ENUSA’s strategy for gaining access to international nuclear fuel markets
Why go abroad
The reasons behind the progressive globalization of ENUSA’s operations can be found in the behaviour of its reference markets. As it became clear in the ‘80s that the Spanish market was not going to grow in the years ahead, the company decided to break into European markets with the support of its natural partners, Westinghouse and General Electric. As a result ENUSA is now exporting products and services to France, Belgium and Sweden and has supplied in the past to countries like Finland, Germany or Switzerland.
Now, given the current trend towards a reduction in European PWR and BWR fuel markets (see figure 1) ENUSA is looking abroad again to expand its business.
From the maximum point that was reached in 2009-2010 the market is expected to decrease by approximately 20% due to the early shutdown of 23 reactors within the period 2007-2023 and to the fact that only two new connections to the grid will occur. The major factor is, obviously, the German phase-out. But it is not the only one. Spain, France and Belgium may see some of their reactors shutdown too. It has become clear that the Fukushima accident has altered the so-called nuclear renaissance in Europe, delaying it for several years.
Another factor which contributes to the internationalization strategy is the high level of competition within the European fuel market. Currently, there are five nuclear fuel factories (even more if we consider the TVEL facilities and the new Ukranian fuel factory) in operation, namely in the United Kingdom, Sweden, France, Germany and Spain. They are under the control of three different fuel vendors. Total installed capacity largely exceeds current fuel needs. This spare capacity in some cases is expected to be used for the supply of the first cores in other markets, although in other cases it is likely to result in overcapacity.
The new markets, being less mature than the European market, offer clear advantages such as a significant demand for new technology and growing market size. In addition, these markets offer positive projections for nuclear development over the coming decades, which is particularly clear in the cases of China and India. Overall, new capacity up to 2030, according to the most optimistic scenario, is expected to exceed 300 new units and more than 350 GWe (figure 2).
Figure 2: expected new global capacity in an optimistic scenario.
As new capacity is added operators will require not only new fuel for their reactors but also all kinds of services associated with the operation of the reactors.
It is possible to make different segmentations according to criteria such as areas of geographical expansion, products and customers. A short review of each of these segmentations is presented below.
Figure 2 shows how new capacity is distributed worldwide. The weakness of the European market can be clearly identified, especially when compared to prevailing trends in regions such as Asia and the Pacific. Expected added capacity in this region alone may exceed 200 GWe up to the year 2030. India, China, Korea are building new units to satisfy their electricity-hungry cities and industrial infrastructure. There is a significant and fast-growing nuclear industry that can supply not only fuel but also different kinds of products and services. A majority of the companies supplying these products is state-owned. Localization is normally the criteria adopted by the national governments. There is still a long way to go before these countries reach the maturity of the North American or European markets.
Other regions are newcomers to nuclear energy. Middle East countries (Emirates, Saudi Arabia, Jordan, Turkey, etc.) are shifting from traditional oil-based electricity generation to cleaner, carbon dioxide-free production systems based on nuclear and renewable electricity. These countries lack the necessary infrastructure to build and operate new nuclear plants and, therefore, will need to import most of the supplies, at least for the first generation of reactors.
A third region of great interest is Eastern Europe (the Baltic countries, the Czech Republic, Slovakia, Bulgaria, Ukraine, Belarus, etc.). Two main factors are driving nuclear investment in this region: the countries’ dependence on Russian technology and their endeavour to search for alternative technology providers or vendors.
From an ENUSA perspective it is relevant to focus also on the South American market. Both Argentina and Brazil are building new reactors and there is a long-term investment plan in place for developing new nuclear capacity. These countries are developing their own industry, which eventually will cover the entire fuel cycle. However, some of their historic partners, in particular German companies, are no longer in the nuclear business. This clearly represents an opportunity for ENUSA.
In recent years ENUSA has evolved from being simply a fuel manufacturer into a more integrated fuel services provider. The fuel services it provides now include spent fuel, and on-site services such as additional inspection and repair capabilities have expanded. A new equipment design and manufacturing business is being developed.
Nuclear fuel is ENUSA’s reference product and it has established credentials in this field in the international markets. However, it is well known that the fuel market is a regional market where the fuel is produced close to the point of consumption. This clearly limits the potential expansion of businesses that only provide fuel. At the same time, this explains ENUSA’s success in the European market, where communications are well developed and the area is geographically small compared to other regions. Only reference vendors such as AREVA, Westinghouse or GNF are in a position to expand their fuel operations far from their headquarters.
There is, however, an exception to the limitations explained above and this relates to the development of new fuel assemblies for Generation III+ reactors that are about to start operating. Developing an alternative fuel design for the new reactors may offer advantages for operators as they will have access to more competition and potentially better prices.
The commercialization of fuel inspection equipment also offers many advantages. First, there is limited competition in this field and second, it is not usually subject to the political or technological barriers that nuclear materials (in some countries there is a “no import” policy when it comes to nuclear fuel) encounter. ENUSA is working very actively on developing its technology together with its partner TECNATOM. As a result of these efforts new fuel inspection equipment has been sold to China and Brazil and there is a big potential for new sales in other markets.
Finally, spent fuel services provide a third pillar to ENUSA’s business. The Spanish Interim Centralized Storage Facility (“ATC”) project and the maturity of the Spanish nuclear sector have brought this into the spotlight for the first time. ENUSA has decided to cooperate with ENRESA, ENSA and other Spanish companies to develop its own capabilities in this field, mainly linked to the dry storage of nuclear fuel. The Spanish experience can be valid for other countries that are less mature and that have not yet reached the point where spent fuel has become an urgent issue.
