The potential for change in a static market27 August 1999
Increasing competition and rationalisation in a fuel market that shows little sign of growth is creating pressure on fuel fabricators to improve productivity.
The most significant event with regard to the international market for nuclear fuel fabrication services during the past year was the acquisition of Westinghouse Electric Company (Westinghouse) by Morrison Knudsen Corporation and British Nuclear Fuels plc (BNFL). In particular the final acquisition results in BNFL, through its newly formed subsidiary in the US, BNFL Nuclear Services Inc, owning the entire Westinghouse commercial nuclear business.
Outside the US, Westinghouse and BNFL have co-operated in nuclear fuel related ventures for many years, including their activities in the European Fuels Group (EFG); thus the acquisition of Westinghouse by BNFL further strengthens an existing relationship. In the US, there had been concern regarding the potential acquisition of Westinghouse by any entity presently active in the US nuclear fuel market, and the prospects for a reduction in competition in the US market. However, since BNFL has not offered fuel fabrication services in the US market, this is not expected to reduce the level of competition. This also means that the acquisition has done nothing to reduce the significant, approximately 100%, excess fuel fabrication capacity in the US.
With any real impact of this transaction yet to be felt, the worldwide fuel fabrication market remains largely unchanged from a year ago and is still extremely competitive.
Fuel fabrication capacity is well in excess of both current and anticipated future requirements. On a worldwide basis, light water reactor (LWR) fuel manufacturing capacity appears to be at least one and one half times annual requirements. In the US, fuel fabrication capacity is at least twice annual requirements. It is only in the Far East that there is any expectation of significant growth in the market for nuclear fuel fabrication requirements.
In the light of this situation fuel fabricators continue to innovate in their manufacturing facilities, taking actions to lower costs. Fierce competition also dictates that fabricators bring to market new and innovative fuel materials and design features that result in higher levels of energy production. Customers also demand that the fabricators accept commercial terms offering the customer greater warranty protection with regard to fuel performance, and risk sharing with regard to derated plant operation when such events can be linked to inadequate fuel design or performance.
There will be few opportunities for competitive bidding during 1999, with perhaps as few as three requests for competitive proposals being issued in the US market, and not much more than that in other markets. However, before the end of this year, Energy Resources International (ERI) expects that contracts will be executed that conclude competitive procurement related activities and negotiations of contract extensions that were begun last year for a significant number of plants.
ERI’s Reference Nuclear Power Forecast calls for world LWR fuel fabrication services requirements to increase gradually from a level of 6600 metric tonnes of uranium (t) per year in 1999, reaching 6800 t / year by 2010, and 7100 t by 2015. LWR fabrication services requirements could decline to 6000 t / year by 2000 under the ERI Low Nuclear Power Forecast, never rising again to more than 6100 t / year, and dropping to 5500 t / year by 2015. Under the ERI High Nuclear Power Forecast, requirements for world LWR fabrication services could increase to more than 7300 t / year by 2005 and exceed 9000 t / year by 2015. These projections include VVER-440 and VVER-1000 fuel. ERI has also adjusted expectations for use of MOX in Europe and the Far East. Production capacity among all LWR fuel fabricators is between 11,000 and 12,000 MTU per year, well in excess of requirements through 2015, even under the ERI High Nuclear Power Forecast.
It is not surprising that US forecasts over the next ten to fifteen years depict a decline. Under the Reference Forecast, annual requirements for fuel fabrication services from US LWRs drop from 1930 t / year today to less than 1730 t / year by 2010. This forecast assumes that 5400 MWe of US nuclear generation capacity will be prematurely retired during the next five years. However, it also assumes that operating licences for 25 units, totalling 21,000 MWe, will be renewed.
The Low Forecast assumes that 11,700 MWe will be retired during the next five years and that no licence renewal will occur. In this scenario requirements for fuel fabrication services would decline to less than 1500 MTU per year by 2010. It is worth noting that the current combined annual production capacity among US fuel fabricators is in excess of 4000 t.
In addition to serving as the principal supplier of fuel fabrication services to Electricite de France (EdF), Framatome has supplied reload quantities and/or demonstration fuel assemblies to PWRs in Belgium, China, France, Germany, Sweden, South Africa and the Republic of Korea. Siemens-KWU has under contract more than 80% of the German PWR market, a majority of the German BWR market, two-thirds of the Swiss PWR market, and, as a result of recent contract awards, 40% of Sweden’s BWR market. It will also be providing fuel to the UK’s only PWR, Sizewell B, beginning in 2000. ABB Atom services approximately 60% of Sweden’s BWRs and a small share of BWRs and PWRs throughout Europe. Empresa Nacional del Uranio, SA (ENUSA) services all but one plant in Spain.
