Saturday, November 15, 2008

EPA ruling slams new coal plants

Utah case could create new reasons to go nuclear and stimulate a congressional backlash

coal fired power plantWhy would a nuclear energy blog care about a coal plant and regulatory issues involving the Clean Air Act? The answer is that utilities facing decisions whether to build new coal plants, or switch to natural gas or nuclear energy, got a whole lot more to think about this week. The outcome may tip the balance more in the direction of nuclear energy.

The New York Times reports that the Environmental Protection Agency (EPA) has managed to spike permits under the Clean Air Act for development of new coal fired power plants for at least the year.

The decision does not affect new natural gas plants, but could cause utilities looking at new generation infrastructure to consider nuclear energy as a zero emission source for base load demand along with wind and solar for variable or peak power.

The ruling is very significant for any utility which is contemplating the switch from coal to nuclear. The cost of controlling CO2 emissions under a new regulatory regime could completely alter the economics of power plant investments even before Congress takes up the issue of 'cap-and-trade' and carbon taxes. New legislation in that policy area isn't expected until 2010.

sierraThe NYT reports the decision, which responded to a Sierra Club petition to review an EPA permit granted to a coal plant in Utah, does not require the federal agency to limit CO2 emissions from power plants, something which environmentalists have long sought.

Rather, the NYT reported, it requires the agency’s regional office in Denver to consider whether to regulate carbon dioxide emissions, before the agency gives a green light to build the Utah plant.

The impact of the decision is that it will delay the building of coal-fired power plants across the country, and possibly long enough for the Obama administration to determine its policy on coal, according to David Bookbinder, chief climate counsel for the Sierra Club.[press release]

“They’re sending this permit, and effectively sending every other permit,back to square one,” he said, adding, “It’s minimum a one to two year delay for every proposed coal-fired power plant in the United States.”

The ruling is so far reaching that it could be addressed in the upcoming lame duck session of Congress. With the country's huge investment in coal fired power plants, and plans for new ones, the lobbying pressure on Congress to quickly legislate a solution could be overwhelming.

However, the coal industry reportedly downplayed the effect of the decision. Carol Raulston, a spokesperson for the National Mining Association said, the ruling “merely says what the court has said, that the EPA has the authority to regulate greenhouse gases under the Clean Air Act."

However, she also told the NYT, before rulemaking occurs, EPA has to make an “endangerment” finding, which has not yet been done. An “endangerment” finding would involve the EPA declaring that carbon dioxide is a danger to public welfare, and would lead to regulation.

“We still believe, as do many in Congress, that the Clean Air Act is not very well structured to regulate greenhouse gases, and that Congress ought to address this through legislation,” added Ms. Raulston.

bluecometIn reality, that statement is a coal-fired train barreling down the track with a full head of steam inbound for Union Station. Congress may find that in addition to worrying about a bailout for the auto industry, it will also have to tackle a nasty regulatory dispute in a very short period of time.

Environmental groups told the NYT they see the decision was part of a larger debate over whether and how the Clean Air Act might be used to regulate greenhouse gases. They are expected to push the new Obama administration to impose limits on CO2 coming from sources like coal fired power plants through the normal permit process.

In doing so the environmental groups, some of whom bitterly oppose new nuclear power plants, may be taking the very action that will create new reasons to build them.

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Tuesday, November 11, 2008

Free web seminar on future of nuclear energy

TEC_callout4Complete recording of the Energy Collective web seminar of 11/13 on nuclear energy will be available here

http://theenergycollective.com/webcasts/30335

The recorded session is best heard with RealPlayer or Windows Media Player.

Thanks to Robin Carey and her team at the Energy Collective and to the other two panelists for a great discussion!

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Thursday, Nov 13th
11:00 am Eastern / 8:00 am Pacific

This fall the Energy Collective will present a free Webinar on energy and climate. Our panelists include writers, policy-makers and entrepreneurs in their fields, and are drawn both from inside and outside The Energy Collective community.

Registration is free: click here

Once you register with an email address, you will receive by return email prior to the date/time of the online event a link to login to the free web seminar. You will able to use the web page interface to submit questions to the panel in real time. You will be able to hear the panel discussion through your computer's speakers.

