By Jan Lopatka and Jan Korselt
PRAGUE, March 25 (Reuters) - Westinghouse, a unit of Japan's Toshiba Corp, has taken the lead over a Russian-led consortium in a tender to expand the Temelin nuclear power plant, the biggest-ever Czech industrial project, company officials said on Monday.
Expected to be worth over $10 billion, the deal is being watched closely by nuclear equipment suppliers who have been squeezed by falling power prices and less interest in atomic energy since Japan's Fukushima disaster in 2011.
It has also sparked concerns about the country's energy security, with some Czech politicians wary of awarding the work to a Russian firm as the Czech Republic already gets most of its natural gas and oil from Russia.
Czech utility CEZ, which is running the tender, will hold further talks with both Westinghouse and the rival bid led by Russia's Atomstroyexport.
They are vying to build two new units with over 1,000 megawatt capacity each and CEZ aims to pick a winner later this year.
"I firmly believe that the AP1000 will remain the top technology choice at the end of the bid process," said Danny Roderick, Westinghouse president and CEO.
CEZ did not disclose its evaluation of the two bids but a source in the Russian nuclear industry confirmed that Westinghouse was ahead of Atomstroyexport.
"Westinghouse got an upper hand on overall points. This is not the tender outcome, it's just a ranking and a subject for further discussions," the source said.
The deal faces a number of challenges. France's Areva is trying to halt the tender to fight its exclusion from the process last year. It has filed multiple appeals against the disqualification.
Germany, which takes a lot of Czech electricity, has also announced it will exit nuclear power.
POWER PRICES LOW
The plan is also under threat commercially. Power prices in Europe have dropped by more than a half since the peaks around 90 euros per megawatt hour before the global financial crisis.
The electricity market has been further distorted by subsidies for wind and solar power.
This has put the expected cost of nuclear power way above the current market power prices.
Still, the project has strong support from the main political parties and the government, which holds a 70 percent stake in CEZ, central Europe's biggest listed company.
The government plans to give CEZ a guaranteed price for the power produced at the new units via a "contract for difference".
CEZ would be compensated if prices fall below a given level but would pay back if they rise above it.
Such an arrangement would have to be cleared by the European Union.
The plant is to be built between 2017 and 2025 next to CEZ's current Temelin plant in southern Czech Republic, some 50 kilometres north of the Austrian and German borders.
Westinghouse is offering its AP1000 reactors, while the Atomstroyexport consortium offers its MIR-1200 units, based on earlier Soviet-designed VVER reactors common in eastern Europe.
Both bidders have experience with the Czech nuclear energy. Russian-designed reactors power all 6 nuclear units now in operation in the central European country. Westinghouse completed the latest two at Temelin.