Sunday, November 06, 2005

Re-Energized -- Areva

TIME Europe Magazine: Re-Energized -- Nov. 14, 2005

Passed over for privatization, French firm Areva could still win big as global warming concerns and high oil prices put fission back in fashion

If Anne Lauvergeon had been given the choice, the French nuclear-energy company she heads would have been the next state-owned firm slated for partial privatization. Earlier this year, she and her colleagues at Paris-based Areva jumped the gun by preparing all the official paperwork for a public offering, and lobbied the government hard to be next in line. Her insistence ruffled some feathers, especially in the Finance Ministry, according to people familiar with the behind-the-scenes maneuvering. And late last month, she officially lost her battle when Prime Minister Dominique de Villepin and Finance Minister Thierry Breton announced that Electricit´┐Ż de France (edf), the huge state electricity supplier, would be next.

Lauvergeon will no doubt get over her disappointment soon, since Areva emerges as a big winner even if its privatization is pushed back. That's because, as the price of selling 15% of its equity to the public, edf has agreed to invest as much as ?40 billion over the next five years, mostly in France. Since nuclear power accounts for more than 75% of French electricity, a good chunk of that money is likely to go toward upgrading existing plants or building new ones. edf's dominant supplier: Areva, which has already picked up an order for a new-generation pressurized-water reactor to be built in the Normandy town of Flamanville from 2007.

Lauvergeon and Areva are on a roll these days. Nuclear power, written off as dead throughout Europe and much of the rest of the world over the past two decades, is suddenly back in fashion. The public still shudders when recalling the accident at Pennsylvania's Three Mile Island plant in 1979 and the disaster at Chernobyl seven years later, but these days, with worldwide demand for energy rising sharply, oil prices spiking at over $60 per bbl., and fears growing among the public at large about the lasting impact of greenhouse gases, the outlook for nuclear today is, well, quite radiant.

This September, some 300 executives from the world of energy and politics clambered into a huge hole in the Finnish town of Olkiluoto to watch a laser light show as the climax to the ground breaking for the first nuclear plant to be built in Europe in 14 years. The winner of the ?3 billion plant contract was Areva, in a joint subsidiary with Germany's Siemens. China currently has nine nuclear reactors in operation and says it will increase its nuclear capacity fivefold by 2020. The Chinese are expected to select a Western contractor for two new plants this year. The race is between Areva, Westinghouse and Russia's AtomStroyExport.

Areva is well placed in the U.S., too. In September, it announced a joint venture with Baltimore, Maryland-based Constellation Energy to promote its new generation of nuclear plant, and expects orders for four reactors once the technology is approved by the Nuclear Regulatory Commission. Even in nuclear-resistant Europe, official attitudes are shifting. Bulgaria is currently holding a tender for two new reactors; British Prime Minister Tony Blair, who last week hosted an international conference on climate change, has called for a debate about the future of nuclear power amid signs that the government may order several new plants; and in both Germany and Sweden, public debates are raging as to whether to reverse a previous commitment to shut down existing reactors. It's no surprise that Lauvergeon talks about a "nuclear renaissance."

Big obstacles remain, primarily the still-hostile public opinion in some countries and the unresolved problem of how to dispose of nuclear waste. Lars G. Josefsson, chief executive of the big Swedish utility Vattenfall, believes nuclear is on its way back, but cautions: "It will continue to be a very difficult question, especially in Europe, as many governments have taken very strong decisions in the past against nuclear."

Areva is well placed to capitalize on any comeback because it is a one-stop shop for nuclear energy, with revenues last year of $13.5 billion and almost a one-third share of the market. Unlike its key competitors, Westinghouse and General Electric, Areva spans all aspects of the business. It mines and enriches uranium ore to make nuclear fuel; it designs and constructs reactors and helps operate them; and it recycles the spent fuel and packages the remaining waste.

An engineer by training, Lauvergeon worked as an aide to the late French President Fran´┐Żois Mitterrand before joining the Lazard investment bank. In the late 1990s, the government asked her to take over Cogema, a state-owned nuclear reprocessing company. Convinced that nuclear had a big future, she orchestrated a merger with the other state-owned nuclear company, Framatome, which built plants and mined uranium, to create the French colossus. She has sought to create a positive image for the firm, and for nuclear energy in general, by sponsoring the French yacht in the America's Cup race and by launching a worldwide corporate-branding campaign that uses animated figures set to the 1980 disco hit Funkytown. The intended message, company officials say: nukes are cool.

Claude Mandil, executive director of the Paris-based International Energy Agency, says that public-opinion considerations were never as high in France as elsewhere. And after 30 years of living with nuclear energy, the French have grown used to the idea ? and enjoy stable electricity prices, especially at a time when oil and gas prices are shooting up. "The French are fond of their nukes," Mandil says. But even in France, nuclear is not free from controversy. Still, two other towns besides Flamanville actively lobbied to be the site of the new French reactor.

Opinion surveys commissioned by Areva for internal use show that nuclear's reputation has been improving. As recently as 2002, more people stressed the drawbacks of nuclear power rather than its advantages, according to the surveys. But that trend has reversed, and a clear majority now cites the pros rather than the cons. Critically, the surveys show that most respondents say concern about greenhouse gases and climate change are the key reasons for their views.

Just how big could nukes become? Jean-Jacques Gautrot, who heads Areva's international division, does a quick calculation. Taking into account the world's growing energy needs, and the fact that many existing plants will be coming to the end of their lives, he reckons at least 800 new reactors will be built over the next 25 to 35 years. If nukes were to double their share of the world's electricity generation, to 30% of the total, the number of new nukes would be somewhere between 1,200 and 1,500. That may be wishful thinking, but for now Areva is convinced it's in the right place at the right time ? regardless of whether Lauvergeon wins her battle to privatize the firm.


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