Saturday, October 9, 2010

Constellation walks away from Calvert Cliffs

Utility blames feds for “unworkable” terms on loan guarantee

walk awayConstellation Energy (NYSE:CEG) sent a letter Friday 10/8 to the Department of Energy (DOE) “that it cannot move forward” with a loan guarantee for the Calvert Cliffs III nuclear reactor project. The Washington Post reported that Constellation told DOE the terms for the loan were “unworkable” at a reported risk premium initially calculated to be 12% of the total loan or $880 million.

In a press release issued early Saturday Oct 9, long after markets had closed, Constellation minced no words in laying the blame for the failure of the loan guarantee process at the government’s doorstep.

“The cost of the loan guarantee that is calculated by the Office of Management and Budget (OMB) is unreasonably burdensome and would create unacceptable risks and costs for our company. There is a significant problem in the way OMB calculates the credit cost. After repeated unsuccessful attempts to resolve this issue with DOE and OMB, we no longer see a timely path to reaching a workable set of terms and conditions.”

OMB reportedly later offered Constellation a 5% risk premium with additional requirements that appear to undercut the reduction from 12% At $4,500/Kw, the 1,600 MW reactor would have an estimated cost of $7.2 billion. A 5% risk premium would cost $360 million. From the view of the utility, it might be cheaper to simply pay a higher interest rate to lenders than sink money into the loan guarantee program along with its regulatory burden.

The decision impacts Constellations partners on the project which includes Electricita de France (EDF), which owns a 49% stake in the utility, Areva, which had planned to supply the 1,600 MW reactor, and Bechtel, which had planned to build it.

EDF told the Washington Post “it is disappointed and shocked” that Constellation had “unilaterally decided” to withdraw from the project. The Baltimore Sun reported that EDF loudly protested Constellation's move calling it premature.

"Constellation knows that we were at the finish line with the Department of Energy and were making significant progress. Constellation has withdrawn from CC3 in spite of our repeated efforts to substantially decrease their exposure and risk to the project."

The two firms had been feuding for some time over a provision in EDF’s investment contract to buy coal-fired power plants from Constellation for $2 billion. Constellation wanted the cash and EDF was having second thoughts about this aspect of the deal. The Wall Street Journal reported Oct 6 EDF has no strategic interest in U.S. coal-fired power plants.

Constellation’s Calvert Cliff’s project is a ‘merchant’ which means the utility can only recover costs of building the reactor once it enters revenue service. This “risk” lies at the heart of OMB’s calculations. An Obama administration spokesperson told the Washington Post OMB “had a duty to protect taxpayers’ money.”

Reuters reported the announcement by Constellation has a second act. According to the wire service, Constellation has not withdrawn its loan guarantee application. It still has to consult with its partners, which are EDF and Unistar.

Constellation’s stock has traded in a narrow range of $28-38/share over the past year closing Friday Oct 8 at $32.15.

Other factors may also have played into Constellation’s decision including record low prices for natural gas and depressed demand for electricity. The failure of Congress to put a price on carbon with climate change legislation guarantees that utilities are free to build more gas plants without fear of these costs.

The Obama administration, which has been overwhelmed with other issues, has allowed the future of the nuclear energy industry to slip below its radar screen. The White House de-facto ceded energy policy to bean counters and sent the wrong signal not only in this country, but also to the rest of the world.

Addendum

Rod Adams has a report at Atomic Insights that on the same day Constellation gave up on negotiations with DOE, that agency awarded a $1.06 billion loan guarantee to a wind farm in Oregon with none of the draconian conditions it imposed on the nuclear reactor project in Maryland.

Prior coverage on this blog

Friday, October 8, 2010

Nuclear fabrication vendors waiting for loan guarantees

You can't make stuff if utilities aren't building reactors

This blog post is based on my report published in Fuel Cycle Week V9:N395 on 09/30/10 by International Nuclear Associates, Washington, DC

The annual conference of the Nuclear Fabrication Consortium (NFC) held in Cleveland Sept 21 was a glum affairs for the 100 or so vendors who made the trip.

