The United Arab Emirates UAE announced today that it had chosen a South Korean consortium that includes Korea Electric Power Corp., Westinghouse Electric, Hyundai Engineering and Construction, Samsung C&T Corp and Doosan Heavy Industries to supply four nuclear power plants, each producing approximately 1400 MW of electricity. The winning bid has been reported to be $16 billion less than a competing bid from a consortium led by Areva, the world’s largest nuclear plant specialty company.
It is good to know that price and schedule still matter to customers, even in a power plant bidding contest that has included a number of visits by heads of state. It appears likely that the South Korean consortium was more aggressive than its competition; this order is not the only one it expects to win.
The UAE, the world’s third-largest oil exporter, needs the nuclear power to help meet an expected rise in electricity demand to 40,000 MW in 2020 from around 15,000 MW last year, amid a petrodollar-fueled economic boom.
South Korea said it also hopes to build more plants in the UAE beyond 2020 to meet future demand.
“Considering the growth estimates in the UAE’s power demand, South Korea expects to win additional projects to build nuclear power reactors in addition to this contract for four reactors,” it said.
If the margins are a bit tight on the first project, that is apparently acceptable to the project leaders. They expect that any revenue left on the negotiating table can be made up through the expanded volume opportunities that will result from successful project completion. South Koreans have a strong development philosophy; they understand that there are a lot of learning opportunities in the early stages of deploying a new product. Based on the experiences some friends have reported after recent purchases of Hyundais and Kias, the country has some excellent quality control programs that have resulted in rapid product improvements.
Sometimes the lead customer can obtain a deal that makes up for the risks of participating in a first of a kind (FOAK) project. I regret that so many American utility companies are led by people who aggressively want to be the second customers for a proven nuclear plant. I also regret that US based vendors are not more aggressive about making early project bids that take learning opportunities into account when computing the value of winning project awards.