A) The Angra 3 Nuclear Power Project

Nuclear energy provides about 3% of Brazil’s electricity. In 2007, gross production was 445 billion kWh, with net imports of 39 billion kWh being required. Of the total generated in the country, 84% of power was from hydro, 3.5% from gas, 4% from biomass, just over 5% from coal and oil, and 3% (12.4 million kWh) from nuclear. In 2009, nuclear power generated 13 billion kWh of electricity. Per capita electricity consumption in Brazil has grown strongly since 1990 – from under 1500 kWh/yr in 1990 to nearly 2200 kWh/yr in 2007.

The high dependence on hydro gives rise to some climatic vulnerability which is driving policy to diminish dependence on it. Despite this, in February 2010 the government approved $9.3 billion investment in the new 11.2 GWe Belo Monte hydro scheme, which will flood 500 sq km of the Amazon basin and supply about 11% of the country’s electricity. About 40% of Brazil’s electricity is produced by the national Eletrobrás Systema. About 20% of electricity is from state-owned utilities, and the rest is from privately-owned companies.

Angra 1 suffered continuing problems with its steam supply system and was shut down for some time during its first few years. Its lifetime load factor over the first 15 years was only 25%, but since 1999 it has been much better. Civil works on Angra 2 started in 1976 and, due to a lack of financial resources and a lower than expected growth in demand, only commenced operation at the end of 2000. Angra 3 was designed to be a twin of unit 2, with a 1,400MW generating capacity. Work started on the project in 1984 but was suspended in 1986 before full construction began. Around 70% of the equipment is on site, full construction did not begin and work on the project was suspended in 1986.

In November 2006 the government announced plans to complete Angra 3 and also build four further 1000 MWe nuclear plants from 2015 at a single site. Angra 3 construction approval was confirmed by Brazil’s National Energy Policy Council in June 2007 and received Presidential approval in July. Environmental approval was granted in March and all other approvals by July 2009. In December 2008, Eletrobrás Termonuclear S/A (Eletronuclear) signed an industrial cooperation agreement with Areva, confirming that Areva will complete Angra 3 and be considered for supplying further reactors. Areva also signed a services contract for Angra 1. First concrete for Angra 3 was due in 2009. A construction licence was granted by the National Nuclear Energy Commission (CNEN) at the end of May 2010, and construction resumed two days later, in June. The plant is expected in operation at the end of 2015 after 66 months.

B) Financial challenges

Economically, power from existing nuclear plants is about 1.5 times more expensive than that from established hydro, and power from Angra 3 is expected to be slightly over twice as expensive as old hydro, about the same as that from coal and cheaper than that from gas. Overall, including Angra 3 in projections reduces network prices slightly. Plans to build two new nuclear plants in the northeast and two more near Angra in the southeast are underway1. At the end of 2009, Eletronuclear commenced initial siting studies at four potential locations in the northeast2, and is aiming to present a list of 40 possible sites to the Mines & Energy Ministry by mid-2011. Eletronuclear is looking at the Westinghouse AP1000 (which is reported to be favoured), the Areva-Mitsubishi Atmea-1 and Atomstroyexport’s VVER-1000.

In December 2010, The Brazilian Development Bank (BNDES) approved BRL 6.1 billion (US$ 3.6 billion) in financing for Angra 3, covering almost 60% of the BRL 9.9 billion estimated cost. This month Eletronuclear received an offer for a EUR1.5bn (US$2.02bn) loan from a pool of five French banks led by Société Générale to develop its Angra III nuclear power plant in Rio de Janeiro state. This is only one of many recent developments in the country’s nuclear sector. Sustained by strong economic and demographic growth, Brazil’s power demand is indeed expected to increase significantly in the coming years and the country is planning to boost nuclear generation along with its more developed hydro generation. Brazil’s Senate still has to approve the loan, and a decision on the matter is not expected until the second half of 2011. Construction of Angra 3is currently underway and the new nuclear power plant is expected to start production by 2015. The total investment for the project has been estimated at BRL9.9bn (US$5.91bn).

C) About Eletronuclear and BNDES

Eletronuclear was established in 1997 for the purpose of operating and building thermal nuclear power plants in Brazil. A subsidiary of Eletrobrás, Eletronuclear is a government-controlled company that accounts for the generation of approximately 3% of electric power consumed in Brazil. By the interconnected electric power system, such power reaches the main consumer centers in Brazil and corresponds, for example, to more than 50% of electric power consumption in the State of Rio de Janeiro, a proportion to be considerably expanded on completion of the third unit of Admiral Álvaro Alberto Nuclear Power Station (CNAAA). At present, nuclear power plants Angra 1 – with a generating capacity of 657  electric megawatts, and Angra 2 – rated at 1350 electric megawatts are in operation. Angra 3, to practically be a replica of Angra 2, (incorporating the technological advances made since the construction of the latter) is also planned