The consortium, which is composed of some of the nation's largest manufacturers of components for nuclear reactors, listened in stunned silence as a spokesman for the U.S. Chamber of Commerce told them Congress and the Obama administration have most likely punted approval of $25 billion in loan guarantees to the middle of 2011 or later. (Image of reactor coolant pump from World Nuclear News )

A big market hangs in the balance. Speaking during the afternoon session, George Davis, a senior executive with Westinghouse, estimated suppliers of nuclear components, were looking at a near-term potential of $14 billion spread if loan guarantees are awarded soon. That estimate drops like a rock, along with the loss of thousands of jobs, if Congress doesn’t extend the program.

Sales from manufacturing pumps and parts for new reactors won't be spread evenly. The Shaw Group, which owns a 20% stake in Westinghouse, has a 600,000 square foot factory in Louisiana. It is making components that will go into four 1,150 MW AP1000 reactors Westinghouse is building in China. The firm is building a similar factory in China to meet local content requirements for the reactors and for additional work to supply China's enormous nuclear new build.

Westinghouse reactors are slated for sites in South Carolina and Florida. Southern's Vogtle plant, a twin AP1000 site, is now taking delivery of long-lead time components. It is also the only reactor project so far that has gotten loan guarantees.

A sign of the dismal times for other reactor vendors is seen in Areva's decision to push back the start of operations by two years of its 360,000 square foot factory in Newport News, VA. Areva said in August the delay is due to a lack of a decision on a loan guarantee for Constellation's Calvert Cliffs III reactor which will be a 1,600 MW EPR.

Jarret Adams, a spokesman for Areva, told FCW construction started in July 2009, but start-up date is being pushed back.

"We are adjusting our construction schedule to meet our customers’ planning timetables and to ensure we have production capabilities and capacity when our customers are ready for our components.

In the absence of sufficient loan guarantee funding and commitments to qualified applicants, some customers are delaying the start of projects which affects when the heavy components to be manufactured in Newport News will be required."

White House has bigger fish to fry
USC1008257

Nuclear fabrication vendors may be right in feeling their industry, and its jobs potential are being ignored. Karen Harbert, CEO of the Chamber's Institute for 21st Century Energy, (right) told the NFC in a keynote address President Obama and Congress have much bigger fish to fry than worrying about the nuclear industry. Topping the list are an enormous deficit, sky high unemployment, and a rats nest of regulatory issues associated with health care and financial reform.

Harbert also said the U.S. is in "gridlock" when it comes to energy projects.

"If you can't build a solar energy project in the Mojave Desert or six miles off the coast of Cape Cod, then god help us."

Right now, Harbert said, the Department of Energy (DOE) is trying to decide whether or how to award loan guarantees to Constellation Energy for Calvert Cliffs III and NRG for South Texas Project 3 & 4. According to Harbert, the decision is shorting out in the arcane bureaucratic process of "scoring the risk" of the loan guarantee.

Both projects are merchants. Harbert told FCW this means the risk is higher and so is the fee DOE would have to charge for the loan, according to an OMB analysis.

The problem for DOE and the utilities is that if the fee is too high, it makes no financial sense to take the loan guarantee. If the utilities walk away from the loan guarantee, they might also put their reactor projects on hold or cancel them.

"DOE does not want to make a choice," Harbert told FCW. This is a mistake she says.

"The agency needs to fund at least one more new reactor to show the industry the government has confidence in other projects."

Lack of loan guarantees tank metal benders’ prospects

metal fabThe delay in the U.S. nuclear renaissance means business is not good for the metal benders who belong to the NFC. In fact, it is so bad that the CEO of a firm that made major investments last year in new manufacturing capabilities refused to be interviewed by the media. If business was booming, he'd be touting it to attract investors to fund the next round of expansion. He's not.

