Eskom's cash woes may slow nuclear build

The company can't raise the cash fast enough
-- The government is reluctant to help out

Engineering News of South Africa reports that the country's electric dreams of an end to rolling blackouts may take more time to come true. The reason is a lack of cold, hard cash.

Eskom, which supplies 95% of the country's electricity, and almost all of it from coal, is trying to figure out where the money will come from to build 20,000 MW of nuclear powered electricity generating capacity. The company expects to decide on a nuclear plant build plan this year following negotiations with Westinghouse Electric and Areva in 2007. Both firms have submitted massive bids for entire fleets of nuclear power plants.

So far it is an uphill climb and the summit is not in sight. In fact the slope is so steep that Standard & Poor's threatened to cut its credit ratings for Eskom because of the South African utility's expansion costs. The risk is that the capital requirements for the expansion in the near term will out run the rate base leaving the firm upside down financially. Eskom is keenly aware of the risk.

"We have to take a long-term view of the business because we could run the risk of having insufficient funds to sustain the business,'' Eskom spokesperson Andrew Etzinger said. Costs are "increasing rapidly',' he adds. That's an understatement.

The financial situation has gotten much worse in the past year. According to Engineering News the cost of Eskom's five-year expansion plan doubled from an estimated R150 billion (US $19 billion) last March. At that time, the company expected two-thirds of its funding (R100 billion; US $12.5 billion) to come from loans and bond sales. The company now says it plans to spend about R300-billion (US $39 billion) over five years to end a shortage of electricity that shut most of the country's mines last month.

This is an enormous capital outlay. The sheer size of the plan raises the question of whether contractors could mobilize the resources needed to fulfill it in that period of time without driving up costs due to demand for concrete, steel, and large components such as turbines. These factors may account for the doubling of the cost estimate in the first place.

The predictable response from Standard & Poor's was to put Eskom's on a 'negative watch' on Jan 11, because the cost of the expansion is now double the previous estimates. With a negative rating from S&P, the prospect of attracting investors at competitive rates are diminishing.

The South African government is conflicted about the crisis. On one hand it knows Eskom needs the money and on the other it doesn't want to spend it. The National Treasury's director Lesetja Kganyago, said on Oct 30 said the company should raise its own funding without an "injection of capital" from government. President Thabo Mbeki, who has described the power outages as a "national emergency," says government will give Eskom funds to help end a crisis that threatens economic growth. Apparently, these guys are not on the same page. The electricity shortages have put a stranglehold on the country's overall economic growth. The crisis has prompted a proposal from the government for a R60 billion loan which at this point is just 20% of Eskom's estimated capital requirements over the next five years.

The government hasn't helped Eskom with prices either. Engineering News reports Eskom was given permission by the country's energy regulator last year to raise average national prices by 14,2% in 2008, less than the 18,7% the company requested. The impact on the consumer is felt in any case.

The company is putting a brave face on the situation because that's about all it has left. Eskom said it will pursue an "optimal balance" between price increases, efficiencies, shareholder support and alternative credit maintenance solutions,'' the utility says in an emailed statement to Engineering News. It will study the "sustainability" of its finances, the company adds.

That's a good idea. The credibility of the government rests on Eskom's success or failure. A failure of the electric utility to resolve the crisis could destabilize the country politically.

India gets deadline on U.S. nuclear deal

Three senators tell PM Singh to sign by July or kiss it goodbye

Three U.S. Senators, none of whom is running for President, sent a message to India this week it must sign a nuclear deal by July. Sen Joseph Biden (D-DE), Sen. John Kerry (D-MA), and Sen. Chuck Hagel (R-NB), who were in New Dehli, told Prime Minister Singh the deal is running out of time because of the tight legislative agenda for 2008 ahead of November's US presidential elections.

The BBC reports Sen. Biden said, "If we don't have the deal back with us clearly prior to the month of July, it will be very difficult to ratify. Whatever the merits of the deal, passing it through Congress after July would be harder because of "the mechanics on which our system functions."

Mr Biden also said it was "highly unlikely" the next president would be able to authorize the same deal, if it did not reach Congress in time. "It will be renegotiated. It is critical, if India want that deal, they move on relatively soon, within a matter of weeks."

That word "renegotiate" means India will not get a better deal if it waits for a new U.S. administration. In fact, it may get no deal at all assuming Democrats win Congress and the White House in the 2008 elections. The deal will also need to be approved by the IAEA and by the 45-nation Nuclear Suppliers Group, which regulates global civilian nuclear trade.