BNDES is the main financing agent for development in Brazil. Since its foundation, in 1952, the BNDES has played a fundamental role in stimulating the expansion of industry and infrastructure in the country. Over the course of the Bank’s history, its operations have evolved in accordance with the Brazilian socio-economic challenges, and now they include support for exports, technological innovation, sustainable socio-environmental development and the modernization of public administration. The Bank offers several financial support mechanisms to Brazilian companies of all sizes as well as public administration entities, enabling investments in all economic sectors. In any supported undertaking, from the analysis phase up to the monitoring, the BNDES emphasizes three factors it considers strategic: innovation, local development and socio-environmental development. The BNDES’ disbursements reached R$ 168.4 billion in 2010, a 23% increase when compared to the previous year. The result takes into consideration Petrobras’ R$ 24.7 billion capitalization operation. When this operation – a one-off and non-recurring – is not considered, the Bank’s disbursements ended 2010 at R$ 143.7 billion, a 5% increase when compared to 2009, growth which is compatible with previously made projections. Industry accounted for 47% of the Bank’s total disbursements, followed by Infrastructure, with 31% presence, and by Trade and Services, at 16%. In all areas of activity (agriculture, industry, infrastructure, trade and services) disbursements grew in 2010, resulting mostly from the successful Investment Maintenance Program (PSI). Launched in July 2009 and expected to last until next March 31, 2011, PSI guaranteed the return of investment to the country amidst the global financial and economic crisis.

This trend is hopefully coming to an end with the recent enactment of a new law with compulsory requirements on energy saving and efficiency. This marks a clear ambition by Russian policymakers and will probably enhance the nascent interest in green buildings of the main players in the real estate industry, who were severely hit by the current crisis and seek new growth opportunities.

A modest yet growing interest of the Russian real estate industry in green buildings…

Russia has experienced a tremendous construction boom in the last decade, with a clear premium on fast investment returns and the quantity of buildings rather than their quality. Western voluntary green building certification schemes – giving a rating to a specific building on the basis of ecological, social and economic criteria – were then clearly seen as luxury imports and during a long period set aside.

An interesting move towards international standards in general has nevertheless taken place in the last few years, initiated by the growing importance of international financing of Russian real estate projects (this has triggered inter alia the necessity of clean titles for mortgages, offshore contractual schemes, as well as the necessary “bankability” of international models of contracts such as FIDIC for construction, almost nonexistent in Russia ten years ago).

Progressively, this “international” evolution has naturally concerned green building certification, as a clear competitive advantage in a saturated real estate market (decreasing operation costs, insurance rates and legal liabilities, while increasing market differentiation and value). Such international events as the MIPIM have also been instrumental in convincing Russian real estate players of the potential added value of environmental certification.

Part of a global network, the Russian Green building council (RuGBC) http://www.rugbc.org/ created in 2009 is one of the most active advocates of green building certification in Russia, promoting mainly BREEAM schemes (originating from the UK in 1990) and to a lesser extent LEED (US rating scheme introduced in 1998) http://kluwerconstructionblog.com/2010/01/20/going-green-gets-greatly-muddled/. RuGBC is working to adapt these voluntary norms to the Russian context, which is very specific not least climate wise. The creation of a national Russian certification scheme is in this regard envisaged.

Due to the relatively recent Russian interest in green buildings, there are currently less than ten buildings in Russia which have been certified under BREEAM or LEED schemes (one having been developed by a Russian developer, Clearlink). This situation is particularly striking when compared with other emerging markets like China where green building certification schemes are widespread. It appears that this is essentially the result of national priorities, and Russia has recently demonstrated a shift towards such climate-friendly policies.

… Recently stimulated by a bold legislative reform on energy saving and efficiency

Publicly deploring Russia’s inefficient use of energy and its disastrous economic and ecological consequences, President Medvedev has called for an action plan to halve Russia’s energy intensity by 2020. According to the World Bank and IFC, such plan would cost a total of USD 320 billion, but would be paid back in just four years thanks to annual savings of USD 80 billion http://www.ifc.org/ifcext/rsefp.nsf/AttachmentsByTitle/FINAL_EE_report_Engl.pdf/$FILE/Final_EE_report_engl.pdf.