The issue about loan guarantees is so crucial that even incentives to improve the ability of vendors to serve the nuclear market are non-starters. For instance, a conversation with several vendors about the possibility of tax incentives to cover some of the costs of recertifying for N-Stamp status indicated little interest in pursuing it without clear signals of improving demand.

One vendor, who would not speak for attribution, told FCW that his firm saw little value in the idea if the government can't get loan guarantees out the door.

"What the point?" he said, " If we don't have any orders."

Small Modular Reactor vendor owns his supply chain

The only people in the room who were upbeat were vendors of small modular reactors (SMRs) who don't need the loan guarantees to build the plants. Fabrication firms which have plans to scale up to meet the demand from multiple 1,000 MW plants might find cold comfort in the SMR world.
mpower smr

John Ferrara of B&W said that his firm is vertically integrated owning the supply chain for components and fuel fabrication for its 125 MW mPower LWR.

"We're not limited by Japan Steel Works," Ferrara told FCW. "We’re factory built, not stick built like 1,000 MW plants. The key to revenue for a utility is modular expansion as demand builds rather than putting up a single large plant."

Ferrara said the mPower 125 MW reactor will use conventional LWR type fuel enriched to less than 5% but with a four-year fuel cycle. The units will take 36 months to build and can be shipped by rail or barge to a customer site. The first units are expected to be in operation at a customer site by 2019.

Ferrara said B&W has a cost target of $4,000/Kw for its new SMR. Two potential customers are TVA and First Energy. Last July TVA said it is interesting in the mPower reactor and pledged support for the licensing process. An executive with First Energy told FCW that the firm is providing user requirements to B&W.

First Energy sees potential in SMRs

Asked about the potential use of SMRs, Don Moul, an executive with First Energy, told FCW that building new 1,000 MW reactors ranks third in choices for his utility. The fastest return on investment will come from uprates followed by investment in SMRs.The small reactors would allow the utility to add capacity as demand occurs without having to bet the company on a single large plant. Building a new 1,000 MW plant is much further in the future and far more problematic mostly for financial reasons.

Moul said that First Energy is in exploratory discussions with B&W about its mPower 125 MW SMR, but that no decision has been made to acquire one.

Fuel fabrication for NGNP

NGNP logoThe future fabrication requirements for fuel for a high temperature gas cooled reactor are being developed right now in testing at the ATR in Idaho. Tracy Albers, a scientist with GrafTech International, based on Parma, OH, told FCW a graphite-moderated, helium-cooled reactor will be built for a commercial customer in the next 10-15 years.

Graphite is being used because it can withstand the 800 C outlet temperature. The Idaho lab is working on the design of the Next Generation Nuclear plant (NGNP), which is taking a lot longer than some advocates expected.

Westinghouse pulled out of the $40 million "bake-off" for competing designs last May leaving General Atomics as the sole provider of a conceptual design. The Department of Energy is scratching its head trying to figure out where to go from here.

Albers told FCW there is no technological decision for NGNP yet, but fuel qualification is moving ahead smoothly at the Idaho National Laboratory.

"The first tests just completed a 19% burnup rate. We used 300,000 Triso fuel particles with no failures."

The fabrication challenge Albers said will be to produce billions of particles for a fleet of the 300 MW small modular reactors.

Hans Gouger, a nuclear scientist at the Idaho lab who spoke at the NFC conference, told FCW one of the uses of NGNP could to make liquid fuel from coal.

"With one of these plants you can get a lot of gasoline from a ton of coal. NGNP might help Americans keep their cars."

Other uses for process heat from this SMR are expected to include the petrochemical industry for a wide range of industrial products.

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Wednesday, October 6, 2010

Will the nuclear fuel bank open for business?

Financing may dry up if nations don't act

Carrot sticksOn September 20, U.S. Energy Secretary Steven Chu brought a suitcase full of carrots and sticks to the annual meeting of the International Atomic Energy Agency (IAEA).

Getting his luggage through airport security and customs was easy.

