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Ukraine has a couple of years to decide on a partner in nuclear engineering

Ukraine has a couple of years to decide on a partner in nuclear engineering
Photo: PHL

In the near future Ukraine will have to choose a partner for the future development of its nuclear power industry. Against the background of the conflict with Russia, to which Ukraine’s energy sector is related through the common Soviet past and unimplemented major plans for the future, the government may choose to cooperate with foreign companies. This decision will determine the development of Ukraine’s nuclear energy sector in the coming decades.

Nuclear assault or default?

The first nuclear unit was commissioned in Ukraine back in 1977 – at the Chornobyl Nuclear Power Plant (ChNPP). The plan for development of nuclear engineering in the Soviet Union provided for the construction of nine NPPs on the territory of Ukraine by the year 1989, but only five were built – Zaporizhzhya NPP, Rivne NPP, Khmelnytskiy NPP, Southern Ukrainian NPP and the aforementioned Chornobyl NPP.

After the Chornobyl plant was shut down, the four remaining plants continued to operate on 15 units with a total installed capacity of 13,835 GW, which now generate 50% of all electricity produced in the country.

Rehashed old units

12 of all 15 units in Ukraine were built in the Soviet era. Since their operating life is approximately 30 years, at present the Energoatom national nuclear energy generating company (operates Ukrainian NPPs) is actively engaged in expanding its operations for another 20 years. As of today, the operating life of only three units was increased and by 2020 the state company will be faced with a difficult task: within six years it will have to expand the operating life of nine units. For that it needs to raise US $2.7 bn, or US $385 mn per year.

In addition, there is a project for the completion of two units at the Khmelnytskiy NPP (No. 3 and No. 4 units), the construction of which began back in 1986, but was frozen in 1990. The readiness of construction for mounting of the unit No. 3 is 75%, for unit No. 4 – 28%. The total estimated cost of construction of units No. 3 and No. 4 at the KhNPP including VAT, according to the Cabinet’s order issued two years ago, exceeded UAH 36 bn. As of September 1, 2014 Energoatom allocated only UAH 224.4 mn at its own expense.

Back in 2008, Ukraine decided to finish construction of the units at the Khmelnytskiy NPP in cooperation with Russia after Atomstroiproekt won the tender for supply of the reactor plant, beating the U.S. company Westinghouse and the South Korean KEPCO. In 2010, the parties signed a framework agreement under which Russian partners promised to finance 85% of the cost of the project and provide Ukraine with a significant portion of the necessary equipment. But later the terms and specifications of the project changed: first, Russia was unable to provide the preferential public credit and then it lowered the share of localization. As a result, the project skidded to a halt.

Today, Energoatom and the Ukrainian government have to choose whether to finish construction of the units at the Khmelnytskiy NPP or choose another site – for example, the Zaporizhzhya or the Southern Ukrainian NPPs. At these plants the construction of more units than those operating today was planned. Moreover, they are more convenient for the delivery of oversized equipment due to their proximity to the sea. Finally, they have to choose partners for completion of the construction of those units…

In early September President of Energoatom Yuriy Nedashkovskiy and Premier Arseniy Yatsenyuk said that completion of the units with involvement of Russian companies is unlikely and by the end of the year Ukraine will choose some other partner: either Westinghouse, the French company AREVA or the South Korean company KEPCO. However, so far there have been no initiatives to denounce the agreement on completion of the aforementioned units that was signed in 2010 with Russia. Capital’s source in Energoatom says such a proposal may appear in October.

Language difficulties

Having chosen a non-Russian partner Energoatom would face a number of serious problems. Representative of Energoatom, who asked not to be named, said in a conversation with Capital that cooperation with western companies means that the staff of NPP would at least have to learn English and adapt to Western standards and peculiarities of industrial process management at the plants. At the moment, Ukrainian nuclear power industry communicates in Russian, which means there are no problems in communication with Russian professionals. According to the source, there are many problems to be addressed in the process of reorientation to the West or the South-East. “Therefore, it is not worth getting involved in the game with the West just for the sake of completion of two units at the KhNPP. If we have to make a choice in favor of Western technology, it should be cooperation for decades,” he said.

