Saturday, October 30, 2010

Holdren dishes out energy advice

Common sense prevails until he broadly endorses MIT’s nuclear study

John Holdren at MIT Oct 2010John Holdren, President Obama’s Science Advisor, returned to MIT, his alma mater (‘65), Oct 27 to deliver a signature speech (slides) on energy R&D, climate change, and energy policy. (Hat tip to Ken Berard at NEI for the slides)

If you want to know what energy policy makers are talking about in Washington, DC, it pays to follow what Holdren says.

[Presidential science adviser John Holdren ’65 SM ’66 delivers the David J. Rose Lecture in Nuclear Technology at MIT Oct 27, 2010. Photo: Stuart Darsch, MIT]

His message is that the two toughest challenges the nation faces in terms of energy are meeting our transportation needs with less oil, and meeting economic aspirations while producing less climate-altering carbon-dioxide emissions.

Holdren is a realist. He told his audience there are no easy answers and no silver bullets for achieving solutions to the challenges of climate change, he said:

All of the energy alternatives to fossil fuels have “liabilities and limitations” of their own. For example, industrial-scale biofuels production can take land away from food production; hydropower and wind are limited by the availability of suitable locations; solar energy is costly and intermittent; nuclear plants are costly to build and lack an accepted solution for waste disposal; and nuclear fusion doesn’t work yet.

Some change on nuclear energy

With regard to nuclear energy, he’s doing better than his going in position at the start of the Obama administration. He still has his eye on nonproliferation issues as a key barrier to global deployment of nuclear energy.

Despite the Obama administration’s support for an international fuel bank, Holdren bypassed the topic in his speech. One reason may be the lukewarm reception DOE Energy Secretary Steven Chu received last month to his offer to the IAEA of a $50 million pledge to start one.

[See my blog post at ANS Nuclear CafeWill Nuclear Fuel Bank Open for Business?” 10/06/10]

According to an MIT published summary of Holdren’s talk (video below), he said:

"Nuclear power, while not capable of making a major dent in energy production in the near term, has a potentially significant role to play, and could become a major factor in the longer term.”

That’s good, but it doesn’t get better. He said he agrees fully with the conclusions of the recently released MIT study on the future of the nuclear-fuel cycle, calling for economic support of the first several new nuclear plants in this country, as well as for increased research on potential new fuel-cycle technologies for the longer run and for long-term spent fuel storage options."

Holdren needs to take a second look at reprocessing

The problem for Washington policy makers who are not experts on energy issues is that Holdren is part of the nation’s elite when it comes to setting the energy policy agenda. Being the President’s Science Advisor is a “bully pulpit.” Holdren used it this week to broadly endorse the MIT study. This isn’t good when it comes to needs for common sense on fuel reprocessing.

Holdren needs to take a second look at the issue. The MIT study is flawed in several ways.

sandboxFirst, it calls for creation of a huge nuclear energy R&D program, but the objectives are written broadly so it looks more like a sandbox and less likely to produce real progress.

Second, it is timid in its vision about the future of nuclear spent fuel reprocessing. It calls for more study instead of real policy progress.

Third, it is obsessive in its focus on nonproliferation as a justification to shut down new nuclear energy developments rather than developing workable mechanisms like fuel banks.

Ernest Moniz, a member of the MIT panel, was an Undersecretary at the Department of Energy during the Clinton administration. Then and now his primary concern is getting more of the total inventory of plutonium out of circulation. His overarching focus on nonproliferation drives an almost unreasonable approach to options to manufacture MOX fuel and develop fast reactors. The reason, he says, is that these methods do nothing to reduce total plutonium in the fuel cycle.

Well, once you decide that’s all you’re going to do, the rest become easy. In fact, the MOX fuel plant being built in South Carolina will take 34 tons of plutonium out of circulation and put it to good use in conventional LWRs. Worldwide, almost three dozen reactors burn MOX fuel.

Areva has a different idea

spent fuelMeanwhile, David Jones, Vice President of Used Fuel Management at Areva, argues that recycling spent nuclear fuel is a proven solution that is cost competitive and reduces proliferation concerns.

And Stephen Turner, an expert on spent nuclear fuel, told this blog Sept 21 that U.S. private industry will not wait for the U.S. government to make up its mind. Speaking at the annual meeting of the National Fabrication Consortium held in Cleveland, he said:

“These firms have developed the business case for spent fuel reprocessing. They will pull the pin when the market is ready.”

