Friday, February 5, 2010

Update on Areva’s Eagle Rock enrichment plant

Progress reported on $2 billion loan guarantee and NRC license application

Sam-ShakirAn Areva executive says the Department of Energy has completed the due diligence on a $2 billion federal loan guarantee for the gas centrifuge Eagle Rock Enrichment Facility planned to be built 18 miles west of Idaho Falls, ID.

Sam Shakir (right), head of Areva Enrichments Services, told a conference call of nuclear energy bloggers Feb 5. “. . . the term sheet for a conditional commitment is ready for approval by Secretary of Energy Steven Chu.”

Shakir also said his company is midway through the licensing process and has answered all of the requests for information from the Nuclear Regulatory Commission (NRC). The agency has published a schedule that calls for issuing the license in early-to-mid 2011. In anticipation of that decision, Shakir said Areva will hire an engineering procurement contractor (EPC) in the third quarter of 2010 to build the $3 billion plant.

The facility is now in the engineering design phase based on the George Besse II facility (PDF file) in France. More than 250 engineers in Maryland, New Jersey, and Massachusetts are drawing up the plans to build the mammoth nuclear fuel production plant in Idaho. Areva expects to break ground in 2011 and begin commercial operations in 2014.

Demand for enriched uranium will outstrip supply

Uranium enrichmentBy 2018 the plant will be producing 3 million SWU for the U.S. domestic nuclear fuel market. According to Areva’s estimates, total U.S. demand for enriched uranium by 2020 will be 15 million SWU. Shakir said U.S. and international demand for nuclear fuel justifies the growth of enrichment facilities. He broke down the supply chain this way.

Of these four plants, only the first two have the complete confidence of U.S. utilities. USEC’s technology is a work-in-progress. The laser enrichment process being developed by GE-Hitachi still have to be proven in a test loop before the company will commit to build an enrichment plant using it.

Shakir said as a result Areva has already sold $4 billion in services contracts to nuclear utilities for “an unprecedented duration of 15 years.” He added that another $1 billion in forward looking contract sales are in the works.

“These contracts are the cornerstone of the financial viability of the plant. It is why we have an investment-grade rating from Wall Street for the loan guarantee.”

megatonslogo_220 He said these commitments are also clear indications that U.S. nuclear utilities are concerned about the security of their fuel supply. The Megatons-to-Megawatts program with the Russians, which supplies 50% of U.S. nuclear fuel from blended down weapons-grade uranium, expires in 2013. The Russians are already selling nuclear fuel to U.S. utilities on a commercial basis, but future demand will far outstrip current supply.

Loan guarantee is critical to success

The loan guarantee is a crucial success factor for the project. Shakir explained in Friday’s conference call that the Eagle Rock project “ . . . is a unique nuclear project which cannot be financed on the open market” without the federal loan insurance. He added that “ . . . the collapse of U.S. capital markets in 2008 makes it much more difficult.”

Jarret Adams, a spokesman for Areva, told the blogger conference call in January, “It would be difficult if not impossible for Areva to build the plant without the loan guarantee.”

Construction plans and employment opportunities

construction jobsOnce financing is assured, construction of the Eagle Rock plant will require about 1,000 construction workers starting in 2011. The permanent work force will be about 400 operators and engineers. Shakir estimated the economic multiplier effect of building the plant will be about 5,000 jobs nationwide through 2018 because of the size of the supply chain.

While it is too early for vendors to contact Areva about doing business with the facility, Shakir said the company plans to hold a supplier day in Idaho later in 2010, “possibly in as soon as three months,” to explain how businesses will be able to get their capabilities and catalogs into Areva’s procurement database.

Hiring for operations jobs won’t take place until 2012/2013. All open positions will be posted on Areva1s website.

Competition with USEC

ApplicationDeniedRegarding Areva’s competition with USEC for the loan guarantee, last July the Department of Energy declined to award it to the company for two reasons. First, the technology needs more work before it is reliable. Second, USEC could not pass the financial due diligence review that is necessary to qualify a firm to be eligible for the loan guarantee.

In the meantime, DOE is providing USEC with $45 million to continue R&D and technology development for its American Centrifuge facility. DOE is also increasing the budget for cleanup of nuclear waste at the Portsmouth, Ohio, facility which will create jobs over the next three years.