In addition to the plans for completion of units No. 3 and No. 4 at the KhNPP, there are other projects. According to the baseline scenario of the Energy Strategy of Development of Power Industry in Ukraine until 2030, during this period there are plans to put into operation the new units with a total installed capacity of 7 GW (including units No. 3 and No. 4 at the Khmelnytskiy NPP). This being said, the time for reviewing the new projects is quite limited: given the long period of planning, preparation and construction of units, the design of new facilities has to be started in 2017. This means the official choice in favor of the Russian or the Western model of development for Ukraine’s energy industry has to be made by 2016.

New fuel for NPPs

Since the time of construction Ukrainian NPPs received only Russian fuel. Only in March 2008 Energoatom signed its first contract with a non-Russian supplier – Westinghouse Electric Sweden AB (Sweden). The contract provided for the supply of fuel from three to six units at Ukrainian NPPs from 2011 to 2015. This April Ukraine extended the contract to 2020.

The appearance of Westinghouse was not trouble-free – in 2011–2012 fuel assemblies supplied by the company to Ukraine were deformed and further use of such fuel was prohibited. The company upgraded its assemblies and received all permits for further use of the fuel in Ukraine.

Contracts with both suppliers of fuel – TVEL (RosAtom Group) and Westinghouse – expire in 2020 and by that time Ukraine’s nuclear energy industry has to make a choice: how much fuel it should buy and from whom and also whether or not to seek new suppliers aside from the aforementioned suppliers.

Future of fuel

Diversification of fuel imports and development of domestic raw materials in the nuclear industry have been examined in Ukraine as a national security issue since the early 1990s, said Director for Institutional Development at the Ukrainian Nuclear Forum Association Oleksiy Ananenko at a recent energy forum. At the state level, at various times several programs for the creation of elements of the nuclear fuel cycle were initiated, but none were implemented due to under-financing. For example, the term of the most recent program Nuclear Fuel of Ukraine expired in 2013. However, Ukraine still has no nuclear fuel of its own. Of the entire fuel cycle our country mastered only the production of uranium ore, which covers approximately 40% of the fuel demand of Ukrainian nuclear power plants. Originally, there were no plans to create any companies for the enrichment of nuclear fuel because the industry is highly regulated by international institutions due to its association with the development of nuclear weapons. Therefore, Ukraine uses the services of RosAtom.

Ukraine only planned to build a factory for the production of nuclear fuel from enriched raw materials supplied from Russia (in the village of Smolino in the Kirovohrad oblast). Back in September 2010, the Russian company TVEL won the tender for construction of the plant. The Ukrainian state concern Nuclear Fuel owns 50% +1 share in the future plant and TVEL owns 50% -1 share.

It was expected that by 2015 the plant would start production of fuel elements (cassettes used to equip fuel assemblies, which are loaded into reactors), and zirconium components and stainless steel parts. In another five years the company plans to produce fuel powder and pellets (i.e. fillers for fuel elements). The total cost of construction of the plant is planned at US $450 mn. The enterprise is designed for production of 800 fuel assemblies per year, despite that the current maximum demand in Ukraine is 600 assemblies.

Alas, the project came to a standstill. In 2013, Ukraine did not buy its stake after the additional emission of the plant’s shares in the amount of UAH 672 mn, which was supposed to be used for primary construction works. In middle of this past summer the new government questioned the expediency of construction of such a plant in cooperation with the Russians. Deputy Minister of Energy and Coal Industry of Ukraine Vadym Ulida said the Ukrainian side was not satisfied with some of the terms in the contract for construction of the enterprise, but did not specify any of them. But even before that, in June Senior Vice President for Commercial Affairs at TVEL Vasily Konstantinov said that under the terms of the agreement after construction of the plant Ukrainian NPPs would only use fuel produced under a Russian license. In other words, Ukrainian NPPs would simply have to forget about supplies of fuel produced by Westinghouse or other non-Russian companies. And in this respect Ukraine is no exception for RosAtom. Back in June EU experts published a report in which they concluded that of all companies in the world engaged in the construction of nuclear reactors only Rosatom fully connects the construction of new units to their future maintenance exclusively with its own fuel.

