Thursday, December 18, 2008

Looking ahead to 2009

What's in store for the nuclear energy industry?

With the financial world in turmoil and a new president coming into office in January 20, the outlook for 2009 is anything but business as usual. In fact, the unstable natures of the U.S and global economies are causing anyone with large investment decisions to make to sit on the sidelines. However, globally, China and India are moving ahead with massive investments in nuclear energy positioned as key elements of government energy policy designed to boost their respective GDP. They are the two primary movers globally of new nuclear builds.

China

China plans to boost its already ambitious plans for building new nuclear power plants from the current target of 40 GW to a staggering 70 GW of capacity by 2020. That's a really short period of time for that massive a building program. Is it realistic? Even a command and control economy will face bottlenecks in supplies of materials, components, and labor.

While the numbers for nuclear energy are very large, an even bigger effort was announced on Nov 10. China announced a huge economic stimulus package aimed at bolstering its weakening economy and to helping fight the effects of a global economic slowdown. The New York Times reported Beijing said it would spend an estimated $586 billion by 2010 on wide array of national infrastructure

The package is the largest economic stimulus effort ever undertaken by the Chinese government and would amount to about 7% of the country’s gross domestic product during each of the next two years.

Expanding a growing nuclear energy base

According to Reuters, Huang Li, an official at the National Energy Administration, said efforts to reduce greenhouse gas emissions are a key driver of the investment decision. China has huge air pollution control problems caused in part by its of coal fired power plants which account for over 80% of electricity generating plants.

China currently has 9 GW of installed nuclear fueled generating capacity at 11 power stations. Four more are starting construction with 3rd generation designs based on the Westinghouse AP1000 reactor at 1,200 MW each. Two more will start construction based on the Areva EPR at 1,600 MW each and Li said 12 GW are under construction using Chinese reactor designs.

Reliable power is a key goal

According to an official Chinese news report, Li also said that the drive for more nuclear power came from a severe winter in 2008 that paralyzed electricity generation because coal could not be delivered to existing fossil fueled plants.

Li added that if China adopts the expanded new plan for nuclear power plants, it will increase opportunities for international reactor vendors to do business there. Last year Areva, Westinghouse, and the Russian atomic energy export agency all inked deals for new reactors with China. A key element of the deals has been a demand by China for technology transfer so that it can eventually build its own version of the plants.

India

In October 2008 India's relationship with the global nuclear industry changed fundamentally after the Nuclear Suppliers Group (NSG), the international body that controls commerce in uranium for nuclear reactors, agreed for the first time to allow India to acquire nuclear fuel for its civilian reactors. In a closely linked event, the U.S. Senate voted 86-13 to allow US firms to export nuclear fuel and technology to India.

These two events have created tremendous opportunities for India to open the door to international investments in new nuclear energy infrastructure. Building a nuclear energy industry in India to support 20-40 GW of new power over the next two to three decades will take every bit of ingenuity and wisdom the nation can muster. It's more than a moon shot. It is a trip to Mars.

For India, now that the doors to uranium imports have been flung open, the country is likely push full steam ahead to join the global nuclear renaissance to power its economy and reduce its greenhouse gas emissions. Looking at India's small, fragmented, and government-controlled nuclear energy industry, the key question is, "what must India do to get a fresh start with nuclear energy?"

According to an October 2008 assessment at the World Nuclear Organization, India has set a nuclear power development target of 40 GW over the next several decades. To achieve this objective, the country must tackle four key challenges.

· Build new nuclear reactors including cores, standardized reactor designs, and technology transfer from international vendors

· Acquire nuclear fuel
· Train an Indian workforce
· Upgrade transmission and distribution infrastructure

Competition for entry into India's nuclear market will be intense. The Russians have already inked a deal for four new reactors representing 4,400 MW of power at Kudankulam. French nuclear giant Areva, and U.S. firms Westinghouse and GE-Hitachi are also expected to seek market share in India's massive new build.

United States

The situation in the U.S. is much less clear cut. The U.S. is also facing key challenges. The number one issue is not the interest in building new nuclear plants, it is funding them. At last count at the NRC there were 17 COL applications submitted for 26 reactors. However, by the end of 2009 the NRC expects to have on hand 23 COL applications representing 34 reactors at 20 sites. Two reactors designs are certified and four are under review.

With a massive Wall Street credit crisis and banks toppling like dominos, getting investors to show up will be the key to success. Costs of new nuclear plants, which appeared for a while to be on an express flight to the stratosphere, have leveled off and may even fall thanks to plummeting demand for steel and concrete.

