Tuesday, July 28, 2009

DOE denies loan guarantee to USEC

Company says it will “demobilize” the $3.5 billion project

ApplicationDeniedIn 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

megatonslogo_220Industry 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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Sunday, July 26, 2009

Nuclear news wrap-up for 07/26/09

Ontario calls it a wrap. Will kerosene lamps now light Toronto?

trolley-problem-1If you have any doubts the nuclear energy trolley has gone off its tracks in Ontario with the collapse of bid negotiations for Darlington, wait until you hear what Bruce Power has to say. The firm announced on July 22 it will withdraw its applications with the Canadian Nuclear Safety Commission (CNSC) to build two new power plants in Nanticoke, Ontario.

Instead, Bruce Power said it will refurbish eight CANDU units (6.3 GWe) which it already operates. The firm attributed the business decision to declining demand for electricity in the province. The current economic downturn and an unusually cool summer are said to have contributed to the reduced demand.

kerosene-lamp Minister George Smitherman reportedly has long opposed the project in Nanticoke. The Bruce Power decision not to build two reactors (2 GWe) there makes Smitherman’s track record in killing off new nuclear power plants a clean sweep for the province. Will Smitherman, who is still the provincial government’s energy minister, now offer a tender for kerosene lamps to light Toronto?

The Toronto Star continued its field day with the disarray over the province’s nuclear energy plans. It reported that Greenpeace activist Shawn-Patrick Stensil got it right this week with his statement on 7/24. He said, “Nuclear reactor projects are falling like dominoes.”

Bruce Power CEO Duncan Hawthorne said in a prepared statement, “These are business decisions unique to the Ontario and reflect the current realities of the market.”

Translation of corporate news speak is more art than science, but here’s a shot at it. What he’s probably saying is that since the Ontario provincial government has shown itself to be thoroughly incapable of managing the bid process for new reactors, the firm wants nothing to do with trying to build one in an uncertain political environment.

Even if electricity demand returns, what Bruce Power knows is that it is a lot easier to get regulatory permission, and political support, to refurbish reactors you already own and operate.

Despite this new setback for nuclear energy in Ontario, Bruce Power was quick to point out that it was going ahead with its development of plans for new reactors in Saskatchewan, Alberta, or both provinces. The actual commitment to build reactors there depends on multiple factors including support from the provincial governments.

Bruce Power provides more than 20% of Ontario’s electricity from a variety of fuels including nuclear and coal.

TVA moves forward with Watts Bar II

Ashok BhatnagarThe Tennessee Valley Authority (TVA) is pushing ahead with a planned completion of the Watts Bar II nuclear power plant by 2012. TVA VP Ashok Bhatnagar (rigth) told the Chattanooga Times on July 20 the $2.5 billion, five-year project was on time and within budget.

TVA has two objectives in completing the project. The first is to provide more base load power to its customers from its own sources and not have to buy it at spot prices from other utilities. The second is obvious to anyone watching climate legislation moving through Congress. TVA owns and operates coal-fired power plants. Like every other utility, it will want to get out from under coal-related ‘cap-and-trade” and carbon tax programs.

These facts haven’t stopped anti-nuclear opposition group. Five of them have filed interventions with the NRC to stop the licensing of Watts Bar II. They contend the cooling water discharge from the plant will pollute the Tennessee River. The groups also say they flat out just don’t trust TVA to behave in a responsible manner given its performance on a major coal ash spill.

The utility lost a lot of ground in terms of public confidence over its handling of that accident and it still hasn’t recovered. The anti-nuclear groups are exploiting public distrust associated with the coal incident to attack the nuclear project. The groups involved include the Blue Ridge Environmental Defense League,the Sierra Club,and the Southern Alliance for Clean Energy These same groups have also filed contentions against Progress Energy over its plans for two new Westinghouse AP1000s in Levy County, FL.

e_lymanEdwin Lyman, (left) one of the leaders of the anti-nuclear movement, representing the Union of Concerned Scientists (UCS), issued a statement on behalf of the intervenors in which he claimed there is a risk of a massive hydrogen explosion at the plant which he said would cause 1,000s of deaths. This is a pretty scary statement and undoubtedly will generate headlines for the group.