Confirming Turner’s view, Areva’s Jones told this blog two months ago the firm wants to build an 800 ton/year plant in the U.S. as a commercial enterprise.

Unfortunately, Holdren agrees with Moniz arguing that a rapid expansion of nuclear reactors, and fuel reprocessing, is too risky because it would create new opportunities to divert fissile materials to make bombs.

The rest of the world is going to develop nuclear reactors. Either the U.S. re-engages with the global industry, or no one will take it seriously when it comes to nonproliferation issues.

As noted earlier, Holdren is a realist. If he could get out of the government corridors, and into the business world, he might find some common ground.

Maybe Holdren should hop the Metro Red Line (map) and take a trip to Bethesda to have coffee with Jacques Besnainou at Areva’s office in Bethesda? It’s just coffee, and the discussion might open his eyes to alternatives to the MIT report. Could that happen? I don’t know, but it’s worth a shot.

MIT Video of John Holdren’s MIT talk 10/27/10


# # #

Friday, October 29, 2010

Dale Klein open letter on NRC budget issue

Full text at link below cover note

NRC INTERVIEWAs a former Chairman of the Nuclear Regulatory Commission, I have watched  with some dismay the unfolding events surrounding NRC Chairman Gregory Jaczko's decision to terminate the high-level waste (HLW) program license review. Of particular concern are his statements that he is only fulfilling "the direction of the Commission" in his budgetary approach for fiscal year (FY) 2011.

I served as a member of the Commission during the FY 2011 budget deliberations and was intimately involved in establishing the budget policy referred to by Chairman Jaczko. I do not agree the with the Chairman's assertion that his actions are consistent with the Commission's FY 2011 budget policy guidance. His continued rationalization implies that I and Commissioner Svinicki are complicit in authorizing his actions and that is clearly not the case.

Having served as NRC Chairman during several budget cycles, I believe that the continuing resolution budget guidance for the HLW program should have been handled as a Commission policy matter, with the full participation of the Commission and, most certainly, in consultation with Congress.

I have expressed my opinions in the attached open letter and appreciate your attention.

Best regards, Dale

Dale E. Klein, PhD.
Former Chairman
U.S. Nuclear Regulatory Commission

Thursday, October 28, 2010

India signs nuclear liability convention

One of the world’s oldest civilizations grapples with 21st century technology dilemmas

IAEA India signs CSCIn an effort to smooth the rough edges of a domestic law on liability of suppliers of components for nuclear reactors, India has signed an international agreement at the IAEA which set standards for compensation in the event of a nuclear accident. The Hindu reports that the agreement was signed in Vienna on the personal instructions of Indian Prime Minister Manmohan Singh.

[Photo: Indian Ambassador Mr. Dinkar Khullar signed the Convention on Supplementary Compensation for Nuclear Damage on behalf of his country at IAEA headquarters in Vienna. (Photo Credit: D. Calma/IAEA)]

In Washington, DC, U.S. Under Secretary of State William Burns said that India's signing of the CSC "was a very positive step" that will insure international standards will apply to U.S. nuclear firms doing business with India.

Like all diplomatic instruments designed to create better relationships in the area of technological trade, the Convention on Supplementary Compensations (CSC) is a work in progress. It has no legal power inside India’s borders. It has been ratified by only a few countries including the U.S.

The net effect is India is sending a signal to U.S. firms it wants them to do business there. The explosive political reality is PM Singh has no maneuvering room to change the draconian law now on the books that assigns liability to suppliers of nuclear reactor components for up to 80 years.

What’s in the international convention

In a fact sheet published by Indian wire services, the international conventions laid out by the CSC include:

  • Setting limits in liability for a nuclear plant operator
  • Setting time limits for victims to seek compensation
  • Require nuclear operators to have liability insurance or other financial security measures
  • Establish a single court for hearing claims

India US nuclear dealThe U.S. has objected to India’s liability law because it puts the emphasis on suppliers and not operators.

In the case of U.S. publicly traded firms, their stockholders would be at risk for decades after components were installed and in use at Indian reactors.

Efforts to defuse the issue have not succeeded because they have the public appearance of watering down the law. Initially, U.S. firms wanted India to delete two sections of the legislation. The Singh government rejected these demands as politically untenable.

