Saturday, October 4, 2008

A few long shots

Some ideas are more interesting than others

In the business of building new nuclear power plants, the so-called long shot lives in a world of speculative vision which often fails the baloney test of reality. That doesn't stop some people from trying.

ski-jumperOf course few people can ski jump, but the rest of us love to see them fly. Some people are determined to bring a vision down to earth even if it takes decades to achieve that goal. That said, the people in pursuit of these ideas are highly credible in the fields of business and engineering. That's what makes them so interesting.

Nuclear energy for Alberta

Armand LaFerrere, president of Areva Canada, is a hard headed businessman who knows how to make a buck. With Areva's massive uranium operations in that country, he makes sure every truckload of ore is measured in terms of the costs and profits of the operations. This week LaFerrere stepped off the edge of the known world and into an area where dragons are said to roam, namely the northern wilderness areas of Alberta province. According to a report in the Calgary Sun, speaking in Calgary, he told a business group focused on energy the province needs diversity in energy sources and that nuclear fits the bill.

This is a man who thinks big in a place where really big energy projects, like the tar sands oil operations, are the norm. He said the demand for energy, currently met with natural gas, makes Alberta, "one of the most promising markets for nuclear energy on the planet."

His analysis is based on the fact that the tar sands operations, which use huge amounts of natural gas, will run out of it by 2030 even though the oil resources will still be there to be dug up and processed into petroleum products. If someone started today, a new nuclear power plant could come online in revenue service by 2020 which is plenty of time for an orderly transition from natural gas.

Now it has been a dream of all kinds of people for the past couple of decades to use process heat from nuclear reactors to power the extraction of bitumen from the tar sands. Another vision is to use the very high heat of nuclear reactors to make hydrogen to refine the heavy crude oil into a more marketable commodity.

Bruce Power bought Energy Alberta last year, based on these dual concepts. Energy Alberta had proposed to build two ACR-1000 nuclear reactors in northern Alberta in part to power the tar sands operations and also to meet the province's growing demand for electricity. What hasn't been mentioned is that export of electricity to the U.S. is a major market opportunity.

Wouldn't you know it but there has been a lot of work on a high voltage electric transmission line from Lethbridge, Alberta, to Great Falls, MT. The "Montana Alberta Tie Ltd" or MATL project is a proposal for a 215 mile long "merchant" 235 Kv transmission line that would interconnect the two countries. It's a self-described "toll road" for anyone who wants to ship electricity from Alberta to Montana.

Wind farms expected to be built on the high plains of southern Alberta are said to be the primary suppliers of electricity for the line. However, the location of two nuclear power plants in the tar sands region, with an interconnect to the U.S. would add to the economic attractiveness of the new nuclear build. No wonder Areva is still in the picture.

Jamaica going nuclear?

Feed up with the high price of diesel fuel which is used to generate 95% of the island's electricity, the government of Jamaica is setting up a study group to assess the feasibility of building a small reactor. According to the Jamaica Observer, the panel will be headed up by Prof. Gerald Lalor of the University of the West Indies.

Jamaica's energy minister Clive Mullings told an engineering conference in Kingston this week he's very impressed with South Africa's work on the Pebble Bed Modular Reactor (PBMR). Lalor told the group Jamaica wants to buy commercial technology off-the-shelf and run it right out of the box. With its lower GDP/person, Jamaica can't afford a large reactor in the 1,000 Mw range.

Charles Grant, who works with Lalor at a multi-disciplinary science center in Jamaica that has a very small research reactor, told the newspaper the pebble bed technology, at about 150 Mw, would be feasible and affordable for a country like Jamaica. He added that the country needs a technology to meet baseload demand for electricity.

"With today's crisis we've been looking at alternatives but we have to bear in mind that prices of these other fossil fuels might also go the same way as oil, so you have to keep in mind more than one solution. Renewable solutions are great but you have to look at baseload capacity which is what nuclear can provide - although renewables have to be an important part of that mix."

