Nuclear Wares

This should be Areva’s time in the sun. As nations search for clean, renewable energy sources and consumers worry about volatile oil prices, nuclear power is hot again. Over the next decade, the world is expected to build 180 nuclear plants, up from just 39 between 1999 and today. The state-owned French giant is scrambling, though, not just to rectify a series of snafus at a high-profile reactor it’s building in Finland, but also to raise more than $10 billion in new capital and weather the loss of an important industrial partner.

All that has raised concerns that CEO Anne Lauvergeon–who fused a disparate collection of firms into the first one-stop nuclear shop, earning the nickname Atomic Anne along the way–has dangerously overreached. Areva currently retains a handy lead over rivals, and that is in no small measure due to Lauvergeon’s leadership. But rivals from Toshiba to Russia’s Rosatom are sensing an opportunity as the market continues to grow.

Areva was created in 2001 when Lauvergeon combined state-owned uranium-mining and fuel-recycling company Cogema with nationalized reactor builder Framatome. It is still the source for any item in the nuclear buffet: supplying enriched uranium, building and managing plants, disposing of nuclear waste. The Paris-based firm operates in more than 100 countries and employs some 75,000 people. Its order book boasts an impressive $67.5 billion backlog, the best in the business.

That the industry’s 800-pound gorilla is French is one of those unexpected outcomes for a state-planned and -owned enterprise. In the 1970s, when most Western nations reacted to the first oil crisis by forgetting it ever happened, France decided to kick its petroleum habit by pouring money into its young nuclear industry. France now has 59 operational reactors, which generate 80% of the country’s electricity.

Areva’s rise was built on that national commitment, but the company has also benefited from the ambitions of Lauvergeon, who, as a member of France’s civil service élite, first gained public attention as Socialist President François Mitterrand’s sherpa of summits during the 1980s. After taking control of the key state-owned nuclear companies, she merged them to create Areva eight years ago. “Anne Lauvergeon had the drive, creativity and vision to assemble all these parts into a single unit to be ready for a nuclear renaissance that she saw coming,” says Ben Elias, a research analyst for Sterne, Agee & Leach in New York City. “There are very few CEOs in her league.”

On paper, at least, Areva is perfectly positioned for the nascent boom. In addition to the 47 new plants under construction worldwide, 133 are planned for the next decade. Industry analysts predict a further 200 new reactors between now and 2050. With reactors at about $7 billion a pop, the payday for the biggest players–Areva, Rosatom, Toshiba-owned Westinghouse, Mitsubishi Nuclear Energy Systems and a General Electric–Hitachi joint venture–promises to be huge. A reactor under construction in Tennessee is the first of at least a dozen planned in the U.S. Italy has just reversed a 22-year-old building freeze, and Britain plans at least four new nuclear reactors.

But the driving force is China. Beijing says it wants to lift nuclear-generated power from its current 11 gigawatts to 86 gigawatts by 2020–an increase equivalent to France’s current total output. China is already adding 14 reactors to the 11 it operates, including three third-generation installations supplied by Areva and Westinghouse. And it won’t stop there: Beijing has signed on for an additional 35 plants to be built over the next decade.

Areva has soared on nuclear’s second coming. But its 2008 profits–$824 million on $18.4 billion in sales–were down 17% from 2007, owing mostly to a whopping $2.4 billion write-down linked to construction troubles with what is supposed to be its leading-edge Finland reactor.

The project for Finland’s main utility, Teollisuuden Voima Oyj, is designed to showcase Areva’s 3G earthquake- and missile-proof design, known as a European Pressurized Reactor. Areva spokesman Jacques-Emmanuel Saulnier said winning the contract over Westinghouse and GE-Hitachi was crucial to establishing the firm as the leader in advanced nuclear tech. “You only see how it works once you’ve built it and proved it’s what you’d said it would be,” he said. “That’s why winning the Finnish contract and building the world’s first third-generation reactor is so important.”

Six years on, though, the project is already three years behind schedule and $2 billion over the initial $4.2 billion budget, which has led to arbitration and other legal wranglings. Analysts say many of the problems stem from Areva’s impossibly low bid. The troubles in Finland probably contributed to German engineering giant Siemens’ January decision to pull out of its eight-year partnership with Areva.

The project has also raised questions about Lauvergeon’s management style. Critics accuse her of being better at selling big projects than at executing them. Some suggest her refusal to reconfigure the joint venture with Siemens to give it a direct stake in Areva ultimately convinced the Germans that they could do better with another partner.

Her other big problem is money. Areva needs about $14 billion to finance its business for the next several years–and $2.8 billion more to buy Siemens’ joint-venture stake. One plan calls for the state to sell 15% of Areva to new investors. Areva also plans to sell off its shares of a number of smaller French companies as well as T&D, an energy-transmission affiliate that it bought for close to $1 billion in 2004, which is now valued at nearly $5 billion and accounts for 20% of the company’s profits.

By focusing on its latest reprocessing technology, which produces less waste, Areva aims to capture one-third of the new reactor construction market by 2030. That will be increasingly difficult because competition is heating up. Siemens now looks set to form a partnership with Rosatom, the industry’s second biggest firm. And China’s push for nuclear plants means there will probably soon be competition from there too.

Yet in this supply-driven nuclear summer, Areva may even be able to profit from its setback in Finland. In an industry where experience is everything, making mistakes first may just help Areva stay on top.