Moody's - Nuclear plant costs may double

The "all in" total could be $6,000/Kw!
[updated 12/01/07, 12/17/07]

In a report issued to clients last month Moody's Investors Service said the outlook on on new U.S. nuclear generation is "a sensible if risky path. Moody's looks on nuclear generation as a critical component in the US' current supply mix. Currently, Moody's views the average credit rating it has on the regulated utilities with nuclear generation at the Baa-level, or low investment grade. According to the NRC, there are approximately 12 companies developing 17 Construction and Operating License applications for 31 new reactors.

There's not much new in the report, especially for those who follow the industry. However, for Wall Street, which still may not be used to the idea of the capital requirements for a nuclear power plant in the current era, the report offers some welcome news and some cautions. The first one is a whopper.

The rating service also said the cost of new plants may double. In the report, "New Nuclear Generation in the United States: Keeping Options Open vs. Addressing an Inevitable Necessity," Moody's said that the potential reactors could cost as much as $6,000/kW of capacity to build.

Moody's said it expects new plants to cost $5,000-$6,000/kW of capacity to build, compared with market estimates of $3,000-$4,000/kW of capacity. It noted that a proposed American Electric Power integrated gasification combined-cycle coal-fired power plant in West Virginia is expected to cost $3,500/kW of capacity.

NRG's two new plants in Texas are estimated to come in at a much lower price closer to $2,000/Kw. So there is a considerable gap between NRG's current estimate as a "first mover" and the costs that could be encountered by plants that come in at later dates. That said rapidly rising costs for steel and concrete could change things considerably over time.

Moody's said that, when assessing the cost of a new plant, it is concerned with the "all-in costs" of the facility, adding in capitalized interest, other owner's costs – such as site preparation — and transmission upgrades. It compared its assessment of the costs to the difference between the basic purchase price of a house and the "all-in" price including the cost of appliances, furnishings and landscaping.

Moody's said it believes that "many of the current expectations regarding new nuclear generation are overly ambitious," citing the amount of time it will take to bring new plants online and under estimating the cost of building the new reactors.

Moody's believes nuclear generation is a "critical component" in the energy supply mix, it said, but it does not believe more than one or two new nuclear plants will be online by 2015.

Moody's foresees five potential areas of bottleneck for construction of new nuclear generation: lead times for "ultra heavy/ultra large" forgings, especially given the lack of forges around the globe capable of the work; large manufactured components; engineering resources; logistics; and labor. These last items are on everyone's list and are also the things that must be keeping nuclear utility executives awake at night.

The one bring spot is that the demand for large forgings and other nuclear power plant components, such as turbines, will stimulate new suppliers to bring manufacturing capabilities to the market. For instance, Alstom is planning a new turbine plant for the U.S.

Update 12/01/07

One reader who works in the nuclear industry, and closely tracks nuclear plant construction costs, call me last week to dispute Moody's numbers. The analyst said his team has identified a "mid-point" of construction costs at approximately $2,400 Kw. The "low"point" is about $1,850/Kw and the high is just over $3,000/kw. None of their numbers come anywhere close to $5-6,000/Kw reported by Moody's. This midpoint number would bring in a 1,000 MWe plant at $2.4 billion in current dollars.

I've encouraged the analyst to contact Moody's and exchange information with their analysts, and to find out how the financial services firm derived their estimates. I've also encouraged the analyst to seek permission to formally release his numbers, with his organization's imprint, so that the information is open for discussion. If he reports back I'll update the blog with a new post.

Update 12/17/07

Alstom announced its new turbine plant for the U.S. French engineering group Alstom announced that it will spend over $200 million on constructing a new facility in the USA for the manufacture of steam turbines, gas turbines, generators and related equipment for use in US power plants.

The new facility in Chattanooga, Tennessee, will supply new steam turbines for both fossil fuel and nuclear power plants, as well as retrofitting existing steam turbines.

In November, Alstom announced that it had been selected by UniStar Nuclear Energy (UNE) to supply at least four 'Arabelle' half-speed turbine generators for UNE's planned fleet of nuclear power plants in the USA. Alstom plans to manufacture turbines for UniStar at the new Chattanooga facility.