Nuclear Energy Session

No topic in energy is more controversial than nuclear power. It promises great benefits even as it faces significant obstacles. Unlike any other method of energy generation, it is zero-carbon, base-load, and potentially unlimited. Yet cost and political considerations may slow the nuclear energy industry from gaining ground.

  • In this Webinar, our panelists will analyze the potential for a nuclear future in America.
  • What are the key factors driving the costs of bringing new nuclear plants online?
  • How might the introduction of carbon pricing alter the picture?

The panelists will discuss whether politics, ability to attract investors, costs, and regulatory obstacles can be overcome?

After brief opening statements, the audience will have the ability to submit questions to the panel in real time.

Panelists for Energy Collective online discussion

  • Ashton Poole

Ashton Poole is a Managing Director in the Global Power and Utility Group, Morgan Stanley, New York. He is responsible for investment banking coverage of selected domestic electric and gas utilities, financial sponsors with utility and energy interests, and for coordination of Latin America utility opportunities.

He has worked on several industry-defining transactions, including the Duke / PanEnergy and AEP / Central and South West Corporation mergers.

In addition, Ashton played a key role in numerous utility privatizations in Brazil. Prior to Morgan Stanley, Ashton was a strategy consultant with Gemini Consulting, where he focused on the utility and telecommunications industries.

  • Jerry Paul

Mr. Paul is a nuclear engineer and attorney, formerly served as the elected representative of Florida’s 71st district in the House of Representatives where he ws on several environmental and energy committees. He is currently CEO of Capitol Energy, Tallahassee, FL.

Mr. Paul formerly served as Deputy Administrator of the National Nuclear Security Administration (NNSA) at the U.S. Department of Energy. Appointed by President Bush in February 2004 and confirmed by the U.S. Senate, he was responsible for coordinating all activities of the NNSA at its national laboratories and production facilities.

He has served as a member of the U.S. Department of Energy Nuclear Energy Research Advisory Committee and as the Florida representative for both the Southern States Energy Board and the National Conference of Legislators Committees on Environmental and Natural Resources.

He is currently the Distinguished Fellow on Energy Policy at the Howard Baker Center for Public Policy at the University of Tennessee.

  • Dan Yurman

Dan Yurman has worked in the nuclear industry since 1989, including 10 years in the strategic planning office of the Idaho National Laboratory (INL) in the areas of technology commercialization and business development for nuclear and environmental technologies.

He writes for Fuel Cycle Week, a nuclear industry trade newsletter, published in Washington, DC. His topics include the civilian nuclear energy industry and uranium mining in the western U.S.

He publishes 'Idaho Samizdat', a blog on nuclear energy, which is syndicated on Reuters and Forbes and has readers in more than 70 countries.

Prior to working at the INL, he was at the U.S. Environmental Protection Agency, Washington, DC. His assignments included appropriations and budget for the clean water and hazardous waste programs.

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Monday, November 10, 2008

International Isotopes raises $2 million

International Isotopes updates expansion plans ~

Target is a $55M plant to process UF6 for fluorine products

On Nov 10 International Isotopes Inc. announced the successful conclusion of a private placement completed among 11 directors, past investors, and major shareholders. It totals just over $2 million.

The majority of net proceeds from the private placement will be used to support engineering design and licensing of the Company's planned uranium processing and fluorine extraction facility.

Steve T. Laflin, Chief Executive Officer stated, "We are very pleased with the level and amount of participation of our shareholders in the private placement, especially in light of today's current market conditions.

There is a fascinating story behind this investment announcement.

The following analysis is an edited version of an article published in Fuel Cycle Week V7N301 on 10/29/08 by International Nuclear Associates, Washington, DC.

55 million reasons to be tenacious

Steve Laflin, CEO of International Isotopes (OTC:INIS), is tenacious and he has to be looking for $55 million to build a full-scale plant to extract fluorine from depleted uranium for use in high tech electronics, solar panels, and pharmaceutical manufacturing.

Laflin told the Financial Times of London on July 20 that the global market for these specialty gases is $630 million. He told potential investors in Idaho Falls on Oct 7 that ultra-pure silicon tetrafluoride (SiF4) sells for a minimum of $100 lb and up to three times that amount depending on purity.

His plans for a new, full-scale plant include a production target of processing 14 million pounds of depleted UF6 per year resulting in the production of one million pounds of high purity fluoride gas and three-to-five million pounds of hydrofluoric acid.