Grant said Jamaica would seek technical assistance from the IAEA to pursue its nuclear energy vision.

Utah wants nuclear power from thorium

Utah Senator Orin Hatch, a republican, and Nevada Senator Harry Reid, a democrat, have jointly introduced legislation to support development of thorium-based nuclear reactors in the U.S. They propose to spend $250 million over five years. The dual aims of the funding would be to advance the technology and the ability of the Nuclear Regulatory Commission to regulate it. The bill also calls for a demonstration project at the Idaho National Laboratory (INL). You wouldn't get a full-scale reactor for that kind of money, but you certainly would get some interesting work done.

A Utah firm Thorium Energy would benefit from the legislation were it to be enacted with funding by Congress. Thorium Energy leases the mineral rights from the Bureau of Land Management (BLM) which manages federal lands in Lemhi Pass, Idaho and Montana.

In the press release, Seth Grae, president and CEO of Thorium Power (OTC:THPW) said that the bill is a terrific idea.

“It represents a major milestone toward the recognition that the nuclear renaissance can best be achieved by encouraging new and innovative fuels designs. Senators Hatch and Reid have acted today to strengthen American technology and American business to compete in the global marketplace.”

For more information, head over to Kirk Sorensen's blog Energy from Thorium and don't forget to register for the discussion forums there as well.

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Buffett stacks his nuclear deals

Warren Buffet adds companies to his holdings the way a cook makes pancakes

pancakes2The Wall Street Journal reports that Warren Buffet's MidAmerican Energy Holdings will pursue its $4.7 billion deal with Constellation Energy (NYSE:CEG) despite potential challenges from rival bidders. Two other firms want the nuclear utility and are reportedly prepared to pay a premium price for it. Buffet's offer at $26.50/share is a steal given that it traded at over $100/share in January 2008.

France's Electricite de France, which already owns a 9.5% stake, and private equity firm Kohlberg Kravis Roberts & Co. (KKR), are reportedly offering shareholders prices in the mid-30s for the stock.

EDF wants to preserve its position as a partner in the development of a fleet of Areva EPR's based on a standardized American design. For its part MidAmerican CEO Greg Abel told the WSJ Buffett's firm wants to be part of that development effort. However, EDF may be concerned about Buffett's purchase earlier this week of a stake in General Electric which is marketing two nuclear reactor designs with Hitachi.

KKR is the owner of TXU which has its own nuclear utility investment plants in Texas. TXU, now known as Luminant, filed a COL with the NRC in September for two new Mitsubishi 1,700 MW units at Comanche Peak. It isn't clear how the acquisition of Constellation would fit with KKR's focus in Texas.

Constellation has filed for a COL for its Nine Mile Point plant in New York. Working through its joint venture with EDF and Areva, Unistar is seeking approval of an Areva 1,600 MW EPR. Unistar is working on several other projects with similar equipment including Calvert Cliffs in Maryland, Ameren's Callaway site in Missouri, and Bell Bend in Pennsylvania.

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Wednesday, October 1, 2008

Senate approves India's nuclear deal

The House voted for it earlier this week

nukefuelCongress approved a landmark deal ending the three-decade ban on U.S. nuclear trade with India. Reuters reports final approval came as the Senate voted to ratify the deal 86-13, sending the legislation to President Bush to sign into law. The Senate's move was taken just prior to an expected trip to India by U.S. Secretary of State Condoleezza Rice.

The House of Representatives has already approved the agreement. Critics of the deal in the House said it damaged global efforts to contain the spread of nuclear weapons.

Reuters noted the accord opens up a market potentially worth billions to American companies such as General Electric and Westinghouse, a unit of Japan's Toshiba Corp.

Russian and France are already racing to set up nuclear deals with companies in India. For its part India must change its domestic laws to allow private companies to build nuclear power plants.

In the mean time, check the WSJ, NYT, and your favorite wire service for the main stream media reports.