Bloomberg reports the nuclear deal, signed by President George W. Bush and Indian Prime Minister Manmohan Singh in 2006, is stalled because of domestic Indian politics. The deal would open the way for American companies to sell India nuclear fuel and technology for nuclear reactors. It would allow India to maintain a nuclear-weapons arsenal and still remain outside the Nonproliferation Treaty.

What the Senators and India know is that a lot of their Senate colleagues think this is a bad idea. The case for the deal being mostly an instance of "wishful thinking" was made by former U.S. Ambassador Thomas Graham in a July 2006 article in Foreign Policy Magazine. Graham and two colleagues wrote that most of the assumptions used to bolster the deal are "false or ill-advised." That's diplomatic talk for "bad idea."

India's Atomic Energy Chief needs nuclear fuel now

The Hindu reported that India's Atomic Energy Commission Chairman Anil Kakodkar said that India wanted the Nuclear Suppliers Group (NSG) to give a clean exemption without any condition to enable it participate in international civil nuclear cooperation. India is facing a shortfall of nuclear fuel and has ambitious plans to build new nuclear energy facilities which are on hold.

Dr. Kakodkar said India was looking forward to the opening up of the international civil nuclear cooperation, while keeping the country’s requirements “intact.” New Delhi was talking to several countries for procuring additional uranium and reactors. Everything would depend on the NSG he said.

Kakodkar wants the NSG to turn a blind eye to this state of affairs and let India buy uranium and nuclear technologies from NSG members. Australia has refused to sell uranium to India because it has not signed the Nonproliferation Treaty.

What is boils down to is that India isn't going to budge from its current position which is basically sitting on its hands. With four minority parities still threatening to bring down his government over the deal, PM Singh isn't about to bet the ranch on the 123 deal. Biden and the other senators are probably wasting their time and their breath.

Don't like the nuclear deal, try one for jets

Perhaps one of the most interesting side shows related to the 1-2-3 agreement is the potential change in India's defense tilt in the region. Reuters reports that U.S. Defense Secretary Robert Gates traveled to India last week to strengthen diplomatic ties strained by an impasse over the nuclear deal and to promote American bids for a lucrative $10 billion fighter contract to sell India 126 fighter aircraft.

Gates' visit comes as U.S. companies Lockheed Martin and Boeing Co. are competing with Russian and European rivals for one of India's biggest arms contracts. Other nations are also competing for this contract. Even if the nuclear deal doesn't go through, if the U.S. arms deal is concluded India will be drawn closer into the orbit of U.S. influence.

Calibrating the nuclear renaissance

Nobody said building new plants will be like shooting fish in a barrel

The Nuclear Energy Institute (NEI), the industry's policy organization, told Wall Street analysts this week that it expects the two dozen or so potential applications for nuclear reactor licenses to self-select down for the first wave of new construction. NEI projects that four to eight new power plants will move ahead and be operational by about 2016.

This interesting calibration comes to readers via a blog report at U.S. News & World Report by Marianne Lavelle who writes a regular feature on energy called "Beyond the Barrel." She writes this week . . .

"Although 17 companies are preparing license applications for as many as 31 new nuclear power plants, don't expect the "nuclear renaissance," if it happens—at least the first phase of it—to be nearly this big."

And she also notes that NEI has some new numbers on the cost of these plants. This is going to be especially interesting for firms that have already filed with the NRC.

"NEI officials estimate the plants to cost $3,200 to $3,500 per kilowatt of capacity—more than double the $1,400 to $1,500 per kilowatt the industry was talking about in 2003. That means each new plant is likely to cost about $5 billion in today's money and $6 billion to $7 billion by the time of completion."

Finally there is a great interview with John Rowe, CEO of Exelon. Just point your browser over there and check it out.

For those of you who want the source documents their links are below.

• NEI"s press release
• NEI presentations slides 58 slides (PDF)
  

Smaller may be better at least for starters

Over at the Atomic Insights blog Rod Adams has a post that also comments on the NEI briefing. Rod argues the case that smaller nukes might be a good way for the industry to spread its footprint rather than shooting for the moon with much larger facilities. While he doesn't say which larger reactors are on his mind, he does have an idea about which smaller reactor would work.

