Wednesday, October 15, 2008

Ghostlight

The blog will be dark for a few days while I'm taking a break

Every once in a while it is worth getting away from the keyboard to take a break and shake the cob webs out of your brain. I'll be away for a few days. Blogging will resume on my return next week.

ghostlightI won't have email while I'm away. Comments will stack up in a block, and will be moderated when I get back.

As always I welcome ideas for new topics so feel free to send them in and I'll get back to you.

Who reads this blog anyway?

Here are some reader statistics for those of you who wonder about such things.

Snapshot for the 30-day period ending 10/11/08 (numbers are rounded) not counting syndication networks.

  • 4,300 direct unique visitors
  • 6,100 page views
  • Readers came from 71 countries and all 50 states
  • Top 5 countries: US, Canada, UK, India, and Germany
  • Top states: CA, ID, TX, VA, NY
  • Top story by a wide margin - Microsoft veteran boots up nuclear

See you soon.

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Florida approves recovery of early construction costs

The state is a model for keeping financing costs low and investor confidence high

OrangesFlorida regulators on Oct 11 approved plans to allow the sunshine state's two largest utilities to collect more than $600 million next year in costs for new nuclear plants expected to enter revenue service within the next decade. Reuters reports that state government regulators are looking ahead.

"We are encouraging utility investment in nuclear electric generation today to ensure Florida's residents have reliable power for tomorrow," said Matthew M. Carter II, chairman of the Florida Public Service Commission. (news release)

Starting January 2009 Florida Power & Light (NYSE:FPL) unit will collect $220.5 million toward costs to expand output at four existing FPL nuclear reactors and to build two new reactors in South Florida.

Progress Energy Florida (NYSE:PGN) will begin collecting more than $418 million toward projects to increase output at its existing Crystal River reactor and to develop two new reactors in Levy County.

Annual reviews of permitted cost recovery by the Public Service Commission protect the interests of ratepayers.

Florida follows Texas in new nuclear build plans

leadershipFlorida is considered to be a model for the rest of the country in terms of allowing recovery of construction costs for new reactors as they are being built. Early costs to be recovered are tied to site selection, deposits for large equipment and long lead procurement items, and the considerable costs ($50M+) to file for a construction and operating license with the NRC.

The practice reduces significantly financing costs of plants that are likely to cost a minimum of $6 billion each. Florida is second only to Texas in commitments to building new nuclear power plants. Reuters reported the the utilities' current plans would add nearly 5,000 megawatts of nuclear capacity in Florida.

Taken together Florida and Texas represent an enormous scope of planned new nuclear energy capacity. The current financial crisis may push the nation into a recession, but these plants are aimed at entering revenue service six-to-ten years from now. By then it will be a different ball game.

  • FPL planned expansion

FPL's nuclear expansion program includes two reactors at its Turkey Point facility in South Florida. Depending on the nuclear design FPL chooses, the cost could start at $12 billion with additional costs for new transmission and distribution capacity. The units could enter service in the 2018-2020 time frame. FPL expects to file for its COL with the NRC in 2009.

FPL also plans to spend $1.5 billion to add 400 MW of capacity at existing reactors at St. Lucie and Turkey Point by 2012.

  • Progress planned expansion

Progress Energy Florida has a plan to build two Westinghouse 1,100-MW AP1000 reactors in Levy County. It has already applied to the NRC for the COL for the project. The utility said it continues to look for a partner to share ownership of the new facility. Progress is also working to add 180 MW at its 838-MW Crystal River plant at a cost of $439 million by 2011.

Progress told Reuters it is fully committed to its nuclear plan. The firm told Reuters in a statement,

"Nuclear power represents the most cost effective and environmentally responsible way to serve Florida's growing need" for power. Energy demand is expected to grow 25 percent in Progress Energy Florida's 35-county service area over the next decade."

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Turkey's nuclear program in turmoil?

The key man in the nation's atomic energy ministry quits over the sole bid for a new nuclear plant

Okay_cakirogluTurkey's effort to find builders for three new nuclear plants appears to be on hold after a single bidder responded to a controversial request for proposals on Sept 24. The Turkish Daily News reports that Okay Cakiroglu, (right) the head of the Turkish Atomic Energy Agency (TAEK) unexpectedly announced his retirement this week.

The action comes following reports of harsh criticism of the government's decision to receive a single bid on a new nuclear power station at Akkuyu in Mersin. Five other potential bidders declined to submit responses to the tender. Only Russia's nuclear energy export agency answered the mail.

What's more TAEK is the agency, directly responsible to the Prime Minister, which has to determine whether the Russian bid is good enough to accept and move forward with construction. Critics of the tender process, which has gone down a rough road from the start, were quick to point out the obvious. The Turkish Daily News cited the views of a leading energy expert.