No private investment in nuclear power stations is allowed under Indian law. All reactors supplied by American firms will be owned and operated by the Indian government or state owned corporations.

Another idea was that the Nuclear Power Corporation of India Ltd (NPCIL) would be the de facto supplier to domestic nuclear reactor projects even if components came from American firms. This would shift the burden of liability from American firms to NPCIL. Opposition groups in the Indian parliament vetoed this idea. The reason is they’ve handed Singh’s government an international embarrassment and do not want to let him escape it.

What happened to the 2008 deal?

What rankles U.S. diplomats is that in 2008 the then Bush Administration expended considerable efforts to help India convince the Nuclear Suppliers Group to end its 30-year ban on selling that country uranium for its civilian nuclear reactors. The reason for the ban is that India has not signed the Nuclear Nonproliferation Treaty.

In return, India promised U.S. firms access to its $150 billion nuclear market which will build 20-35 GWe of new reactor power stations in the next few decades. The passage of the domestic liability law, with a provision that allows operators to seek recourse to suppliers in the event of an accident, has put egg on the face of the Singh government. U.S. firms have balked at signing deals to build reactors for India with this provision in place.

To complicate matters, the quid-pro-quo was seen as a signal of an enhanced relationship between the two countries. India has in the past taken a “nonaligned” stance between East & West leveraging this status for advantage relative to both the U.S. and Russia. The nuclear deal was a symbol of change to a tilt to the West.

India needs a better relationship with the U.S.

Singh ObamaNow India wants U.S. defense technologies to replace aging Russian equipment. The U.S. isn’t ready to sell given the rigid stance of the Indian government on the liability clause.

President Obama (right) will visit India Nov 6-9 ahead of his participation in the G-20 summit in South Korea the following week. He’s expecting to announce, with Singh (left), at least two nuclear reactor deals for Westinghouse and GE-Hitachi.

The Wall Street Journal reported that a senior U.S. government official told the newspaper India still has to bring its nuclear liability regime in line with international norms to ensure U.S. firms will do business there.

There is a lot more at stake. The WSJ puts it succinctly:

“The nuclear deal wasn't just a commercial partnership but also a symbol of the close strategic ties India and the U.S. are forging after decades of Cold War-era estrangement. U.S. officials don't want the spat over nuclear liability to overshadow other areas of cooperation Mr. Obama will highlight, including combined efforts in counterterrorism, energy research and education, and growing bilateral trade that is expected to reach $50 billion next year.”

The latest possible method for resolving the liability dispute is to set up a bilateral relationship for liability matters since the CSC still has to be ratified by India’s parliament. Given its hostility to any change to the liability law, the likelihood of success for ratification of that measure is not good. A bilateral diplomatic agreement would essentially pledge the U.S. government to stand behind American nuclear firms that do business with India.

India wants U.S. defense technologies to bolster its stance against Pakistan, which it blames for a deadly terrorist attack in Mumbai. To get them it must find a way to let U.S. nuclear vendors in without setting off political turmoil.

PM Sigh and his minions will be burning the midnight oil in New Delhi as will Sec. of State Clinton to resolve the uncertainties. Obama does not want to show up in India to be insulted as he was by the International Olympic Committee last year. It will be down to the wire in New Delhi.

# # #

Cracks in wall for California’s ban on nuclear energy

The potential for nuclear energy is not lost on some of the state’s political and business leaders

vikingsFor the past three decades the State of California has banned the development of new nuclear reactors inside its borders. Green groups led by the Sierra Club have pulverized any effort to over turn the ban like Viking warriors taking a stronghold on the British isles. That powerful presence may be weakening in its influence.

Last week the State Public Utilities Commission (CPUC) agreed to hear from a group of businessmen from Fresno who want to build a new nuclear power station there to provide electricity for food processing and to reclaim water from agricultural runoff through a desalinization process.

In a speech given Oct 14 in San Francisco to the PUC, John Hutson of the Fresno Nuclear Energy Group (FNEG) said his group plans to develop two Areva 1,600 MW ERP reactors in the San Joaquin Valley.

B.B. Blevins, a former member of the California Energy Commission, told the PUC the states ban on new reactors does not apply to thermal reactors used for industrial purposes. Reactors used for desalination of waste irrigation water would fall in that category.

