Tuesday, June 8, 2010

Entergy & Exelon retreat from new builds

Costs, risks, and lack of a price on carbon all play in their decisions

Sound retreatTwo of the nation’s largest nuclear utilities are sounding a retreat from building new nuclear reactors in the near-term. In separate speeches Entergy (NYSE:ETR) CEO J. Wayne Leonard and Exelon (NYSE:EXC) CEO John Rowe said they do not want to take the risk of building new reactors.

They cite the low price of natural gas, the lack of a carbon tax to shift investment from fossil plants, and the risks of building a new reactor using the merchant model in de-regulated states.

Speaking at the Reuters Global Energy Summit held in Houston May 25, Leonard said that Entergy does not want to take the risk of building new reactors which is why it suspended two NRC license applications to build four new reactors in Mississippi and Louisiana.

He said there are too many risks the utility cannot control. He cited uncertainty in construction costs as a key item.

In a speech to Resource for the Future in Washington, DC, May 20, Rowe said there are diminished prospects for new reactors because Congress has failed to make fossil fuels more expensive via a carbon tax.

“I just don’t think nuclear has a chance in a pure marketplace without a carbon tax.”

Exelon pulled back from building two new reactors in Texas opting instead to file an Early Site Permit which is a place holder that could lurk at the edges of the deregulated Texas electricity market for as long as two decades.

Both Leonard and Rowe said in their speeches their respective utilities understand and accept climate change as a fact and are committed to reducing CO2 emissions from their fossil fueled plants.

Entergy CEO questions Southern’s logic

Leonard added something new to the debate by criticized Southern Company (NYSE:SO) for going ahead with its plans to build two new Westinghouse 1,150 MW AP1000 plants at its Vogtle site in Georgia. According to Reuters, Leonard said:

“Everybody’s going to price risk differently. When we price the risk appropriately, the numbers just don’t work. I wonder how Southern makes the numbers work. Sitting on the outside looking in, they have some reason we don’t see.”

time to marketSouthern’s advantages include building the reactors in a state (Georgia) which allows the utility to increase rates to pay for the new reactors while they are being built. Also, the utility is the first to get federal loan guarantees for new reactors.

It is emphasizing time to market for the new reactors to meet expected growth in demand for electricity at the same time a carbon tax will make power from fossil plants more expensive.

Rowe also said he thinks new nuclear plants do not make economic sense in the current economic climate. He cited decreased demand for electricity in his markets and prospects for new supplies of natural gas. It is cheaper and faster to build new gas-fired plants in deregulated environments Rowe said.

“As long as we have $4 gas and no carbon price, we are not going [to build] a new nuclear power plant.”

Exelon is upgrading existing reactors to get more power, and more revenue, from them. The upgrades include new turbines, generators, and digital controls to produce more electricity more efficiently. By the time the firm is done, it will have added the equivalent of a new reactor based on the upgrades.

NRG going ahead with two new reactors

NRG LogoWhile Leonard and Rowe are backing off new builds in deregulated environments, NRG is going ahead with construction of two new reactors at the South Texas Project. Speaking at an energy conference sponsored by Deutsche Bank Securities, CEO David Crane said May 12 that natural gas prices will rise by 2017 which is about the time his reactors will enter revenue service.

“It’s hard for me to find someone who doesn’t think there is going to be a price on carbon in the next several years. Nuclear is the ultimate carbon hedge.”

Entergy’s Leonard agrees. He told the Reuters energy conference climate change legislation “has a good chance of passing if not this year, next year.”

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SteveK9 said...

The future does not belong to the faint of heart. Of course if you are a utility you don't have competition. So, we will build the plants after others (China, Japan, Korea, India etc.) have shown the way.

Anonymous said...

It really is a simple equation, so long as natural gas in 4$/MBTU it doesn't make sense to build any other sort of power plant. Of course that was the same logic 10 years ago and the increase in demand for natural gas raised the price up to 12$ in a few short years, the same will almost certainly happen again, but until it does there is no way a nuclear plant can make money in a DE-regulated environment.

Rod Adams said...

Dan - the comments from Rowe and Leonard about the current market conditions with low gas prices and no price on carbon make me think of the famous quote attributed to Gretzke - I do not skate to where the puck is. I skate to where the puck is going to be.

How can leaders of multi-billion dollar companies make reactor construction decisions based on current conditions?Under the best of conditions, any plant they decide to build today would not START operating for at least six years and it would remain a productive company asset for 60-80 years after that.

If they truly accept that CO2 is a problem, why won't they take proactive leadership action NOW?

VTDad said...

The comments so far relate only to the price of energy rationale for abandoning new nukes. But the CEOs also cited the astonishing cost over runs endemic to reactor construction. Financiers are unwilling to accept that risk,absent a scheme like Georgia where the risk is borne by ratepayers who pay for construction in advance.