A new model for nuclear new-build22 April 2021
Anton Dedusenko, Deputy Chief Executive Officer, JSC Rusatom Energy International (JSC REIN), speaks to NEI
Image: Akkuyu nuclear power plant is under construction in Turkey (Photo credit: Rosatom)
What has been the impact of the pandemic on the position of nuclear energy in the world?
With all those difficulties the world has been facing during the pandemic, nuclear energy has visibly grown in relevance – and not only because it has contributed greatly to the provision of uninterrupted power to infrastructure facilities, the reliable operation of which is critical during the crisis. Equally worthy of attention is the global role of nuclear in the post-pandemic economic recovery.
In 2020, the International Energy Agency designed its Sustainable Recovery Plan for the energy sector, which has three main goals: saving and creating jobs; boosting economic growth; and improving energy sustainability and resilience. Implementing nuclear new-build projects worldwide meets all three objectives, bringing an array of positive economic effects. This is illustrated by our projects in Turkey and Finland.
How does JSC REIN participate in nuclear new-build?
At JSC REIN, we have been implementing international construction projects based on the BOO (or build-own-operate) model.
The vendor company provides project financing, while the customer country creates all the preconditions necessary for project implementation. Once construction is complete, the facility’s ownership remains with the vendor, who is responsible for its operation and receives profit from it.
It should be noted that the customer country is not left out. For instance, after our Akkuyu plant in Turkey breaks even, 20% of the net profit generated by our Turkish project company JSC Akkuyu Nuclear will be given to the Turkish party annually. This is provided for under the Intergovernmental Agreement between Russia and Turkey, as well as under the power purchase agreement (PPA). Given the Turkish economy’s growth and rising electricity consumption, the overall amount paid to Turkey may exceed US$40 billion, and it will have even higher value in taxes and social benefits. It means that throughout the plant lifetime – which is 60 years, with the possibility of extension – Turkey will be receiving a share of income generated by the vendor’s investment, in this case by Russian investment.
The customer country thus gets a turnkey, fully functional generating facility that guarantees stable electricity supply for decades ahead, while we expand our offer and business into new markets.
Any project based on this model is multi-faceted and complex by nature, and ours are no exception – beside construction, they comprise funding, taxation, personnel training and many other aspects. Addressing all of these in their entirety and integrity requires applying a strategic, complex approach and employing highly qualified specialists from a diversity of fields.
The BOO model is being fully applied at the Akkuyu project, which was launched in 2010. In this sense, we can proudly proclaim ourselves pioneers in the global nuclear industry, as this is the first international nuclear project to be implemented by a vendor based on the BOO model in a foreign country.
There are also some elements of BOO in the Hanhikivi-1 project in Finland, where Rosatom holds a 34% stake in Fennovoima Oy, the plant owner and operator.
We regard our projects as international not only because we are implementing them abroad. The very nature of these projects allows us to successfully combine Russian cutting-edge VVER technology with international equipment manufacturing expertise, and to cooperate with international suppliers and sub-suppliers. From this point of view, we have long been a truly international company, and our project companies are international too. This corresponds to Rosatom’s strategic orientation towards international markets.
Here are just a few examples from the Hanhikivi-1 project. It will have a turbine based on the Arabelle technology and manufactured by the France’s Alstom Power Systems, now part of GE Power. The turbine generator rotor was forged at GE’s plant in Japan and has already arrived in France to be machined at a GE Steam Power factory in Belfort.
Framatome-Siemens, the Franco-German consortium, will provide technical support in design and integration of the instrumentation and control (I&C) system.
The geography of materials and equipment for Akkuyu is not limited to Russian and Turkish companies. The main equipment for the Arabelle steam turbine module has also been manufactured by Alstom Power Systems/GE in France. We have also placed contracts for manufacturing of pumps, heat exchangers, electrical and other auxiliary equipment in the Czech Republic, Hungary, Italy, Japan, Poland and Spain.
How is construction financed under the BOO scheme?
The financing scheme can be best illustrated using our Akkuyu project, where BOO is used in its original form. Alongside with our own capital, this scheme envisages using borrowed funds, with a wide spectrum of possible financial models available, from strategic participation of investors to bridge funding.
In parallel, we are attracting loans from the market. In August 2019, our project company JSC Akkuyu Nuclear (a subsidiary of JSC REIN) received a US$400 million loan from Russia’s Sberbank, the largest bank in the CEE region. In December 2020, Akkuyu Nuclear agreed a 7-year loan of up to US$300 million with Sovcombank, another major Russian bank. In March 2021, Sovcombank released two more loans of up to US$200 million and US$100 million for a period of seven years to finance construction.
For the first time in the global nuclear industry, a project company directly responsible for construction has secured a loan with sustainable development covenants to be undertaken by the borrower. A sustainable loan for construction, with lower rates conditioned by compliance with specific obligations, means a new level of responsibility, and we are ready and glad to pioneer it. Together with our Turkish partners, we are working to make Akkuyu a true showpiece of Rosatom’s achievements in the field of sustainable development, hopefully setting an example to be followed by other industry players.
This kind of financing has several advantages. Not only does it provide for the possibility of lower interest rates, it also demonstrates the project’s openness and transparency and its consistency with sustainable development goals (SDGs). It confirms that we are not just implementing our project but are doing so within the sustainable development paradigm.