It seems logical to wonder, then, why no one - including the vendor - has mentioned that there is an already certified design for a smaller reactor - the Westinghouse AP-600. Presumably, this plant could be built at a substantial discount to the larger units being proposed. In addition to the AP-600, there are a number of other designs at various stages of completion that might lead to an entry level design, one that could allow the industry to develop its expertise in smaller chunks, reducing the risk and increasing the learning, opportunities.

Now this is a guy who has been in the business for a long time, and worked it from an engineering perspective. The PBMR, which is a 200 MW reactor, won't be ready for prime time for at least another few years so Rod's idea about small PWRs might be right on the money.

Areva still seeking site for U.S. enrichment plant

Idaho and New Mexico sites report contacts
[Update 03/01/08]

French nuclear giant Areva is still looking for a U.S. location for its planned mammoth $2 billion uranium enrichment plant. Scouts from the company turned up in Idaho Falls, ID, and Hobbs, NM, last week and said they were also evaluating three other unnamed locations one of which is thought to be Lynchburg, VA, where the firm already has a nuclear fuel operation. The Idaho State Legislature is working on an incentive package to attract Areva to locate the plant on private land west of Idaho Falls near the Idaho National Laboratory. Sen. Brent Hill (R.-Rexburg) said the pending legislative measure would cap the facility’s property tax valuation at $400 million if the company invests $1 billion over the next seven years. Another piece of legislation would grant sales tax exemptions for the equipment purchased for the plant.

Robert Poyser, Areva VP for Environmental Affairs, told legislators the measures are needed because Idaho’s current tax code makes it less competitive than other states. Sam Shakir, Areva’s general manager for the U.S. enrichment program, added the firm “is not asking for a donation.” He said the company will pay its own way. Idaho Senate Majority Leader Bart David (R-Idaho Falls) was skeptical. He said there is no guarantee Areva will select the Idaho site even if the legislature gives the firm everything it asks for.

In Hobbs, NM, Laurence Pernot, Areva’s Director of Corporate Communications, told community representatives there the firm will make a site selection decision by Mar 1. New Mexico’s two Senators are promoting the town as the site for the plant. Sen. Pete Domenici (R-NM) and Sen. Jeff Bingaman (D-NM) said they have lobbied AREVA CEO Anne Lauvergeon about the enrichment plant. Both said they would support it if located in their state. New Mexico is also home to the $1.5 billion National Enrichment Facility currently under construction in Eunice, NM, in the far southeast corner of the state.

In Virginia Laurence Pernot, spokeswoman for Areva NC, refused to tell the local newspaper in Virginia whether Lynchburg still is in the running for the facility. She said the company is considering five sites, and expects to choose and announce a location in March.

Update 03/01/08

Reuters reports that USEC, Areva's arch-competitor in the uranium enrichment business, says its plans for a new uranium enrichment plant in Ohio could cost 50% more than planned. The company told the wire service the impact of significant price pressure on labor, commodities and construction materials is increasing management's anticipated cost for completing the American Centrifuge Plant in Piketown, Ohio. USEC said it currently expects the project budget to be about $3.5 billion. In early 2007, the company expected the project to cost about $2.3 billion.

Reuters also reported that USEC is doing cost shifting with its suppliers. According to the wire service, the firm is transferring technology to strategic suppliers who will build the machines and the balance of plant infrastructure.

"USEC underestimated the cost and the time it is taking to reestablish the supply chain infrastructure and the skilled labor needed to build the American Centrifuge Plant," said John Welch, USEC's CEO.

Both USEC and Areva expect strong demand for enriched uranium even though neither plant will be operational until at least 2013. It is unknown whether Areva has assessed the potential for cost increases for its planned uranium enrichment plant.

Progress Energy files for two new reactors

Green groups say having fewer toaster ovens will solve energy demand issues

Progress Energy said this week it is planning a new nuclear power plant in North Carolina. Environmental groups responded immediately saying they would oppose the new plant.

Progress Energy (NYSE: PGN) announced that it will file a combined operating license (COL) application with the Nuclear Regulatory Commission (NRC) this week for two possible new reactors at the existing Harris Nuclear Plant site near New Hill, N.C. Note that Progress will take advantage of the cost savings associated with using the infrastructure at an existing site and not going with a greenfield project.

Company CEO Bill Johnson said about the decision, "As our region and its demand for electricity grows, energy conservation and efficiency programs and the development of renewable energy sources are essential, but we must also evaluate investments in advanced nuclear reactors as a way to continue to provide reliable, environmentally sound power to meet our region's growing demands for electricity."

