Japan crisis could affect some U.S. new build

There are no tsunamis in Texas but that’s where the impact could be felt first

This is my coverage for Fuel Cycle Week for March 17, 2011, V10:N416 published by International Nuclear Associates, Washington, DC. It has been updated to reflect breaking news.

The nuclear crisis in Japan has sparked questions about the construction of nuclear plants in the U.S. Unlike energy-starved developing nations like China and India, which have national imperatives to build new reactors, the U.S. currently has an abundance of coal and natural gas to keep its economy going for hundreds of years.

Data from the U.S. Energy Information Administration also shows that even if the U.S. builds more nuclear power plants, use of coal for electricity generation will increase significantly over the next 25 years.

That is, of course, if you assume the other national imperative to reduce greenhouse gases, can safely be ignored for that period of time and that green politics will not force other, less-effective energy choices on utilities.

On March 14, 2011, White House spokesman Jim Carney said President Obama continues to support nuclear energy and that the administration would incorporate lessons learned from Japan into U.S. regulation.

In budget hearings before two committees of the House this March 16, 2011, Energy Secretary Steven Chu also testified that the Obama Administration believed the U.S. must “rely on a diverse set of energy sources, including…nuclear power.” His budget request included up to $36 billion in loan guarantee authority for nuclear reactors.

Still, some anti-nuclear House Democrats, including Rep. Henry Waxman of California and Rep. Ed Markey of Massachusetts, demanded a freeze on all new nuclear reactor construction, plus a rescission of NRC’s recent decision to re-license Entergy’s Vermont Yankee reactor. On March 21, 2011, the agency formally issued the license extension despites congressional angst.

But Energy & Commerce Committee Chairman Fred Upton (R-Mich.) said he was not going to allow any nuclear new-build witch-hunts based on events in Japan. Sen. Lamar Alexander (R-Tenn.) defended the safety record of the U.S. fleet and suggested that despite the current crisis, Japan will remain a leader in nuclear technology, while the U.S. has fallen behind.

Advantage for passive safety reactor designs

FCW understands, however, that from a commercial perspective, the troubles in Japan’s antiquated reactors at the Fukushima site might make a compelling case for use of Generation III reactors, such as the Westinghouse AP1000 and GE-Hitachi’s ESBWR, which have built-in passive-safety features.

“The situation in Japan relative to the new build in the U.S., will have a positive effect for the AP1000 and ESBWR,” a retired utility executive told FCW. “Their passive safety measures will be seen as having more value.” The executive said the AREVA EPR, which relies on emergency diesel generators, might not fare as well in the new, super safety conscious market.

But AREVA spokesman Jarrett Adams told FCW that the EPR could handle blackouts.

“The EPR has quadruple diesel generators, and any one of them can power the entire plant. They are protected in a separate concrete bunker, each with its own fuel supply,” said Adams.

Lynchpin to Come Undone?

Intense speculation has arisen in Texas about whether NRG’s two proposed Japanese (Toshiba/Hitachi) reactors face new financial woes due to the situation in Japan. The utility executive told FCW that Japan’s Export Bank might have to reallocate funds formerly set aside for loans and loan guarantees, to rebuild infrastructure at home. Because the two reactors were sourced in Japan, NRG had planned to obtain a loan for their construction.

A bigger concern is that Tokyo Electric Power (TEPCO), which owns and operates the stricken reactor complex at Fukushima, was an early investor in the South Texas Project. But its investment is contingent on NRG’s ability to win a loan guarantee from the U.S. Department of Energy.

But now TEPCO is struggling to deal with its damaged reactor complex, and will soon need to replace lost generating capacity. That may make it hard for the utility to keep its $275 million commitment. On March 22, 2011, TEPCO said it might need as much as $25 billion from Japanese banks to rebuild the electric generation capacity destroyed at Fukushima.

Even if TEPCO is able to use units 5 and 6 again, the cost of replacing the power lost from the seawater cooled units 1, 2 and 3, which are unlikely to ever run again, could eat into TEPCO’s cash reserves. The six reactors together supplied about 10% of Japan’s nuclear generated electricity. (4,246 MW out of 43,361 MW or about 10%)

The Economist reported on Tuesday that Japan’s government could be stretched thin in the reconstruction effort, noting, “Japanese sovereign debt is in a league all its own. Its gross debt- to-GDP ratio may reach 228% this year—more than twice the ratio in America.”

In Japan individual savers hold a lot of that debt, and as they withdraw it to rebuild their homes and businesses, it could put a cash squeeze on the government. That could make it hard to extend government support to TEPCO’s reconstruction efforts, leaving the utility to fend for itself.

