Horbaczewska: Negotiations with Korea on nuclear power like the quiet

 “Despite the apparent silence, intensive negotiations, analyses and agreements are being conducted between Poland’s PGE PAK EJ and Korea’s KHNP. Certainly it makes sense to think this investment through, because it can bring many benefits to both sides,” writes Bożena Horbaczewska, PhD., from Korea, adjunct at the SGH Warsaw School of Economics and head of Postgraduate Studies on Nuclear Energy.

• Bożena Horbaczewska states that the nuclear project in Konin-Pątnów offers numerous advantages from the perspective of Poland’s energy policy.
• KHNP is one of the world leaders in nuclear technology and the largest electricity producer in South Korea.
• “The next step is to sign a cooperation agreement between PGE-PAK EJ and KHNP, as well as an investment agreement. Before that a feasibility study will be prepared. It will include an assessment of the strengths and weaknesses of the investments as well as the risks that it will involve,” the researcher explains.

A lot has been happening in recent months in nuclear projects implemented in Poland… a consistently positive surprise is the record public support for nuclear energy, which in studies conducted periodically by the Ministry of Climate and Environment increased from 46 percent in 2019 to an unprecedented level in the world of 90 percent at the end of December 2023.

Another good information for the Polish nuclear power industry came on November 24, 2023 from the Ministry of Climate and Environment. This was a confirmation that the so-called decision-in-principle for the construction of two nuclear units for the project implemented by PGE PAK Nuclear Energy SA (PGE PAK EJ) in cooperation with the Korean company KHNP (Korean Hydro & Nuclear Power) has been issued. The decision confirms that the Polish state accepts the construction of a nuclear power plant by the applicant investor, in this case PGE PAK EJ, at the Konin-Pątnów location and in the indicated technology, i.e. APR1400. This provides a green light for the investor to carry out the next stages of the investment, e.g. seismic, environmental and location studies. It is also an important document necessary for further talks and arrangements between the partners, it also constitutes a basis for future talks with the Polish government regarding possible investment support, e.g. in the form of guarantees from the State Treasury (a standard requirement by financial institutions for every nuclear project).

The project has a solid foundation and preliminary business rationale, and the location in Konin-Pątnów has many advantages:

• an existing large system station for the needs of the still operating (but soon to be closed) large production units;
• probably the need for only a small expansion of the grid, in contrast to the coastal locations, which require the output of power from the NPP for hundreds of kilometers inland;
• a large base of industrial customers in the central region of the country and not too far from the industry in Silesia;
• proximity to a large urban center (Konin), which has accommodation for construction workers;
• sufficient closed-loop cooling capacity and the possibility to further increase water resources after filling the inactive lignite open-pit mines;
• a very well-developed transport network of roads (including highways) and railways, although probably requiring the adaptation of some elements (bridge crossings, viaducts) for the transport of heavy large-sized equipment;
• the proximity of the largest military airport in Poland (33rd Transport Aviation Base in Powidz) with the possibility of landing large transport aircraft as an alternative to sea transport. The airport has a modernized railway siding, and so does the Konin-Pątnów location;
• the possibility of using local energy staff once the lignite units are switched off.

The nuclear project in Konin-Pątnów also has many advantages from the point of view of Poland’s energy policy. First of all, nuclear units will replace the currently operating lignite power plants, which will reduce the need for the expansion of the grid. It will flexibly fill the gaps in stable generation capacities in the national energy system, especially in the context of increased demand for power and energy in the horizon of 2050. The investment will undoubtedly increase energy security of Poland (understood in PEP2040 as ensuring adequate energy supply to customers at any time at an acceptable price).

And here the question can be asked whether this investment is in accordance with the adopted strategic documents, i.e. PEP2040 and PPEJ? These documents were created with the aim of implementing one government project (two power plants with three units each), which has been prepared with varying intensity since around 2009. However, due to geopolitics, the need to switch to emission-free technologies and rising energy prices for final customers, interest in nuclear energy in Poland has exceeded the boldest expectations of the state authorities involved in the preparation of these documents. As a result, several Polish investors announced plans to build small reactors, and KHNP made an offer to two large Polish energy companies: the private-owned ZE PAK SA and state-controlled PGE SA. Even with this in mind, government programs need to be updated. In the published pre-consultation scenario, nuclear power in 2040 is expected to provide about 7.8 GW (6% of the capacity in the system), generating 55 TWh of energy, which will meet about 23 percent of national demand. This scenario does not indicate specific technologies or investments, but the Polish-Korean project is taken into account in the presented estimates, and therefore falls within the framework of the planned update of Poland’s Energy Policy Until 2040.