He emphasized, "State of the art nuclear power, which does not generate greenhouse gases, can help us meet those needs while at the same time protecting the environment."

Progress Energy chose the Harris site in 2006, based on availabe transmission lines, proximity to cooling water, and to Progress Energy Carolinas' largest area of customer concentration. If the decision is made to move forward with building the two units, they would not be online until 2018. Progress said it will use a Westinghouse AP1000 for the reactor units at the site. In its press release Progress went into detail why it is using this reactor.

"The AP1000 is an advanced 1,100-megawatt nuclear power plant that uses passive safety system designs and engineering simplicity to enhance plant reliability and reduce construction costs. The AP1000 has 87 percent less cable, 83 percent less pipe, 50 percent fewer valves and 35 percent fewer pumps than the generation of reactors in operation today."

The AP1000 is one of two certified nuclear reactor designs approved by the NRC. The other is the GE-Hitachi BWR design that is slated to be used in two new units at NRG's South Texas site.

Environmental groups say reactor out efficiency in

The Charlotte News & Observer reported that environmental groups say the two new reactors (2,000 MWe) are not needed and that energy efficiency and reduced use of electricity will eliminate the need for new generation capacity. The anti-nuclear activist mantra continues to use the problems of the 50s & 60s as a theme for criticisms in the current era. Here's what one high profile group had to say.

"We think that nuclear will sink under its own weight," said Molly Diggins, North Carolina director of the Sierra Club in Raleigh. "Nuclear is the least likely option to be built, due to the financial risk."

"Power plants are not discretionary," responded Progress spokesman Rick Kimble. "You're not reducing the number of children in schools. You're not reducing the number of homes going up."

It is worth noting that North Carolina is a high tech center for computers and pharmaceuticals. Also, Business Week reported last July that Google plans to build a huge, energy intensive server farm in North Carolina worth $600 million. Although Duke Energy may be the utility that supplies the facility with electricity, that utility has also proposed to build new nuclear power generation capacity.

There is a strong element among nuclear critics of linking changes in lifestyle to energy efficiency. It seems that green groups think that if we have fewer high definition TVs and more efficient toaster ovens that the need for nuclear power plants will go away. Idealists in green groups appear to think that their goals can be achieved by giving up devices that use electricity and that solar and wind will meet base load demand for power.

Retired Duke University economic professor John Blackburn, who testifies as an expert witness in utility cases for environmental groups, said ,"The conservation effort potential is so large that getting just a part of it will eliminate the demand growth of electricity. If we do all the efficiency stuff and then start bringing on renewable resources, we'll see a decline in the demand for existing power plants."

CEO Johnson told the newspaper that Blackburn is mistaken. "The overall demand for electricity is not going to decrease in our fast-growing part of the country and, as a utility, we have an obligation to meet that growing demand," added Johnson. "Using nuclear power, we can help secure our energy future with a fuel that does not contribute to global warming."

Johnson also said that energy efficiency is important to the utility. He told the newspaper the firm has a goal of displacing 2,000 megawatts of power generation through demand side management and energy-efficiency programs. Those 2,000 MW are equal to four 500 MW coal-fired power plants and then there is also the matter of the greenhouse gases they would have produced.

A debate, a dilemma, and the future

The debate over the future of nuclear energy in North Carolina is continuing. If environmental groups believe that an agenda that diminishes the use of electricity, and related changes in quality of life, is going to sell to the public, they are mistaken. Energy efficiency is a good idea, but not at the expense of moving backwards with technology.

Here's one other thought. Whatever energy efficiency doesn't cut out demand for new power plants, the fuel source for power comparable to nuclear is coal. So green groups face a dilemma. They can battle against nuclear power plants and have more green house gases as a result. That's called a "counter-intuitive" result. Nobody wins. Surely North Carolina and the planet deserve better.

Update 02/21/08

Readers are also referred to Jevon's paradox for further explanation of this issue. It has relevance for energy efficiency and energy use issues. Hat tip to Sovietologist for the idea.

Another blogger for nuclear energy

Jeremy Roberts

A U.S. graduate nuclear engineering student has brought up the blog nyrtin kotisivu which is roughly translated from the Finnish as "the nerd's homepage." His post this week is on the nuclear renaissance.

Please welcome Jeremy Roberts, fifth-year nuclear engineering undergraduate at the University of Wisconsin, Roberts spent the 2006-2007 school year in Tampere, Finland.