Obviously, this was one of the obstacles to continuation of the project. Ulida said that TVEL could be replaced in construction of the plant by Westinghouse or AREVA.

Cooperation with Russia has other negative sides. Director of Information and Public Relations Department at the Ukrainian Nuclear Forum Association Olha Kosharna says the future plant will be licensed for production of fuel not for possession but for use, which are two different things. For example, in case of liquidation of the joint venture Ukraine will lose such a license and will not be able to produce fuel on its own. At the same time, construction of the plant costs US $462 mn – double the cost of a similar project in Kazakhstan in cooperation with the French company AREVA. At the same time, the company in Kazakhstan will receive technology to produce fuel for possession, not for use.

Construction of the plant in cooperation with Russia would tie Ukraine to Russian services of isotopic enrichment and production of concentrate, which has the highest share – 70–80% -- in the cost of production of nuclear fuel.

For TVEL the Ukrainian market is in second place after the Russian market: based on results of 2013 the share of proceeds from the sale of fuel to EnergoAtom in the total amount of fuel sales was 24%. For comparison, while in Ukraine the Russian company supplies fuel for 15 units, in Russia it supplies 31 units. However, in 2013 alone Ukraine bought fuel to the tune of US $600 mn.

The final decision that may be made not in favor of the Russian company is confirmed by the fact that European institutions weary of the dependence of European companies on Russian gas supplies demanded that EU member states eliminate such dependence in the nuclear power industry: those countries using nuclear reactors built back in the Soviet times should diversify the supply of nuclear fuel and reduce their dependence on imports from Russia.

 

Aleksandr Merten: “If this is a dependence, it is mutual, or rather, mutual interest”

President of JSC Rusatom International Network (part of Rosatom Group) Aleksandr Merten told Capital about the prospects of cooperation between Ukraine and Russia in the nuclear sector.

— How do you assess the extent of dependence of Ukraine’s nuclear energy sector on Russia’s nuclear industry?

— Long-term, effective and large-scale relations were never called dependence. TVEL, the Russian producer of nuclear fuel for Ukraine, has for many years provided guaranteed and uninterrupted supply and over the years of cooperation there has not been a single breakdown or interruption of supply; the fuel is constantly upgraded and huge amounts of money are invested in research and development (R&D) of fuel thanks to which Ukraine’s nuclear power plants (NPP) show a high level of efficiency and ensure the country’s energy security.

TVEL, in its turn, has a guaranteed long-term load at its plants and plans to modernize production capacities and investments. If this is a dependence, it is mutual, or rather, mutual interest. The mutual relations between Russia and Ukraine in the nuclear sphere go beyond the borders of fuel supply. Specifically, we are talking about the construction of plants for the production of nuclear fuel, the completion of energy units at the Khmelnytskiy NPP, nuclear engineering, etc.

— Ukraine is considering the possibility of increasing the purchase of fuel for its NPPs from Westinghouse. What is your thought about this? Does it pose any threats to Ukraine’s nuclear energy sector and, if so, which threats specifically? Is TVEL ready to continue supplying nuclear fuel to Ukraine if the Ukrainian leadership decides to significantly increase its purchases of fuel from Westinghouse?