There are four possible future sources of UF6 in the U.S. including the Louisiana Energy Services plant now under construction in New Mexico, Areva’s planned “Eagle Rock” plant in Idaho, USEC’s new enrichment plant in Ohio, also under construction, and a GE’s planned laser enrichment plant in North Carolina. All four uranium enrichment plants are expected to be in full production by 2014.

Projected production numbers

Assuming International Isotopes can produce and sell the high purity gas for $200/lb, the mid-point of the cited price range, the projected production volume of one million pounds would be worth $200 million in revenue before expenses, interest, and taxes.

Commercial quotations for bulk sales of industrial hydrofluoric acid currently are $49/lb with up to a 20% discount for volume purchases. Four million pounds, the mid-point of Laflin's estimated annual production, would yield revenue with the 20% discount of ($39.20/lb x 4,000,000) of approximately $157 million.

Taken together the estimated gross revenue of the two product streams would be $357 million/year or $1.8 billion over five years of production at this level. Laflin’s estimate revenue stream assumes he can capture at least one-third of the global market share for the high purity fluoride gas product. Whether anyone else would try to get into this business depends on whether they can independently replicate Laflin's new technology which is covered by five patents.

Additionally, Laflin says, his firm would also charge a fee for de-conversion services which presumably would also pay to ship the remaining low level waste to a licensed disposal facility such as the one being built in Andrews, TX. Other LLW waste facilities are located in Utah west of Salt Lake City, and near Mountain Home, ID.

The long and winding road

Laflin has a long way to go to get to these production numbers. First he has to build a demonstration plant to prove he can produce 100,000 lbs/year of SiF4. Last June International Isotopes has announced plans for a 15,000 square foot demonstration facility estimated to cost between $5-7 million.

Construction of the demonstration plant at the site of his existing operation in Idaho Falls will test the design of a full-scale operation, and, more importantly, be used to convince new investors to sign up to support the full scale facility. That could be a tough sell. However,t he firm is making some headway.

On Nov 10 International Isotopes Inc. announced the successful conclusion of a private placement among 11 directors, past investors, and major shareholders and totals just over $2 million.

Financial snapshot mirrors a high technology startup

Currently, the firm lost money the last four quarters according to its August 2008 filing with the SEC. Total losses on gross revenue of $5.77 million were $1.56 million. The company is still developing its new product line with internal R&D and contracted engineering services. This is a profile similar to a high tech start-up in Silicon Valley.

Strategic alternatives to acquire new investors

Raising new money for the demonstration plant in the current financial climate could come in one of two ways. First, private placements could support funding for the demonstration plant. That's what just happened this week.

In June the estimated cost of the new plant was between $5.25-$6.75 million. Assuming a private placement based on the potential future value of the business gains a premium price for the stock over current quotes, at say $1.00 a share, Laflin would have to dilute current key shareholder positions by approximately five-to-seven million shares.

Of the total shares, about 280 million, 137 million shares, or 48% are owned by five key investors, and another 23% of shares are also owned by insiders. On Nov 7 the stock closed at $0.45/share against a 52-week range of $0.43-$1.17.

The other alternative is to sell the company to a much larger firm swapping the shares of International Isotopes for those of the firm making the acquisition. Given the large position of a few key investors, for a total of 71% of shares, they might favor this strategy over the challenges of a two-stage, multi-year development process which also requires at least two trips to the market for investors.

The current financial crisis has made an impact. Laflin is a realist and told the Idaho Falls Post Register Oct 7, "There can be no guarantee the capital will be available, or available under acceptable terms," he said.

The firm must also obtain an NRC license, a process which could take at least a year. Assuming it takes another year to build the demonstration plant, and a year to prove its capabilities to process 100,000 lbs of UF6, the earliest the firm would be making a decision for a site for a full-scale plant would be 2011. He'll also need contracts with one or more of the uranium enrichment plants to acquire the UF6.

Site selection process

Laflin has narrowed the search for the full-scale plant to four sites. He said on Oct 7 at a reception for potential investors in Idaho Falls that two sites are in Idaho including the current plant near Idaho Falls, where France's Areva plans a $2 billion uranium enrichment plant. The other Idaho site hasn't been disclosed.

The company also is considering sites in Lea County, NM, where Louisiana Energy Services / Urenco is building a separate uranium enrichment facility, and in nearby Andrews County, TX, which has a low-level waste dump.