In short, Japanese institutions have served as the financial lynchpin for NRG’s project. In seeking a government loan guarantee NRG was counting on the bona fides of these organizations to help it meet the stringent criteria of DOE’s due diligence process, especially in regard to independent, unregulated merchant generators.

But the vastly changed financial scenario in Japan may undermine NRG’s effort to secure the loan guarantee. Without it NRG officials have said the company would not proceed with the $10 billion project.

Disaster Stalls Contract Negotiation

In another blow to the South Texas Project, CPS Energy, a San Antonio utility, suspended contract negotiations to buy power from the planned reactor. Officials from both companies said they needed to halt discussions to assess the impact of Japan’s nuclear crisis on U.S. new build.

“We need to have a better idea of what’s going on,” CPS spokesman Lisa Lewis said in a statement.

Barclays told Reuters on March 14, 2011, that should NRG decide not to build the twin reactors at STP, they could in the short term write off their expenses, plus gain a long-term benefit of a better overall strategy for the company. Moody’s agreed, noting that removing the uncertainty of massive cost overruns related to construction of the two reactors would stabilize investor confidence in the company.

NRG said in a statement that it would not engage in “speculation” about the project based on the crisis in Japan.

Some U.S. Projects to Proceed

Not all the news is bad. The Nuclear Energy Institute (NEI), the industry’s trade organization, asserted that U.S. plants are safe and that the crisis in Japan is not expected to affect U.S. nuclear expansion.

Tony Pietrangelo, the chief nuclear officer at NEI, said in an interview with investor groups in New York March 14, 2011, that most U.S. new construction will be in the southeast, which has few if any active faults and no history of devastating seismic events.

The two U.S. projects most certain to reach the finish line at present are the Southern Company’s two planned Westinghouse AP1000s at its Vogtle site and SCANA’s two planned AP1000 units at its V.C. Summer power plant. Neither is near a coastline. TVA’s reactor completion projects at Watts Bar and Bellefonte sites are also inland.

“New construction will be unaffected by this given where the plants are located,” Pietrangelo told investors.

Plus, since September 11, 2001 NRC regulations require older plants to prepare more thoroughly for emergencies. For example, they now need more emergency equipment to manage cooling of shut-down reactors under blackout conditions.

In a company statement it issued on March 14, 2011,, Southern Company noted, “We do not anticipate that events in Japan will impact our constructions schedule or our ability to stay on budget.”

In a public webcast on March 15, 2011,, SCANA officials stressed that the AP1000 is a Pressurized Water Reactor, which, unlike the Boiling Water Reactors at Fukushima, do not require outside electricity for cooling down the core.

SCANA President and COO Kevin Marsh said, “[W]e remain committed to the construction of two additional nuclear units [at V.C. Summer].”

Mitsubishi Reactor Review Delayed

In a separate development, the U.S. Nuclear Regulatory Commission announced last week that it had postponed the license applications of Luminant and Dominion for new Mitsubishi Advanced Boiling Water Reactors.

Luminant plans to build two 1,700 MWe Mitsubishi APWR reactors and Dominion plans to build at least one 1,500 MWe version of the same design.

The NRC received Mitsubishi's application in December 2007. It "docketed" the application in 2008. Because the company had since made changes to the plan, NRC said it needs to do more review of the application. Seismic analysis is expected to be part of it.

That pushes back the beginning of a safety review of Luminant’s Comanche Peak project to June 2013, and of Dominion’s North Anna project to July 2013.

A nuclear energy utility executive familiar with the license applications of both utilities told FCW the delay might not matter much to either utility. Neither, apparently, is in any hurry to build a new reactor.

China Takes a Breather

In a dramatic reversal, China’s State Council announced on Wednesday that it had suspended the approval of nuclear projects until it could revise safety rules. The government said it took the action in light of the developments at Japan’s Fukushima nuclear plant.

The State Council, chaired by Chinese Premier Wen Jiabao, also said the government would do safety reviews at current nuclear facilities and those under construction. Many of China’s 9 GWe of nuclear power plants are Generation II designs.

The government has offered no indication, however, that it would halt its planned nuclear expansion in accordance with its most recent Five Year Plan, published earlier this month.

According to the Financial Times, the statement was probably aimed at reassuring an alarmed public that its nuclear program was producing safe facilities.

The report also cited industry observers who thought China’s Generation II CPR1000 reactors were the most likely to see the effects of new reviews.

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