USEC spokesperson Elizabeth Stuckle told the Columbus Dispatch Feb 2 USEC continues to work on the changes DOE recommended the company make when it didn’t award the loan guarantee last year.

“We plan to demonstrate a viable technology,” she said.

The Ohio congressional delegation has a variety of views on how USEC is doing. U.S. Rep. Jean Schmidt, a Republican, has been critical of DOE’s decision not to award the loan guarantee to USEC. The plant site is in her district.

However, U.S. Rep. Zack Space, a Democrat, is more realistic. He said DOE's R&D and cleanup funding commitments will preserve jobs in the short-term. He told the Chillicothe Gazette Feb 2, “we still have a long way to go.”

Update Feb 6, 2010

The Idaho Falls Post Register reported that a spokesperson for the Department of Energy in Washington, DC, said last week that the agency was not requesting an increase in authority to issue loan guarantees for enrichment projects. Instead, the spokesperson told the newspaper, USEC could apply for R&D money, rather than a loan guarantee, to finish development of its centrifuge technology,

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Wednesday, February 3, 2010

2011 DOE nuclear R&D budget

Situation not as dire as predicted, but overall funding level is unchanged

pea under the walnutTwo weeks ago advocates of funding for nuclear energy R&D came unglued when a trade newsletter reported that the budget for this work for 2011 has been slashed to ribbons by OMB. Notices of the death of the nuclear R&D budget, as laid out in a strongly-worded letter from Energy Secretary Chu, might now be seen as premature, but his advocacy must have weighed in the balance.

Someone in the White House had a light bulb go off. The President cannot on one hand call for more nuclear energy in the State of the Union address and then also slash the nuclear program budget at DOE. This is a sure way to undo overtures to the Republicans in favor of nuclear energy whose votes you need for climate change legislation.

However, after watching the walnuts fly to see which one covers the pea, the end result is a modest increase of $37 million of which half is for DOE program management. Despite some name changes, and a realigned focus on longer term R&D programs, the actual funding level and work scope are relatively unchanged from 2010.

The Nuclear Power 2010 program worth $105M is dropped, but it is replaced by a $65M increase for fuel cycle r&d and a catch all title called Nuclear Energy Enabling Technologies for $99M. Gen IV R&D for $220M is eliminated, which sounds dire, but another sweeping activity called Reactor Concepts R&D for $195M shows up in its place. Throw in another couple of cats & dogs in the $3-5M range and the differences are mostly made up.

What it looks like is that OMB kept the basic funding level the same while giving DOE the latitude to re-align some of its R&D priorities to longer-term reactor technology development. That’s probably not a bad idea. The government’s most useful role is to take on the high risk, long-term R&D that industry won’t touch because it doesn’t have a payback within the job term of the current CEO.

blood pressure Also, don’t get too excited about the increase for program management. If it weren’t a line item, the cash would just come out of R&D funds which would mean less money for nuclear energy science.

The budget document with the numbers and top-level program information is on the DOE web site. Check Pg. 45-47 of this file for the nuclear energy budget. The rest of the DOE budget for 2011 is on the agency’s web site. You can slice it and dice it a number of different ways, but the President’s budget is just the starting gun in the race for appropriations. At least with this document, all the horses are at the gate.

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A Conversation with Stewart Brand

Live Webcast with a Pioneering Environmentalist

February 18, 1 PM EST / 10 AM PST
Click here for free registration

In Whole Earth Discipline: An Ecopragmatist Manifesto, (Amazon) lifelong environmentalist Stewart Brand (right) lays out what has been called “a mind-blowing vision for the planet's salvation: migration to the cities, power generated by mini-nuclear reactors, healthier crops through genetic engineering.”

Brand, who created the 1960s and 1970s classic Whole Earth Catalog, believes that big cities (and not rural villages) are green, that nuclear power is green and that biotechnology is green.

And, he says, we must take seriously the idea that geoengineering may be needed to adapt to climate change.

Brand’s new book has been widely praised. Paul Hawken calls it “likely one of the most original and important books of the century.…”

Edward O. Wilson says it is “ominous and exhilirating.” Larry Brilliant says it is “an absolutely seminal work, extraordinarily well written, a tour de force of so many interconnected worlds and lives and studies.”