Hutson added that re-use of spent nuclear fuel would resolve California’s concerns about the “waste issue.” He said most advanced nations, like France, re-use their spent fuel.

More energy fewer emissions leads a path to nuclear

Meanwhile, California energy officials are facing the state’s own strict laws to prevent global warming. Two years ago the City of Los Angeles pulled out of investing in a 900 MW coal-fired plant in Utah.

State Sen Alex PadillaNuclear energy is a carbon emission free source of baseload power, a fact that is not lost on members of the legislature. State Sen. Alex Padilla (right) told a Sacramento TV station:

"There are people out there who suggest that the only way we can achieve the goals we've laid out for California is to have nuclear energy a part of our future. We shouldn't take it off the table.”

That’s pretty significant coming from a Democrat. In the past most of the pro-nuclear sentiment in the legislature came from the conservative wing of the Republican party.

Sierra Club push for renewables means more for natural gas

That doesn’t cut it with the Sierra Club which is as hard over as ever against nuclear energy. Jim Metropulos, (left) a spokesman for the group, told the TV station:

Jim Metroplus Sierra Club "We should be looking at energy efficiency, renewables and other power sources before we look at reviving the dinosaur of new nuclear plants.”

But State legislative heads nodded north and south when several experts told them “renewable sources” touted by the Sierra Club won’t keep the lights on in Los Angeles. Natural gas plants will be needed to provide baseload power and that means more, not less, greenhouse gases.

Environmental groups pile about the risks of nuclear energy, but seem sanguine about accidents involving natural gas. That may change.

On Sept 10 a natural gas pipeline explosion in San Bruno killed four people, destroyed dozens of homes. The New York Times reported the cause was failure of a 31 inch buried pipeline.

While some have talked about the near term lower prices for natural gas, other experts disagree.

According to KGO-TV, Stanford University Nobel Laureate Burt Richter, Ph.D. said:

"Nuclear generated electricity can make a contribution to this goal because it is cost effective compared to most others.”

California gets 15% of its electricity from two nuclear plants Diablo Canyon and San Onofre.

Update Oct 29, 2010

Southern California Public Radio recorded some of the testimony. A third person who spoke was Tim Leahy, a nuclear scientist at the Idaho National Laboratory (INL). You can hear the podcast online now.

# # #

Some good news in the U.S. for a change

The setback at Calvert Cliffs not the end of the nuclear renaissance. There’s a lot of good news about it.

sailing fleetDespite a very bad two weeks of sour news out of Maryland about Constellation’s Calvert Cliff’s project, there is still a lot of good news about the nuclear renaissance in the U.S.

The move to build new reactors continues to unfurl its sails and set a course to replace fossil fuels. The rest of the world, especially Asia, realize that nuclear energy is a key to reducing carbon emissions and their impact on global warming.

Constellation’s recent retreat from nuclear energy is not a symbol for setbacks in the rest of the nation. Here are some recent reports.

Duke says the future will be nuclear

Duke Energy must replace its aging fleet of coal-fired power plants with new nuclear reactors according to Christopher Fallon, VP for Nuclear Development at Duke Energy (NYSE:DUK) Speaking to the Nuclear Construction Summit held in Charlotte, NC, earlier this week.

Fallon said it is on track to build a new nuclear reactor power station near Gaffney, SC, and that it is expected to enter revenue service in 2021. He added the firm is working with Areva to assess the feasibility of building a new reactor in Piketon, OH.

greenhouse_gasesFallon said there are important reasons why Duke will keep its commitment to nuclear energy.

  • Coal has a limited future given its impact on GHG
  • There will be taxes and carbon caps on all fossil fuels
  • Solar and wind can’t meet baseload demand for electricity

“We have to modernize and decarbonize our fleet and new nuclear has to be part of that strategy.”

Still, there are challenges ahead. Congress did not pass climate legislation and natural gas prices have dropped over the past year. Electricity demand is down now, but may surge by the time a new reactor comes online in the next decade.

Despite these obstacles, Fallon said Duke is ready to start construction on the William States Lee III twin reactors without a loan guarantee. An NRC license for the project is expected in 2013.

Duke may also seek to partner with Scana on the new twin reactors to be built at the utility’s V.C. Summer Station in South Carolina. Like Duke, Scana has said it will proceed without a loan guarantee from the federal government.