The hard part is getting the other nations of the world to listen to reason. The main issue at hand is the establishment of an international fuel bank for commercial nuclear reactors.

The main carrot is $50 million the United States has pledged to set up a nuclear fuel bank so that other nations that want civilian nuclear energy don’t have to build uranium enrichment plants.

This is an important step in controlling dual-use technology that can also be used to make weapons grade materials.

The main stick is that if the IAEA doesn't get off the dime and set up the fuel bank soon, the U.S. will withdraw the pledge.

Read all about it exclusively at the ANS Nuclear Cafe online now.

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Ghosts of SL-1 put to rest

My pointer to a post by Rod Adams on an accessible technical explanation of what went wrong

arco desertOn a bitter cold night January 3, 1961, a terrible accident occurred on the Arco desert 45 miles west of Idaho Falls, ID.

Three men were killed in an accident involving a small experimental nuclear reactor. No one else was injured, but a plume of radioactivity made its way south as far as American Falls.

To this day the legacy of the accident is still felt amidst the stark volcanic plain that is now home to the Idaho National Laboratory, but back then was called the National Reactor Testing Station located in the semi-mythical town of Scoville, ID.

One of the ghosts that haunts the place is a legend that it wasn’t an accident at all, but rather a murder-suicide over love gone wrong with two men wanting the same woman. This is a much more fascinating reason to ascribe to the cause of the deadly flash of steam that took place in the middle of the night.

I have spent plenty of time getting the dust of “the site” embedded in my shoes. I have spoken with people, who were there at the time, who swear the murder suicide story (over a woman) is true. The proof for their story died with the victims.

Control rods are root cause of the accident

John Horan, who was one of the first health physics workers on the accident scene, talked with me at length about the accident in 1998, a year before he died. He did not subscribe to the murder suicide theory though he did have strong opinions about the accident and its aftermath.

SL-1 Control Rod Drive MechanismHe said the accident occurred because the control rod did not move smoothly in and out of the reactor core. The design flaw was in the mechanism they moved in – slots or guides.

It was a small R&D reactor. The top of the core was no bigger than the space of two manhole covers. The first worker who was killed was literally standing on the top of the core trying to move a stuck control rod by hand.

When he freed it from the stuck position, the reactor went critical and the pressure of steam beneath was also released shooting the rod out of its guide hole like an explosive projectile. The worker was killed instantly impaling him on the ceiling of the reactor building.

The SL-1 did not have a containment structure having been deemed too small to need one.

The accident took place as the workers on back shift were reconnecting the control rod to a drive mechanism when the reactor instantly flashed all the water in the core to steam. In the accident investigation,

General Electric, which had built the reactor, said that no other explanation, e.g. sudden manual withdrawal of the control rod, could have caused the reactor to flash.

Rod Adams explains the accident

In a blog post for 10/6/10 at Atomic Insights, Rod Adams has a detailed explanation of the cause of the accident. No love triangle is involved, just failed machinery and human error.

NRTS busPlease take a few minutes to read Rod’s post because the more people who do, the more it will give closure to all the ghosts that were created so many years ago.

In this way these spirits from years gone by will now depart the earth and go to a place of peace where neither man nor any of his creations ever return.

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Spain’s erratic energy policy

The government can’t make up its mind to support gas, solar, nuclear, or none of the above

uncertainty(NucNet contributed to this report.) Spain is an energy island in Europe with less than 2% of its power coming across the border from France. This fact makes energy policy a critical success factor in forging the economic future of the country where unemployment is running at record high levels and the government’s credit rating has tanked.

These facts of life haven’t prevented the current Spanish government from dithering itself into inaction over which way to invest, or not, in new electricity generation capacity.

Spain doesn’t have many energy options primarily because it is one of Europe’s financial basket cases along with Greece and Ireland. A recent financial study indicates the country will face a shortage of investment capital for new energy projects including new base load generation and improvements to the nation’s electrical grid.