In an interview with Energy Collective blogger and FORTUNE contributing editor Marc Gunther (left), Brand will talk about the evolution of his thinking, the research that went into the book and the reaction he’s getting from his friends in the environmental movement. We’ll also allow plenty of time for questions from listeners.

energycollective_logo

Prior coverage on this blog

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Tuesday, February 2, 2010

Areva peers into the future of nuclear energy

And finds technology to build fast reactors

natural_gasAn alliance of oil refining firms, chemical companies, and reactor vendors is working on development of a 300 MW fast reactor to swap out the use of several million barrels a day of crude oil for process heat. The industry consortium is working on building a first-of-a-kind high temperature gas-cooled reactor (HTGR) with commercial prospects by 2022.

While the Department of Energy has been pursuing development of this technology at the Idaho National Laboratory (INL), a former R&D manager from that site, now working for Areva, has some encouraging news about a wider effort by the petrochemical industry.

Finis_Southworth Areva’s R&D manger leading the effort, Finis Southworth, (right) told a conference call of nuclear energy bloggers in January it will take about 10-12 years and $3 billion to design, license, and build a 300 MW (electricity) 600 MW (heat) fast reactor to provide process heat co-located at oil refineries and chemical manufacturing plants.

Southworth said members of the NGNP Alliance include Areva, Dow Chemical, Conoco, and Chevron. There are additional members of the Alliance, but for business reasons have chosen not to go public with their participation. However, in March 2009 Rod Adams at Atomic Insights found a public list of the membership, released by the Heritage Foundation, and posted it on his blog.

NRC licensing challenges ahead

While the technology roadmap to develop the reactor is relatively straightforward, the path to complete NRC licensing has some unknown twists and turns.

nrc seal "NRC licensing is critical to our success," Southworth said, "and it takes too long." He added that right now, "NRC does not have the regulatory framework to conduct safety analyses for high temperature gas cooled reactors."

Not much progress seems to have occurred at the NRC since it published an NGNP licensing strategy in 2008.

One of the safety features of the new reactor design, Southworth says, is that its "passive safety" features do not require electrical power, pumps, pipes, or cooling systems to shut down.

Market and competitive factors

alberta_oilMarket opportunities for the new reactor include providing process heat for oil refineries and chemical plants. The reactor would be designed to deliver heat in the range of 450-550C. For applications in the Alberta tar sands, heat would come out of the reactor at 450C and could be piped up to 10 Km arriving at the mining site at 350C.

Areva is looking for partners to develop the reactor. Southworth said one of them will be Mitstubishi," he said.

In 2009 the Department of Energy announced a $40 million NGNP funding opportunity through the INL's NGNP program. The award date has long since passed with no word from the agency whether it will ever spend the money. "We're disappointed by the delay," Southworth said.

The best case scenario for payback to process heat customers for a commercial version of the reactor looks like this. Assume a member of the NGNP Alliance burns 1 million barrels of oil/day at $70/barrel. That's a daily cost of $70 million. Every 30 days it burns $2.1 billion in crude oil for process heat and over 300 days it burns $21 billion.

If a new 300 MW high temperature gas-cooled reactor costs $3,500/Kw, or $1.05 billion, the payback occurs in the first year assuming all the oil used for process heat is swapped out for heat from the reactor. The actual payback will be much longer due to the need to amortize R&D, NRC licensing, and start-up costs, which could be an additional $3 billion.

Regardless of costs, what becomes clear from talking with Southworth is that the first version of the reactor will be built at a customer site. It is unlikely, he says, that Alliance members are interested in funding a first-of-a-kind prototype in Idaho.

Small reactors like the one the Alliance is developing will also gain cost competitive advantages relative to natural gas if Congress puts a price on CO2. Southworth said his estimate is that a price north of $20/ton is the threshold or tipping point for this trade-off.

Further into the future, Areva is also looking at sodium-cooled fast reactors to be used in Europe to attain uranium self-sufficiency. The fast reactors will be used to "breed" fuel and to burn waste actinides from the first pass of the nuclear fuel through a conventional light water reactor.

