One of the peculiarities of the nuclear fuel cycle is the way in which utilities with nuclear power plants buy their fuel. Instead of buying fuel bundles from the fabricator, the usual approach is to buy uranium from the mines and then sign contracts with conversion, enrichment and fuel fabrication companies to eventually obtain the fuel in a form that can be loaded into the reactor. When making presentations on nuclear power, financial companies and journalists frequently ask me, “Why don’t they just buy the fuel direct – why complicate things with all those separate contracts?”
This is a good question and the answer is partly to do with the history of how the fuel market developed. It is, however, more closely related today to two factors, the first of which being the financial risks a fabrication company would take on by having to take positions on uranium, conversion and enrichment price levels (memories of the 1970s Westinghouse case, involving a major default when uranium prices rose sharply, are still prevalent). The fuel manager today takes on these risks, yet seems happy to do so. Their choices are the second reason for continuation of the traditional approach. They believe – rightly or wrongly – that this offers them the best price and service. They will typically retain two or three suppliers for each stage of the fuel cycle, who compete for their business by tender.
On the face of it, little similarity exists between the workings of the uranium, conversion and enrichment markets and that of fuel fabrication. The first three are fungible – that is, bulk commodities or services with no product differentiation save for preferences on origin that exist in some markets. A pound of uranium is a pound of uranium. Nuclear fuel assemblies, on the other hand, are highly engineered products, made specially to each customer’s individual specifications. These are determined by the physical characteristics of the reactor, and by the fuel cycle management strategy of the utility. Despite this, fabrication costs as a share of total fuel costs are not so significant – typically no more than 20% of the total, rather lower than the share of both uranium and enrichment services.
Fabrication requirements are affected by changes in utilities’ reactor operating and fuel
management strategies, which are partly driven by technical improvements in fuel fabrication itself. For example, LWR discharge burnups have steadily increased with improvements in fuel design and this has tended to reduce fabrication demand, with fuel remaining in the reactor for a longer period. Fuel fabricators have had to adapt to these changes, driven by the strong competitive pressures in the LWR market.
Annual world requirements for LWR fuel fabrication worldwide are about 7000tHM – enriched uranium – per year. Requirements for Candus and other reactor types account for an additional 2000-3000tHM per year. Where fuel contains enriched uranium, annual requirements are only a fraction of annual natural uranium requirements (because most of the mass of this remains in the enrichment tails). Where natural uranium is used directly, as in Candu and Magnox reactors, annual fabrication requirements are identical to uranium requirements.
Current Western fuel fabrication capacity is about 15,000tHM per year – Russia’s is over 3000tHM per year. It is therefore clear that there is substantial overcapacity in fuel fabrication. In the Western world alone, fabrication capacity outweighs requirements by some 40%. This has been the position for many years – despite much rationalisation around the world, the continuation of national facilities supplying favoured customers, beyond the point at which they may otherwise be closed down owing to uncompetitiveness, has perpetuated this feature. Yet where competition is allowed to prevail in fuel fabrication, the market is very dynamic.
Many early fuel fabricators were also reactor vendors and supplied the initial cores and early reloads for reactors built to their own designs. As the market developed, however, each fabricator began to offer reloads for its competitors’ reactor designs. This led to the market for LWR fuel (PWR fuel in particular) becoming increasingly competitive. With several suppliers competing to fuel virtually every design, a trend of continuous fuel design improvements has emerged. Traditionally the market for BWR fuel has not been as segmented and competitive. This is changing, however, as fabricators begin to focus more attention on this relatively less competitive market as a means to acquire additional market share.
Price is clearly a vital competitive tool in the fabrication market. In particular, the weakness of the dollar against the Euro and Yen has recently increased the competitiveness of US vendors like Westinghouse and GE. Detailed contract terms are, however, just as important, as is the technical support a fabricator can offer. This is increasingly important as users try to get more out of the fuel in terms of burnup – fuel failures are very costly.
Something that would really stimulate the fabrication market would be, of course, some new reactor orders
Given the very competitive nature of the LWR fabrication business and the clear overcapacity in supply, the industry has reorganised in recent years with substantial corporate consolidation. BNFL acquired the nuclear business of Westinghouse of the USA, including its fuel fabrication operations, and also now incorporates ABB’s nuclear operations. Framatome and Siemens also merged their nuclear operations to form Framatome ANP. Finally, General Electric formed Global Nuclear Fuels with its Japanese partners Toshiba and Hitachi. These moves may eventually lead to capacity reductions when production is consolidated at a smaller number of locations.
This reorganisation and consolidation to gain market share appears set to continue for some time yet. As operations are made more efficient or perhaps closed, the supply-demand balance of the market may begin to move closer to equilibrium. The intense competition in the PWR market will likely continue and spread more generally to the BWR market.
Outside the LWR fuel market, fuel fabrication requirements tend to be filled by facilities dedicated to one specific fuel design, usually operated by a domestic supplier. For example, all fabrication requirements for Magnox and AGR reactors are supplied by dedicated domestic facilities. The same used to apply to RBMK and VVER reactors but now operators of those designs can look outside of Russia for fuel fabrication.
Candu fuel is also produced almost exclusively within the country where the reactor is located, by facilities dedicated to such supply. The market is somewhat more diversified than the other non-LWR fabrication markets, so as a result, the requirements for some utilities with heavy water reactors may, on occasion, be met from a non-domestic supply source.
One area of the fabrication market where growth remains a possibility is that of MOX fuel fabrication. Existing plans by the limited number of countries that are committed to using MOX fuel would require the expansion of capacity at existing MOX fuel fabrication facilities, along with the construction of some new facilities. Yet decisions made on MOX facilities are heavily political, in contrast to the more commercial decisions made in the LWR market.
Something that would really stimulate the fabrication market would be, of course, some new reactor orders. The two EPRs in Europe, in Finland and France, plus the restart of Browns Ferry 1 in the USA, will all require first cores, which will be good incremental business. More new plant orders would be very welcome and help to remove the surplus capacity apparent in the market. The boom in Chinese reactor construction is not directly helpful to the Western vendors as the Chinese seek to maximise local fuel supply. With poor uranium resources, they are intent on expanding their domestic fuel fabrication facilities. The Western vendors will help set these up, but are unlikely to get much further business.
Fuel fabrication is clearly a crucial element in the fuel cycle and any disruption will impact directly on the operation of reactors if reloads are not available at the right time and in the right place. Fuel managers and risk assessors have to manage fabrication strategies carefully to ensure that they have the right fuel available at the right time, without holding excessive stocks of expensive fuel bundles. There are different strategies to address this which give different levels of security, but with fewer fabricators, cost pressures and the trend to minimise outage lengths, the risks of a disruption have undoubtedly increased. Lost revenue for a large reactor would be of the order of $2 million per day, but the eventual cost may be even greater if the utility has to buy replacement power on the expensive open market. These considerations are prompting some utilities to move away from a pure ‘just in time’ philosophy for new fuel assemblies, towards keeping full reload batches of assemblies in inventory, irrespective of the carrying cost.