Following these declarations – anticipating somehow the possible alignment of Russian energy prices on the internal market to global market prices and the end of low cost energy – fundamental legislation was passed in 2009. First to implement parts of the Kyoto protocol (ratified by Russia in 2004) and, most importantly here, on energy saving and efficiency with the Federal Law No. 261-FZ dated November 23, 2009 (the “Law”). Certain provisions of the Law directly address energy saving and efficiency measures in the field of construction, these include:

- All new buildings (with few exceptions) will be submitted to Energy efficiency requirements (to be revised every 5 years) and will have to integrate compulsory energy meters to allow energy audits;

- Residential buildings will be rated according to their energy efficiency and such ratings will have to be indicated on the buildings’ facade;

- Public Procurement: energy efficiency of a tender has to be taken into account (considering the lowest lifetime cost of the building, not the lowest cost only);

- Tax incentives and administrative sanctions: while incentives are kept to a minimum, the Law provides for comprehensive administrative sanctions, the most efficient being that a building ignoring the Law requirements cannot be commissioned by the authorities (if the project (design) documentation / construction permit has been submitted to the authorities after November 27, 2009) and as a consequence under Russian law cannot be legally owned by anyone.

It is worth noting that the Law encompasses both construction and operation phases of a building project, and involves most of its actors, from developers and investors to operators and end users, together with designers and contractors. On a practical standpoint, this should permit an efficient implementation of the Law.

In this regard, the Law still lacks certain necessary application decrees and therefore many sensitive issues remain unanswered (e.g. under which SROs http://kluwerconstructionblog.com/2009/11/08/the-end-of-licensing-of-construction-related-activities-in-russia/ should an entity completing energy audits register). Many of these decrees have nevertheless been issued since November 2009 and Russian commentators agree that due to the clear political support of the reform, all of them should be issued within the next two years.

The implementation of this 2009 Law will therefore be an interesting test of Russian policymakers’ new commitment to environmental matters in general and to green buildings in particular.

Xavier Poulet-Mathis
The author thanks Irina Zimina-Lecornu (Attorney at Law, Moscow) for her collaboration.

I had the good fortune to attend the Middle East Nuclear Energy Summit in Amman, Jordan last month. Jordan is arguably second only to the UAE in the race for peaceful nuclear energy. Indeed the Chairman of the Jordan Atomic Energy Commission told the conference of his country’s plan to become a net exporter of electricity, and to use their indigenous supply of uranium as part collateral to assist with the financing of new nuclear new build. There has been further progress in Jordan since the conference with the site selection team identifying suitable sites for a nuclear power plant, the inauguration of a waste facility for low and medium level waste and the award of a contract to build a 5MW research reactor.

Other countries in the region plan to follow suit: at the conference we heard from representatives from Bahrain and Yemen who are considering nuclear power. Separately the Kingdom of Saudia Arabia recently launched plans to consider the feasibility of nuclear power, and Qatar, Kuwait and Oman are reputed to be engaged in similar plans.

However it was clear from all the speakers that one of the big unresolved issues for many of them (and for some countries in the region this will be more critical than for others as there is a vast disparity in wealth), is securing the financing that will be necessary to pay for these very capital intensive projects. There was a good deal of debate on whether project financing, which has been successfully used in a number of countries in the region to finance significant power and water projects, could be the answer.

As the global nuclear renaissance marches on and the world becomes more familiar and relaxed about nuclear technology it seems likely that in due course there will be a nuclear power project that is project financed. For now though, risks that will concern lenders of project will be many and varied but are likely to include political risk, the reliability of the chosen technology and the reliability of the price to build it, the legal and regulatory frameworks including the robustness of the licensing regime and the nuclear liability regime, demand risk and so on. Arguably, many of the mitigants to these risks (eg robust licensing frameworks, de-politicised decision making, compliance with international conventions on third party nuclear liability) are more readily found in countries with experience of nuclear power and which are well immersed in the nuclear industry, rather than countries seeking to build their first nuclear power plant. Jordan may be an exception that proves this rule though as it has clearly evinced an intention to adopt a PPP model for delivery of its nuclear power ambitions. Indeed Abu Dhabi is also reputedly about to appoint a further set of financial advisers which suggests they again might be about to break new ground. Time will tell.

It must be the case though that not every Middle Eastern country claiming an interest in nuclear power will be successful. The reasons are well documented in the industry and the problems well rehearsed – there are serious shortages in the supply chain to meet the current and predicted global demand, there are insufficient people with the sufficient skills and experience to meet the current and predicted global demand, and perhaps even more obviously the economics don’t make sense: if most countries in the region have a nuclear power plant, to whom will they all export their electricity?

Safety and the Role of The Regulator

As anyone involved in the nuclear industry will testify, safety is paramount both in the inherent design characteristics of the technology itself and in the operating procedures adopted on site. For safety also to be seen to be paramount, the role of an independent oversight authority is of critical importance, as enshrined in the IAEA Convention on Nuclear Safety. Under the convention the regulator is required to implement and enforce a regulatory framework which sets out national safety requirements, a system of licensing for nuclear installations and a system of inspections and assessment of nuclear installations. Aspiring nuclear powered countries will need to set up such a regulatory body, and ensure its independence.