Florida regulators support rates for new reactors

The Florida Public Service Commission has told Progress Energy (NYSE:PGN) that it can continue to include a portion of its billing to customers for a new nuclear power station to be built in Levy County on the sunshine state’s west coast. The project calls for twin Westinghouse 1,100 MW Westinghouse LWR reactors.

OrangesProgress spokesperson Cherie Jacobs told financial wire services the commission’s decision, “confirms the state’s commitment to state-of-the art nuclear power as a strategic asset.”

At a rate hearing last August, the anti-nuclear Southern Alliance for Clean Energy had argued against cost recovery for expenses to license and build the plant. Gary Davis, an attorney for the group, told the PSC all cost recovery should be denied because Progress had not made the case for the need for the new reactors.

The cost recovery measure that authorizes the charge in customer bills was enacted by the Florida legislature in 2006. It dramatically lowers the cost of new nuclear plants by allowing the utility to recover costs as the reactor is being built.

Otherwise, the project would have to take on huge loans with matching interest charges that would accumulate until the plant entered revenue service. Progress expects to get the NRC license for the new project in late 2012.

The construction of two new reactors at FPL’s Turkey Point location near Miami is also expected to benefit from the same type of rate ruling.

USEC gets term sheet for loan guarantee

USEC (NYSE:USU) said in a statement this week that the Department of Energy has completed its technical review of the American Centrifuge Plant to be located in southern Ohio.

Uranium-hexafluorideFrank Munger reports from the Knoxville News, and his blog Atomic City Underground, that the Dept. of Energy had informed the company that it had "largely completed" the technical review of the application for a $2 billion loan guarantee for the American Centrifuge Project.

It is expected to be built as a 3.5 million SWU gas centrifuge uranium enrichment plant.

USEC said DOE is now proceeding with the next stage of the loan guarantee program.

"DOE has provided USEC with a draft term sheet that will serve as a framework for discussions between USEC and the DOE," the company said.

GE-Hitachi inks deal for laser enrichment

The Tennessee Valley Authority (TVA) has signed a 10-year contract with GE-Hitachi (GEH) potentially worth $400 million for enriched uranium to be produced at the GEH Wilmington, NC, plant.

GEH clarified the agreement is “nonbinding” but that the two organizations have come to a meeting of minds on commercial terms.

UraniumSalesThe facility has not yet been built, but GEH has applied for an NRC license for it. Tammy Orr, the GE Executive in charge of the laser enrichment project, told a North Carolina newspaper in September the firm expects to get the NRC license by the end of 2011. She said this milestone, if achieved, will allow the firm to start construction in 2012.

The Global Laser Enrichment project is a joint venture with 51% owned by GE, 25% by Hitachi, and 24% by Cameco, a Canadian uranium mining company.

GE-Hitachi ESBWR passes safety milestone in NRC review

GE Hitachi Nuclear Energy (GEH) announced Oct 26 its 1,520 MW Economic Simplified Boiling Water Reactor (ESBWR), has passed a crucial safety review performed by an advisory committee for the U.S. Nuclear Regulatory Commission (NRC). Completion of this review clears a key hurdle in the company’s bid for design certification of the ESBWR. It sets the stage for final NRC certification by the fall of 2011.

In its October 20, 2010, letter, the NRC’s independent Advisory Committee on Reactor Safeguards (ACRS) issued its safety recommendation for the ESBWR design, which is required before a new reactor technology can achieve final certification.

“The ESBWR design is robust and there is reasonable assurance that it can be built and operated without undue risk to the health and safety of the public,” ACRS Chairman Said Abdel-Khalik wrote in the agency’s safety recommendation.

GEH and Michigan utility DTE Energy are collaborating on a potential ESBWR project adjacent to its existing Fermi 2 nuclear plant, 35 miles south of Detroit. The NRC is currently reviewing the utility’s license application for the proposed “Fermi Unit 3.” DTE Energy, which operates Detroit Edison, Michigan's largest electric utility, has not yet made a decision to proceed with construction of the new reactor.

India in talks to build six ESBWR reactors

ElephantOn the other side of the world, GE Hitachi has signed agreements in India with Tata Consulting Engineers, Nuclear Power Corporation (NPC), Bharat Heavy Electricals Ltd (BHEL) and Larsen & Toubro for involvement in India's nuclear new build.

GEH and its Indian partners will share expertise and resources with a goal to build new reactors using the GEH ESBWR.

