Half the capacity of the $3.5 billion plant, not yet built, is said to be sold
USEC (NYSE:USU) announced that it has customer commitments to purchase more than half of the planned, initial sales of the American Centrifuge Plant (ACP). The commitments, valued at $3.3 billion, are from 10 customers. The customers include Exelon and Tokyo Electric Power Company. Both firms are, respectively, the largest nuclear utilities in the U.S. and Japan.
The announcement indicates utilities, which have also bought forward looking contracts in both the LES uranium enrichment plant in New Mexico, and Areva's Eagle Rock facility in Idaho, are spreading their bets with an view that all three plants will be built. Areva has told business groups in Idaho that it has forward sold the capacity of its plant and has commitments for most it. However, it has not broadcast that fact in a press release like the statement this week from USEC. For its part, LES, which has not applied for a loan guarantee, and has a plant under construction, has announced it is so sure of the market that it will double the size of the plant following completion of the initial construction phase of the $2 billion facility.
The announcement of utility commitments to USEC, which comes well-ahead of a decision by the Department of Energy for a $2 billion loan guarantee for a uranium enrichment plant in the U.S., may be seen as a possible signal to the government that USEC has a viable business case for its facility.
Both USEC and Areva have applied for the loan guarantees, and both firms have to make the business case that their projects are "investment grade" and not fly-by-night speculative ventures. USEC has been reported by USA Today to have “shaky finances” and recently stopped most of the $1.2 billion in construction work at the ACP while awaiting a decision by the government.
"This strong support from our customers speaks volumes about our progress on the American Centrifuge Plant," said John K. Welch, USEC president and chief executive officer. "Clearly, the American Centrifuge Plant will be an important component of the nation's energy security, and the thousands of new jobs we are creating can provide an impetus to America's economic recovery."
In a prepared statement, Ichiro Takekuro, executive vice president and chief nuclear officer at Tokyo Electric Power Company, the largest operator of nuclear reactors in Japan, said,
"Globally, diversity of supply of enriched uranium is critical to ensuring the nuclear industry can provide customers with clean, safe energy for decades to come. The American Centrifuge Plant will help the nuclear field achieve that goal."
As a practical matter, utilities in the global hunt for nuclear fuel will seek to sign as many forward contracts as they can affford from multiple sources to avoid the financially catastrophic effects of having to shut down a nuclear reactor due to the lack of enriched uranium in the supply pipeline.
USEC's plant is slated to come online, as is Areva's in 2014, which gives you an idea of just how far ahead the utilities are thinking about the operation of their plants. With new nuclear plants being designed for 60-years of operation, guarantees for the fuel supply over the plant's life cycle are a crucial success factor for utilities.
Overall, USEC has sent up a pretty bright flare to get DOE's attention. It needs the loan guarantee to build the plant. There are credible doubts whether it can raise the $3.5 billion from private investors if it needs to do so without the government’s backing. The loan guarantee could be USEC’s “rescue swimmer” when it comes to making or breaking the project or at least in terms of size or timing based on USEC's current plans. Without the loan guarantee, the plant could be smaller and built in stages.
Then there are all those jobs in Ohio that USEC claims, 8000 in all, that will be generated by a full size plant built in this decade. In the current financial downturn, USEC could be pitching its plant as "shovel ready" to an Obama administration anxious to deliver on a campaign promise made in writing last Fall to Ohio's swarms of Democrats. There are few Democats, and none of Obama's campaign promises pending, in Idaho.
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