— Suppliers of nuclear fuel are determined by exploiting companies – this is their exclusive prerogative. If the Ukrainian operator makes such a decision, we will respect it. But another matter is rather disturbing: American fuel is planned for exploitation in conjunction with our cassettes. Moreover, we do not possess any information about the technical specifications of American fuel. We do not know the parameters of its safety and to this day we do not know what effect American cassettes will have on our fuel. I am confident that such an authoritative and experienced operator of NPPs as EnergoAtom is well-versed in sphere of nuclear safety which requires responsible decisions. The actions of TVEL in similar situations are written down in contracts and we will strictly be guided by them.

In our contract with EnergoAtom every detail as to the volumes of supplies of fuel is clearly delineated and we will fulfill these obligations regardless of the current political situation. What is most important is that the Ukrainian operator of the NPPs in its decision on fuel supplied by Westinghouse compares it to the obligations in the contract between Ukraine and Russia in which the volumes, terms and obligations of both sides are clearly set forth. As for our contract with EnergoAtom, the framework is goes far beyond the year 2020.

— Ukraine and Russia planned to collaborate in the construction of a plant for the production of nuclear fuel in Ukraine. In your opinion, what are the main problems that are obstructing the completion of this project?

— Much has been done within the framework of this project – we drafted all the documentation, prepared the equipment and set up the platform for the main construction. Today, the project is somewhat stalling: this is mostly due to the fact that the Ukrainian shareholder of the plant is not fulfilling his financial obligations. At the moment, there is no progress on this matter. TVEL is cleanly fulfilling its obligations and is willing to continue to do so. You must understand that completing the project without financing is impossible.

In order to continue the project real-time decisions of the Ukrainian side regarding financing are imperative. In addition to that, today it is quite obvious that the terms of launching the plant must be adjusted as this process is more than a year and a half behind schedule, while approximately 30 months are needed to complete the main construction.

— Rosatom won the tender for the construction of energy units No. 3 and No. 4 at the Khmelnytskiy NPP. However, the Ukrainian government stated that it is doubtful about the expediency of the construction of the units jointly with the Russian company. Has Rosatom incurred any losses from this project? Does Rosatom plan to get compensation of expenses if the Ukrainian side backs down from the joint project?

— The contract agreements for the development of the technical project and supply of the equipment for these blocks were signed in Kyiv on February 9, 2011. In November 2012 EnergoAtom sent Rosatom resolution No. 15 of November 20, 2012 approved by the board of the State Inspection of Nuclear Regulation of Ukraine pursuant to which the Ukrainian supervisory body set the task to EnergoAtom in accordance with which the units installed at the Khmelnytskiy NPP must correspond to the post-Fukushima safety requirements, meaning the 3 plus generation.

The Russian nuclear energy scientists drafted the main conceptual project solutions for the new units No. 3 and No. 4 at the NPP factoring in all the post-Fukushima safety requirements. The conceptual solutions were submitted to EnergoAtom in February 2013. Rosatom is interested in the construction of the No. 3 and No. 4 units of the Khmelnytskiy NPP and so far has not received any official rejection of the Ukrainian side for cooperation in this project. Rosatom constantly and opportunely responded to EnergoAtom to all inquiries regarding the project. In the end, Ukraine must finally decide which of the variants of the project it plans to develop and determine the sources of its financing.

 

Yves Brachet: “In 2–3 years we will be ready to supply fuel to all units of Ukrainian NPPs”

Yves Brachet, President of Westinghouse in Europe, the Middle East and Africa, has been a very diplomatic interlocutor and discussed the prospects of cooperation with Ukraine in the nuclear industry from a “purely theoretical point of view”, although it became clear that there will be no trouble proceeding to the practical stage.

- In August you discussed the possibility of enhanced cooperation with President of EnergoAtom Yuriy Nedashkovsky. Did you come to any agreement?

- We had a preliminary discussion on enhancement of cooperation between EnergoAtom and Westinghouse. We looked into several options for such cooperation, the first being the supply of fuel. The second was the participation of Westinghouse, which is already in the works, in some tenders for improvement of the safety of Ukrainian NPPs. But this is a business process – we filed our proposal, but do not know yet whether our company will be chosen. The third option is the possible exchange of engineers between our companies in order to share technologies. We have also previously discussed the project of completion of two units at the Khmelnytskiy NPP. I was asked if it could be theoretically interesting for Westinghouse to become a partner in this project and I responded: if it is offered to us and is beneficial for both parties, then why not… But again, it was only a preliminary discussion. No official documents were signed.

