Made in Korea

Made in Korea

March 19, 2010

Darrell Delamaide

First it was appliances, then cars. Now, it is nuclear reactors.

South Korea, which built its first nuclear plant in 1978 using U.S. technology, successfully outbid American-Japanese and French consortia to land a $20 billion order for four nuclear reactors in the United Arab Emirates.

The deal, announced in the waning days of 2009, calls for the reactors to come on stream between 2017 and 2020. The order could be doubled to $40 billion if long-term operating contracts are added, and further reactor construction could be in the offing.

"The nature of this project will require a partnership that endures for nearly 100 years," Khaldoon al-Mubarak, chairman of Emirates Nuclear Energy, said in a statement announcing the winning bid.

So how did Korea Electric Power beat out General Electric-Hitachi and Areva-Electricite de France to win the first civilian nuclear reactor order in a Middle East oil country?

It helped that its bid was billions of dollars cheaper, that sizable portions of the contract were at fixed prices with no chance of adjustment for cost overruns, and that Korean investors were willing to pony up equity for the project. But the decision seemed to hinge on safety and timely delivery. It also didn't hurt that South Korea's president, Lee Myung-bak, who had experience building nuclear power plants when he was chief executive of Hyundai Construction, personally lobbied for the contract.

The UAE deal marks South Korea's emergence as a viable exporter of civilian nuclear reactors. The country, which formed the Kepco consortium, involves other nuclear-oriented Korean companies: Samsung, Hyundai and Doosan Heavy Industries as well as several Kepco units in hydro and nuclear power, power engineering and nuclear fuel.

Kepco is the third-largest operator of nuclear power plants in the world. It had an installed nuclear generation capacity of 17,716 megawatts at the end of 2008. The company operates 20 nuclear power plants with eight more under construction and an additional 10 units scheduled to be built by 2030. This is the company's first export contract.

"It was inevitable that Korea would go down this road," says Thomas Sanders, president of the American Nuclear Society, an advocacy group, and a longtime official at Sandia National Laboratories. This American expert sees it as a good thing. "Global competition is good for the industry."

The order also gives Korea a toehold in what promises to be a burgeoning market in building nuclear plants in emerging economies. India, Jordan and Turkey are among the other countries where South Korea sees a chance of winning further contracts.

The UAE -- a federation of Abu Dhabi, Dubai and five other Arab sheikhdoms on the Persian Gulf -- defused the nuclear proliferation issue by pledging to buy enriched fuel for the reactors from existing suppliers rather than attempt to process its own. The South Korean consortium's bid includes procurement of nuclear fuel and handling of waste material. South Korea does not enrich uranium, either, but instead purchases most of its requirements from France.

Marching Ahead

The Korean reactors are 1,400 megawatts, compared to the 1,600-megawatt plants proposed by a competing French consortium. Kepco's APR1400 is similar to the Combustion Engineering System 80+ design built at the Palo Verde plant in Arizona. However, the Korean companies have improved upon the technology for this plant design.

Westinghouse, which now owns Combustion Engineering and is itself two-thirds owned by Toshiba of Japan, manufactures some parts for the Korean reactors and is part of the Kepco consortium in the UAE bid. The CES roots could help Kepco win U.S. Nuclear Regulatory Commission certification more quickly if it found interested buyers in the United States.

The UAE nod to Kepco was a blow to the French industry, which sees itself as the global leader in nuclear power. But an Areva-led nuclear power plant project in Finland is at least three years overdue and is now scheduled for completion in 2012. Construction of the same third-generation design in France itself, at Flamanville, has had quality control problems since it began two years ago and is already 20 percent over budget and struggling to keep on schedule.

Kepco, for its part, has earned top scores in safety as well as plant reliability and efficiency from the World Association of Nuclear Operators. The Korean company has a reputation for constructing nuclear facilities that not only meet tough quality standards but that also are delivered on time and on budget.

The APR1400 is a third-generation reactor, which means it fulfills heightened safety standards. It can prevent or mitigate accidents by ensuring reactor shutdown, removing decay heat, maintaining the integrity of the containment facility and preventing radioactive releases. It improves upon the second-generation reactors in operation at most existing plants and meets new requirements for earthquake safety and aircraft impact resistance.

The first of the APR1400 reactors, Shin-Kori units 3 and 4, are currently being built and will come on stream starting in 2013. The first of the UAE reactors will become the fifth operational APR1400 unit when it comes on stream in 2017.

South Korea's performance in building up its domestic industry was probably a strong argument in landing the UAE deal. "They've got a history; they know the costs," says Sanders of the ANS. "They have a track record."

As both industrialized and emerging economies seek alternatives to fossil-fuel power, nuclear energy has been touted as a carbon-free substitute. But the much-ballyhooed nuclear renaissance has yet to materialize, either in Europe, in part because of Areva's problems with EPR 1600, or in the United States, where resistance is still strong.

In the meantime, South Korea, with its state-controlled electrical monopoly and highly disciplined industrial groups, has marched ahead with its nuclear program, developing the improvements in nuclear technology on its own. It now generates more than 40 percent of its electricity in nuclear power plants.