16 October 2015

Russian nuclear power: Convenience at what cost?

Emma Lecavalier

Emma Lecavalier

Emma Lecavalier is a research fellow in the Department of Public Law’s Global Risk Governance Programme at the University of Cape Town.

While energy markets slump and hydrocarbon exports weaken, nuclear power has become a bright spot in Russia’s darkening energy portfolio. In 2014, Moscow quietly became the leader of the $500 billion global nuclear energy market, building 37 percent of all new reactors in the world, eclipsing the United States’ meager 7 percent share.

Moscow’s newfound success has not come easily. Instead, it is the product of a $55 billion Kremlin strategy launched in 2006 that aims to transform Russia into the top supplier of the global nuclear energy industry.

Armed with a renewed sense of purpose and a whole lot of cash, Moscow’s winning strategy has centered on designing new reactors and courting new partnerships with arms (and wallet) wide open.

When it comes to the product itself, Russia’s state-owned energy corporation, Rosatom, has rolled out some intriguing new stock. In March, the firm officially announced a groundbreaking new edition of its VVER nuclear reactor that can generate power and desalinate water at the same time—and at an unprecedented scale. Already it has found eager customers in water-stressed countries. Egypt agreed to purchase the new technology a month before it was even announced.

New technology is not, however, the only incentive for countries to cut nuclear power deals with Russia. As Vermont Law School professor Mark Cooper so eloquently put it, Russia is “subsidizing the bejesus” out of this industry in an attempt to win new customers.

The Kremlin has taken to bankrolling nuclear power projects through state loans to interested host countries. With its “rent-a-reactor” approach, Rosatom plans to build and run its $3 billion reactors on foreign soil, recovering costs by selling nuclear power to host countries. China offers a similar financing scheme, but while China’s financing approach can compete with Russia’s, its service model cannot.

What has truly distinguished Russia’s sales pitch from other countries’ is its focus on convenience. Rosatom provides a “build-own-operate” (BOO) service: providing uranium fuel, managing the reactors, and clearing away nuclear waste like a dutiful atomic butler.

Employing this approach appeals to energy-hungry nations because it cuts through many layers of red tape, leading them to believe they will have nuclear power faster and easier. As the journalist Eve Conant notes, the one-stop-shop approach is a service “offered by no other country.”

And as of late, this strategy is really bearing fruit.

In the two years following the Fukushima disaster in 2011, Russian foreign contracts jumped up by 60 percent, despite the slump in the global nuclear power market. In the last year alone, Russia has penned deals across Europe, Latin America, South and Southeast Asia, and the Middle East.

Rosatom’s success in Africa is arguably its most notable. Since September 2014, Rosatom chief Sergey Kirienko has been clinking champagne all over the continent, signing preliminary agreements for eight nuclear reactors in South Africa and four nuclear reactors in Nigeria and penning loose cooperation agreements with Algeria and Ghana. Given that there is only one commercial nuclear reactor on the continent (South Africa’s Koeberg Nuclear Power Station), the range of Russia’s civil nuclear deals could fundamentally change Africa’s energy landscape.

Appealing as Russia’s nuclear deals may sound, however, countries shopping for nuclear power should consider these partnerships closely.

For one, Rosatom’s track record is patchy at best. When it comes to project management, Rosatom’s past projects have been mired in cost overruns, delays, and quality-control failures—issues that are, admittedly, all too common in the nuclear power industry. Rosatom’s first BOO project, the Akkuyu plant in Turkey, has already experienced multiple delays, and construction that was agreed upon in 2010 has not yet even begun. The fear is that under Rosatom’s vendor financing model, delays and unforeseen costs are recovered through electricity tariff hikes, effectively shifting the financial risk onto their cash-strapped local consumers. As the BOO model has yet to be seen in practice, however, such fears are speculative.

More important, Rosatom’s appealing new business model may have long-term impacts on the energy security of the host countries. Relying upon Rosatom officials to own and operate nuclear power plants could ultimately undermine a host country’s capacity to ensure and enforce the highest standards of nuclear safety. While countries with little expertise in nuclear power may be drawn to outsourcing the plant’s operation under the BOO model, the model can also leave local partners reliant on the personnel and expertise of the Russian company.

As University of Michigan professor Gabrielle Hecht notes, a deficit of expertise can have dire consequences:

Mounting and running adequate regulatory infrastructures has proved particularly challenging, not the least because the experts best qualified to assess safety in nuclear plants are those who have helped build and operate them.

Effective regulation requires a large pool of technical experts who can be objective and disinterested overseers. While the expertise of Rosatom officials is sufficient to make a plant run, the very same officials cannot be responsible for also providing industry oversight. In new nuclear power countries, in particular, the BOO model cannot be safely implemented unless local partners are trained as well, something that is not built into the “one-stop-shop” model. As such, Rosatom’s BOO model, while convenient, risks leaving host countries ill-equipped to provide effective and appropriate oversight.

Developing nations are at an energy crossroads. On the one hand, Rosatom’s cushy deals and global pressure for low-carbon development make nuclear power attractive, yet on the other hand, nuclear power still leaves many feeling uneasy. If Rosatom’s quarterly reports suggest anything, however, it is that short-term pragmatism is winning out over long-term safety concerns.

Unfortunately, without more affordable and attractive energy alternatives, demand for Russian nuclear power will continue to grow. As such, Rosatom customers should avoid being wooed by “fast and easy” nuclear power, and should be vigilant in preparing strategies for mitigating nuclear power risks.