However, TVA countered with the fact that the technology to prevent such explosions has been installed in nine other nuclear plants, including two at TVA’s Sequoyah plans and at Watts Bar I. It works and there have not been any explosions TVA said.

The Watts Bar II unit was originally started in 1973 but work was suspended in 1988. TVA decided to restart work in late 2007. The sunk cost in the reactor at today’s prices is $1.7 billion. The utility will spend another $2.5 billion to complete the plant which will provide 1,180 MW when it enters revenue service. This comes out to about $2,300/Kw which is a very reasonable price in the nuclear industry today.

South Africa to try again for new reactors

Eskom infrastructureLast year South Africa had a bad run with execution of its plans to build new nuclear power plants to alleviate the country’s chronic power shortages. It cancelled a tender to buy conventional LWR nuclear power plants from either Westinghouse or Areva. It also halted work on a demonstration plant using the Pebble Bed high temperature gas cooled design which is also being developed commercially in China.

The Guardian UK reports July 24 that the South African government has taken the reins from Eskom, the major electric utility in that country, and plans to build three new nuclear power plants including one at Koeberg, near Capetown. The report indicates the project would break ground in as little as two years and the first reactor would enter revenue service in 2017. The combined generation capacity of the three reactors is planned to be 4,000 MW.

Eskom’s efforts to develop new nuclear reactors collapsed last year when it failed to obtain funding from government for the reactors and also did not get permission to raise rates for electricity to cover cash requirements. An announcement of plans for a one-third increase in the cost of electricity led to violent demonstrations in the country.

it is unclear whether or how the government and Eskom, which will still have to build and manage the plants, will release a new tender for nuclear power plants. The announcement timetable seems overly ambitious given the country’s track record to date in making contract awards.

Areva offers investors a stake in enrichment plant

Uranium enrichmentFrench state-owned nuclear giant Areva is putting out the welcome mat for new investors in its Georges-Besse II (GB II) uranium enrichment plant. Reuters reports that Francois-Xavier Rouxel, VP for the firm’s enrichment business, said, “We would be glad if Italy and Spain joined us".”

New shareholders would add to investments already in place from GDF Suez (5%), Japan’s KANSAI, and Korea’s KHNP. Reuters reported that EDF, which is expected to be the largest customer of the new plant, has not announced plans to become an investor as well.

Areva is also building a new uranium enrichment plant in Idaho, but has not indicated at this time it is also seeking investors for the Eagle Rock Enrichment Plant.

Two Areva EPRs for India

epr logoAreva has submitted a proposal to the Nuclear Power Corporation of India Ltd (NPCIL) to build two 1,650 EPR reactors at Jaitapur, a greenfield site in Maharashtra State south of Mumbai. The two units are proposed to enter revenue service by 2017. The site can accommodate up to six reactors.

The Hindu reports that to build the plants Areva will enter into a “strategic alliance” with Bharat Forge for manufacturing plant components. Engineering services will be provided by TCE Consulting, a subsidiary of Tata Sons Ltd.

India is also in discussions with France and the U.S. over reprocessing of spent nuclear fuel. In the case of the EPR reactors, it is likely India will contract with Areva to ship spent fuel back to France for reprocessing.

U.S and India spar over legalities

However, the U.S. and India are still in diplomatic discussions over whether India will build a stand-alone fuel reprocessing plant for spent fuel from U.S. reactors should any be built. So far India has not made the necessary changes to domestic law to allow private companies to build nuclear plants in that country nor has it developed the legal foundation for several other protections including intellectual property and indemnification.

There are also problems on the U.S. side. The U.S. Department of Energy hasn't granted American companies the licenses needed to engage in sensitive technical discussions about their products with Indian companies. That agency is unlikely to act alone and is probably waiting for national security issues to be worked out by the State Department and the White House.

