By Alan Katz

Sept. 5 (Bloomberg) -- Martin Landtman hunches forward in his shirtsleeves as a June storm on Finland's Baltic coast drenches the construction site of the world's most powerful nuclear reactor. As project manager for TVO, the joint venture buying the plant, Landtman has weathered far worse annoyances than rain.

Flawed welds for the reactor's steel liner, unusable water- coolant pipes and suspect concrete in the foundation already have pushed back the delivery date of the Olkiluoto-3 unit by at least two years.

"Substantial delays, I think you can use that word, yes,'' the 54-year-old Landtman says.

Olkiluoto-3, the first nuclear plant ordered in Western Europe since the 1986 Chernobyl disaster, is also more than 25 percent over its 3 billion-euro ($4 billion) budget.

If Finland's experience is any guide, the ``nuclear renaissance'' touted by the global atomic power industry as an economically viable alternative to coal and natural gas may not offer much progress from a generation ago, when schedule and budgetary overruns for new reactors cost investors billions of dollars.

The U.K.'s Sizewell-B plant, which took nearly 15 years from the application to build it to completion, opened in 1995 and cost about 2.5 billion pounds ($5.1 billion), up from a 1987 estimate of 1.7 billion pounds.

Parity With Coal

Today at Olkiluoto-3, a behemoth whose excavation site covers the equivalent of 55 soccer fields, the pressure is on the group led by France's Areva SA that's building the reactor. At stake is much more than Areva's bottom line or the cost of electricity crackling out from Finland's coast. As the ownership of utilities around the world has shifted from state to private hands, the delivery of new reactors on time and on budget has become critical.

Keeping construction costs in check is a vital ingredient in nuclear power's drive for economic parity with coal and natural gas generation. A new U.S. atomic plant could be 30 percent to 50 percent more expensive to build than a coal-fired plant of the same size, and the margin widens for natural gas, which is the cheapest option.

Nuclear power's costs balloon partly because plants must be built to more exacting safety standards and stand up to more stringent oversight, leading to lost time and extra expense.

"In nuclear you must be able to do the testing and you must be able to verify that you have made every step according to the specs,'' says Timo Kallio, who heads civil works for TVO.

Investors Think Twice

Proponents of nuclear power argue that the higher cost to build is balanced by lower fuel costs. Still, after accounting for construction, fuel, operation, maintenance and transmission costs, electricity from a new U.S. nuclear plant in 2015 would be 15 percent more expensive over the reactor's life than natural gas and 13 percent more than coal, according to 2007 estimates by the U.S. Energy Information Administration.

"The nuclear industry has put forward very optimistic construction cost estimates, but there is no experience that comes even close to backing them up,'' says Paul Joskow, director of the Center for Energy and Environmental Policy Research at Massachusetts Institute of Technology in Cambridge.

Some investors already are treading cautiously, even amid rising demand for electricity.

"You have to go in with your eyes wide open,'' says Robin Kendall, director of project finance at Societe Generale in Paris, which is among the banks that lent 1.95 billion euros to TVO for the Finland reactor. It's looking into providing loans for nuclear projects in Europe and Asia.

After a 23-year career in shipyards, Landtman started overseeing the Olkiluoto-3 European pressurized water reactor, or EPR, in 2003.

Lumpy Concrete

The first big jolt came in October 2005 during the installation of the reactor's base slab. It was supposed to take five days to pour 12,000 cubic meters of concrete.

"An hour after it started, our supervisors saw that something was wrong,'' Landtman says. ``It was first too lumpy then it was fine. It wasn't consistent.''

Autumn rain had soaked the crushed stone aggregate used to make the concrete. The pour had been intended for sunny May, says TVO's Kallio. Instead, the sacks sat unprotected while Areva worked to complete detailed base designs and get them approved.

The delay meant that the water content in the mixed concrete exceeded levels allowed by Finnish nuclear regulators. Areva then had to test concrete already poured to make sure it met requirements. No more was poured in the nuclear section of the plant until April 2006, Kallio says.

Dormant Industry

One Areva official points to a nagging issue for reactor builders: inexperienced contractors working for an industry that has been dormant in much of Europe and the U.S. for 20 years.

"Local contractors did not have the breadth of operations expected or needed to carry out such a big project,'' says Ray Ganthner, senior vice president for new plant deployment at Areva NP Inc., a U.S. unit based in Lynchburg, Virginia. Reactor builder Areva NP itself is 66 percent owned by Areva and 34 percent owned by Germany's Siemens AG. Siemens is part of the group building Olkiluoto-3.

Landtman learned the same lesson.

"It has taken a lot longer for industry to adapt to this business than we had anticipated,'' he says.

Still, he says, there is nothing to do but push on: ``Now, we are trying to complete this as fast as possible.''

It comes down to a series of seemingly mundane tasks, from pouring concrete to using a broom handle to scrape metal shavings from a coolant tube. Without perfect execution, components will fail regulators' inspections.

Breaking New Ground

Areva executives say delays are to be expected for such a huge project, especially when it's the first of a kind. Areva is in talks to sell two reactors to China Guangdong Nuclear Power Group Co. It already has an order from Electricite de France SA, Europe's largest electricity utility, and expects to have 35 of its latest reactors operating around the world in 2020.

"When you build the first in a series, there is inevitably a certain number of costs that you discover, and when you have delays, your people stay in place, so your costs go up,'' says Luc Oursel, chief executive officer of Areva NP, the reactor- building unit.

Areva's investment certificates, nonvoting shares that represent about 4 percent of capital, are up 28 percent this year at 720.12 euros and have nearly quadrupled over the past four years. The French government and state-controlled entities own 93 percent of Areva.