Transportation distance is a key competitive issue. Laflin told potential investors his proposed facility could be anywhere on transportation routes between uranium enrichment plants that produce depleted uranium and the facilities where uranium waste is disposed.

As a practical matter, the closer the plant is to a LLW facility, the less Laflin will to charge customers for disposal of UF6 after he's gotten the high value materials out of it.

"We're meeting with all the elected officials and all the economic development officials" in areas where the plant could be built, Laflin said.

The 13-year-old Idaho company has 35 employees and sales of $4.5 million in 2007. It also produces isotopes such as cobalt-60 used in medical treatments.

* * *

Sunday, November 9, 2008

NRG rejects Exelon's unsolicited $6B offer

Holds out for a better deal. Will it get one?

rejectedThe Wall Street Journal reports NRG Energy Inc. (NYSE:NRG) has rejected a $6 billion unsolicited takeover bid from Exelon Corp., (NYSE:EXC) saying that the offer "grossly undervalues" the firm. NRG said that despite its decision, it was ready to do a deal under more favorable terms.

Bloomberg reports Exelon offered NRG shareholders $26.10/share which was a 35% premium over the stock's close on Oct 17, the day the offer was made, and was still a 9% premium above the close on Nov 7. NRG's stock lost more than half of its market value in the past 60 days dropping to $23.86 at market close on Nov 7 against a 52-week high of $45.78.

NRG CEO David Crane told the WSJ, "To get deals done there has to be genuine value for both sets of shareholders and that's not the case here."

Although Exelon's offer is well above the current market price for NRG's stock, the reason NRG rejected it is that it is still less than the replacement cost of NRG's stake in the South Texas Project.

It is believed that Exelon's real goal is to acquire NRG's two nuclear power plants which are in revenue service at the South Texas Project and two more which are under construction there.

At a acquisition price for the whole company of $6.08 billion, it would give Exelon four new nuclear power plants at a bargain price.

Exelon is also building a new nuclear power plant at Victoria, Tex. It owns and operates 17 nuclear reactors in the U.S.

New lamps for old - what's a reactor worth anyway?

new lamps for oldAnother reason NRG doesn't see value in the deal, which has been proposed as a 100% stock swap, is that with the NYSE tanking on a daily basis, the value of Exelon's offer could substantially decrease over time. Worse for Exelon , S&P reportedly cut the firm's credit rating citing its "willingness to pursue an aggressive growth at he detriment of creditworthiness."

The deal mirrors the acquisition of Constellation Energy (NYSE:CEG) by Warren Buffett last month for $4.7 billion in cash. In that transaction he acquired nuclear power plants in Maryland and New York at a fire sale price. Plus, Constellation is part of Unistar which is in a joint venture with Areva to build new EPR reactors in the U.S. Significantly, the WSJ reported that Buffett has also in recent days acquired 3.2 million shares of NRG. Assuming the stock was purchased at approximately $26/share, that cash transaction is worth over $83 million.

NRG is carrying its own debt load of $7 billion which Exelon would have to refinance, and at a higher price given its lower credit rating. NRG took note of these conditions in its letter to Exelon. It said, "The proposal is highly conditional as Exelon has yet to obtain committed financing and has had its credit rating downgraded."

Bottom line NRG feels the Exelon offer severely undervalues the company and is not a good deal for NRG stockholders. It's not clear what would constitute a good deal in NRG's eyes, but cash on the barrel head rather than stock would be a good place to start.

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Ontario delays reactor new build decision

Negotiations over cost tumbled by "financial turmoil"

grenadeOntario Power won't be making up its mind soon about who will build a new nuclear power plant at Darlington. A deadline for the decision of March 31, 2009, has been pushed into the indefinite future by "market turmoil" according to Onartio provincial Energy Minister George Smitherman. What he's really holding in his hand is a time delay grenade that could destroy the entire project with explosively escalating costs.

The government is trying to come to terms with three reactor vendors including Areva, Westinghouse, and Canada's own AECL. At issue is how much risk the reactor vendor and EPC contractor will take on in a fluid financial environment. Add to it political pressure to select AECL for the job with its tens of thousands of jobs in Ontario weighing in the balance.