The Wall Street Journal reports State Department officials are seeking "nonproliferation assurances" from India that U.S. technologies won't be transferred to any parties other than the original buyer.

The WSJ also reported the State Department's top officials on arms control, former Rep. Ellen Tauscher and department veteran Robert Einhorn, are "hard-line nonproliferation advocates" who criticized the India nuclear deal. President Barack Obama and Mrs. Clinton voted for the deal while they were in the Senate and have said they intend to follow through on it.

According to the India Express for July 25, the five-member Indian delegation was led by Ravi B Grover, the Director of DAE Strategic Planning Group (SPG) and also the Director of the Knowledge Management Group. He is a distinguished scientist with a background in mechanical engineering.

Washington's point man for nuclear negotiations with India is Richard Stratford, He is the Director of the Office of Nuclear Energy Affairs in the State Department. He is also an attorney with long experience in nuclear regulatory matters.

According to the agreement, to bring reprocessing rights into effect, India has to establish a new national facility dedicated to reprocessing safeguarded nuclear material under the safeguards of International Atomic Energy Agency (IAEA).

NPCIL has designated two sites for U.S. built reactors. The are the Shrikulam district in coastalAndhra Pradesh and near Alang in Gujarat.

While deals are done by Russia and France

While the U.S. and India dance around the diplomatic table, Russia and France are gaining market share in India's drive for 20 GWe of new nuclear generation capacity by the end of the next decade. U.S. firms have hopes for up to 10 GWe of projects, or 50% of the pie, but that may not come to pass. The three sites designated by NPCIL might add up to as little as 3 Gwe unless they support twin reactor projects. This would be remarkable because former President Bush pushed mightly in September 2008 for the Nuclear Suppliers Group to overturn its three-decade ban on selling nuclear technologies and fuel to India.

There are great hopes by U.S. reactor manufacturers that they will have access to India as a market. However, last December Russia inked a deal for 4.2 GWe of new power plants. The latest proposal from Areva adds 3.3 GWe with the potential for a total of 9.9 GWe. The two countries could wind up supplying half or two-thirds of India's requirements.

Turkey still plans nuclear plant contract

atoms_ruReuters reports that Turkey will complete its review of a bid by Russia's Atomstroiexport to build the country's first nuclear power plant, a year after the company won the tender, Energy Minister Taner Yildiz said. He expects the review to be completed by September.

"One way or the other" it will be finalized, he said.

Atomstroiexport and its partners Inter RAO and Turkey's Park Teknik were the only bidders. More than a dozen other firms withdrew from the bidding due to concerns over onerous conditions in some parts of the contract and a lack of conditions elsewhere they said were necessary to do business in Turkey. For instance, Turkey demanded that no foreign nationals be allowed to operate the plant, but has few nuclear engineers. On the other hand, the government rejected requests by the bidders for protection of intellectual property for reactor technologies.

Turkey is reviewing a revised bid by Atomstroiexport, which was forced to offer a lower price of power. The revised price of $0.15/KwHr hour is still about double current rates for electricity from natural gas plants. The original offer for nuclear generated electricity by the Russian consortium was $0.21/KwHr.

Reuters reported that the government has stood by its guarantee of buying power for 15 years to encourage investment in the plant, which will cost as much as $8 billion to build and is planned for a site on the Mediterranean.

What is ironic about the situation is that Turkey launched the nuclear project, expected to supply up to 5 GWe, in order to move away from dependence on Russian natural gas. If it accepts the only bid, it will have traded dependence on Russian natural gas for dependence on Russian nuclear fuel and not achieved its objective of energy independence.

The government says it expects nuclear energy to provide 20% of the country’s electricity needs by the end of the next decade. This is the latest in a series of efforts to build new nuclear power plants in Turkey. Previous efforts failed due to environmental disputes and policy disagreements about sites.

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