Kishore Jayaraman, GE Energy's India Region Executive, (left) told Business Standard they've been talking to NPC for a year.

Kishore Jayaraman "There are ongoing discussions for six ESBWR units at a designated site, with a desired commercial operation date of approximately 2019 for the first unit,"

Last February GE-Hitachi announced it planned to acquire special steel components and large forged parts from Larsen & Toubro (L&T). The Hindu also reported that L&T is also in a joint venture with NPCIL to set up a nuclear components manufacturing center in Gujarat. This is also the most likely “designated site” for the six ESBWR reactors. One reason is the need for electricity by Nalco, an aluminum producer.

L&T plans to build a capability to produce ingots weighing up to 600 tons and a heavy forge shop with a world class press rivaling the one at Japan Steel Works. That competition won't come on line right away, but it will come.

GE-Hitachi executives said the deal not only helps India, but also provides export earnings. Indian companies reportedly can make nuclear components for as little as half the price of sourcing them from the U.S.

Jack Fuller, CEO, told the Hindu Feb 2, "It can be part of our supply chain for India and other markets."

Separately, this week the Indian government signed an international agreement on civil liability possibly opening its $150 billion nuclear energy market to U.S. firms. U.S. President Obama will visit India in November and hopes to announce new nuclear deals during the trip.

# # #

Small reactors roll at Savannah River

GE-Hitachi inks deal to demonstrate PRISM technology. Former ANS President Tom Sanders, an expert on SMRs, will lead an energy park project.

small reactorsThe Department of Energy lab at the Savannah River Site (SRS) has some exciting developments in the realm of small modular reactors (SMRs). It will be the new home of a project to demonstrate the technology for the GE-Hitachi 299 MW PRISM small modular reactor, sodium cooled “fast reactor.” The PRISM design generates electricity by using recycled spent nuclear fuel.

GE-Hitachi (GEH) has signed an agreement with Savannah River Nuclear Solutions (SRNS) which will support licensing and deployment of a reactor at the site.

Garry Flowers, CEO of SRNS, said in a statement the lab will collaborate with GEH “to determine the suitability of deploying a prototype Generation IV PRISM reactor at SRS.”

This is the second SMR project to be inked at SRS. Earlier this year the lab signed a similar agreement with Hyperion Power Generation to develop the technology associated with a 25 MW metal cooled fast reactor.

Sanders to lead energy park

SandersTom Sanders (right) , an expert on SMRs, will lead the development of an energy park at SRS where the SMR projects will take place. The energy park will be a center for public/private partnerships and provide science and technology support for SMRs and related projects.

Sanders is an Associate Laboratory Director at SRNS and the past president of the American Nuclear Society (ANS). Previously, Sanders was manger of an SMR initiative at Sandia National Laboratory in New Mexico. There he developed partnerships that evaluated new reactor designs, fuel cycle technologies, and safety and security measures for new reactors.

The SRS Community Reuse Organization, an economic development group, is working on a proposal to set up the energy park on a 2,700 acre site. It would support joint ventures involving nuclear fuels, energy research, and other commercial nuclear power technology development activities.

Prior coverage on this blog

  • 09/10/10 – Hyperion to build SMR at SRS
  • 06/22/10 – How to open running room for small reactors

# # #

Wednesday, October 27, 2010

EDF acquires Calvert Cliffs III

French firm must find a U.S. partner. Loan guarantee issue remains a huge barrier to success.

Golden handshakeConstellation Energy (NYSE:CEG) sold off its nuclear future to Electricite de France (EDF) Oct 26 for about $250 million. The Washington Post reported the deal is composed of two parts. EDF will pay Constellation $140 million in cash and another $110 million in Constellation’s stock (350 million shares). It looks like a golden handshake, but it’s not.

For its part, Constellation gives EDF a path forward to build a 1,600 MW Areva EPR reactor at the Calvert Cliffs site. Additionally, EDF acquires sites adjacent to two other operating nuclear reactors in upstate New York. EDF’s thinking is that if twin Indian Point reactors in Westchester County just north of New York City do not get their licenses renewed that new reactors at the Nine Mile and R.E. Ginna sites could eventually supply replacement power.