What do we know about KHNP?

KHNP is one of the world leaders in nuclear technology and the largest electricity producer in South Korea, meeting 1/3 of the country’s electricity demand. It is an important pillar of the Korean electricity system and contributes to maintaining low energy prices for final off-takers (they are among the lowest among OECD countries). The value of the company’s assets is almost 50 billion euros. Sales revenues in the last 5 years (2018-2022) amounted to 6-7 billion euros. With a debt ratio of about 60 percent of the committed capital, KHNP has a high and stable credit rating (AA2 according to Moody’s), which means that its liabilities are of high quality and are characterized by very low credit risk.

The Korean company produces energy in, among others, hydroelectric power plant, wind farms and PVs. It also has 50 years of experience in the construction and operation of nuclear reactors with a total capacity of 30 GW. There are currently 25 units operating in Korea with a total capacity of 24,650 MW, and five more with a total capacity of 7,000 MWe are under construction.

The climate for nuclear power in Korea itself has improved significantly since Yoon Suk Yeol became president in 2022. Currently, Korea’s energy policy is aimed at increasing the share of nuclear energy in the energy mix to more than 30% by 2030. Therefore, new nuclear units are being built, but also the service life of already operating units is being extended. The Korean authorities attach great importance to promoting the export of Korean technology. For this purpose, a special committee has been set up, which includes representatives of the government, industry, science and the financial sector. KHNP has established a school for nuclear energy education and organizes summer schools for students from other countries including Poland. This confirms the company’s willingness to share knowledge and experience. In 2023, a new program was created (First Step in Nuclear Export), whose task is to establish cooperation between enterprises with appropriate nuclear competence, which can be used to support the export of nuclear technologies. Support for exports in the supply chain (primarily the supply of nuclear fuel and equipment necessary for the operation of power plants) is the goal of another initiative – cooperation between KHNP and the EIB (Export-Import Bank of Korea). The program will cost 1 billion KRW (approx. EUR 700 million).

What has KHNP proposed to Poland?

Poland is one of the eight countries to which a proposal for the implementation of nuclear energy projects has been extended. In several cases (the United Arab Emirates, the Czech Republic and Poland), it is the construction of complete nuclear power plants. The technology offered to Poland is APR1400, which is a proven in construction and operation, safe pressurized water reactor (PWR) of generation III+ with a net capacity of 1400 MWe, with a design service life of 60 years. In 2017, this technology was certified for use in the EU, i.e. it received the EUR organization’s certificate (European Utility Requirements) for the European version of the reactor, referred to as EU-APR1400. The company emphasizes that it is also possible to flexibly adapt the project to the requirements of the national regulator and the characteristic conditions of the construction site.

On October 31, 2022, three companies: PGE, ZE PAK and KHNP signed a letter of intent. The main task of the parties resulting from this agreement was to develop a plan for the construction of a nuclear power plant in Konin-Pątnów based on APR1400 technology. At the beginning of March 2023, PGE and ZE PAK signed a preliminary agreement on the creation of a special purpose vehicle, in which each party owns 50% of the shares, and in mid-April the Articles of Association of this company, operating under the name: PGE PAK Energia Jądrowa SA, were signed. It was registered in the National Court Register already in May. In mid-August 2023, an application was submitted for a decision-in-principle, which was forwarded to the company on November 24, 2023.

The next step is to sign a cooperation agreement between PGE-PAK EJ and KHNP, as well as an investment agreement. In advance, a feasibility study will be prepared, including an assessment of the strengths and weaknesses, opportunities and risks associated with this investment. The cooperation agreement is expected to include provisions on the rights and obligations of the parties, as well as to resolve the issue of capital involvement. Part of the analyses conducted within the feasibility study will be a financial model for this project. In order to better coordinate the work related to the contract and the planned project, KHNP opened an official office in Warsaw. The construction is expected to begin, marked by the so-called ‘first shovel,’ by the end of the current decade. However, detailed information regarding the schedule, the amount of investment, financing methods, and the chosen business model for this investment is not yet available in the public domain. In April 2023, the president of PGE shared only general information, i.e. that the project will be implemented in the formula project finance, and the value of investment for the construction of 2 nuclear reactors is about PLN 60 billion. This expenditure may be covered by external financing provided by interested Korean financial institutions with which preliminary discussions have already taken place.