Haluk Direskeneli“I would not want to be in the place of the government,” said energy expert Haluk Direskeneli, (right) who has extensive experience in the operational aspects of power plants. “The tender was an abject failure. The government may have received incorrect advice. It is difficult to take the responsibility for the end result of this tender,” said Direskeneli, who points to the les than stellar record of Russian companies that built industrial facilities in Iskenderun and Orhaneli, which reportedly have major problems.

One of the reasons the tender was delayed earlier this year was an internal dispute within the government over whether foreign nationals would be allowed to operate the nuclear plant. Direskeneli agrees. He told the Turkish Daily News, "Turkey needs to develop adequate expertise in the nuclear field to be able to operate the nuclear plants."

What's ironic about the Russian bid is that one of the reasons Turkey published its nuclear tender was to reduce dependence on Russian natural gas which supplies two-thirds of Turkey's needs. Energy critics of the outcome of the tender process reportedly are less than thrilled with the fact that Turkey might increase its dependence on Russia to meet its energy needs with a new nuclear plant and Russian operators.

Other energy experts were critical of the bid process which they say was "mismanaged" and drove away qualified bidders. necdet_pamirNecdet Pamir, (right) of the Eurasian Strategic Research Center, said, "

“I believe the tender will fail. The government cannot take the risk of handing the tender to Russians, not after voicing doubts about that country's technology"

For his part Cakiroglu defended the government's role and blamed the non-bidders for not being specific about how much time they wanted to resolve key questions. GE-Hitachi and a Korean consortium both said they wanted stronger commitments from the Turkish government for purchase of electricity from the plant for the first 15-years of operation, better protection of technology information, and clear guarantees for indemnification.

Tayyip_ErdoganThe decision to go forward with the tender, despite objections and requests for extensions from five of the 13 potential bidders, was reportedly made by Turkish Prime Minister Tayyip Erdogan (right) who relied on advice from TAEK. The Prime Minister was quoted in the Turkish news media on Sept 22 as saying that the country had waited too long for its shot at nuclear power and could not afford to wait any longer.

Turkey going for two

While energy experts picked over the outcome of Turkey's first nuclear tender, the government announced it was proceeding with a new tender for the second of three planned nuclear plants. According to the Eurasia Daily Monitor, on Oct 9 Turkey Energy Minister Hilmi Guler (right) said the second plant would be located near the Black Sea port of Sinop and that a tender for it would be published by the end of 2008.

gulerMeanwhile, despite the resignation of the top man at TAEK, Guler said the evaluation of the Russian bid was still up to the Atomic Energy Agency. Guler said he expected an answer on whether to accept the Russian bid by the end of October. He also said that if the Russian bid is not approved, the Energy Ministry will simply re-advertise the tender on the same terms.

It isn't clear how that response matches up with the Prime Minister's earlier insistence on speeding up the process of building a total of three nuclear power stations in Turkey. He's got a good reason for his anxiety over generation capacity. The Turkish Electricity Transmission Company said on its web site that if the country's economy grows as expected, demand for electricity could exceed supply as early as next year.

Prospects for large investors

The prospects for the re-bid of the first tender, and the release of a second set of bid documents, are likely to be impacted by the current global financial crisis. Guler told CNN in Istanbul on Oct 9, "the global financial crisis will affect large investments. However, ever the optimist, Guler also said, perhaps with the expectation of better times to come, "we are still in the early stage of the crisis."

The same could be said about Turkey's nuclear program. The bid process seems to be going in one direction and all the bidders, except one, are in an entirely different place. Guler has his work cut out for him if he is going to add to the country's generating capacity using nuclear power stations.

Prior coverage

  • Turkey announces plans for three nuclear reactors

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Sunday, October 12, 2008

Partly cloudy with a chance of cheeseburgers

Will the global financial crisis turn the nuclear renaissance into a patty melt?

patty meltEveryone is watching the global financial meltdown that has tied the investment community up in knots. Top banking executives are on the hot seat with Congress and probably feel like they're in the middle of a pan of frying onions. In some cases it may be justified, but the future is what concerns the industry. Finger pointing is cathartic for fearful politicians, but not useful for building new nuclear power plants.

Nuclear utilities who have filed combined construction and operating license applications with the NRC might be justified in wondering where the money will come from to build the plants. This isn't a small question. In the past five weeks, six plants have filed COL applications and seven filed in the preceding six months for a total of 13 applications and 19 reactors. Add to that the five applications and eight reactors that filed in 2007 and you don't just have a "renaissance. " What you have, collectively, is a spectacular statement of confidence in the future of nuclear energy. Who is gong to pay for it and how?

Locations new reactors US
Click on the map for an interactive web page at the NRC web site.

How much money will be needed and when?

Time-MachineWhere is the financing going to come from and when? All of these reactor projects are facing the same question when they emerge from the 42-month long cocoon inside of NRC's licensing review. You don't need a time machine out of H.G. Wells science fiction to think about some of the answers to these questions.

