Japanese utility will take an 18% share and provide technical support for construction of two 1,350 MW ABWR reactors
NRG (NYSE:NRG) announced May 10 a far ranging and ground-breaking deal with Tokyo Electric Power Company (TEPCO) which will become a partner in the construction and operation of two new 1,350 MW reactors at the South Texas Project (STP).
The new investor will add financial stability to the effort. The complex deal involves NRG's parent firm Nuclear Innovation North America (NINA) and Toshiba which is building the reactors.
It is the first time a U.S. utility building new reactors in the U.S. has taken advantage of foreign government export investment credits to help finance the project.
TEPCO, which is one of the largest nuclear power plant operators in the world plans to acquire an 18% stake in STP 3&4 for $280 million.
The Wall Street Journal reported, this is Tokyo Electric's first stake buy in a nuclear power plant project overseas, and "will be a great opportunity to expand (use of) the boiling water reactor technology," Toshiro Kudama, Executive General Manager of Tokyo Electric's International Affairs Department.
Steve Winn, CEO of NINA said,
“TEPCO will be instrumental in helping to secure Japanese financing support through Japan Bank for International Cooperation and Nippon Export and Investment Insurance.”
“In addition to TEPCO’s expertise and investment, having the benefit of TEPCO’s investment grade credit rating in the ownership chain for the project improves the overall credit profile of the project."
TEPCO will invest $155 million through its U.S.-based subsidiary for a 10% share of NINA Investments Holdings’ interest in the construction of two new reactors at STP. The investment awaits a conditional commitment for U.S. Department of Energy loan guarantee which is anticipated for the project. NRG was short-listed by the Department of Energy for loan guarantees, but that list is not a commitment.
The $155 million from TEPCO includes a $30 million option payment to NINA Investments Holdings, enabling TEPCO to buy an additional 10% share of the company for an additional $125 million within approximately one year.
The total cost of the two 1,350 MW new reactors is expected to be about $10 billion. It’s too early in the project to call this a fixed price. While Toshiba has signed an EPC contract to build them, NRG and Toshiba have risk sharing agreements to account for price escalation of certain components and commodities.
North America Nuclear Innovation North America (NINA) is a partnership between NRG Energy (88%) and Toshiba (12%) focused on developing new nuclear expansion projects using Advanced Boiling Water Reactor (ABWR) technology.
TEPCO is an early stage investor
The new partnership with TEPCO is a surprise in terms of timing because it comes well before the twin-reactor project is to receive its NRC licenses. Last February NRG said it was unlikely to see its share of the project reduced by new investors until the certainty of the NRC licenses was in hand. NRG said the licenses would a a key confidence building measure for new investors. According to the NRC published schedule for the license applications, a decision is due sometime in 2011.
TEPCO's investment, and the anticipated involvement of Japan's export bank, can also be seen as Japanese government support for Toshiba efforts to build ABWR reactors in Texas.
Four ABWR units have been successfully commissioned in Japan. Toshiba has been involved in construction of three of these units and has developed significant operational experience to support them.
The relationship between NRG and TEPCO isn't new. Since 2006, TEPCO has been acting as technical consultant and has provided the benefit of its experience achieved in developing, constructing, commissioning and operating the Advanced Boiling Water Reactors (ABWR) to the project. TEPCO also will continue to contribute to the essential task of training the highly skilled workforce which will build and operate STP 3&4.
NRG said that assuming the two new reactors receive their NRC licenses from the NRC, and the project gets the anticipated loan guarantee commitment from the DOE, construction is expected to begin in 2012, with one reactor coming online in 2016 and the other in 2017.
TEPCO seen as value-added partner
In addition to assuming up to 20% of the capital cost of the project, TEPCO will fund and commit a team of commercial and engineering employees to NINA to assist in project execution and project oversight.
The company CEO praised TEPCO to the rooftops. David Crane, CEO, said:
“TEPCO has brought two advanced technology nuclear units online, on time and on budget and literally wrote the book on training the workforce for Advanced Boiler Water Reactor technology”
“Their ownership participation in STP will be invaluable to the technical and financial viability of the project and will help ensure that STP 3&4 is part of the vanguard of new advanced nuclear projects in the United States. The success of the coming American nuclear renaissance is essential if we are to meet our country’s zero emissions, zero carbon and energy security objectives.”
New investors for old
With this initial transaction, TEPCO would hold a 9.2375% interest in STP 3&4, bringing NINA’s share to 83.1375%, and leaving CPS Energy’s share at 7.625%. TEPCO would also be responsible for 10% of all STP expansion capital costs and up to 20% of these costs if the company exercises its option to increase its ownership to 20% of NINA Investments Holdings’ interest in the STP expansion.
TEPCO would then own approximately 18% of the project itself, or roughly 500 MW of carbon emission-free generation, enough to power about 400,000 households.
NRG had at one time lined up CPS Energy to take a 40% share of the project. A series of miscommunications, and opposition in San Antonio to rate increases needed to pay for the investment, produced a near total withdrawal of the municipal utility from the project. The utility will still be a major customer. Last February NRG’s parent firm NINA settled a legal dispute with CPS Energy that cleared the way for the San Antonio utility to support NRG’s application for loan guarantees.
The City of Austin, which was an investor in the first two reactors at STP, withdrew from all investment in STP units 3&4. Anti-nuclear forces convinced the city council it would be stuck with debt from uncontrolled cost escalation similar to the city's experience with the first two units, which were built by a different company in the 1980s. However, like CPS Energy in San Antonio, Austin’s municipal electric utility will also be a customer for the electricity from the two new reactors.
NRG emphasized in its statement May 10 it is using TEPCO’s expertise to insure the reactors will come into revenue service on time and within budget. The City of Austin may well pay a price in terms of higher rates as a customer, than as an investor, because of the anti-nuclear stance of its municipal utility.
American jobs from DOE loan guarantees
In addition to U.S. loan guarantees, NINA is seeking to diversify financing by actively pursuing additional loan guarantees through the Japanese export credit agencies. NRG said that if approved, DOE loan guarantees would cover an amount roughly equal to the investment in U.S. labor and U.S.-sourced equipment and commodities including steel, concrete, and many of the components for the reactor.
The Japanese loan guarantees would cover the Japanese investment in advanced nuclear expertise and equipment not available in the U.S. Two of the the key components will be the reactor pressure vessels which can only be forged by Japan Steel Works.
This statement about loan guarantees and jobs may be stimulated by a desire of NRG to assure nervous government officials and Congress that federal loan guarantees won’t wind up shipping U.S. jobs to Japan.
To emphasize this point, NINA recently announced an agreement for the Building and Construction Trades Department (BCTD) of the AFL-CIO to provide skilled union labor to construct STP 3&4.
According to NRG, approximately 6,000 people will work up to 25 million hours to build the new units, which are located about 100 miles southwest of Houston in Matagorda County, Texas. The expansion now directly employs approximately 750 U.S. workers across five states and plans to employ an additional 400 in 2010.
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