KHNP provides a complete supply chain, from the design stage to the operation of the facility. The design work is carried out by KEPCO E&C, the most important elements of the equipment (nuclear steam generation system, i.e. the reactor, steam generators, pressure stabilizer, circulation pumps, pipelines) are produced by DOOSAN, and KEPCO NF has the competence to design and manufacture fuel. DAEWOO E&C and DOOSAN are responsible for the construction and assembly works, KHNP is responsible for the start-up of the power plant, and repairs and maintenance are carried out in cooperation with KEPCO KPS. Korea has its own plant for the production of nuclear fuel, and in the future may also start talks about locating a similar investment in Poland (under a Korean license). The company also declares its willingness to cooperate and involve domestic companies in the entire investment process, both at the stage of project preparation and construction, as well as later, during operation. The possibility of participation of Polish companies is estimated at 40-50% for the first blocks, and even up to 60-70% for the next ones (after proper preparation). The investor can then benefit from reduced inputs and logistics costs, as well as the opportunity to flexibly supply spare parts and carry out repair work by domestic companies. There are also numerous benefits for our country, such as GDP growth, economic growth, increased employment (especially in the region), knowledge transfer and technological development. Building the competence of Polish contractors will enable the Korean company to establish a regional supply chain for further nuclear investments in Europe. So there are benefits for both sides.

It seems that the Polish market has a huge potential for KHNP due to the high demand for new nuclear capacities and the possibility of building many APR1400 units. Poland has a well-developed energy investment executive industry and competent professionals. This provides an opportunity to hand over a significant part of the construction to Polish companies (especially in non-nuclear areas) and relieve Korean companies of the burden so that they can focus on the implementation of critical construction elements. With each successive construction, there will also be a gradual transfer of know-how to Polish entities.

What is KHNP’s experience so far?

The strength of KHNP as a design office and general contractor is constituted by the experience gained during the continuous and systematic construction of subsequent nuclear units in its homeland. Thanks to this, the Koreans have developed and maintained nuclear capabilities, confirming that they are able to build on schedule and on budget. This is a feature that distinguishes KHNP from some other “reactor” companies (vendors), especially those that offer their reactors exclusively for export, do not have any orders for new units in their home country and do not have such strong support from their own government.

The technology offered to Poland is widely used in Korea – there are three units already in operation, commissioned in 2016, 2019 and 2023, and three more under construction, which are planned to be included in the network in the near future. The APR1400 reactors were also selected for investment in the only export project to date, at Barakah in the United Arab Emirates (UAE). Three blocks were built there, which have already been put into operation in 2021, 2022 and 2023. The last, fourth block is still in the start-up phase, and its inclusion in the network is planned for this year.

It is worth noting that this project was implemented on time and within the planned budget. It was possible to avoid a significant increase in construction costs, which is the scourge of most nuclear projects. KHNP points out that this is the result of a quick response to emerging challenges, the employment of qualified and experienced employees (1,100 people from KHNP at the peak of the work) and efficient management of a multinational team (18,000 people from 15 countries, including Poland).

The implementation time was impressively short for KHNP’s first export project: the contract was signed in 2009, and energy production from the first unit started in 2021. The entire plant will cover about 25 percent of the electricity needed in the UAE. This success was achieved despite many specific challenges arising from the local desert conditions, i.e. high temperatures and the necessary break in work during the day in the summer, sandstorms, the need to air-condition the premises and maintain the appropriate temperature of the poured concrete. It was also necessary to introduce additional changes to the basic design, especially in the field of cooling systems (water flow speed and pump operation mode), which resulted in the need to take into account the local climate.

Nevertheless, from the start of concreting the foundation slab of the first reactor block in July 2012 until the completion of construction and assembly works and readiness for loading nuclear fuel in October 2017, just under 6 years elapsed. These partial achievements translated into low LCOE ( levelized cost of electricity) – at the level of about 45 EUR / MWh on average for all blocks. The Barakah nuclear power plant is therefore one of the most positive examples of the implementation of nuclear projects in recent decades on a global scale, as it debunks the common myth that “the atom always has long delays and budget overruns”.

In summary, it can be assumed that despite the apparent silence, intensive negotiations, analyses and agreements are being conducted between the Polish PGE PAK EJ and the Korean KHNP. Certainly it makes sense to think this investment through, because it can bring many benefits to both sides. For the Polish entity, it is (probably) attractive in terms of expenditures and financing, it will maintain the real production capacity of its own energy companies, and besides, it is complete and has the strong support of the Korean government. On the other hand, an investment in Poland can open the door for Koreans to other European Union countries, which is certainly one of the strategic goals of the company.