Wednesday, August 5, 2009

Duke CEO – Nuclear is our future

Despite a gloomy economic outlook in its service area, the utility’s CEO is bullish on the future of nuclear energy

Utility CEO’s are not known for exuberance, irrational or not, in talking about the future of an energy technology. In fact, with the “prudent investor” paradigm motivating publically traded firms, a clarion call for investment in nuclear energy in the OP ED pages of the Wall Street Journal is a wake up call for everyone.

rogers_jimJim Rogers, CEO of Duke Energy (NYSE:DUK) (right) writes in the Wall Street Journal on August 4 that the U.S. is still the world’s largest operator of nuclear power with 104 plants. Data from the government’s Energy Information Administration bear him out. In 2008 U.S. reactors generated over 806 million MW of electricity.

What’s more, Rogers says, nuclear plants are engines of job creation. He says they are a platform for future growth.

“Investing in new nuclear power plants, which produce electricity 24 hours a day and seven days a week, can be a major growth engine for our economy. Nuclear plants can be located close to growing demand centers, and next to existing transmission lines. Renewables, which produce power intermittently, must often be sited far from cities and the grid.”

He points to Charlotte, NC, which is the hub of the utility’s service area, as an example. It is home to operations by most of the major reactor vendors and nuclear engineering services firms in the U.S. and nearby Wilmington, NC, hosts GE-Hitachi’s nuclear fuel complex with plans for a commercial uranium enrichment plant.

westap1000North Carolina hosts five reactors two of which are operated by Duke power producing 2.2 GWe of electricity. Combined with South Carolina, the two states are a hub for eight new reactors, all Westinghouse AP1000s made in America.

The bad news is the U.S. is still lagging in the drive to use nuclear energy as a carbon-free source of power. With the loss of momentum domestically comes competition from other nations. For instance, China has 11 nuclear reactors, but plans to build 24 more of them. Only four of China’s new reactors are being built with American know-how.

Rogers closes his WSJ essay with a clear signal about what the U.S. must do next.

“When it comes to creating thousands of 21st century jobs—energy jobs on which we can rebuild the middle class—nuclear power clearly has the edge. We can and must grow our lead.”

Is exuberance enough?

John_Rowe_web Not everyone in the nuclear utility industry agrees with Rogers. John Rowe, CEO of Chicago-based Exelon (NYSE:EXC), (right) has an entirely different take on things. He feels at this time, and until cost per Kw comes down, natural gas plants may be more economical to build, and provide a faster return on assets, than nuclear energy.

Rowe tells the Chicago Tribune on August 5 that he realizes that “touting” the advantages of gas over nuclear “is like the Vatican coming out for birth control.”

Still, he tells the newspaper the numbers argue for delaying new investments in nuclear energy projects. And Exelon has put its money somewhere else. It is deferring its investment in a twin reactor nuclear power station in Victoria. TX.

Instead, Exelon and other nuclear utilities are getting more power from the nuclear reactors they already own. It is called “up-rating” and it increases the power of reactors as well as the efficiency of turbines. According to the Department of Energy, the nation’s supply of electricity from nuclear reactors may grow by as much as 20% over the next two decades just from up-rates.

If you build it will they come?

powerlinesUp-rates require growth in demand for electricity, but the current recession is moving in the opposite direction. According to a report from the Bloomberg Wire Service August 4, profits at nuclear utilities are dropping as people tighten their belts.

Bloomberg reported that Duke Energy led U.S. utility owners in reporting declines in second-quarter earnings after the recession drained demand for electricity to run factories. Other nuclear utilities aren’t doing much better.

  • Duke’s quarterly profit dropped 21% to $276 million, according to a company statement.
  • Entergy (NYSE:ETR) said its net income fell 16% to $226.8 million.
  • PPL Corp. (NYSE:PPL) posted a loss and suffered the biggest share decline in its history. At market close Aug 5, the stock traded at $29.33 down from $33.98 Aug 3. The 52-week high was $45.53.
  • Progress Energy (NYSE:PGN) also reported declines in earnings.

What does Roger think of this trend in declining earnings among nuclear utilities? He told Bloomberg,

“Demand seems to be flattening out, and we don’t expect to see a strong rebound for probably another year and a half. I think the recovery will be pretty anemic, and it might be as late as 2011 before we see a full rebound.”

Recovery at a snail’s pace?

snailRogers added that consumer spending continues to decline and this means that any turn around of the economy will be slow because of a lack of consumer confidence.

“What I think we have experienced is a balance-sheet recession, and particularly given how hard hit the banks have been, I think recovery will be very slow,” Rogers said.

So it follows that Roger’s enthusiastic faith in the future of nuclear energy transcends the current dismal economic climate. Others take an even longer view.

In a speech to the American Nuclear Society in June, John Grossenbacher, Director of the Idaho National Laboratory (INL), a nuclear R&D center, told the meeting that thinking about nuclear energy requires a perspective that spans 100 years.