- Ukraine and Russia planned to build a plant for the production of nuclear fuel. The project is frozen for now and may not be implemented with the Russians. Is it possible for Westinghouse to take part in such a project?

- Yes, if there is a mutual benefit to the two sides. There is still the issue of exchange of technologies, which is not always easy to resolve, but we are working on it. In addition, there are many man-made barriers to the exchange of technology of this kind between countries. But if the Ukrainian government (specifically the government, not EnergoAtom) wants to explore the possibility of such cooperation, Westinghouse would be happy to participate in such a study.

- Currently, Russia is the main supplier of fuel for Ukrainian nuclear power plants. If Ukraine has difficulties with supplies of fuel, will it be possible for Westinghouse to replace the Russian supplier and how much time will it take?

- We signed a contract with Ukraine and can supply fuel for three reactors within its framework. And as part of the contractual obligations, we are ready to cover the demand for fuel. It is technically possible to supply more fuel, but organization of deliveries will take some time. For example, if tomorrow we are asked to increase the supply, it is possible that in 2–3 years we will be ready to supply fuel to all 15 units at Ukrainian NPPs. But I would like to make one thing clear: all companies all over the world try to diversify their supplies of fuel. In our experience in other countries, ideally there is a certain ratio of shares of fuel supplies from two different companies. For example, if one company has a share of 10% and the other has 90%, in case of disruption of supplies from the second company, it will be difficult for the first one to replace it. Therefore, the ratio between the suppliers should be 30-40% to 60–70%. That is why Electricite de France buys 2/3 of its fuel from Areva and 1/3 from Westinghouse.

- Does Westinghouse have any experience in supplies of fuel for Russian-type reactors in other countries?

- We supply fuel for VVER-440 reactors in two countries. Previously, we supplied fuel to the Loviisa NPP (Finland). In addition, we had some experience in the Czech Republic, to which we supplied fuel for VVER-1000 reactors.

- Did Westinghouse obtain all permits and licenses required for supplies of fuel to Ukraine?

- We have licenses for fuel that is already used in Ukrainian reactors, as well as for a new design fuel, the first load of which is planned in early October.

- Does Westinghouse invest in the construction of reactors?

- Financing is the main problem in the process of construction of new reactors, because the financial world is very skeptical about the return of investment in this area. Not only Westinghouse, but also Rosatom and other similar companies involved in such projects are interested in good results and compliance with deadlines in construction works. Therefore, Westinghouse invests in construction of new reactors, because we are interested in quality performance and compliance with deadlines. The company may invest 20% or 30% of the project cost, sometimes – more than 50%. But we invest only in the stage of construction and see a return on investment upon its completion. Westinghouse does not profit from the operation of plants. I would like to give an example of the Bulgarian Belene NPP. Initially, there were plans to build VVER reactors (and special constructions were built for them – Capital). The Bulgarian government wanted to learn whether it was possible to use the existing structures for installation of a different type of reactors. We won the tender for such a study, conducted it together with the Bulgarians and came to the conclusion that implementation of such a hybrid project would be an expensive, quite complex and possibly unsafe business. As a result, Bulgaria decided to build a reactor “from scratch”. This was the AP-1000 reactor manufactured by Westinghouse. Another example is the Kozloduy NPP (Bulgaria) to which Westinghouse supplied control systems for the VVER reactor 20 years ago. So, there is a totally open window of opportunity for potential cooperation – from the complete construction of reactors to cooperation in more narrow and specific directions.

- Ukraine has not built new reactors for a long time. How much can a new reactor cost now?

- A 1,000 MW reactor costs US $4–6 bn.

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