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Open letter to President’s Science Advisor

February 1, 2010

Dr. John P. Holdren
Director, Office of Science & Technology Policy,
Executive Office of the President
Washington, D.C.

cc. Dr. Steven Chu,
Secretary, Department of Energy

24 member Committee—National Academies “America’s Energy Future”

Members of Congress

Dear Dr. Holdren:

Peace on earth and preservation of the marvels of nature will not be achieved without a sound energy policy. This must include well-managed and well-governed thermal- and fast-neutron nuclear power, recycling spent fuels and depleted uranium. This was the goal of the founding scientists in the late 1940s and still is the best way to a reliable and secure energy future.

This letter is about American policy in a world that counts on American leadership. Although that leadership is vital if there is to be an orderly global deployment of nuclear technology, the United States has for a decade and a half left the evolution of nuclear-power technology largely to others, and consequently is being left behind. At present, 58 new nuclear plants (including two fast reactors, one in Russia and one in India) are under construction in 14 countries. Of these, 20 are in China, 9 in Russia, 6 each in India and South Korea. Only one is in North America, and that is resumption of work on a plant that was mothballed in 1988 when it was 80% finished. France has just announced a $7 billion commitment for a “sustainable development” program that includes promotion of fourth-generation nuclear reactors, three of which are fast-neutron reactors—a technology in which the United States was once the world leader.

America needs to proceed quickly—not twenty or fifty years from now—while the people who pioneered this science and engineering can still provide guidance to a new generation of scientists and engineers. There is no political, economic or technical justification for delaying the benefits that nuclear power will bring to the United States and that U.S. leadership can bring to the world.

We have three urgent recommendations.

First, we believe it’s imperative to accelerate the licensing and building of the kind of reactors now in use, commonly called thermal reactors. For the last 40 years the LWRs in the United States and CANDU reactors in Canada have served us well. Nuclear plants also have the unique capability to convert swords into ploughshares. Currently, half of the US nuclear electric power comes from reactor-grade fuel consisting of down blended weapons-grade uranium purchased from Russia under the 1993 US-Russian nonproliferation treaty, under which more than 15,000 Russian nuclear warheads have already been disassembled. This program is scheduled to continue into 2013.

While the performance and safety records of the existing reactors have been excellent, the evolutionary improvements in new thermal-reactor designs will take both safety and efficiency to an even higher level.

Second, along with the critical need for nuclear energy is the urgent call for the isotopes of nuclear medicine. Currently there are major shortages, especially in Mo99/Tc99m, which is only produced outside of the United States. This ongoing crisis has hampered diagnostic and thera­peutic procedures for all the major diseases (all forms of cancer, heart disease, Alzheimer’s, et al.). Thousands of lives are in jeopardy. Initiation of large scale domestic production of the full spectrum of medical and industrial isotopes is overdue and can be done without using highly enriched uranium. Just recently, the NRC announced that they would allow a U.S. nuclear power utility to produce Co-60, heretofore 100% imported.

Third, development of fourth-generation nuclear reactors will be needed if nuclear power is to expand significantly beyond its present market penetration—an expansion that is so necessary if our descendants are to have ample energy over the coming millennia. Therefore, we strongly recommend reinstating the development and demonstration of the technology for recycling used fuel—a goal of fast fourth-generation nuclear reactors—as epitomized by the U.S.-developed Integral Fast Reactor (IFR). The IFR transforms used fuel from a “waste” to a major energy resource, and in so doing it happens to resolve a major public concern about nuclear power—the safe use of the long-lived radioactive byproducts. Further, IFRs can utilize excess weapons plutonium effectively and rapidly, while generating revenue instead of costs—a development consistent with Russian recommendations.

Work on the IFR technology was halted just as commercial viability was about to be demonstrated. While the operability of the reactor portion of the IFR has been adequately established, a commercial-scale demonstration is needed to settle details of the fuel-processing phase and to refine cost projections. Russia, China, India, Japan, and South Korea have expressed interest in the technology of metal-fueled fast reactors, and would likely contribute to a demonstration plant in exchange for design and operations information.

