What Future for Russia’s Nuclear Exports Post-Ukraine?

June 19, 2014 | 00:00

What Future for Russia’s Nuclear Exports Post-Ukraine?

Recent events in Ukraine are a watershed moment for Europeans to fundamentally re-think their energy policies and reduce their dependence on one, major supplier: Russia. Re-thinking, however, is not equal to rejecting or renouncing, but perhaps more on par with revising or re-assessing, how to prevent the preventable and mitigate the probable.

Nuclear Power Plant Grohnde Germany 
source Wikipedia
Russia’s use of energy as a political tool in the not so distant past has set a dangerous precedent, and one that Europeans are hoping to not revisit. Plans for energy security have resulted in the need for diversification. For almost all countries in Europe, nuclear energy is considered to be a pillar of energy security, and Europe is not alone. Nuclear energy provides base load generation allowing for countries to consistently and affordably meet their manufacturing targets allowing industry to remain competitive, to operate with low emissions, and to provide affordable energy distribution and grid reliability. Moreover, reactors are becoming more flexible with the development of Small Modular Reactors (SMRs) where modular units can be scaled up to meet growth demands. With respect to energy security and energy independence, nuclear stands out. Countries cannot create fossil fuel reserves where they do not have them; however, they can build nuclear plants.

Nuclear technologies, once imported can become indigenized to the extent that after reactors are built they can be owned and operated at a national level. That being said, many countries have not opted to raise their domestic capacity and rely on outsourced, technical support. Even if a country does not have a closed fuel system, but does have a reactor that is nationally owned and/or operated it is one step closer to energy independence while also contributing to its energy security through diversification.

Currently, there are a handful of European nations and close neighbors (e.g., Ukraine, Belarus, Bulgaria, Hungary), that are reliant on the former Soviet Union for some or all of their nuclear supply chain needs. Ukraine, for example, is reliant on nuclear energy for nearly 50% of its electricity.

Currently, there are a handful of European nations and close neighbors, that are reliant on the former Soviet Union for some or all of their nuclear supply chain needs
Ukraine also has uranium reserves that have yet to be mined –Russia has been seeking a joint venture with Ukraine as well as well as offering enticing financing deals for mining and other nuclear enterprises. Moreover, Ukraine uses Russian fabricated fuel in their Russian-built reactors. The recent decision taken by Kiev to extend its contract with the American nuclear fuel supplier, Westinghouse, in lieu of its standing order with Russia may have been reactionary, and was most surely political. Be that as it may, it does not, however, undermine the role that supplier diversity plays as part of an energy security strategy. Consequently, Ukraine can serve as a sentinel forewarning countries seeking foreign support with one major supplier to meet their energy security needs.

Prior to the Fukushima Daiichi accident, many countries were exploring national nuclear generation or the possibility of increasing their nuclear percentage as a means of lessening their reliance on fossil fuels, including in Europe (e.g. Belarus, Lithuania, Poland, Bulgaria, Sweden, Albania, Macedonia, Finland, Czech Republic, Britain, Hungary, Croatia, Romania, Ukraine), Asia (e.g. South Korea, India, Pakistan, Bangladesh, Vietnam, Japan, China), Middle East (e.g. Turkey, Jordan, Iran, Saudi Arabia, United Arab Emirates), South America (e.g. Argentina, Brazil), North America (e.g. Mexico, Canada, United States). The nuclear industry writ large was negatively impacted by the events in Fukushima. For some (e.g. Lithuania, Belgium, Germany, Switzerland, Sweden and others), commencing or renewing a commitment to nuclear energy became a no-go option resulting in lost referenda and moratoria, expedited decommissioning, forced closures, and halting/freezing plans for new builds in favor of renewables. Like nuclear energy, renewables are part and parcel of energy security. There will be a need for governments and regulators alike to identify how low-carbon solutions, such as renewables and nuclear energy, can work together to ensure that whole of systems power generation costs – meaning plant level costs plus grid level costs – are evaluated prior to more knee jerk responses that can have cascading effects across a region.

Furthermore, European countries should remove obstacles in the way of Nuclear Power Plant (NPP) development. Substantive and verifiable industry and government assurances or guarantees contribute positively to nation branding and return on investment; this could translate to increased confidence in nuclear energy, increased exports, and increased international joint ventures and partnerships. Determining how to balance industry and government assurances and responsibilities with respect to technology support, fuel supplies, and financial support is the cost of engaging a foreign entity to manage a strategic national asset.

Post-Ukraine, Lithuania has reversed its decision and is moving forward with their plans to revitalize nuclear power generation. Meanwhile Japan’s nuclear reactors wait for safety approval to come back online, and Tokyo has officially decided to go forward with nuclear energy as part of its mix. For the time being, China’s growth focus is pivoting from overseas reactor sales to increasing domestic capacity. The United States has experienced a decline in their overseas sales, leaving France, South Korea, Japan, Canada, and Russia to vie for a larger overseas footprint. In some countries this means partner rather than compete, like Japan and France in Turkey. There has been a shift in the nuclear power landscape towards emerging markets, but nuclear power uptake is not exclusive to these countries.