He writes that his professional interests, as a student in nuclear engineering, are wide-ranging. "I enjoy the computational aspects of nuclear engineering; simulations or analytical studies of nuclear phenomena are engaging and show how much we know (and do not know) about the physical world." He also writes that when he's not slamming neutrons and fuel elements together he's a baker.

As many readers know Finland is home to four nuclear reactors which provide 27% of the nation's electricity. A fifth is under construction. Olkiluoto-3 is an Areva 1,600 MW EPR with a projected start-up date of 2011.

We expect to hear more from Jeremy and hopefully about the progress of building the new reactor.

Michigan's DTE plans 1,500 MW plant

Consumer groups want it to be a merchant
[Update June 28, 2008]

DTE Energy has announced a plan for a new nuclear power plant near its existing FERMI 2 reactor in Newport. The company said it was encouraged by federal energy policy including access to loan guarantees and a market analysis that shows demand for electricity will grow despite Michigan's slumping economy. The Monroe County News reported the announcement this week. It follows a speech by DTE CEO Anthony Earley to the Economic Club of Detroit last year. The firm will proceed in 2008 with a COL submission to the NRC for a new reactor.

"We are still on target to submit an application by the end of this year," John Austerberry, a DTE spokesman, told the newspaper. "Work is continuing to prepare the application, but we cannot commit to moving ahead until the regulatory issues are addressed at the state."

DTE is lobbying the state Legislature to change Michigan's "Customer Choice" laws that allow large industrial customers to shop for the cheapest electricity. The issue is contentious and DTE's proposed legislation has plenty of opposition across a broad spectrum of interests. A consumer group said any new plant should be a merchant rather than a regulated utility with a specified rate of return. The newspaper picked up some quotes that would rattle any utility executive. Here's one.

David Waymire, a spokesman for the coalition, said DTE is welcome to build any kind of plant they want, "but they shouldn't be able to force every customer in the state to automatically buy power from that plant and to pay for it upfront. We don't do that with any other business decision out there. They're supposed to be a free enterprise company that takes risks on its own and gets rewards for it. They shouldn't be allowed to shove those risks on the backs of all the customers whether they want to take those risks or not."

DTE Energy Chairman Anthony Earley told a state legislative committee last year the law "must be fixed." He said, "The package of bills will open the door to investment of billions of dollars over the next decade that will create thousands of new, skilled labor jobs, add needed new permanent tax base and ensure an independent energy future with clean, affordable, and reliable energy for several generations to come."

Earley also said his company is looking to the future. "Why does Michigan need all of this new power even when its economy is struggling?" The answer is simple he said. Americans are using more devices that use electricity, not less.

He noted federal estimates that by 2030, electricity sales will increase by 50 percent. "In order to be ready for increased demand in Michigan, however, the construction of power plants must begin very soon," he said. "A new nuclear power plant, at a minimum, is a decade long project."

Austerberry said DTE plans to apply for a COL from the NRC to build a plant of 1,500 megawatts. He said the utility hasn't decided yet which of several advanced reactor designs it might prefer. The Fermi 2 plant is about 1,100 megawatts. It is a GE BWR.

The company has budgeted $30 million to study the feasibility of a new plant and the application process. Austerberry said construction wouldn't start until 2014 and the earliest the plant could start operating would be in 2017.

Update June 30, 2008

The Michigan Senate passed a bill that caps at 10 percent the amount of electricity a utility's customers may purchase from another power company. In effect, that means a utility like DTE would have a guaranteed customer base for 90 percent of the power it sold from a new nuclear plant. Such a guarantee is critical in getting the necessary financing.

The bill also streamlines regulation of rate cases, which lowers the cost of borrowing for the utility. The bill, which already passed in the state House, will go next to a conference committee. It is expected to be signed by Gov. Jennifer Granholm.

* * *

The FERMI 2 plant is named after the Italian-born American nuclear physicist Enrico Fermi, most noted for his work on the development of the first nuclear reactor, and for the development of quantum theory. Fermi won the 1938 Nobel Prize in Physics for his work on induced radioactivity.

Quotes

"Everyone in this room understands that our economic growth is inextricably linked to affordable, abundant electricity. You know that and I know that. And so do the policy makers in many countries across the globe."

-- Anthony Earley speaking to the Detroit Economic Club in February 2007.

"If I knew I'd have to memorize all these particles I would have been a botanist."

-- Enrico Fermi responding to news he'd won the Nobel Price for Physics in 1938.