George_SmithermanThe Toronto Star reports that Smitherman (left) is a master of understatement in the face of impending financial catastrophe telling the newspaper, "obviously, quite a lot has happened in the world." As price of the new reactor soars above $3,600/Kw, Ontario's government is getting very uneasy about its direction in terms of capital commitments.

Not on the hot seat by choice

Ontario Power isn't in the hot seat because it hasn't tried to control costs, and it isn't sweating bullets because it chomped on a bunch of habanero peppers.

hot pepperOn the contrary, the utility launched a two-phase competitive procurement process in winter 2008. The goal was to select a winner who would build the next two new nuclear reactors in Ontario. The organizational arrangements were complex with multiple government agencies having a direct hand in the decision plus various groups providing "oversight."

One of the innovations for the procurement process was to select a reactor vendor based on costs but also on "lifetime cost of power," and ability to deliver the plants on schedule. The Ministry of Energy selected four reactor vendors, but GE-Hitachi chose to drop out of the bidding.

Critics of the plant and the process hit the nail on the head with the observation by NDP leader Howard Hampton who told the Star,"building nuclear plants is incredibly expensive and complicated."

barnOf course with that kind of assessment, he could have hit the broad side of a barn with a Buick. Hampton did get one thing right. The government hasn't yet found a solution for how much risk the reactor vendor and EPC contractor should take on with the new plant.

Contracts are not all or nothing nor winner take all

Engineering & procurement contracts (EPC) are now written with the clauses about costs divided into three broad categories (1) -

  • Fixed - costs for which the EPC assumes all the risks
  • Firm with escalation - costs with escalation tied to various broad indexes of key materials such as concrete and steel. These costs include long lead time heavy reactor components.
  • Actual time & materials - the owner assumes the risk for the delivered cost of these items in terms of labor and materials

The negotiation battle in Ontario is also spread across the entire scope of the construction project. Examples include,

  • Bulk material
  • Local infrastructure (road, rail, water, drainage)
  • Cooling tower
  • Engineering & construction management
  • Equipment
  • Reactor vessel
  • Turbine
  • Transmission & distribution interconnect
  • Labor

The more risk the owner assumes the less price certainty is has about the delivered reactor. This is the challenge being faced in Ontario and likely everywhere else that someone is building a new nuclear reactor. So what do you want - a barn or a Buick?

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(1) "Nuclear New Build Precondition - Cost Visibility and Predictability," David Haarmeyer, PowerAdvocate, Nuclear Power International, September 2008.

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China boosts nuclear power plans

International growth has a 12 year planning horizon

chinese-dragon-mosaicReuters reports that 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.

While the numbers for nuclear energy are very large, an even bigger effort was announced on Nov 10. China also 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 NYT reported 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 wire service 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.

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Duke takes stock of plan for Lee nuclear plant

Softening demand for electricity and rising costs are the reasons

rising costsDuke Energy (NYSE:DUK) has raised the expected construction costs of its proposed Lee Nuclear Station to $11 billion. That's double the original cost. The Charlotte, NC, Business Journal has the details.

The new estimate is included in a letter Duke has sent to the N.C. Utilities Commission last week. Three years ago, Duke published an estimate of $4-6 billion for the two AP1000 reactors it proposed to build. Duke had not updated those figures until now. Opponents of the project have noted that nearly identical plants proposed in Florida will cost much more.

rogers_jimJim Rogers, Duke CEO, (right) insists the deepening recession won’t short-circuit Duke’s five-year capital spending program worth $23 billion. He said $19 billion of the spending is for Duke’s utility operations in the Carolinas, Ohio, Indiana and Kentucky. “We view virtually all of that as non-discretionary,” he told the Journal.

Rogers is confident about the future. He says the Lee nuclear plant can and should be built by 2018. Despite that confidence, Duke is putting off for a year a request to the South Caroline utility regulators for permission to build the plant. Rogers said the delay will give the utility time to figure out what happening with the U.S. economy and demand for electricity in its rate base.

According to the Journal, Duke’s projections show a long-range softening of demand for electricity in the Carolinas. Duke will provide updates to its capital spending plan Nov 21 when it holds its annual investor conference.

Meanwhile, Rogers says, the company will continue to pursue its NRC application for licensing the Lee plant. The company also intends to expand efforts to increase wholesale contracts for large municipal and energy cooperative customers to offset lagging retail sales. In the meantime, Duke will cut costs, and there are plenty of ways it can do that Rogers said.

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