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Sunday, September 28, 2008

Who's on First?

Can anyone make up their mind about new nuclear builds?

The future of the nuclear industry can easily be understood by two competing paradigms as laid out by the New York Times on Sept 24. The newspaper reported "there are two opposing viewpoints on expanding nuclear power."

One is that most companies will not take the plunge until they have seen the pioneers jump into the sea of challenges — technical, legal and financial — and then surface again; the other is that the time is right to push ahead with a large-scale, sustained construction plan.

The situation is about as clear as the classic Abbott & Costello comedy routine known as "who's on first." In it Bud Abbott, the straight man, explains that 'who' is one first, 'what' is on second, and 'I don't know' is one third. Confusion reigns. The classic comedy sketch has passed into history contributing an idiomatic phrase to the American version of English. (See the original version on a YouTube video or a later one at the end of this post.)

Costs are no laughing matter

Very few people in the nuclear industry are laughing about the rapid increases in the cost of steel and concrete or the length of the waiting list for large forgings. The New York Times article points out that only a few nuclear utilities want to be on first, that is, the first plant to formally commit to a new nuclear build in the U.S.

photo_wallace150One of them might be Constellation Energy. Aligned with Electricite de France and Areva, the consortium, known as Unistar, wants to build a fleet of standardized 1,600 MWe EPRs. According to Michael Wallace, (right) Unistar's Chairman, the firm will build the fleet the way a housing developer builds a subdivision. It would move specialized construction crews from one plant to the next so that a number of reactors would be coming up in parallel and enter revenue service within a shorter period of time than building them in serial fashion.

Wallace has also been outspoken about the need for certainty from the Federal government for loan guarantees for new nuclear power plants. The Department of Energy is working on a program that will provide $18 billion in loan guarantees to boost the confidence of investors in new nuclear plants. The program would guarantee 80% of the cost and 100% of the loans for a new plant.

Constellation isn't alone in its desire to participate in the loan guarantee program. NRG's plans for two new reactors at the South Texas Plant depend on the program for success. Other utilities have also filed COL applications with the NRC to get a place in line to use the program.

The nuclear industry isn't happy with the ceiling on the program imposed by Congress. Environmental groups have vigorous attacked the program as a "give away," though they haven't applied the same logic to government support for wind and solar projects.

john_krenicki_mainThe other point of view is expressed by John Krenicki, (right) CEO of General Electric Energy Infrastructure. His view is to build nuclear plants one after another in serial fashion. His view is that the second plant learns from building the "first-of-a-kind" and the third benefits from the first two and so on. Cost savings based on efficiencies accrue as each new plant is built. By the time you are starting the fourth plant you are in the groove so to speak.

Regardless of the method chosen, Richard Myers, VP at NEI, told the NYT the U.S. could have 40 or 50 new reactors by 2030. He added a very large caveat, and it is "that everything goes well." Using Krenicki's ideas, it's likely mistakes will be made on the first two or three plants. Some problems are predictable, like getting the subcontractors to work to nuclear industry quality standards. Areva is grappling with this challenge at its two new EPRs under construction - one in Finland and the other in France. Opponents of nuclear energy, like Greenpeace, have blown the issues out of proportion, but in the battle for supremacy in shaping public opinion, these details count.

Legal and technical issues will also dog the progress of new plants. Two examples are Ameren's efforts to gain permission to charge the rate base for new construction costs and GE's efforts to bring the new ESBWR to market.

Legal Issues slow Ameren's progress

AmerenUE, which is one of the utilities planning to build an Areva EPR with Unistar, has a daunting legal challenge ahead of it. According to a report in the St. Louis Post Dispatch for Sept 20, the Missouri Public Service Commission is considering a staff recommendation to deny the utility's request to pass construction costs to the rate base as it builds the reactor.