Another bright note to watch in 2009 is that the nuclear supply chain is ramping up with one uranium enrichment plant under construction and three more coming off the drawing boards. Two massive new centers for manufacturing of long lead time nuclear plant components were announced in 2008 and will become operational in 2009.

Loan guarantees may go begging

A paltry loan guarantee program authorized by Congress for $18.5 billion was massively over-subscribed to the tune of $122 billion. It is unknown whether the Department of Energy will have the nerve to pick winners and losers under the current program or punt and ask Congress to revisit the ceiling. An incoming Secretary of Energy comes from a science background and may be unprepared for the bare knuckle fights that occur in appropriations committees. The persuasive power of green groups, as represented by the President-elect's cabinet picks, may swing the balance in the first two years of the administration to renewable energy technologies at the expense of nuclear.

Even if Congress boosts the loan guarantee ceiling to meet demand, it is a questions whether anyone will bite. The program's incentives may go begging no matter what they are. No one in the current climate wants to sign up for a massive capital project with 20% of the funding uncovered by a credible guarantee. The catastrophic loss of stockholder value represented by plunging prices on the major U.S. stock exchanges will limit the ability of utilities to invest in new generation capacity of any kind.

Congress may have to take the next step and offer a massive revolving loan program if it wants nuclear energy to be a significant part of the nation's response to the threat of global warming. If not, then energy efficiency, and more fossil fumes, will be the order of the day.

STP faces investor fears

A good place to see how these issue are unfolding is in NRG's plans to build South Texas Plant (STP) units 3 &4. NRG has been courting the investors in the first two units to sign on for the next two. So far Austin, Tex. said no last year, but is now planning to take another look. Local anti-nuclear politics played a role in the initial decision, but the hard-nosed realities of supplying electricity are forcing the Austin City Council to re-visit what some say was a hasty decision.

A more thoughtful approach is unfolding with the City of San Antonio. There the city utility is postponing a decision by nine months whether to invest in STP's new units. It want to wait until it can see whether an aggressive plan including energy efficiency and solar power will close some or all of the expected gap in demand that would be satisfied by investing in electricity from STP.

The utility knows that even if everything goes as planned with energy savings, solar, and wind power, that it could still need another 800 MW of power and that demand could only be satisfied by either building a new fossil plant or investing in STP. The utility's CEO told the San Antonio news media it is keeping its options open to see what the incoming administration will do with energy policy. The entire deal could be complicated by the outcome of Exelon's hostile takeover bid of NRG.

Nuclear destiny at Bellefonte

The key test of congressional resolve, and the ability of a utility to predict and control costs, will come in with TVA's decision to proceed with its plans for the Bellefonte nuclear site. The giant utility has three options. The first is to build to two new Westinghouse AP1000s. The second is to finish construction of two partially complete reactors at the same location. The third is to go ahead with all four units.

What these options have in common is that any of them will require TVA to ask Congress to increase its debt ceiling from the current level of $30 billion. As of November, TVA had debt of $26 billion. The debate over willingness to fund, build, and deliver new nuclear power plants for the nation will be played out at Bellefonte and set the basis for nuclear energy policy for the nation.

Taking Missouri citizenship

If you want a mini-version of state aversion to coal fired power plants, watch the response of the Missouri "show me" legislature when Ameren comes in to ask it to overturn a law that bans recovery of construction costs while a nuclear plant is being built. The state passed such a law in a fit of anti-nuclear fervor in the mid-1970s.

Now Ameren is proposing and has filed a license application for a 1,600 MW Areva EPR, with a potential cost at $3,500/KW, of $5.6 billion. The utility has already spent $42 million on its license application to the NRC. Consumer groups and anti-nulcear organizations are intervening at the state Public Utility Commission which is obligated to follow existing law.

The battle over the new reactor in Missouri will be a signal of whether states want more coal fired plants, and more greenhouse gases, or whether they are willing to invest in clean energy plants with 60-year operational lives.

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1 comment:

Marcel F. Williams said...

What India and China clearly understand is that nuclear power facilities are extremely valuable energy assets that can help them meet both their energy and environmental needs at least until the end of the century,by mostly using American technology.

Ironically most Americans including most Democrats also want a lot more nuclear power plants built in this country. But unfortunately we are still politically paralyzed in this pursuit by a vocal minority of anti-nuclear ignoramuses who will do almost anything to stop the advancement of clean nuclear energy in this country.