“The resources are there, and in my opinion, they will get used in the future,” So let’s do it in a way that 50 and 100 years away, we’re happy with the outcomes.”

Maybe Rogers is one of those leaders who can see that far and this is what justifies his confidence in the future of nuclear energy to address the problem of global warming.

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Tuesday, August 4, 2009

First wave or second wave?

Some reactor projects at the front of the line might be better off moving to the back

crowded poolIf you add up the number of new reactors with license applications submitted to the NRC, what you get are way too many projects chasing not nearly enough capital much less sufficient manufacturing capability to build the plants. A quick look the numbers tells us success for the U.S. nuclear industry can’t be a case of “free swim, everyone into the pool.”

Here’s what the line looks like . . .

  • 18 combined construction operating license applications (COL) are pending at the NRC; 5 more expected by the end of 2010.
  • The agency can’t review all of them in 42 months thanks to a lack of funds and staff.
  • 28 reactors are proposed to be built, but two of the major reactor designs are still under design review

Some projects are already dropping out.

  • Ameren gave up earlier this year after losing a bruising battle with the Missouri state legislature over recovery of construction costs.
  • Unistar put all its eggs in the Constellation basket putting Nine Mile in upstate New York on hold.
  • Exelon switched reactor types and stopped work on its COL and will instead tread water, perhaps for years, with an Early Site Permit for Victoria, TX.
  • Entergy also dropped plans to the GE-Hitachi ESBWR for its Grand Gulf, MS, and River Bend, LA, projects and may postpone them both by at least a decade.
  • Congress and the Obama Administration have shown little interest in expanding the federal loan guarantee program to bring down the cost of and ease of access to capital for new plants.
  • Yet, 15 power companies representing 10 sites and 16 reactors worth $98 billion in new construction filed paperwork for the guarantees in December. There is only $18.5 billion in loan guarantees available. These are long odds.

What’s an industry to do?

EdwardKee_webThe answer, according to Edward Kee, VP at NERA Economic Consulting, (right) is for some plants which are pursuing the first wave of construction of new nuclear power plants to consider waiting for the second wave. In a paper published in July, Kee says that a “second wave” could aim for a later construction start. His timeframe is as early as 2014 and as late as 2020.

Kee’s bottom line advice is that, “if a nuclear project has little hope of being in the first wave, cutting costs and risks by adopting a viable second-wave strategy now might be an attractive option.”

A second wave project Kee says will reap substantial benefits assuming the first wave achieves even modest levels of success. There would be lower risks of cost over-runs, some of the uncertainties about carbon taxes and trading schemes would be resolved, engineering challenges associated with first-of-a-kind reactors would also be a thing of the past. Nuclear financing would be more readily available as Wall Street gets used to raising capital for these kinds of projects.

Kee suggests that some projects might benefit from taking the off-ramp now. This would mean waiting for the traffic jams to subside at the NRC, Japan Steel Works, and with manufacturing capabilities and having confidence in a trained work force with the experience of the first wave of new plants under its belt.

Another benefit Kee says is that by 2014 all four reactor designs will be certified and by 2020 all four will have completed projects and operational experience. Second wave projects will have a much easier time writing and executing EPC contracts as a result.

Utilities that are on the fence about staying with the first wave will need to take a look at Kee’s observation that “the decision analysis framework for a second-wave project . . . will have more options and . . . more time to gather information.”

For firms with the prudent investor paradigm on their minds, this is advice worth a second look.

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Monday, August 3, 2009

CoolHandNuke Online

An new nuclear jobs portal is now publishing exclusive content

coolhandnukeI’m pleased to announce that I am now posting twice a month at  CoolHandNuke, a new nuclear jobs portal run by Jeff Madison.  Jeff’s background includes work in human resources and recruiting at a major nuclear utility.

These blog posts will be in addition to my blog posts here.  Access to all content at the CoolHandNuke jobs portal is free.

More importantly, job seekers can post resumes for free and search for jobs in the nuclear industry.  Employers who want to list jobs should contact Jeff at the website

More jobs than workers in the nuclear industry

design toolsThere are plenty of opportunities. Last year, US News & World Report published an in-depth review of the rapidly growing shortage of workers in the nuclear industry.  Things haven’t changed despite the current recession.

Speaking at a conference this week, the CEO of one of the world’s leading nuclear reactor firms said, "Since 2006 there have been more jobs than employees in the US nuclear industry and the gap is growing." 

By registering at the site as a job seeker, you can post or update their resume, search for jobs, check out a nuclear industry salary report, and read and interact with the blog. 

Be sure to look for banner and display ads from featured employers. If you are an employer, and want your own banner ad, contact Jeff.

Qualifying the employer

Qualifications My first post at CoolHandNuke addresses a key issue for job seekers.  For people entering the nuclear industry, the usual question is how to present your qualifications. 

However, there is a second question in these uncertain economic times. It is how do you qualify a potential employer and their industry? 

Find out at CoolHandNuke.

Hope to hear from you there.

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