Preceding Russia’s annexation of Ukraine, Rosatom Overseas, Russia’s foreign arm of its national nuclear corporation, Rosatom, had already set its sights on expanding its nuclear footprint in emerging markets. In doing so, it launched a marketing upgrade reflecting its suite of services into a bundled, vertically integrated set of offerings and solutions, rivaling only the French. Rosatom Overseas is also looking to introduce the Build, Own, Operate (BOO) model in Turkey – the first time this project finance model will be introduced in nuclear energy. This yet untested finance model leaves open the opportunity for a country to cultivate a serious risk of fostering foreign dependencies on foreign vendors, operators, and regulatory support within the nuclear industry sector if the following pre-construction challenges are not met:

(1) the host nation needs a national energy security policy to outline a strategic mandate related to nuclear power, cultivating relevant human capital, and managing power purchase agreements; (2) an independent regulatory architecture free from regulatory capture and foreign and domestic influence; (3) a pre-determined, robust governance program for managing the integration and then subsequent transfer/handover of operations (including safety, security, and safeguards) from the BOO financier to the host nation (in this case Russia to Turkey); and (4) a clear strategy for maintaining certain sovereign responsibilities within the overall structure of the national nuclear program. For the time being, the BOO model is also being presented to Bangladesh by Russia as well. This precarious marriage of convenience may result in long-term heartache if Rosatom Overseas does not actively work to reduce its political risk factor as well as engage in more transparent transactions.

Should nations opt for Russian financed, built, owned, and/or operated nuclear power plants the result would just be swapping one dependency for another. This is not a sustainable solution for true energy security or independence.

Should nations opt for Russian financed, built, owned, and/or operated nuclear power plants the result would just be swapping one dependency for another
And while many of the countries currently exploring Russian nuclear power generation support are less reliant on Russian fossil fuel imports than Europe, their possible exposure to risk is no less significant. This is not a push for all countries seeking nuclear power generation to strive for a closed fuel system. Rather, in order for countries to make defensible decision to engage in foreign financed, owned, and/or operated national energy production they should partake in long-term risk assessment and consider the marketplace for supplier diversity and reliability when it comes to technical support and lifecycle maintenance and repair, fuel, transport, safety and security.

Energy independence and security does not happen overnight, and it will not be solved by putting Russia in a “time out”. When all is said and done, Russia plays a pivotal and critical role in the acceptance and expansion of civil nuclear energy in Europe and elsewhere. Consequently, there is a need to engage Russian industry and hold them to a higher standard of transparency. Just like the United States’ approach to China over maritime security concerns in the South China Sea, Europe and others should push for enhanced legal instruments in which disputes can be neutrally resolved.

A look at Rosatom Overseas’ corporate rebranding is encouraging; however, an articulation of how this will translate into more transparent overseas contracts is still unclear. Consequently, it behooves Russian nuclear enterprises to mitigate their exposure to reputational risk due to the current Ukrainian crisis through substantive, strategic industry solutions that exceed political rhetoric. This means making a commitment to transparency, upholding international nuclear standards, and neutral dispute resolution provisions. In this vain, Russia is not alone, and what is good for the goose is also good for the gander. Russia’s nuclear energy future as a fuel fabricator, exporter, owner, and operator of NPPs is dependent upon host nations engaging Russian industry offers. This means that host nations need to scrutinize the costs of cheap financing, and swapping one dependency for another. Furthermore, it is in Russia’s best interests to remain an eligible vendor to Europe.

When it comes to nuclear energy, risk mitigation must occur at both the country and project levels, and it must occur on both the buyer and seller sides. Countries that opt for foreign finance, built, owned, and/or operated plants have the right to make this decision, yet, with this decision comes a duty to cultivate enough national knowledge capital and technical proficiency to independently regulate and to support operations if needed or after a hand-over is made.

Countries seeking Russian industry participation need to:

  • ensure a clearly delineated understanding of what controls are placed on the vendors, and the limits placed on controlling interests;
  • articulate how foreign control of a national asset will work;
  • define host nation responsibilities, including what kind of jobs creation and capacity building are expected along with local off-set requirements, and the explanation of power purchase agreements;
  • uphold best practices in security and safety, standards, and continue professional education;
  • ensure good governance and human resources management, including anti-corruption measures; and
  • institute neutral dispute mechanisms.

These rules of future engagement are necessary for host-nation protection, and for continued Russian foreign market expansion – and are not mutually exclusive. Even if Europe expands its nuclear power generation portfolio to contribute to its energy security, there is little short-term likelihood that Europe will look to Russian suppliers. Necessity and cheap financing can, and has, however, suspended past political reservations. Should Rosatom Overseas be engaged in Europe or emerging markets farther afield, an uncompromising commitment to public, environmental, and occupational safety, and security standards must supersede all hegemonic flexing regardless of ownership structure.

 

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