From a broader point of view, sustainable lending enhances the image of the nuclear industry. Each new sustainable loan is another act of recognition of the significant role nuclear energy plays in sustainable, low- carbon economic growth. According to IAEA estimates, nuclear power contributes almost 30% of all low carbon electricity, avoiding 2Gt of CO2 emissions every year.
Besides attracting debt financing, we are negotiating with potential investors. This is a matter of cooperation prospects in the long term, which is why Akkuyu Nuclear and Rosatom approach the choice of potential investor (or investors) with a view to a strategic, decades-long partnership. Given that the lifetime of modern nuclear plants reaches 60 years and can be extended, our choice is primarily determined by the reliability and economic viability of such partnerships.
Any investor wishing to enter the project needs to be approved by the Turkish party, as required under the Intergovernmental Agreement.
How do national economies in Turkey and Finland benefit from your Akkuyu and Hanhikivi-1 projects?
The implementation of any nuclear plant project has a substantial positive effect for the country and the region, giving impetus to social and economic development.
This includes thousands of new jobs, taxes at all levels, infrastructure development, contracts for local suppliers and a boost to education (first of all, in technical fields).
A project has an extensive multiplier effect. Rosatom estimates that one job at an operational nuclear plant stimulates creation of up to 10 additional jobs in related infrastructure. That is for construction, operation and maintenance personnel and other specialists. Each US dollar invested in an construction project brings an average of $4.3 to the GDP of the host country.
In terms of regional development, a project is a population magnet that drives forward job growth and local development. It is a source of contracts for companies in related fields.
In our projects, we pay special attention to localising supplies of products and services, which is particularly important in the context of post-pandemic recovery of national economies.
In Turkey, we estimate the localisation rate for works and supplies during the construction stage at approximately 40%. As of today, the supplier list includes more than 400 Turkish companies, while the projected population growth in the region will be 30,000 people, with corresponding potential demand for local products and development prospects for local businesses.
There is a standing working group on localisation that brings together representatives from Rosatom and Turkish executive bodies. Together, we have formed a plan and are now implementing a localisation roadmap. Further, we have jointly developed a contracting matrix for the entire construction period with due regard to various options of localising supplies that could involve participation of local businesses.
In Finland, we actively cooperate with local companies as well. To date, Finnish contractors account for about 80% of the overall contracted preparatory works on site. Since 2015, 720 companies have registered to participate in the Hanhikivi-1 project for on-site works alone. The vast majority of these companies are from Finland, and more than half of those are from local regions.
What is the current status of your projects and the key achievements?
Akkuyu is one of Rosatom’s most extensive and dynamic new-builds abroad. Here, construction works are now underway at three units in parallel, and the site currently employs more than 8,000 people.
All works are proceeding in accordance with the project schedule approved by the Turkish party. The most active are construction works on the main and auxiliary facilities at units 1 and 2. At both these units, core melt localisation devices (or ‘core catchers’) have already been installed. A set of four steam generators was delivered for unit 1 in late September 2020, and the reactor vessel in November 2020. Equipment and components for units 2 and 3 are now being manufactured at plants in Russia.
In November 2020, the Turkish Nuclear Regulatory Authority (NDK) granted a construction permit for unit 3. On 10 March 2021, an official ceremony marked the start of its construction. Also this year, we expect a construction licence for Unit 4, which will allow us to launch full-scale construction works.
Over the years of project implementation, we have signed a number of key agreements together with our Turkish partners that set the legal framework for the future operation.
A central element of this framework is the power purchase agreement (PPA) signed between Akkuyu Nuclear and Turkish Electricity Trading and Contracting Company (TETAS¸, now EU¨AS¸).
It is a comprehensive document, which will regulate the sale and purchase of electricity generated by the plant. The PPA guarantees us a specific weighted average tariff for 70% of the electricity generated by units 1 and 2 and 30% of the electricity generated by units 3 and 4 for the first 15 years of each unit’s operation. The remaining electricity will be sold to the market. This kind of arrangement gives us confidence in getting a timely return on our investment.
The Turkish Energy Market Regulatory Authority (EMRA) awarded a 49-year electricity generation licence to Akkuyu in 2017, and Akkuyu Nuclear and the Turkish System Operator TEIAS signed a transmission grid connection agreement in 2019.
Hanhikivi-1 in Finland is now at the licensing stage. Project documentation is now being submitted to Fennovoima to be further approved by the Finnish Radiation and Nuclear Safety Authority (STUK).
In December 2020, RAOS Project Oy, our subsidiary company and the plant supplier, submitted the Basic Design Stage 1 documentation package containing a technical description of the plant to Fennovoima Oy. This documentation provides the basis for the Preliminary Safety Analysis Report (PSAR), which must be reviewed and accepted by STUK before the construction licence is granted by the Finnish government.
Meanwhile, preparatory works are underway at the site, which will ensure construction of the s main facilities on schedule.
What are your plans for the future?
Akkuyu is the first international nuclear plant project based on a classic BOO model. Once successfully completed, it will serve as proof of the industry-wide viability and appeal of this model.
We will gladly share our experience gained in the implementation of the Akkuyu and Hanhikivi-1 power plant projects with new countries that want to develop nuclear energy.
We are convinced that the BOO model holds great promise for the future nuclear power industry, and we intend to replicate our experience within new projects that we will be offering to our customers.