'Not for Bureaucrats'

Oursel, a former French industry ministry official, joined Areva from freight and logistics company Geodis SA in January, shortly after the Finland project manager was replaced. He and Philippe Knoche, who was put in charge of the project for Areva last December, visited the snow-covered site early this year.

"What you need to do is listen to the people who are on the worksite,'' Oursel says. "It's all on the ground that it happens. This is not for bureaucrats.''

He also visited officials of TVO, whose owners include Fortum Oyj, Finland's biggest utility, and paper makers Stora Enso Oyj and UPM-Kymmene Oyj.

Landtman's office is down the road from two boiling-water reactors built at Olkiluoto in the 1970s. A digital display showed their output at 844 and 852 megawatts. At 1,600 megawatts, Olkiluoto-3 will be about twice as large.

The construction snags haven't shaken the Finn's belief in nuclear power.

Kyoto Treaty

"We need this single power plant in Finland to meet Kyoto requirements,'' Landtman says, referring to the international treaty that limits greenhouse gas emissions. "One plant cuts the equivalent emissions of all the transport in Finland. If someone says this is minor, then I don't understand what they are talking about. To cope without nuclear? We don't think we can make it in this country.''

As if to prove his point, the blades of an experimental one- megawatt windmill spin overhead.

It operates about 2,200 hours per year, compared with 8,600 hours for the two operating nuclear reactors. At that rate, it would take about 6,000 windmills to generate electricity equal to the new EPR reactor, says Hanna Scherger, a spokeswoman for Repower Systems AG, a German wind-power company.

Getting the newest reactor fired up has been a slog.

Landtman endured headaches through 2006 as a new forging method for the eight stainless steel pipes that will make up the main water coolant line failed tests at a plant in Le Creusot, France, that is owned by Areva's Sfarsteel unit.

Lattice of Atoms

In December, Areva told TVO it would have to redo the pipes because the steel grain, the crystal lattice of atoms that makes up the metal tube, formed areas the same size as holes workers search for to ensure strength and longevity. That made it impossible to use ultrasound to check the tubes' viability.

The ability to test regularly over the reactor's 60-year life is crucial because the coolant lines carry radioactive water.

On a bright July day, Eric Marlois, a 46-year-old machine operator, jams the butt-end of his broom into a 4-inch-wide (10- centimeter) hole being drilled into an extruded stump in a coolant line. Lubricating water drips out, along with stainless steel shavings.

"The pressure is on,'' says the plant veteran of 28 years as he works on the hole, which will take eight hours to drill. "This needs to be absolutely perfect because if there is the slightest defect it will be rejected.''

Sfarsteel produced all eight tubes before starting again using a different process that resulted in a smaller lattice structure, says Philippe Tollini, head of sales for heavy forgings at the unit.

Injection of Capital

Sfarsteel's inability to make ultrasound-ready tubes the first time was a factor in Areva's September 2006 purchase of the company from France Essor, he adds.

"Sfarsteel perhaps went a bit too far in its promises to Areva,'' Tollini says. "Areva realized that they needed to make us stronger.''

Areva has invested about 27 million euros in Sfarsteel and bought three new ovens that can heat 650-ton steel cylinders to 1,300 degrees Celsius (2,372 Fahrenheit), turning them bright orange. About 30 people are being added to the 400-person workforce as the company tries to add capacity in anticipation of a surge in orders.

Those investments already are having an effect, Tollini says. The forged parts for the EPR to be built for Electricite de France will be produced on time and should pass all safety tests, he says.

Delays in China

Areva hasn't been able to make up for lost time in Finland. Analysts estimated in July that the company had set aside about 700 million euros to cover extra costs. Areva Chief Executive Officer Anne Lauvergeon said on Aug. 31 that the company had added to its provisions. It has also spent about 500 million euros to rework designs to meet different electricity standards in the U.S.

Areva's Finland EPR isn't the only nuclear project to run into delays. The June commercial startup of China's Tianwan project came more than two years later than planned. The Chinese regulator halted construction for almost a year on the first of two Russian-designed reactors while it examined welds in the steel liner for the reactor core, says Jacques Repussard, who follows global developments as head of France's radiation protection agency.

In Taiwan, the Lungmen reactor project has fallen five years behind schedule. Difficulties include welds that failed inspections in 2002 and had to be redone, S.H. Liao, project manager for Taiwan Power Co., said in an e-mail. He also said the rising cost of steel, concrete and other commodities has gutted subcontractors' profits, causing them to stop work to renegotiate fixed-price contracts.

`Rocky Road'

In Finland, Landtman remains optimistic.

"I wouldn't say it's an unsolvable global problem,'' he says. "The key element in all projects is planning, to have good planning.''

Landtman now says the reactor might be fully completed in 2011. The initial target was mid-2009.

"It's the physical reinforcement, the forming and the concrete pouring that they just aren't able to do fast enough,'' Landtman says.

Construction is progressing not just on the reactor building but also on a water-pump building, a waste building, an auxiliary building, and two buildings to house backup diesel generators.

"The next four to six months are crucial,'' Kallio says.

Areva said in a statement Aug. 10 that the plant's construction would take six years, rather than the four initially scheduled.

"We're clearly on a rocky road,'' Areva's Knoche said before the August announcement. "We're building it for a 60-year life, it's our first one. Our target is not to break records in construction time. This is perfectly clear.''

To contact the reporter on this story: Alan Katz in Paris at akatz5@bloomberg.net.

Last Updated: September 4, 2007 19:07 EDT