The agreement also closes out an ugly dispute between the two firms in which Constellation sought to exercise an option in its original deal with EDF to have the French firm buy 12 coal-fired power plants from Constellation “at fair market value. The original price was $2 billion, but the plants are now worth less than half that amount. Constellation insisted on the whole $2 billion primarily for the cash for future investments in natural gas power plants, and not to advance the Calvert Cliffs reactor project.

Nothing has changed regarding the cause of the original dispute. The federal government remains hostile to issuing a loan guarantee for the $8 billion project. Additionally, EDF cannot proceed alone with the construction and operation of the new reactor at Calvert Cliffs. It must seek a U.S. partner due to U.S. laws that limit the role of foreign investors in U.S. nuclear reactors.

Potential partners for EDF

partnershipsThe most likely path forward for EDF to acquire a U.S. partner is to put together a consortium of utilities each of which would buy a slice of the project, rather than a 51% share.

Exelon (NYSE:EXC) is a potential partner as it has been repeatedly frustrated in its efforts to either build or acquire new nuclear generating assets.

The firm mothballed its Victoria, TX, project last March filing an Early Site Permit with a shelf life of 20 years. In 2009 Exelon tried and failed to acquire NRG (NYSE:NRG) and its South Texas Project with a low-balled all stock hostile takeover. NRG’s major investors rejected the deal.

In the near term, Exelon has opted for a series of uprates in the capabilities of its current fleet of reactors. The equivalent power boost will be equal to an entirely new reactor without the risk of actually building one.

Another potential partner is Duke Energy (NYSE:DUK) which recently pushed back on plans to develop a new reactor power station in North Carolina. That utility is reportedly seeking to invest in a slice of Scana's V.C. Summer Station, a twin Westinghouse 1,100 MW AP1000 reactor project. Scana says that while it has applied for a loan guarantee, and made the short list, it doesn't need one in the regulated rate state of South Carolina.

A less likely partner for Calvert Cliffs is Entergy (NYSE:ETR) which halted work on four new reactors in 2008 in Mississippi and Louisiana. It has a lot of troubles in its plate which could distract its management from pursuit of new reactor investments.

Press reports in Vermont indicate Entergy may sell the troubled Vermont Yankee project due to political opposition to license renewal in the state legislature. The firm lost ground in 2010 in terms of public confidence over miscommunications about leaks at the plant.

In New York Entergy’s Indian Point site is facing major challenges to license renewal. The State of New York is overtly hostile to license renewal of the twin reactors. The state’s environmental agency is seeking to impose cooling towers on the plant which Energy says is ruinously expense and will force them plant to shut down. Also, the state’s utility regulatory agency refused to approve a financial plan proposed by Entergy to spin off six of its merchant reactors into a new business unit.

Is EDF stretched too thin?

stretched thin financiallyEDF is building a new Areva reactor in Flamanville, France, which is running late being over budget and behind schedule. It is seeking to build four new reactors in the U.K

Assuming the average cost of these new reactors is $4,000/Kw, the total capital requirements are $20 billion. What risk premium would the U.S. government put on a company with that kind of financial stretch?

EDF is a French state-owned corporation, but even the government’s pockets have limits. For instance, the French government is pursuing the sale of 15% of the equity of Areva to raise capital for its worldwide expansion which includes a new reactor in Finland, four in the U.K., two in China, and two more, with options for four additional units, for India.

Politics v. economics

cluelessIn the few days remaining prior to the Nov 2 election, politicians in Maryland put a happy face on the news that Constellation and EDF had a financial deal. The Baltimore Sun reported that there has been a conga line of Maryland Democrats snaking through the White House trying to convince key aides to support the project.

The Obama White House, which appears to be tone deaf on the Calvert Cliffs issue, may yet miss another opportunity to promote the project by saying nothing about the new deal or the potential for a revised, and more feasible risk premium for the Calvert Cliffs project.

The reason for continued White House silence is that it is possible a whole new round of due diligence and review will be needed to issue a loan guarantee for Calvert Cliffs, and this will only come after EDF has new partners on board to help finance the project. The Department of Energy might decide that that EDF will need to submit an entirely new application which opens Constellation’s slot on the current short list to 5th runner up Luminant and its plans for twin 1,700 MW Mitsubishi APWRs at Comanche Peak in Texas.

As much as this blog supports the nuclear renaissance, it makes no sense to hold one’s breath while waiting for progress on the banks of the Chesapeake Bay. Maybe next year?

# # #