Taking a look at the timing, the earliest plant filing was in September 2007 by NRG making it the nation's "first mover." The latest to file was PPL at Blue Bend last Friday. Add 42-months to these dates, and what you have are the plants looking to lock up billions in investment commitments starting in March 2011 and ending in April 2012. Basically, in a 13-month period, the future of nuclear energy in the U.S. will determined by these critical investment decisions. The timing won't be exactly that precise, but the impact of having all of these plants looking for investors at the same time will create a competitive environment for funding.

Assuming for the sake of discussion the cost of new nuclear generating capacity stabilizes at an average of $3,500/Kw. With 18 applications for 27 reactors, that's a lot of investment. Assuming an average of 1,200 MW per plant, in order to get a rough order of magnitude number, what you are looking at is investment demand for 27 reactors X 1,200 MW/each X $3,500/Kw equals an astonishing $113 billion. What's interesting about this rough order of magnitude estimate is that it is close to the total amount ($122 billion) requested in federal loan guarantees by these utilities.

Where will the money come from?

The dates when these funds will be needed are too far in the future to predict how the current financial crisis will affect the industry, but some factors may be at work now that will be influential then.

  • Carbon tax & carbon-cap-and-trade

The first is the likelihood of carbon taxes and carbon-cap-and-trade programs. The Congressional Budget Office has taken a look at policy issues associated with proposals now before Congress.

carbon taxIf the rates and processes are set up properly, utilities will have time and resources to switch from fossil fuels to nuclear without burdening their rate bases. It will be equally important for the cap-and-trade program to be worked through a global market exchange with standardization of units of measures and international standards for regulatory oversight. This organizational development would allow U.S. nuclear plants to benefit from a global program and considerably broaden the opportunities for bringing in potential new investors.

  • Recovery of costs while under construction

Second, more states, such as Missouri, will have to decide whether they want to continue to contribute to global warming with new fossil plants or whether they will drop their current bans on recovery of construction costs for new plants. Florida's regulatory climate allows this practice and has resulted in plans for four new reactors to meet growing demand for electricity. Merchant plants will have much higher risk profiles. They may be part of a second wave of construction of new nuclear reactors once the economics of the first wave in regulated states have proven themselves to be successful.

  • Energy investment for profit across state lines

pirateThird, states such as Utah, which are divided over rate payer risks, will have to decide whether the cost of a new nuclear power plant can be made feasible by building enough capacity to wheel surplus electricity to power hungry cities like Los Angeles. Rate payers in Utah are justified in thinking that their support for a new nuclear power plant is actually a pirate's raid on their full faith and credit to keep the lights on in southern California.

California is happy to establish energy colonies in other states while preserving its now three decade old ban on new nuclear power plants. A change in this practice, at least one that may pass political muster in one of the nation's "greenest" states, is to be an active investor in new plants.

I rate it as unlikely that California will ditch its ban on new nuclear power plants inside the state's borders. It still needs to keep the lights on, and with its "green" commitment to avoiding new fossil fuel emissions, nuclear plants in nearby states is the most likely scenario.

Los Angeles cannot just say "not" to new coal plants, which is what it did with Intermountain Power. It must pledge its full faith and credit to a new nuclear plant in Utah or Arizona. It can't ask rate payers in those states to act alone to provide the guarantees to build the plant especially if most of the power goes out of state. This means property owners and tax payers in California would be part of the investment commitment for a new nuclear plant in Utah or Arizona.

  • Spent fuel reprocessing

Fourth, the U.S. government is going to have to invest in a complete nuclear fuel cycle building and managing spent nuclear fuel reprocessing plants and open Yucca mountain for the remaining residuals. Over the next half century the U.S. may have to invest in as many as five 1,000 ton/year plants to handle the expected volume of new spent nuclear fuel. The cost could be as much as $25 billion. Some of the cap-and-trade funding might offset these direct expenses.

MOX fuel plants and fast reactors may be a significant part of the mix two decades from now. Early examples include that Japan is already developing a plutonium fueled energy economy. South Africa just inked a deal to reprocess 1,000 tons of spent nuclear fuel in France and will sell the resulting MOX at a profit.

  • Small reactors matter because one size does not fit all

Nuclear Fuel pebblesSmall reactors, with power ratings of less than 300 MW, and related lower costs, may gain market share for parts of the country, like the arid West, that don't have the population or the water supplies to support 1,000 MW plants. There are a range of technologies that are on the drawing boards or in the prototype stage that could in the next decade offer cities and states reliable emission free electricity at competitive costs. The NRC is developing a regulatory paradigm to review and approve the new designs. Examples include small LWR designs, the Pebble Bed Modular Reactor (PBMR), Hyperion's nuclear battery, and other projects still in the brainstorming stage.

Doom and gloom exciting but not recommended

While the U.S. and the G7 countries are trying to figure out the way out of the current financial mess, it is no different in a lot of ways than a lot of other "busts." Four years from now when the nuclear plants that filed COL applications in 2007 and 2008 come looking for investment dollars, the financial landscape will look a lot different than it does today. The global cooperation which it taking place with financial policy issues may provide models for international agreements on energy and environment. It will be interesting to see what shows up.

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