The decision of France’s AREVA to take a €400mn charge on its Finnish nuclear reactor project, combined with a planned French nuclear plant shutdown is hurting AREVA’s bottom line.
Author: Dorothy Kosich
Posted: Tuesday , 29 Jun 2010
After state-owned AREVA, the world’s largest uranium miner, announced last week it would take a 400 million euros (US$491mn) charge due to cost overruns at its Finnish nuclear plant project, Standard & Poor’s Monday downgraded the company to a ‘BBB+’ rating, citing continued weakened profitability.
In an analysis published Monday, S&P Credit Analysts Sophia Dedemadis and Karl Nietvelt noted, “Depressed profitability at France-based nuclear services provider AREVA is being further strained by the recently announced additional provision of €400 million (US$491mn) for the OL-3 [Olkiluoto-3] Finnish reactor.”
“We also think that profitability could deteriorate as a result of the dispute with Electricité de France regarding the commercial agreement with AREVA’s Georges Besse nuclear enrichment plant (GB-I),” S&P advised.
“We are therefore lowering the long and short-term credit ratings on AREVA to ‘BBB+/A-2′ from ‘A/A-1″ and removing them from credit watch,” the analysts said. However, they added, “The stable outlook reflects our view that AREVA is likely to be able to successfully execute the remaining asset disposal program and proposed capital increase, thus strengthening its balance sheet.”
In their analysis, S&P contend AREVA’s profitability “will continue to be depressed over the next couple of years.”
“In our view, AREVA’s fair business risk profile is negatively impacted by the company’s currently low profitability and project executive risks, including OL-3 [The Finnish nuclear plant project],” the analysts advised. ‘Based on the company’s own estimates, the operating margin for the first half of 2010 will only be 4% excluding the OL-3 provision, In 2009, AREVA’s reported operating income was just €97 million.”
The analysts also noted the state-owned company’s operating performance “continues to be severely affected by cost overruns related to the OL-3 project (€2.7 billion as of June 2010).” Originally AREVA said it could build the Finnish nuclear plant for €3.2 billion (US$3.9bn) and be finished in 2009. Finnish client Teolisuuden Voima Oyj said the plant will start operations at the end of 2012 rather than the previous June 2012 deadline.
“Furthermore we anticipate that AREVA will incur some additional costs as a result of the dispute with Electricité de France S.A. regarding the offtake until 2012 from the Georges Besse nuclear enrichment plant (GB-I),” they added.
“We note that in response to the delays and profitability pressures, AREVA has undertaken several cost-cutting initiatives as well as reducing, to an extent, its capital expenditures up to 2012.” AREVA and its state-owned parent, Commissariat à l’Energie Atomique (CEA) estimates they could raise as much as €4 billion to €5 billion by financial year-end 2010. The two are trying to convince Mitsubishi Heavy Industries and the sovereign wealth funds of Kuwait and Qatar to buy new AREVA shares.
AREVA also has a large, long-term order backlog that is estimated at more than €43 billion (US$53bn) and significant cash flow benefits from new projects which are anticipated to occur from 2012 onward. S&P also suggested the French government “would provide timely and sufficient extraordinary support to AREVA in the event of financial distress.”
Posts Tagged ‘Areva’
French energy giant Areva has bought U.S.-based Ausra in order “to become a world leader in concentrated solar thermal” power (CSP). And so the race is on for market share in “The Technology that will Save Humanity.”
CSP is the most scalable and affordable baseload (or, even better, load-following) low-carbon supply technology — when used with low-cost, high-efficiency thermal storage. CSP can also share its steam turbine with biomass, a strategy the Chinese are pursuing, or with natural gas (see “Hybrid solar/gas plants provide low-cost, low-carbon power when needed“).
The Oil Drum wonders if Areva is “losing faith in the oft-predicted but unrealised ‘nuclear renaissance’.” Certainly, Areva’s best-known product is pricing itself out of the market (see Areva has acknowledged that the cost of a new reactor today would be as much as 6 billion euros, or $8 billion, double the price offered to the Finns).
CSP, on the other hand, has just started down the experience curve and is poised to be one of the major winners in the low-carbon economy. Indeed, Bloomberg/BusinessWeek [another corporate merger?] reports:
Areva SA of France predicts the global use of solar-thermal power will grow by about 30-fold this decade, a forecast that spurred the world’s largest maker of nuclear reactors to buy a California-based equipment maker.
The technology, which typically uses curved mirrors to focus sunlight to generate electricity, will be installed on plants with 20,000 megawatts of power potential by 2020, Anil Srivastava, Areva renewable energies executive vice president, said in an interview. That compares with about 625 megawatts today, according to Bloomberg New Energy Finance data.
“It is a very attractive market,” Srivastava said. Paris- based Areva aims to become a world leader in solar thermal, he said, after agreeing yesterday to buy Ausra Inc., a Mountain View, California-based maker of sun-driven steam generators used by power plants.
Many big international companies are trying to become leaders in CSP:
Siemens AG, Europe’s largest engineering company, agreed last year to a $418 million purchase of Beit Shemesh, Israel- based Solel Solar Ltd. Abengoa SA, also an engineering company, is building 13 solar-thermal plants in Spain that will benefit from consumer subsidies for clean energy….
Bloomberg New Energy Finance has forecast the installed base to grow to as much as 34,000 megawatts worldwide by 2020, exceeding the estimate of the French atomic-reactor maker.
Whether 20 GW in 2020 or 34 GW, CSP is a very fast-growing market (see “World’s largest solar plant with thermal storage to be built in Arizona — total of 8500 MW of this core climate solution planned for 2014 in U.S. alone“). And ultimately that’s why Areva says it is jumping in:
The market for concentrated solar power plants is expected to grow substantially in the next decade with an average annual growth rate of 20% and should reach an estimated installed capacity of over 20 GW by 2020. With this acquisition, AREVA is poised to capture the leading position of this attractive and growing market.
The Obama DOE is aggressively pursuing the technology, too:
The U.S. Department of Energy is ramping up research into what’s also called “concentrated solar power,” funding almost 30 projects and working with companies including New York-based Alcoa Inc. and Spain’s Abengoa with the aim of making the technology competitive in the baseload power market by 2020.
But ultimately, there is only one way this country can maintain the level of investment that other countries do, only one way to win the clean energy race — pass the clean energy bill.
PARIS, Feb 25
French President Nicolas Sarkozy has decided to oust Anne Lauvergeon, chief executive of French nuclear reactor maker Areva (CEPFi.PA), Wansquare website reported on Thursday. The president plans to use cost overruns relating to the delayed construction of its first third-generation reactor in Finland as the pretext for terminating Lauvergeon’s contract, Wansquare said, citing sources close to the president.
Areva declined to comment. The president’s office would not comment.
Areva shares were down 1.7 percent at 326 euros by 1245 GMT. (Reporting
by James Regan and Emmanuel Jarry; Editing by Dan Lalor)
© Thomson Reuters 2010