France’s nuclear-energy champion hopes to benefit from a flight to safety

EVER since Abu Dhabi chose a South Korean group to build a series of nuclear reactors instead of Areva's EPR, which was 50% more expensive, in December 2009, France's nuclear industry has been in a funk. The country's flagship reactor, many concluded, was too costly, mainly due to its wealth of safety features. Areva came under pressure to put older, cheaper designs back in its catalogue. The radiation leak at Fukushima has changed all that. “The idea of low-cost nuclear is dead,” says Alain Minc, a consultant in Paris.

So, in one way, Areva, majority-owned by the French state, could gain from Japan's nuclear disaster. China, by far the biggest builder of nuclear capacity, is likely to buy more EPRs than it would have done. An official at China Guangdong Nuclear Power said this month that the government will probably stop approving older, “generation 2” reactors, like those at Fukushima, which dominate the nuclear-power industry today. Third-generation reactors, which incorporate extra safety features, such as the EPR and Westinghouse Electric's AP1000, would benefit.

Safety concerns will also boost two of Areva's most profitable divisions. The firm has contracts to maintain existing reactor fleets around the world, and is involved in processing radioactive waste and decommissioning old nuclear facilities. Following reviews post-Fukushima, nuclear utilities will have to revamp their equipment, apply tighter safety standards and in some cases shut down reactors.

Over the longer term, however, France's nuclear industry faces a bleaker future. Areva may succeed only in winning a higher share of a shrunken market for reactors, as governments delay or stop new-build programmes. Before Fukushima, the International Energy Agency predicted that nuclear plants would add 360 gigawatts of generating capacity by 2035, or the equivalent of over 200 new EPRs; it is now reckoning on half as many. The slowdown comes just as Areva is about to start making money from new reactors, after suffering heavy losses on its first EPR, in Finland.

Some big markets, such as China and India, are expected to push ahead with new nuclear plants. Areva said this month that it expects to sign a big contract this year to supply reactors to India. But that may not compensate for the loss of important developed markets. Italy and Switzerland have halted their expansion of nuclear power and Germany will no longer extend existing plants' lives. It is in Europe that Areva is strongest and most profitable, says Olivier Esnou, an analyst at Exane BNP Paribas in London. Tenders in developing markets are far more competitive.

Even after Fukushima, indeed, Areva still urgently needs to bring down the cost of its EPR, argues a Paris-based adviser to the industry. Countries will demand the most safety-conscious generation 3 plants, he says, “but it will be cheap generation 3 for everyone, perhaps built by China.”

These will be challenges for Areva's boss, Anne Lauvergeon, whose job is up for renewal by Nicolas Sarkozy, France's president, in June. Ms Lauvergeon, who is credited with rehabilitating the image of nuclear power over the past decade, is considered the industry's perfect ambassador post-Fukushima. Despite her unpopularity with her main shareholder, she is expected to keep her job—helped also by the fact that no one else may now want it.