Company says it will “demobilize” the $3.5 billion project
In an unexpected decision the U.S. Department of Energy (DOE) has denied an application by the U.S. Enrichment Corp. (USEC) (NYSE:USU) for a $2 billion loan guarantee for its American Centrifuge uranium enrichment plant. USEC was considered to be a formidable competitor for the $2 billion in loan guarantees for its Ohio-based uranium enrichment plant. The decision by DOE leaves Areva with its Idaho plant as the remaining applicant.
Update 08/03/09 - see my extended coverage published in Fuel Cycle Week and online at the newsletter's blog.
USEC company officials reportedly were furious over the decision which they say now means the project will now be scrapped. According to a report in the Columbus Dispatch, a company spokesman said,
"Instead of creating thousands of jobs across the country, we are faced with losing them. President Barack Obama voiced support for the loan guarantee when he campaigned in Ohio. It is unclear how DOE expects to find innovative technologies that assume zero risk."
The newspaper said that two government officials, speaking on condition of anonymity, confirmed they had briefed company and Ohio government leaders on the decision. The response from USEC is that the firm is shutting down the project on which it has spent $1.4 billion so far.
USEC’s CEO John Welch said in a statement that the firm was “shocked and disappointed by DOE’s decision.”
“With DOE's decision, we are now forced to initiate steps to demobilize the project.”
DOE said in a press statement that it based its decision on the fact it thinks USEC's technology needs more work. DOE also said it was providing USEC with $45 million to complete 12-18 months of additional R&D on its American Centrifuge process.
DOE had said previously it would evaluate projects based on multiple factors including finances, technology, and the ability of an applicant to complete the project. Clearly, the technology issue was at the top of DOE's short list.
Reuters reported that USEC has engaged outside advisors to determine its next steps. This action may be based on a plan to appeal the decision.
Company was considered to be the front-runner
Industry observers were surprised by the decision because they felt USEC was a shoo-in for the loan guarantee. This was due to its long history of supplying enriched uranium from blended down Russian HEU to nuclear utilities under the Megatons-to-Megawatts program and its prior history with the government that goes as far back as the Manhattan project during World War II. USEC’s plant.
When the Energy Policy Act of 2005 was passed, and included authorization for the $2 billion loan guarantee, USEC was the only firm expected to apply for it. Louisiana Energy Services, which is building a similar uranium enrichment plant in Eunice, NM, did not seek participation in the program. That plant is being built by a Urenco which is funding the construction of the $2 billion facility from its own resources. USEC was therefore surprised to discover that in 2008 Areva also applied for the loan guarantees in a "winner take all" competition.
At 3.8 million SWU, USEC's plant was the biggest of the uranium enrichment plants either under construction or planned for the U.S. Urenco and Areva both have initial building plans for about 2-3 million SWU each, but both firms say that longer term they plan to double their capacity. With USEC's project off the table, they could potentially move up their schedules for the larger build-out of production capacity.
The question now is whether that because DOE has denied the loan application to USEC that it will therefore award the loan guarantees to Areva which has also applied for them for its $2.4 billion Eagle Rock Enrichment Facility being built near Idaho Falls, ID.
One industry expert told this blog Areva will likely see the decision against USEC is a plus for its application. The company’s finances are backed by the French government and it has proven technology. Areva is building its plant based on the design and equipment in its George Besse II enrichment plant in France. These factors are distinct competitive advantages for the firm.
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