The energy in uranium provides 20% of the electricity in the United States today. We must expand that nuclear contribution rapidly if we are to maintain the welfare of our people, protect our environment, and preserve a leading international role in the evolution of nuclear technology.

Respectfully,

John A. Shanahan
Civil Engineer
Colorado

Joseph M. Shuster
Chemical Engineer
Minnesota

Leonard J. Koch,
National Academy of Engineering
Arizona

Theodore Rockwell
National Academy of Engineering
Maryland

* * * *

P.S. Two signatories of this letter, Leonard J. Koch of Arizona, USA, and Dr. Evgeny Velikhov of Russia, are Global Energy Prize laureates—an award that is characterized as the Russian equivalent of the Nobel Prize for outstanding research to solve the world's energy problems.

* * * *

The complete document with over 300 signatures is available online in MS Word format. Click here for the file in PDF format.

Monday, February 1, 2010

Cameco in hunt for acquisitions

Proceeds from sale of stake in gold firm fuel drive for growth

This report is based on an article in Fuel Cycle Week, V9N360, January 20, 2010, published by International Nuclear Associates, Washington, DC. Stock prices referenced in this article are in the currency of the country of origin and cited as of market close January 19, 2010.

Money futuresWhat will Cameco (TSE:CCO) do with the C$1.5 billion it has amassed from the sale of Centerra—and with the extra $500 million that will soon roll in from another tranche of debt?  Clearly the world’s second-largest uranium producer is building up a war chest. In recent weeks financial analysts have piled on speculation as investors clamor for answers.

Last November CEO Jerry Grandey proclaimed that Cameco would pursue a strategy of growth through acquisition. Pressure from investors comes in the form of questions. What are its likely choices, and how would they affect the company’s stock price and earnings? For instance, will Cameco recoup the 20% of its earnings that went out the door with Centerra?

Last March JPMorgan Chase & Co. highlighted Paladin as a possible acquisition by Cameco.  Although a Cameco acquisition of Perth-based Paladin Energy (ASX:PDN) has been the subject of industry observers’ chatter for some time, the prospect gained momentum as that Paladin’s share price dropped 15% in the last months, from A$4.80 last October to A$4.06 this week on the Australian Stock Exchange against a 52-week range of A$2.68-5.52. Last October the stock traded at a high of A$5.06. The stock high for the year was June 3, 2009.

CEO Grandey noted in November that his company considered Paladin an attractive target. More recently, Bloomberg reported that RBS Equities Australia analyst Lyndon Fagan suggested that Paladin’s underperforming stock, which stems from its lowered production forecast in October, may further tempt Cameco.

Paladin Managing Director John Borshoff would not comment for the Bloomberg story, but in the past he has vigorously denied to FCW that Paladin had any interest in being acquired by Cameco or anyone else.

Cameco Covets Enrichment Capability

Not everyone agrees Paladin is a suitable buy for Cameco. Edward Sterck, a mining industry analyst with U.K.-based BMO Nesbitt Burns, published a compelling report on Jan. 6 assessing Cameco’s acquisition choices. The Australian miner does not come out on top.

The report rates a series of acquisition candidates in financial terms, and  concludes that from Cameco’s perspective, diversifying up the nuclear fuel chain by purchasing a $3 billion stake in Urenco "remains the most attractive proposition outside the uranium mining segment."

Uranium enrichmentSterck told FCW that the uranium industry is "entering a period of oversupply," and that it therefore makes more sense for the miner to move into uranium enrichment than to buy additional supply.

Taking a stake in Urenco would reduce Cameco's net present value per share by 10%, but would raise its earnings more than 40% by 2014. For the company fiscal year ending Dec 31, 2008, with revenue of about C$2.86 billion, a 40% increase in revenue over four years would be worth $1.14 billion.

Some analysts have dismissed this possibility due to Cameco’s $125 million, 24% stake investment in the laser enrichment process GE-Hitachi is developing in the U.S. The investment is consistent with Cameco’s stated interest in gaining a foothold in enrichment and other high-value segments of the nuclear industry. It is a bet, but clearly does not have to be its only bet.

Some analysts think Cameco would have to divest from the competing enrichment technology to be allowed to buy into Urenco, which champions the modern, proven centrifuge enrichment process. Sterck, however, denied that a divestment would be necessary.

