plants, accounting for 30% of Germany's power-generation capacity.

Sector experts warn that boosting exports won't be straightforward. Even against a background of aging Western generating capacity and disarray in some major economies about the preferred fuel mix for a new generation of power plants, cross-border rivalries and a lack of transmission capacity could well crimp Eastern ambitions.

Italian energy company Enel SpA's new chief executive, Fulvio Conti, also says he wonders how much room his country has for imports from the East. "Italy is the country with the highest level of energy imports [in Europe], 16%, and it would be difficult to import more," he says. "Imported energy also has potential risks, limited interconnection and increased dependence on other countries."

German power companies E.On AG and RWE AG declined to comment on nuclear-power imports.

France's and Eastern Europe's export ambitions are constrained by the technical obstacle of Europe's heavily burdened cross-border transmission lines.

Capgemini SA said cross-border electricity-transmission lines in Europe were so inadequate that blackouts, like the ones that hit Italy and France in 2003, remain a threat.

The European Parliament has called for €28 billion to be spent by 2013 to increase interconnection capacity.

The race to export power to the West has led some governments in Eastern Europe to offer construction guarantees that utilities in European deregulated markets such as the U.K. can only dream of.

Debt incurred to build the new unit of the Cernavoda nuclear station in Romania, set to open by 2007, was backed by government guarantees and an export credit agreement that lowers interest rates. Societatea Nationala Nuclearelectrica paid for some of the equity stake as well.

Some countries are calling for tenders before the financing structure has even been ironed out, expressing confidence that banks and nuclear developers such as Areva of France and General Electric Co. of the U.S. will help foot the bill.

An Areva spokesman said such structure was "not the tradition" for developers to take an equity stake in a nuclear-power plant.

GE declined to comment.

"The Romanians will be desperate to export electricity to Greece and Turkey, through Bulgaria, even if they have to limit internal consumption," says the IAEA's Mr. Yanev.

Write to Nina Sovich at nina.sovich@dowjones.com


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