Sunday, April 27, 2008

GE Hitachi cut ties with Toshiba

Japanese nuclear giants set a competitive course for U.S. market sharesailing

The Daily Yomiuri, an English language newspaper in Japan, reports that the joint opening of a U.S. office by Hitachi and General Electric is a signal of a new competitive race between the two firms and Toshiba which owns Westinghouse in the U.S. The new office set up by GE and Hitachi in San Jose, CA, will market boiling water reactors (BWR) and comes just weeks after Toshiba established an office in the U.S. to gain market share in the U.S. with Westinghouse AP1000s, which are PWRs, and with Advanced Boiling Water Reactors (ABWR).

The new offices signal the end to a technical cooperation agreement that was first signed in 1967 and renewed in 2001 for a ten year run. This development was inevitable once Toshiba acquired Westinghouse. Within a year Toshiba has inked deals in China for four AP1000 reactors.

A similar rivalry also exists with Areva which established a relationship with Mitsubishi in 2007. Last November Areva signed a $12 billion contract in China for new reactors and related nuclear facilities.

All three firms promote their experience at controlling costs and risks based on their prior experience building reactors in Japan. The three firms are now sailing in competitive seas with huge prizes awaiting the winner in each new reactor build in the U.S.

Critics of nuclear energy who doubt the "nuclear renaissance" is underway need to look at how these companies are positioning themselves. On April 7 Marvin Fertel, a top executive at the Nuclear Energy Institute, told the American Bar Association the U.S. nuclear build will likely come in two waves. The first units will come online around 2016 and a second wave will come into service around 2020.

The cost alone for obtaining a combined construction permit-operating license (COL), from the NRC is $50- $100 million, Fertel said. He added that a COL is a "bankable" asset for companies considering building new nuclear plants."

Toshiba turns the tables at NRG

Significantly, the first sign of success in the three-way competition among Japanese nuclear firms came when Toshiba inked an agreement with NRG for four-to-five new reactors in the U.S. all ABWRs. Two will be at the South Texas Project. While GE-Hitachi may get to supply the components, the Engineering & Procurement Contract (EPC) will be with Toshiba in the lead.

Right now the Yen is stronger than the dollar so a fixed price has not been set for the two units slated for STP-3 and STP-4. The original plan had the reactors coming in with an estimated cost of $2,000-$2,500/Kw. The latest projection is $2,900-$3,200/Kw. This price is still considerably lower than costs announced for new units in Florida or cost estimates published by Moodys.

NRG told the NRC it will amend its COL application to reflect the new arrangement. A spokesman for the company said the changes would have "only a modest impact on our overall schedule."

NRG filed its COL application as a "first mover" which will qualify it for federal loan guarantees and financial incentives once the new nuclear units start generating electricity. If all goes well, they will be part of NEI's projected "first wave" coming on line in the middle of the next decade.

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