The New York Times reported Sept 22 that a gap between the regulated rates paid for electricity in Spain and what it costs to generate it will reach $27 billion by the end of the year. According to Gonzalo Diaz-Rato, a partner at Gala Fund Management, “the Spanish government’s energy strategy has been erratic and incoherent.”

“The government wants to increase its green credentials by paying unsustainable subsidies to renewable producers and talking tough to the nuclear lobby, be price-friendly to end customers who are also the voters, while also supporting coal producers, even if that is economically unfeasible and not environmentally friendly.”

At one time Spain was the darling of Europe when it came to solar energy. With abundant sunshine, and massive subsidies, the grow of solar energy surpassed expectations (50,000 installations; a $16 billion market) until the government realized it could no longer afford massive subsidies to the industry. It slammed on the brakes and spooked investors into taking their money overseas.

solar-energySpain’s about face with termination of massive subsidies for solar projects has “sent a shiver through investors” according to a Citigroup report. The analysis says future uncertainty about the government’s staying power with energy policy will raise the cost of capital for all new projects.

The government’s inability to come to terms with energy reality has pushed investment resources for solar and nuclear projects overseas. At a time when it needs help at home, the government seems to be doing just about everything it can to send those resources away.

Nuclear policy shifts into reverse

In the nuclear arena, the government played politics with the relicensing of one of its reactors. the Garona plant, renewing the license for just four years despite a safety evaluation from the regulatory agency that approved it for ten.

According to a review of Spain’s nuclear industry by the World Nuclear Organization

"License renewal for the Santa Maria de Garona plant came up for review in 2009. In June 2010 the Nuclear Safety Council (CSN) recommended that a 10-year extension be granted, to 2019. The CSN said that plant owner and operator Nuclenor had implemented a comprehensive work program to keep the 40-year old reactor fully serviceable, having spent some EUR 155 million on it."

The Socialist government, with a policy of closing down Spanish nuclear plants as early as possible, granted only a four-year license extension, to 2013.

Spain had an enviable track record of effective management of its reactors with uprates in power that added 519 MW to its nine reactors. Whether another 300 MW in planned uprates takes place is up in the air.

Deer in the headlights

It’s not that the nation’s political leaders have failed to take notice. The problem appears to be an inability to move in any direction for a sustained period of time in order to make a difference. The development of energy proposals got new emphasis this week with a series of meeting in the lower house of parliament.

The meeting is the latest in a series of sessions that have taken place over the past year which considered more than 60 proposals. That number was reduced to 23 of which agreement has been reached on just 9 provisions of a new national energy policy.

punt The energy study group’s unfinished consensus document punted policy about nuclear reactors five years into the future. The reason is that none of the nation’s nine nuclear reactors (7.5 Gwe) will reach 40 years years of operation by then.

Current government policy calls for closure and decommissioning at that point. If the government wants new reactors, it must start planning for them now, and not when it is closing down the current fleet.

Nuclear energy supplies about 20% of the energy mix. Last May, Maria Teresa Dominguez of the Spanish nuclear industry group Foro Nuclear, told the parliamentary study group Spain needs between 2.6-3.0 Gwe of new nuclear generation capacity. It appears no one was listening.

Opportunities abound abroad

While the government has not taken any steps to address the issue and none of the Spanish utilities have shown any interest in building new domestic reactors. it hasn’t stopped them from going overseas to build new energy projects.

One of the largest, Iberdrola is partners with utilities in the U.K. as part of that nation’s new build and is seeking contracts with Jordan. It will invest $7.2 billion in energy projects on the U.S.,which is about the cost of a new reactor in Spain. The net effect of Spain’s dithering is to push investors and expertise to other countries to the detriment of its own energy security.

Despite an overtly hostile view of nuclear energy, the country cannot do without its nuclear reactors. This is a reality check on the populist urges of the current political leadership. However, neither party has any interest in building new reactors.

Prior coverage on this blog

  • May 26, 2010 Spain plays politics with reactor re-licensing

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