The Russian fuel producer, TVEL, and KATEP in Kazakhstan continue to supply fabricated fuel to meet the requirements of the Former Soviet Union and Eastern Europe. In addition, Mashinostroitelny Zavod (MSZ) has been co-operating with Siemens-KWU since 1996 to blend reprocessed uranium and fabricate fuel assemblies for use in several of Siemens-KWU’s customer reactors in Europe.
Fabricators in Europe are aggressively competing for opportunities to increase market share, and purchasers are encouraging the competition. Individual units are won and lost each year and prices continue to fall.
In Japan, Mitsubishi Nuclear Fuel (MNF) and Nuclear Fuel Industries (NFI) share the PWR fuel fabrication business fairly evenly; Japan Nuclear Fuel Company, Ltd (JNFC) controls two-thirds of the BWR market, with NFI controlling the other third.
As a result of the directive from Japan’s Ministry of International Trade and Industry (MITI) to reduce the cost of electricity by 20% by the year 2001, the Japanese market has been opened to a small degree to foreign fabricators. The Tokyo Electric Power Company has contracted GE and SPC to provide BWR fuel later this year; and Kansai Electric Power Company is involved in lead test assembly programmes for PWR fuel with SPC and Westinghouse.
GE, SPC and Westinghouse each service one-third of Taiwan’s fuel fabrication requirements.
In the US market, there are five active companies: ABB Combustion Engineering (ABB-CE), Framatome Cogema Fuels (FCF), General Electric Company (GE), Siemens Power Corporation (SPC), and Westinghouse. With the Westinghouse acquisition, GE survives as the only wholly US-owned fuel fabricator.
FCF and Westinghouse are active only in the PWR market, while GE is in the BWR market. ABB-CE and SPC supply fuel for both BWRs and PWRs. Westinghouse fabricates approximately 60% of the PWR fuel for the US market; the balance is shared between ABB-CE, FCF and SPC. In the BWR market, GE manufactures approximately two-thirds of the fuel, SPC approximately one-quarter, and ABB-CE the balance.
The US market has production capacity significantly in excess of current and anticipated requirements. Uncommitted requirements for fuel fabrication services begin to appear for BWR and PWR fuel in the year 2001. In all situations where uncommitted requirements exist in 2001, the electric utility companies are already involved in procurement activities. In each case they have fuel supply options in existing contracts that could extend existing contracts for one or more reloads.
As many as 15 units in the US are now covered by fabrication contracts extending over the term of their current operating licences. Nine of these units are PWRs. Nine also have at least ten years remaining under their current operating licences; three units have at least 15 years remaining and two of the units still have more than 20 years remaining.
Current bid evaluations focus on competitive prices and attractive contract terms, in addition to demanding advanced fuel assembly designs with increased discharge exposures, improved operating margins, enhanced fuel performance, and technology transfer.
Competitive packages include: attractive pricing and price adjustment terms; fuel exposures in excess of 50,000 MWd/t for PWRs and approaching 50,000 MWd/t for BWRs; material loss rates of zero; advanced lattice geometries; enhanced fuel assembly and rod designs; advanced cladding materials; integral burnable absorbers; technology transfer; short lead times for delivery of natural and enriched uranium product to the fabricator, and a comprehensive package of warranties.
An overview of the PWR fuel supply market, as it is expected to look at the turn of the century, suggests that the combination of Framatome and FCF holds approximately 31% of the world PWR market, followed by Westinghouse with 19%, TVEL/KATEP at 16%, Siemens-KWU/SPC at 11%, ABB Atom/ABB-CE at 8%, MNF and NFI at 4% each, and the other fabricators with the remaining 7%.
With regard to the BWR fuel fabrication market, GE is expected to provide fuel for approximately 29% of the world market, Siemens-KWU/SPC provides 23%, JNFC at 21%, ABB Atom/ABB-CE at 12%, NFI at 11%, and ENUSA at 4%.
THE Future of Competition
In the light of the bare bones pricing that is required on competitive bids, and the cost of preparing a quality proposal, it is becoming more commonplace, particularly in the US market, for individual fabricators to evaluate potential bid situations and then to submit proposals only where there is a clear opportunity for success. The fabricator must believe that the particular market segment has strategic importance. For example, due to front end costs, a fabricator may no longer choose to submit a proposal to supply reload fuel in a market segment in which it has minimal experience.
While it is clearly to the advantage of the purchaser to receive competitive proposals, there may be a growing tendency for purchasers to negotiate contract extensions with their current suppliers, instead of soliciting and evaluating competitive bids. It is a rare situation where a negotiated contract extension yields pricing and other contract provisions that are as favourable to the purchaser as those obtained through the competitive bidding process.
Nonetheless, there are some situations where the negotiation of a contract extension is prudent.
The recent increase in the number of life of plant contracts, even among the younger plants, also suggests that there may be somewhat fewer opportunities for fabricators to capture new customers in the future. However there is a significant level of competition in the fuel fabrication market and there are ongoing opportunities for cost competitive fabricators to realise new business, and for active purchasers to obtain high quality fuel at attractive prices.