In this regard it is interesting to note that as well as setting up an independent regulator headed by an internationally recognised individual (the former Executive Director for Operations of the United States Nuclear Regulatory Commission), the UAE has also collected together an illustrious group of individuals to comprise an International Advisory Board to advise it on matters such as safety and security. As the UAE has recognised, an acceptance of peer review, openness and an absolute commitment to safety and security as well as the peaceful use of nuclear energy is essential in convincing existing nuclear countries to allow and encourage their contractors, reactor vendors and suppliers to share their technology and work on new nuclear new build projects in a country.

Liability for third party nuclear damage

The term third party nuclear damage means broadly, damage to property and people unconnected to the nuclear installation but caused by a nuclear incident – in contrast to conventional damage which is has no nuclear cause. It is extremely rare. Yet, it’s the big risk to the nuclear supply chain and the big issue for populations of nuclear powered countries or countries near to nuclear powered countries (nuclear damage doesn’t respect territorial boundaries). As such the international nuclear world has devised a way of addressing the risk and seeking to balance the needs of any victims of third party nuclear damage with ensuring that the nuclear industry can operate without fear of financial ruin. Essentially the big idea is to channel all the liability for third party nuclear damage to the operator of the nuclear installation where the nuclear incident occurred. This means all the victims know who to sue, the insurance industry knows who to insure, and the other parts of the supply chain only need to worry about (and insure) conventional liabilities. Of course it is more complicated than that and currently debates abound about the scope of damage covered and the limitations to the operator’s liability, but essentially the key is the channelisation of liability.

As you will have realised, channelisation is only any good if the principle is harmonised across the globe so that if damage does occur in the neighbouring country to the nuclear installation country, the victims in that neighbouring country should still be able to (and be obliged to) sue the operator. Different rules shouldn’t apply. Such an international harmonised regime was the goal behind the development of a number of international conventions which enshrine these ideals, known as the Paris convention and the Vienna convention, and then latterly the Convention on Supplementary Compensation for Nuclear Damage.

Unfortunately no such harmonised regime is in place. Over half the nuclear reactors worldwide are currently in countries which have not ratified any of these international conventions. While a number of these countries do have national laws which reflect the principle of channelisation they don’t and can’t address trans-boundary issues.

The UAE in its Policy Statement clearly recognises the need for the UAE to introduce a regime of nuclear liability which complies with these international conventions and also indicates an intention to conclude the Vienna convention. This would be a welcome development to those who seek a harmonised regime, and give new impetus to such efforts. It is to be hoped that the nuclear renaissance can lead to increased pressure on all nuclear powered countries to adhere to these principles as part of a globally harmonised regime.

Conclusion

In the manner in which it has addressed and has committed to address key legal issues for new nuclear new build, the UAE has set the bar high and it is to be hoped that other countries in the region will follow suit when developing their legal and regulatory framework for nuclear power plants in their countries. In this regard the author will be attending the Middle East Nuclear Energy Summit in Jordan next week at which representatives from Jordan, Saudia Arabia, Bahrain, Yemen and the Arabic Atomic Energy Agency will be speaking and hopes to learn of a similar approach being adopted.

Most of these standards are privately owned and promoted, but on December 11, 2009 at the Climate Change Summit in Copenhagen, the United Nations Environmental Programme (UNEP) unveiled the “Common Carbon Metric” for measuring energy use and reporting greenhouse gas emissions from building operations. UNEP proposes establishment of the Common Carbon Metric to measure the weight of carbon dioxide equivalent (kgCO2e) emitted per square meter per year by different building types and climate regions. While the Common Carbon Metric has yet to be adopted by any governing body, entities such as BRE and the USGBC may well incorporate the metric in their rating systems.

The diversity in rating systems means that parties wishing to build green projects in diverse locations need to be familiar with different standards for use in different countries, or even regions within a country. The different rating system requirements also need to be compared to local building codes and regulations, to ensure that there are no conflicts between them.

This diversity also undermines one of the principal business reasons for green building. A recent study sponsored by the World Green Building Council determined that the top business reason for green building is because it is the “right thing to do.” Positive publicity is the most obvious commercial benefit from “doing the right thing,” and a common standard for assessing a project’s “greenness” makes garnering that positive publicity much easier. The Sustainable Building Alliance (SBA) is working to solve this problem by developing common minimum standards for adoption by the different rating systems. SBA’s goal is to ensure consistency among the systems and to promote “dual certification.” But because each rating organizations has its own commercial interest in promoting its system, SBA has a difficult task ahead of it. Uniformity is certainly in the interest of engineers, architects, builders, and owner/developers, and there are early signs of progress, as SBA has reportedly fostered an agreement between BRE and HQE to create together a common standard for the European Union.

William Devan
Andrew Ness