Saturday, May 8, 2010

Dominion choses Mitsubishi for North Anna

It’s the third time GE-Hitachi has lost a sale because it could not come to terms on costs

DollarDominion Virginia Power (NYSE:D) announced May 7 it has selected Mitsubishi Heavy Industries (MHI) Advanced Pressurized Water Reactor (APWR) technology for its planned third nuclear reactor at the North Anna Power Station in central Virginia. In doing so the utility stepped away from a prior relationship with GE-Hitachi’s ESBWR reactor. According to media reports, the reason is the utility and the reactor vendor could not come to terms on costs. This is the third time GE-Hitachi has lost a sale since Exelon and Entergy withdrew from agreements to build new reactors using the ESBWR in Texas, Louisiana, and Mississippi.

The process of selecting the MHI design came about as a result of competitive bidding Dominion CEO Thomas Farrell said in a statement.

“Based on our final analysis of the proposals received in the competitive process, Mitsubishi provided the most attractive value for our customers.”

Electricity demand in Virginia

powerpylonDominion has not formally committed to build the new reactor, but said it will make a decision to do so later this year. According to forecasts for electricity demand, Virginia will need an additional 5,600 MW by 2019, which is about the time the 1,500 MW reactor would come online. Dominion is planning to build a slightly smaller version of the 1,700 MW design selected by Luminant for expansion of its Comanche Peak power station.

Virginia is the second largest importer of electricity in the U.S. after California. Much of that electricity comes from carbon sources. If a tax is placed on carbon in the next few years, even a small one, those imports will become more expensive making the choice to build a nuclear reactor for 25% of the expected growth in demand all the more attractive.

Competitive factors

Dominion’s competitive review focused, among other things, on the cost of the engineering procurement contract (EPC) which has multiple risk factors. They include items for fixed cost commitments from vendors, items that involve shared risk for cost escalation, and items which both the supplier and the buyer negotiate prices for with the vendors. With a total cost of $6-10 billion for the reactor, inability to put numbers on some critical reactor components may have limited GE-Hitachi’s competitive position relative to MHI.

The MHI reactor design is still in the review process at the NRC as is the ESBWR though both are making progress. The Wall Street Journal reported May 7 that David Matthews, director of the Division of New Reactor Licensing, told the newspaper, certification of the ESBWR “is moving along very well.”

Dominion will have to amend its NRC application for a combined construction and operating license with the NRC. This change could add some time to getting authority from the regulatory agency to break ground. Dominion will now also be betting that all will go well with reactor design certification for the APWR.

The only other utility planning to use the GE-Hitachi ESBWR is Detroit Edison which chose it for FERMI III. This reactor new build is positioned as a second wave deal due to the collapse of the U.S. auto industry and with it electricity demand from industrial users in DTE’s service region.

International market factors

Japan’s government backs the export of nuclear reactor components including the large forgings from Japan Steel Works. MHI is reportedly building a $450 million manufacturing facility to supply components for its reactor exports. GE Hitachi told the WSJ that MHI’s government backing makes the firm a “fierce competitor” in terms of entry to the U.S. market. However, spokesperson Catherine Stengel also told the WSJ the firm has good prospects for reactor sales in Sweden, Finland, the U.K. and India.

GE-Htiachi’s prospects in the U.K. may come later as the ESBWR is not entered in the current design reviews for the first round of new builds. The firm has better chances with India where it is partnering with domestic heavy manufacturing firms to build components to be supplied to that country’s aggressive plans for 20 GWe of new generating capacity and for export. GE- Hitachi has said that with India’s lower labor costs, exports can be very competitive relative to other suppliers.

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