The South Korean government recently celebrated a significant milestone: The state-run Korea Hydro & Nuclear Power was chosen as the preferred bidder for a nuclear power project in the Czech Republic valued at 24 trillion won ($17.3 billion). It is being hailed as a “remarkable achievement after 15 years” by the government, reminiscent of a $20 billion nuclear plant deal in the United Arab Emirates in 2009.
However, not everyone shares the government’s enthusiasm. Some experts and activists are voicing concerns about the project’s profitability and cautioning against premature celebration of such a long-term venture.
During a press briefing Thursday, Industry Minister Ahn Duk-geun cited Korea’s competitive edge in technology and price competitiveness as key factors in winning the bid, denying claims of undercutting prices. Critics, however, argue that KHNP’s limited experience does not support claims of sudden technological or pricing superiority.
Complex, decadeslong endeavor
"First of all, it’s important to know that winning a large order in the nuclear plant industry isn't like celebrating a big export in the car business; it's a complex, decadeslong endeavor," said Park Jong-woon, a nuclear engineering professor at Dongguk University, who served as a principal researcher at KHNP.
Nuclear plants have extensive construction periods, often spanning several years or even decades, with commercial operational lifespans of 40 to 60 years or more. Financial returns can thus only be evaluated over an extended timeline.
The financial success of nuclear projects involves various factors: initial construction costs, ongoing operational expenses, maintenance, regulatory compliance and decommissioning costs. Additionally, variables like inflation, energy price fluctuations, and changes in governmental energy policies significantly impact profitability.
"The Dukovany Units 5 and 6 project in the Czech Republic will take around six years to build, and they won't generate revenue for Korea for another six to seven years until commercial operations begin. This project is more about building KHNP’s reputation for future bids in Europe and the Middle East," said analyst Cho Jung-hyeon from IBK Securities.
Questions also linger about the profitability of the first UAE nuclear plant, built by South Korea in Barakah. This facility, comprising four reactors with a combined capacity of 5,600 megawatts, began phased commercial operations in 2021, three years later than planned.
“There are serious doubts about the profitability of the UAE's nuclear plant. As far as I’m concerned, the Korean authorities have consistently dodged revealing any specific financial details,” said Park.
Competitive pricing
The exact bid price for the Czech project has not been disclosed. World Nuclear Association data from 2021 shows South Korea's nuclear plant construction costs at $3,571 per kilowatt-hour, considerably lower than China at $4,174, the United States at $5,833, Russia at $6,250 and France at $7,931.
In the Czech bid, KHNP outperformed France's state-owned EDF, despite lobbying by French President Emmanuel Macron.
“KHNP's decades of experience and competitive pricing were likely key to winning this bid. As a state-owned company, they're not going to take on a project that isn't financially viable,” said Jung Dong-wook, a nuclear engineering professor at Chung-Ang University.
Despite the KHNP’s competitive bid, whether South Korea’s nuclear experience is sufficiently robust remains unclear. According to April 2022 International Atomic Energy Agency data, South Korea ranks sixth in global nuclear plant operation capacity with 25 operational reactors at 24.5 gigawatts, behind the US, France, China, Russia and Japan.
Higher costs, lower margins
Furthermore, higher construction costs proposed by competitors might reflect the realistic expenses required to meet stringent safety standards. Korea may find it challenging to deliver on its low-cost promise without running into financial trouble if it needs to meet these rigorous standards and tackle the unique technical issues posed by the Czech plants.
“These higher costs might include higher safety margins required in Europe,” said Seok Kwang-hoon from Energy Transition Korea, a coalition advocating for renewable energy.
He explained that the Czech State Office for Nuclear Safety will likely enforce stringent safety regulations, having adhered to Western European nuclear safety standards for over 20 years. This contrasts with the UAE's Federal Authority for Nuclear Regulation that Korea previously dealt with, which was rushed to oversee nuclear activities.
Since the Fukushima disaster in 2011, European regulators have tightened safety standards. For instance, French EDF’s Hinkley Point C nuclear plant in the UK faced 7,000 design changes due to strict regulations, raising costs nearly 1.8 times.
KHNP also faces significant technical challenges. Park cautioned that the inland location of the Dukovany site requires the construction of cooling towers, something KHNP has no experience with. Cooling towers are increasingly problematic due to global warming. For instance, France had to shut down reactors near the Rhone River in the summer of 2022 because of record low water levels and high temperatures.
"With such technical risks and financial prospects that won't be clear for decades, I think the government jumped the gun celebrating KHNP's bid win,” said Park.