In 1976 Missouri passed a law that was directly aimed at stopping plans for a new nuclear power plant. The law bans recovery of costs from construction work in progress. Ameren plans to dispute the commission's staff finding, but it is likely it will have to go to the legislature to try to change the law. The other alternative is to take the risk of proceeding as a merchant.

That course of action is unlikely give the $6 billion estimated cost of the new reactor. So far Ameren has reportedly spent $47 million preparing its COL application to the NRC and expects to spend another $4 million by the end of this month.

gold standardThat's not all. In August the St. Louis Post Dispatch reported Moody’s Investors Service cut its rating on Ameren Corp.’s long-term debt rating to Baa3. The Dispatch notes this is a notch above junk or speculative grade. Moody's cited Ameren's declining cash flow relative to its debt obligations. The ratings downgrade affects about $800 million of debt securities. Moody's also said Ameren wasn't recovering its costs fast enough from the rate base due in part to regulatory delays.

The bottom line is that Ameren has to convince the Public Service Commission, or more likely the legislature and the voters of Missouri, that cost recovery while the new nuclear plant is being built is in their interests. Otherwise, a new Unistar EPR will remain a plan rather than a reality for some time.

The utility will have to make its case on multiple fronts to gain acceptance for what is likely to only viable economic path forward to a new reactor. A lot will depend on demand for electricity in Ameren's rate base and whether the prospects of new coal plants, instead of nuclear energy, goes down well with voters concerned about global warming.

Getting the ESBWR ready for market

The situation in the U.S. is mirrored in the market for new nuclear power stations in the U.K. The government there has committed to a massive new build of as many as 18 new reactors. About a third of the nation's aging coal-fired and nuclear power plants need to be replaced, and within the next decade, to keep the lights on. Nuclear energy accounts for about half of the plants that need to be replaced, but with the challenge of global warming, the U.K. government is shifting the mix to nuclear to replace some of the coal-first plants as well.

For General Electric the prospects of its new ESBWR reactor in the rapidly expanding U.K. market have hit some setbacks lately. The reactor design is now in the design certification process at the NRC. However, on Sept 17 Bloomberg wire service reported that the GE-Hitachi partnership which is marketing the reactor globally asked the U.K. to temporarily halt consideration of the technology for that country's massive new nuclear build.

RBF1According to Bloomberg, GE told the wire service it took the action in order to focus its resources on the design certification process with the NRC. The NRC's stamp on the design is a gold standard and is often accepted in other countries including the U.K. Without it, the reactor design is just that, a design, but not a saleable product. For its part GE told World Nuclear News On Sept 20 that the firm is submitting new information to the NRC and that it would re-enter the U.K. market in 2009.

AECL also facing time to market issues

GE-Hitachi is the second company to pull out of the U.K. competition. Canada's AECL left the ice earlier this year citing the amount of work remaining on design certification of its new ACR-1000 reactor. The Canadian Nuclear Safety Commission this year began moving forward on the review after the Canadian government committed $300 million to support AECL's technical capabilities.

time to marketThe Harper government was thinking at the time about selling shares to investors in the crown corporation. However, it realized that investors had no intentions of buying them unless the new reactor has successfully completed the design certification process.

Like GE-Hitachi, AECL needs a certified design to convince the U.K. government it can deliver a reactor on time and within budget. The U.K. is facing a massive power shortage in future years, and is unlikely to bet its needs can be met on technology that is still a work in progress. Both GE-Hitachi and AECl face similar challenges, and that is to complete the design certification process for their new reactors and bring them to market.

Well who is on first?

Right now no one is on first. Despite all the filings of combined operating and construction license applications with the NRC, the "prudent investor" rule still prevails. It isn't clear which of the two paradigms - serial or parallel construction of a new fleet of reactors - makes the most sense.

The current financial troubles on Wall Street, and in the U.S. economy generally may prove the New York Times right, at least for now, that a "cautious approach" does indeed prevail when it comes to nuclear energy.

Who's on first video - click on the arrow in center to play it