The addition of new products and services to ENUSA’s portfolio progressively broadens the range of potential customers. Traditionally, the main customer has always been the utility/operator of a nuclear power plant and since nuclear fuel is a key supply component for a power plant, the operator-fuel vendor relation will maintain its strategic importance both in traditional and new markets.
However, in new international markets one can now find vertically integrated conglomerates such as the Chinese CGN and CNNC, which not only operate their own reactors but also produce uranium concentrates, provide enrichment and conversion services, manufacture fuel assemblies, spent fuel solutions, etc. These companies may search for virtually any kind of product - at least in theory - because they usually operate according to a localization strategy or use in-house production.
Finally, the accumulated experience of ENUSA in the area of design and operation of advanced inspection equipment paves the way for a direct relationship with the fuel manufacturers. Together with its partners, in particular TECNATOM, ENUSA can provide technological solutions for fuel manufacturing plants by adapting the technology developed at the Juzbado plant to suit the specific requirements and needs of other fuel vendors.
Association: the best approach for mid-sized companies
The size, distance and complexity of international markets make it advisable to search for appropriate partners either in the country of origin or abroad.
ENUSA has already adopted both practices. As a founding member of the Spanish Nuclear Group for Cooperation (SNGC) it is one of the four Spanish companies that have join forces, or ‘associated’ to penetrate foreign markets. The initial target was China, but a similar approach is being applied to other regions of interest. The SNGC provides marketing and coordination services for its members and studies very carefully the most promising business opportunities.
The other approach that ENUSA is following is association with local companies in the export target market. This is being done with the assistance of a sales agent or representative who knows the specifics of the country and has direct contact with the local company. Once the company has been identified the usual approach is to sign a Memorandum of Understanding (MoU) to serve as a ‘contractual umbrella’ for the relationship. A second step may involve companies entering into specific sales agreements.
So far ENUSA has signed a number of MoU with several Asian and South American companies (see figure 3) and reached representation agreements in Brazil, Argentina and China.
At a sector level, the Spanish Nuclear Forum (ForoNuclear) continues providing valuable support for Spanish nuclear companies with the marketing of their products and services in the international marketplace. ForoNuclear usually coordinates the joint participation of Spanish companies in international conferences and exhibitions in places like China or India. The next step will be to present the capabilities of the national companies in the Middle East.
Another factor to be considered is the necessary institutional support. So far the Spanish Government has supported the Spanish nuclear industry via various different mechanisms, the most relevant one being the support given by ICEX. ICEX is an institution run under the auspices of the Ministry of Economy and Competitiveness that promotes Spanish companies in foreign markets. For certain types of business other parts of the government need to be involved, for example when a political agreement is required or when materials or technology need to be kept under control.
Figure 3: ENUSA international cooperation agreements
Forms of entry into foreign markets
The ENUSA approach to international markets is a step-by-step one based on developing the maturity of the company. Each country and product can follow this process at its own pace, but conceptually it can be described as follows:
Stage 1: Direct export with commercial representation
This is the level at which ENUSA is currently operating. An external sales agent interacts with the local stakeholders to detect business opportunities. ENUSA then takes the lead in the commercial negotiations and, eventually, signs the contract. The products or services are provided from the country of origin, hence minimizing the risks involved. In ENUSA’s experience this approach works well for the sale of hardware like inspection equipment, but it is not so appropriate for more complex negotiations involving, for instance, the sale of nuclear fuel. ENUSA recently signed an agreement for the supply of inspection equipment to China following this process.
Stage 2: Establishment of a commercial subsidiary
This stage represents a second phase in the internationalization process. Once the consolidation of ENUSA in a foreign market becomes a reality, the logical decision is to create a subsidiary in the country in order to be closer to the final customer. This can be done with expatriate organisations or with national organisations in the target country. In the latter case there are obvious advantages like mastery of the local language or knowledge of local business culture.
The commercial subsidiary may avoid the need for having an external sales agent. Initially, both may cohabitate although the potential for conflicts of responsibility could result in the agent quitting its relationship with the company or, alternatively, becoming a member of the new subsidiary.
At this stage production will still be based in Spain. From an ENUSA perspective, given its actual size and potential business, this strategic option seems to be the most adequate way of accessing international markets.
Stage 3: Operations implemented in the foreign market
The final step in the internationalization process can be justified only for long-term or high added value projects that require a localization of production capability located in the foreign market. In the case of nuclear industry this is normally linked to the construction of new nuclear capacity as the markets usually require some level of localization. This kind of strategic project has multiple financial, technological or political implications and, therefore, is challenging for medium-sized companies like ENUSA. However, ENUSA shall continue searching for such opportunities worldwide by reaching strategic agreements with the main actors in the nuclear fuel business.
Internationalization implies a cultural change in the organization. It means dealing with a new reality and facing new risks and challenges. The organizational structure must also be adapted to serve the needs of a global company. A significant effort with regards to the development of technology, quality improvement and efficiency must be undertaken throughout the organization. ENUSA is working on these areas by implementing a more efficient organization, by boosting its continuous improvement programme and by reinforcing its investment in R&D, which currently ranges at between 6% and 10% of total annual sales.
Internationalization also means expanding the business, which in turn requires additional human, technological and financial resources. This can only be achieved with a clear strategic direction and strong institutional backing from the government. In the case of state-owned enterprises a third factor must also be considered - the support of SEPI Holding - ENUSA’s main shareholder - for internationalization initiatives. Fulfilling these conditions and embracing the new reality of globalization represent the best possible business option for ENUSA if it wants to pursue its international development and to reinforce its place in the global nuclear industry.