"There is no leverage between the two firms in terms of technology," he told FCW.

His point is no conflict exists in the key area of intellectual property rights because the two technologies are so distinct. The GE-Hitachi process, which comes from the Australian company Silex, separates U235 from the U238 isotopes in UF6 much the same way a laser printer separates various weights (mass) of toner to put it on the paper to produce gray shades.

Further, URENCO already has significant market share. Its centrifuges are going into Areva's George Besse II plant in France, the Louisiana Energy Services plant in New Mexico, and are planned to be used in Areva's Eagle Rock Enrichment Facility in Idaho.

However, assuming GE-Hitachi succeeds in developing the process for commercial application, the two technologies will eventually compete for market share. Sterck believes that, given Cameco’s larger interest in diversifying its nuclear capabilities, its laser-enrichment investment should be understood as covering all available enrichment bases. At this point it is a far more speculative venture than Urenco. That said, it is unclear that URENCO's European owners will see it that way.

Nevertheless, an acquisition by Cameco with the proceeds of the sale of its stake in Centerra would boost its earnings and replace revenue that would have come from the gold mining operations, Sterck said.

Pricing the investment would not be easy, he added, because “there are no good comparables."

More Obvious Choice Offers Less Advantage

Uranium symbolAcquiring Paladin, Sterck told FCW, "is an attractive proposition given the growth profile, geographic location of its assets and the shareholder base."

The tradeoff, according to Sterck, is that acquiring Paladin would require a 40% premium against the current stock price (Fagan of RBS Australia told Bloomberg the premium would be 30%). Sterck’s report found the pairing would increase Cameco’s earnings 30% by 2014, but would dilute the Canadian’s net present value per share 27%.

An acquisition of Paladin by Cameco "would be an expensive and challenging prospect," Sterck told FCW. He added that a substantial portion of the deal would have to be in cash "as Australian shareholders are unlikely to be interested in Canadian paper.”

At its current market price Paladin is valued at about A$2.9 billion ($2.7 billion), Bloomberg noted. A 40% premium relative to its Jan 17 share price would put the stock price for acquisition at A$5.68, which is well above its 52-week high of $5.06. Paladin has 717 million shares outstanding with a market cap of A$2.91 billion.

Cameco has C$12.4 billion market capitalization. Its share price on Jan. 18 was C$31.58, with 393 million shares outstanding.  As of January 19, 2010, Cameco's stock is trading near its 52-week high of $32.35.

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The Atomic Show #149

Pro-nuclear bloggers react to the President’s State-of-the-Union address

Obama SOTU 2010During the 2010 State of the Union Address, President Obama took the handcuffs off of the nuclear industry revival when he said:

“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country.”

On January 31, 2010, Rod Adams gathered a large group of active bloggers and nuclear industry professionals to find out what they thought of the statement and its impact on the deployment of new nuclear power plants. His guests were:

  • Kelly Taylor, a 24 year nuclear industry professional and frequent Atomic Show guest.
  • Meredith Angwin, a physical chemist and small businessperson who has recently started publishing a blog titled Yes, Vermont Yankee.
  • Charles Barton, who blogs at Nuclear Green and Energy from Thorium.
  • David Bradish, a statistician and blogger at NEI Nuclear Notes.
  • Dan Yurman, who blogs at Idaho Samidat, writes for Fuel Cycle Week and also blogs at The Energy Collective.
  • Robert Margolis, a 24-year nuclear industry profession who has operated reactors on three continents and is currently working in Florida.

In addition to the State of the Union statement, we discussed the increase in the loan guarantee program, and the formation of the blue ribbon commission about used nuclear fuel policy.

We also spent quite a bit of time talking about Vermont Yankee and the incredibly tiny quantity of tritium that has people demanding a full investigation and possibly a plant shutdown. The reason? Someone found 0.000000029 curies/liter of tritium, an amount that would have a mass of just 0.0000000000029 grams distributed in 1000 grams of water.

Writing about the online podcast Adams says . . .

This is the largest panel yet invited to an Atomic Show, but I think that the guests did a fine job of taking turns and sharing information. It was a lot of fun to produce.

Listen to it here. Your comments are always welcome.