Thursday, March 3, 2011

U.S. new reactor plans snap, crackle, & pop

Progress noted in Texas and Virginia

rice-krispiesThe nuclear renaissance in the U.S. had some tough going in 2010. The low point of the year was Constellation's decision to walk away from the Calvert Cliffs III reactor project over a dispute with the federal government about loan guarantees.

The project may be turning around and there is more good news to report in Texas and Virginia. That said anti-nuclear groups are as active as ever engaging the U.S. Nuclear Regulatory Commission (NRC) in a seemingly endless stream of contentions over licensing issues.

NRG snaps across environmental finish line

NRG Energy (NYSE:NRG) got a boost this week with an announcement from the NRC that it had found no environmental problems that would prevent it from issuing a license for two new 1,350 MW ABWR reactors at the South Texas Project (STP).

The NRC said in publishing of the final EIS is only part of the overall South Texas Project licensing review. The agency staff continues to compile its final safety evaluation report (SER), which will include recommendations from the NRC’s Advisory Committee on Reactor Safeguards, an independent group of nuclear safety experts. The NRC’s final licensing decision will be based on the FEIS and SER findings, along with a ruling from the five-member Commission that heads the agency.

Reuters reports that NRG spokesman David Knox said, "it is a very important and positive step in the permitting process and one that shows the strength of the application."

raising_capitalHowever, Knox went a bit further perhaps sowing some confusion about the status of the utility's application for a federal loan guarantee. He said, ""We are very pleased that the loan guarantee application for STP 3 and 4 has passed an important milestone in that it is now in the interagency approval process."

This does not mean NRG has what is called a "conditional commitment" from the Department of Energy (DOE). What it does mean is that DOE and the Office of Management & Budget are now ready to review DOE's due diligence on the loan application and determining the credit risk premium, which is the fee NRG would have to pay for the loan guarantee.

If the fee is too high, which was the case in Maryland with Calvert Cliffs III, then NRG and its investors might be faced with unacceptable costs. NRG has lined up Tokyo Electric Power (TEPCO) for $125 million contingent on getting the conditional loan guarantee. Also, the Japanese Export Bank is offering credits for the construction project because it involves two Japanese firms – Toshiba and Hitachi.

Making the case for a merchant

The challenge for NRG is to make the case that as a merchant operator, in a deregulated electricity market, it can line up other investors and customers for the plant's electricity.

Reuters reported that last month, NRG Chairman David Crane told analysts that negotiating long-term power purchase agreements remains "a challenge" while the loan guarantee application is pending. CPS Energy in San Antonio reduced its investment profile from 40% of the project to 8% and the City of Austin, TX, pulled out completely. Both city municipal utilities will be customers.

Typically, investors are much more interested in showing up once the utility developing the reactor has the NRC license and the loan guarantee.

The problem for the Obama administration is that having driven off Constellation over the credit risk premium, said to have been 11-12% of $ 8 billion, or $960 million, now faces a similar dilemma with another merchant project.

Credit risk or diplomatic incident?

eiffel-tower Even worse for the White House, the need for EDF to regroup with the Calvert Cliffs Project has undoubtedly annoyed the French government. EDF, which is to build the facility, is a state-owned enterprise. Also, Areva, which is slated to provide the 1,600 MW EPR reactor, is also owned by the French government.

Taken together it follows that OMB didn't just send Constellation packing, it may have also created an international diplomatic incident.

That could happen again if the green eye shaded staff in the Old Executive Office building decide the credit risk premium for NRG's loan guarantee on STP needs to be higher than the utility is willing to pay. Now NRG's investors, which include several heavyweight chunks of the Japanese government, are going to be more than a little annoyed.

The question for the Obama administration, and Congress, which wrote the law setting up the credit risk process, is how many friendly international allies does the U.S. want to annoy before it goes back to the drawing board? New legislation to change the federal funding role for nuclear reactors might be preferable to chasing away investors who are willing to share the risks.

While the diplomatic issues might not cut much mustard with OMB, hopefully someone at the White House is thinking about them. France and Japan have deep pockets and have already shown they want to invest in the U.S. nuclear renaissance. It would be a mistake to chase them off.

Comanche Peak contentions set aside

comanche peakThe NRC's Atomic Safety & Licensing Board has dismissed contentions by opponents who raised nearly two dozen safety and environmental objections to Luminant's plans to build two 1,700 Mitsubishi APWR reactors at the Comanche Peak site.

The panel had previously dismissed 18 of 19 contentions and has now disposed of the last which was related to the potential for a severe radiological accident. Anti-nuclear groups called the ruling "hair splitting," and vowed to continue efforts to get solar and wind projects built in place of the twin reactors.

Victor Dricks, a spokesman for the NRC, told the Ft. Worth Star Telegram that a hearing and decision on a license for the Comanche Peak new build are expected in 2013.

Dominion sticks to its guns in Virginia

stick to your guns Dominion Resources, which wants to build a third reactor at its North Anna site in Virginia, says it will continue to develop the project despite one investor withdrawing from it. Old Dominion Electric Coop, which owns 11.6% of the two operating reactors, said investment in the third does not fit its long term business plans.

Dominion told wire services it expects to get a license from the NRC for the third reactor in 2013. Anti-nuclear groups are trying to stop the project saying wind and solar projects should be built instead of the reactor. Dominion's CEO Thomas Farrell said in a statement if the reactor isn't built, it will have to go with coal or gas to meet Virginia's growing energy needs.

Dominion at one time had selected the GE-Hitachi ESBWR reactor as the reference design for its license application. However, in 2010 the utility changed its mind and is now working with Japanese giant Mitsubishi on is APWR reactor. That reactor is now undergoing design certification at the NRC. The NRC review of the APWR is expected to be complete in mid-2012 according to a progress chart on the agency's web site.

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